New Zealand counts cost of dairy contamination crisis

New Zealand Prime Minister John Key said Monday that the contamination of dairy products with a bacterium that can cause botulism was extremely serious and the government was deeply concerned about it.

Key, along with Trade Minister Tim Groser and Food Safety Minister Nikki Kaye, gave a televised press conference as the country began counting the cost to its reputation and economy after 38 tonnes of whey protein concentrate, some for use in infant formula, were been found to be contaminated.

Questions were being asked in all the nation's news media as to why dairy giant Fonterra only announced the contamination at the weekend, when the problem dated back to May last year.

Economic Development Minister Steven Joyce on Monday met with Fonterra chief to tell them that they must provide all the information demanded by regulators and the public.

Key said the Ministry for Primary Industries (MPI) had officials into Fonterra's offices to assist in getting "absolute clarity on the situation."

"However, until we get that information, the situation remains fluid and we are unable to give New Zealanders, or our trading partners, absolute certainty," said Key.

MPI announced Monday that China, the country's largest dairy products buyer, had banned only Fonterra whey protein concentrate and a product known as base infant powder formula.

"Whole milk powder and skim milk powder have not been suspended, " Fonterra New Zealand milk products Managing Director Gary Romano said in a statement.

"We have been told that MPI is not aware of any additional market closures. It is, however, getting clarity on reports that Russia appears to have put a temporary ban on New Zealand dairy products."

The crisis caused the New Zealand dollar to fall by 1 NZ cent against the U.S. dollar Monday, prompting fears of inflation and a rise in interest rates, and Radio New Zealand reported that it had wiped 1 billion NZ dollars (781.37 million U.S. dollars) off Fonterra's stock market value.

Fonterra issued a statement to the New Zealand stock exchange on Monday to say that it had assured customers in global markets, including Australia, Asia, China, Latin America, New Zealand and the Middle East, that none of its Fonterra-branded consumer products were affected by the issue.

The ASB Bank issued an Economic Update on the issue on Monday, which said short-term trade disruption and reputational damage were inevitable.

"Given Fonterra has such a substantial market share in global dairy supply, there may be limited ability for manufacturers/ consumers to sustainably substitute to other dairy supply sources. If there was any upward pressure on the price of other supply sources that would also likely limit the willingness to substitute to other dairy supply sources," it said.

New Zealand dairy exports totaled 11.5 billion NZ dollars in the year to the end of June, of which 60 percent was milk powder and 5.6 percent whey.

China took 2.8 billion NZ dollars, or 24.5 percent, of the country's dairy exports in that period.