A botulism scare has soured China’s taste for New Zealand milk powder that amassed big sales on a reputation for purity, but consumers even more wary of their own country’s dairy industry is likely not to eschew the foreign product for long.

China’s dairy business has long been beset by quality lapses and criminal scams, the most infamous in 2008 when six babies died and hundreds of thousands were sickened by infant formula contaminated with a chemical added to mask that the product had been watered down.

The current food scare created by New Zealand’s largest company, Fonterra, stems from a dirty pipe in one of its plants last year, which led to a contamination of whey protein concentrate that could cause botulism.

While this has worried Chinese consumers who have been willing to pay a premium for foreign brands which they believe are safer, school teacher Zhu Danyan said the current case is different from what happened in 2008.

“In this case, the producer did not mean to hurt babies. They made a mistake in their work,” she said. The earlier scandal in China was “more serious and unforgivable,” Zhu said. “They knew what they are doing. They just wanted to make money.”

While angry at Fonterra for taking several months to identify the contamination problem, Zhu said she wouldn’t switch to Chinese milk for her 6-week-old baby. “I just have no sense of confidence in Chinese milk.”

Fonterra, the world’s largest dairy exporter, announced on Saturday that hundreds of tons of infant formula, sports drinks and other products sold in seven countries could be tainted. The scare prompted China and Russia to stop importing some Fonterra products, according to New Zealand officials and the company.

China’s General Administration of Quality Supervision, Inspection and Quarantine ordered officials to “step up supervision” of dairy products from New Zealand. On Tuesday, Sri Lanka’s health ministry ordered all milk products imported from New Zealand stopped at ports and the withdrawal of whey protein products from supermarkets as a precaution.

China’s state media have jumped on the scare, saying “even famous foreign brands can’t always be reliable.” “Some Chinese consumers have expected ‘absolute safety’ of foreign brands,” wrote the People’s Daily, the mouthpiece of the ruling Communist Party, on Tuesday.

Fonterra has stressed there have been no reports of anyone being sickened and that it has been open in dealing with the contamination.

“We decided to be fully transparent with the market and to go out straight after we found it on the 31st of July although we did not have all the answers available at that time,” Fonterra’s chief executive Theo Spierings told a news conference Monday in Beijing, where he also apologized for any distress caused.

China’s thirst for quality milk made it New Zealand’s top export market for the first time in the first quarter of this year, overtaking Australia which had long been its neighbour’s biggest market. China slipped back behind Australia in the second quarter, the offseason for dairy products. New Zealand’s dairy exports were worth $13.4 billion in the year to June 2013. Of that, dairy trade to China was worth $3.17 billion.

While there may be a short-term decline in sales of milk products with New Zealand ingredients, “the market will ultimately recover,” said David Mahon, managing director of Mahon China Investment Management, a Beijing research and investment advisory firm.

Some parents may take comfort that no one was sickened and “at least there was an act of transparency here,” he said. “Frankly some will have no choice but to go back to the brand they have been using because a Chinese brand in their minds may not be a better alternative, but if there are other brands, a Dutch brand, a South Korean brand, and they can secure it, they will.”

Since the 2008 formula scandal, China’s milk testing standards have begun to improve and domestic companies that produce infant formula are increasingly required to become accountable for the entire supply chain, said Mahon. A dairy farmer and a milk salesman were executed and 19 other people were jailed for their role in adding melamine, an industrial chemical, to diluted dairy products to make protein counts appear normal.

Market share

Foreign brands’ market share was 30 percent in 2008 and more than 50 percent in 2012, while it was 70 percent in the high-end milk powder market, according to a domestic media report citing the China Chamber of Commerce of Foodstuffs and Native Produce.

In March, Hong Kong’s government enacted measures to restrict the amount of baby formula individuals could take out of the city to two cans after supermarket shelves were emptied by mainland Chinese visitors. Even retailers in Britain and Germany and elsewhere in Europe limited purchases of baby formula earlier this year to prevent customers from bulk-buying and exporting it to China for profit.

DPA adds:

New Zealand’s government named a ministerial response team on Tuesday to deal with a crisis resulting from possible contamination of dairy products from whey exported by the Fonterra company.

Whey processed during May 2012 was identified as being exposed to bacteria which causes botulism. It had been exported to customers in China, Australia, Malaysia, Saudi Arabia, Thailand and Vietnam and used in baby formula.

“The Ministry for Primary Industries has had staff in Fonterra’s Hautapu plant, the site of the contamination, conducting testing and also staff in Nutricia’s offices assisting with the tracking of infant formula product that may contain the contaminated whey protein,” Prime Minister John Key told parliament.

“It has also put officials into Fonterra’s data centres, with its agreement, to assist in getting absolute clarity on the situation.” Mr. Key said the response from international markets had been measured.

“China has suspended imports of Fonterra produced whey powder and dairy base powder from New Zealand and Australia and increased inspection and supervision at the border for New Zealand dairy products. However it has not stopped imports of our two biggest exports, whole milk powder and skim milk powder at this stage,” he said.

Gary Romano, managing director of Fonterra subsidiary NZ Milk Products, said the company would conduct an internal review that would likely be overseen by the government.

Mr. Key criticized Fonterra for its slowness in alerting people to the contamination after a product tested positive for clostridium bacteria - most strains of which are harmless - in March.

“That time line will be subject to our own internal review and our expectation is that the Ministry for Primary Industries will have oversight of that review. It is premature to ask about which tests were done when and why.” Romano said it was very rare to find the botulism-causing bacteria in dairy products.

“Worldwide since 1950 we can see maybe 10 cases where there are some links to dairy. This is across 800 billion litres of milk that are processed in the world every year,” he said.

“It is one of the reasons we were very surprised with the result. What we do need to do is to go back and understand what has actually happened to cause it.” The company said there have been no reports of illness linked to the contaminated whey product.

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