3 Oct 2013

Infant formula market to China decimated - exporter

5:57 pm on 3 October 2013

Five weeks on from Fonterra's botulism scare infant formula exporters say the $250 million market to China has been virtually wiped out.

This comes as the French company Danone seeks full compensation from Fonterra over the debacle because it had to recall tens of thousand of tins of formula as a precaution.

New Zealand baby formula exports to China had been growing at a rate of 20% a year with projections of it becoming a half billion dollar market in three years time.

But the industry say that has all changed since the scare, with many small to medium companies having their orders halved and several others having them cancelled altogether.

And the scare has hurt larger exporters as well, with the Auckland-based GMP Pharmaceuticals, saying it's losing $1.5 million dollars in sales a month.

Its general manager Minesh Patel says production has halved from 300,000 cans a month before the false alarm.

Mr Patel says his company will be able to survive the fallout from the scare but it's proving a lot harder for smaller exporters like Chris Claridge, whose company Carrickmore has had its orders halved.

Mr Claridge says about a third of his customers changed to another brand after a recall was ordered.

He says rebuilding faith with consumers is key, but believes compensation is also something to consider.

French firm seeks full damages from Fonterra

Fonterra confirmed on Wednesday that it was in talks to resolve issues from the recall of Danone products in August.

Danone-owned brands were affected in the contamination scare and the company says its milk formula products were taken off the shelves in many Asian countries, including China, Malaysia and Singapore, as well as in New Zealand.

In a statement, Danone, which is the parent company of Nutricia, says it has determined it should be fully compensated for damages caused by the recall on eight markets.

It says it is working to determine the causes of the situation and clarify responsibilities.

Fonterra says discussions are continuing between the companies, but it strongly denies any legal liability to Danone in relation to the recall.

Uphill battle

The Infant Formula Exporters Association says it is not ruling out seeking compensation for the loss of its market in China following the whey contamination scare.

The group representing about 25 New Zealand companies sent a delegation to China last week to try to salvage its reputation.

Chair Michael Barnett says his members are still facing an uphill battle in China. It appears almost all New Zealand baby formula exports to China have ceased.

"The unfortunate thing that I did see while I was in China was some New Zealand-branded product actually being dumped by distributors who knew that they couldn't get continuity of product," he says.

Mr Barnett says the clear message he received in China was that the problem would go away eventually, but that it will take a long time to restore this country's reputation.

He says the focus at the moment is on rebuilding markets and not asking for compensation.

Call for submissions

The Government is seeking public submissions for its inquiry into the whey protein contamination scare.

The government investigation is one of three inquiries running. Fonterra has a board level inquiry and the Primary Industries Ministry is covering compliance.

The Government is accepting written submissions on the first stage of its inquiry until 14 October.

The initial stage reviews the regulatory framework governing food safety in the dairy industry and New Zealand practices, and compares them with other countries.

The second stage will investigate the contamination incident that originated at Fonterra's Hautapu plant in 2012 and developed this year.

However, inquiry chair Miriam Dean says that won't start until the ministry finishes its investigation.