NZ milk formula exporter says industry in crisis mode after DCD scare prompts Chinese claims that NZ milk is 'toxic' and 'poisonous'

By Bernard Hickey

New Zealand milk powder exports to China are in disarray and exporters are in damage control mode after publicity around the discovery of traces of DCD in milk powder has blown up into full scale crisis, one exporter said after issuing a profit warning to the stock exchange.

New Image Chairman Graeme Clegg, who is making a takeover bid for the shares in New Image he doesn't already own, told Interest.co.nz the government and the dairy industry had handled the release of the information poorly, leaving exporters to scramble in response to the concerns of frantic and worried customers.

"Our Taiwan company had over a 1000 phone calls on the Friday, overloaded with fear," Clegg said.

"In China with our infant formula there's been a huge overload of concern," he said. "In China there are TV programmes and advertisements virtually saying NZ milk is poisonous for infant formula," he said, pointing out Chinese competitors were spreading exaggeration to win back market share.

"They were hurt badly because imported products have taken over a large slice of the market and this was their opportunity to fight back with whatever propaganda they felt would do the job -- fair or not -- it hasn't worried them in China. There are a lot of concerned monthers," he said.

"In Malaysia we've had a terrible lot of trouble. Poeple thinking some of our other products might be contaminated or poisonous that don''t even have dairy in them.

Clegg was particularly critical of the lack of warning from the government, saying exporters only needed a few days to test their products so they could demonstrate to customers beyond doubt that their products were safe.

"We've had no opportunity to prepare or defend ourselves with the way it has been uncovered. One wonders after years of experience that not only the government or the industry would have been far better prepared," he said.

Clegg effectively controls just under 70% of New Image's shares. His New Image Trustee Ltd has bid 26 cents per share for the rest of the company. The shares were last at 27c.

'Melamine = DCD'

Clegg said one of the major challenges for New Zealand in China was that the Chinese symbols for melamine and DCD are very similar.

In China there is a link between the two. That should have been a warning to all exporters that could have been at risk so they could have been prepared.

"We could have had products tested. There was plenty of time before announcements made. All exporters could simultaneously have gone to their clients and said: 'look 'this is a responsible issue, one that is not a food safety concern and New Zealanders are continuing to show the way, that we test everything, and that even though it's a minor issue, we're still stopping the use of certain practices that could affect our reputation," Clegg said.

"Any PR person could have done a much better job," he said.

"Every inflant formula manufacturer will be in crisis and damage control mode, just as we are. Phones have been red hot, emails have been coming in."

Clegg said a big part of the problem was there was no single source of information to distribute to customers.

"There was not one press release that did the whole job. We ended up sending 7 or 8 different press releases to put people's minds at ease," he said, adding the only way New Image was able to reassure customers was to prove through tests there was no traces of DCD.

'Could not have been any worse'

Clegg said exporters were now getting tests done in export markets and in New Zealand, but there were now backlogs.

"For goodness sake, they should have consulted and advised the industry. Maybe they feared there would be a leak, but it couldn't have been done worse than what it has," he said.

"They totally underestimated the likely response and it's mainly it's in China with many people in the Chinese milk industry with glee making the most out of this because of the poor way it's been handled. They could not have done that if we had made it clear how insignificant the amounts were and everybody understood fully there was no risk involved," he said.

"Because we're slow on that there's a link now that says it's as bad as Melamine. It's affected the country's reputation. (Chinese competitors are saying) that NZ milk is toxic and they're grabbing as many customers as they can over it."

'Poor government preparation'

Clegg said he had heard there was now a risk of massive recalls in China and elsewhere. He pointed out Chinese officials had now placed a complete ban on any imports with any traces of DCD.

"If any New Zealand product goes into China with a trace, they (the exporter) are dead."

"A couple of days work with experts in authority beforehand surely could have picked this up. I'm upset about it and I feel we've been let down," adding that government to government discussions could have stopped the 'zero tolerance' rule before it was put in place.

"When there's concern in the public, they stop, and when people stop, business is lost, market share is lost and brands lose because of doubts."

Key responds

Prime Minister John Key told a news conference he had not been advised that trade had stopped because of concerns about DCD, saying if there had been a bigger problem then the New Zealand dollar and Fonterra's unit price would have been affected more heavily. He said any consumer would have to drink a swimming pool sized quantity to have had any effects.

"The government has accepted that there are no health issues from the traces of DCD detected. There are always risks when there is any kind of notificiantion because people can extrapolate that information," he said.

He rejected that the government had not been working with Chinese officials, saying Trade Minister Tim Groser had been across the issue.

Key said the first he knew of the notification that traces had been found was January 18th, while the Ministry for Primary Industries was notified at the end of October.

Other point of view

Another infant formula exporter, Carrickmore MD Chris Claridge, said the news hadn't appeared to have affected sales yet.

"The Ministry of Primary Industries and Fonterra have handled as well as they could," he said.

(Updated with details from PM John Key and Carrickmore MD, plus Clegg's takeover bid).