WELLINGTON (Reuters) - New Zealand co-operative Fonterra, the world's biggest dairy exporter, said on Wednesday that a contamination scare in some of its exported products was caused by human error, and all tainted stocks had now been taken out of the market.
CEO Theo Spierings, seeking to reassure customers and worried parents who feed their infants with formula milk made from the company's whey protein concentrate, said there was now little or no risk to consumers.
New Zealand, which depends on the dairy industry for a quarter of its total exports, has been gripped by worries that a raft of recalls for infant formula in China, a major market, and other countries could snowball into a slump in demand or even bans for other dairy products.
Fonterra said at the weekend it had discovered whey protein products that contained a bacteria that can cause botulism. It said previously its tests had found the contamination in a dirty pipe at one of its plants. No injuries have been reported due to the contamination.
Spierings, who rushed to China at the weekend to apologize for the scare and try to win back customer confidence, said the situation there was stable. "I said at a press conference in China that I would not leave before the situation was stable from the perspective of markets, consumers, customers and global authorities," he told reporters at the company's headquarters in Auckland. "We had all those discussions yesterday, and I decided late last night that the situation is stable."
Asked if he would resign over the company's handling of the scare, Spierings said: "It's not up to me to answer, that's up to the board."
Finance Minister Bill English told parliament earlier that the scare did not appear to have had much impact on the economy, but would need careful handling if Fonterra and New Zealand were to continue to benefit from high commodity prices.
"The indications are that, providing the issue of the potential contamination is handled effectively and transparently, the direct impact on the New Zealand economy can be contained," he said.
But Trade Minister Tim Groser said New Zealand had a lot of work to do to regain trust among global customers. "The market is being very measured in its reaction, in the same way that Chinese authorities have been very measured in their actions," he told Radio New Zealand. "Having said all those positives, let's agree that we're not out of the woods here, this problem is not now settled in any sense of the word."
David Mahon, Managing Director of Mahon China Investment Management, a China-based New Zealand consultancy, also said New Zealand had to work hard to regain international confidence, even after Fonterra had gone public about the contamination issue. "The fact they did it the way they did it has caused damage which needs to be repaired. I think there are many many weeks and months where New Zealand has to repair the perception of the integrity of its clean, green image, it's claim of being '100 percent pure'. Perhaps we can re-brand ourselves as being '99 percent pure'," he told Reuters Television.
At the first international auction of its dairy products since news of the contamination - which didn't include those products connected with the scare - prices slipped 2.4 percent but stayed near their recent high levels on the back of strong demand from growing middle classes in emerging economies.
Fonterra's fortnightly auction, the biggest wholesale marketplace for milk powders and dairy produce, saw a near doubling in volumes made available. Economists said the sale suggested customers would continue to pay a premium for New Zealand dairy products.
"It does not seem that the contamination issue is evolving into a serious negative for the wider economy," Westpac economist Nathan Penny said in a note to clients. "The world is still paying high prices for most New Zealand products."
U.S. dairy futures fell on Tuesday, reversing recent gains, as traders unwound speculative bets that China may shun some dairy products from New Zealand, and instead buy from other countries, including the United States.
One country hoping to gain is India, the world's biggest milk producer, which sees its skimmed milk powder exports jumping more than 50 percent in 2013/14 helped by a weak rupee and Chinese restrictions on some New Zealand products.
"We don't have such problems. This is a very good opportunity for India. Definitely our exports will rise this year and in the coming years," R.S. Sodhi, managing director of the Gujarat Milk Marketing Co-operative Federation, India's leading milk product exporter, told Reuters.
India traditionally keeps most of its milk products at home to meet rising domestic consumption and as the government tries to keep a lid on local prices. Skimmed milk powder exports this year are likely to increase to 100,000 tons, Sodhi said.
Separately, Fonterra said it was fined NZ$900,000 ($705,000) by China's top economic planning agency after a review of pricing practices for consumer dairy products in mainland China. Five other companies were also penalized.
($1 = 1.2663 New Zealand dollars)
Additional reporting by Max Duncan in Shanghai and Rajendra Jadhav in Mumbai; Editing by Ian Geoghegan