Infant formula has not been too far away from the headlines this year – and, over the weekend, the sector again found itself dominating business bulletins around the world.
Fonterra, the world’s largest dairy exporter, is at the centre of a botulism scare after it confirmed an ingredient used in infant formula contained bacteria that could cause the illness.
The whey protein was shipped to customers in New Zealand and international markets including China, Malaysia, Thailand, Vietnam and Saudi Arabia.
The New Zealand dairy giant has said none of its branded products have been affected. However, the company announced eight customers had received the contaminated batch of whey protein concentrate. At the time of writing, Fonterra has insisted there are no known cases of illness from the contamination.
Nevertheless, the affair has shaken New Zealand. Prime Minister John Key has questioned the way the country’s largest company went about communicating the contamination. The New Zealand dollar fell as the market reacted to news China, a key market for Fonterra (and therefore for New Zealand) and one where demand for dairy and infant formula products is booming, has issued a ban on some of the group’s products.
The ingredient has been used in products other than infant formula. Coca-Cola has recalled cases of its Minute Maid dairy drink made in China, while insisting the products are safe.
That said, much of the attention is on infant formula and the impact the contamination could have on the sector. Danone has issued a recall of some formula products in New Zealand. There have been reports some of Danone’s products in China could also be affected.
Shares in Danone fell this morning, affected not just by the recall but also amid fears the Chinese ban on some Fonterra products could push up already high milk powder prices. Meanwhile, shares in Chinese companies that do not source from Fonterra, like Biostime International Holdings, jumped.
Chinese infant formula companies have found themselves under scrutiny in recent years after a series of scandals. Foreign multinationals have benefited. However, the spotlight has now turned on a major overseas supplier and its customers, which will only stoke consumer anxiety in China further.
Could China’s restrictions on Fonterra ingredients provide support to domestic producers as it looks to help build a strong, homegrown sector? Fonterra’s CEO has reportedly said he expects the ban to be lifted next week but, while Beijing’s swift moves to place curbs on the company’s ingredients were no doubt introduced to protect consumers, they will also serve to bring questions to the minds of consumers over the safety of foreign products, which have thrived amid concerns over Chinese-made formula.
Some industry watchers have also put Beijing’s investigation into the alleged fixing of infant formula prices by – mostly – multinational firms in similar context. Could, it has been asked, that probe be a way for Beijing to force down infant formula prices – in order, ultimately, to drive consolidation in the sector and help create strong domestic competitors to take on the likes of Nestle, Danone and Mead Johnson?
For now, what is clear is Fonterra faces questions about its production and safety controls. And that the latest contamination underlines the interconnected nature of the global supply chain, with an issue at one major supplier having an impact on a number of customers in a number of markets around the world.