New Zealand dairy giant Fonterra cut the value of its investment in China’s Sanlu Group by nearly 70% today (24 September), reflecting the damage done to the brand by the melamine scandal.
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The company, which has a 43% stake in Sanlu, said it was taking an impairment charge of NZ$139m (US$95.15m) to cover the cost of the product recall and anticipated a loss in Sanlu’s brand value.
“Following this impairment charge, Fonterra’s best estimate at this point in time, of the book value of its investment in Sanlu is approximately NZ$62m,” the company said in a statement.
The Chinese government revealed yesterday that Sanlu had first become aware of problems with its product last December. Fonterra chief executive Andrew Ferrier said today that it was “frankly appalling” that his company had not been informed earlier.
However, he defended Fonterra’s own handling of the case after criticism that it had not gone public about the issue when it was first revealed to board directors.
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By GlobalData“We firmly felt the most effective way to get product off the shelves and away from consumers was to work within the Chinese system. If Fonterra had tried to go outside this system we were convinced that we would not be effective,” Ferrier said on a conference call.
He added: “We’ve learned an incredibly painful lesson through this and we will be much, much more suspicious worldwide on ensuring the safety and integrity of our supply chains everywhere in the world.”
Despite this setback, Ferrier said China is still “core” to Fonterra’s growth strategy. “The consumers need healthy products and we have the skills to bring those products to consumers.”
