NZ vows to improve dairy safety, trade

The New Zealand government pledged Wednesday it will strengthen regulation on dairy product safety and boost the number of staff to support trade with China.

This follows an inquiry into a contamination scare that ended up with a global recall of the Fonterra Co-operative Group's dairy products in August.

Meanwhile, Fonterra, which controls nearly a third of the global dairy trade, cut its dividend and earnings forecasts for 2014 Wednesday due to lower returns from its cheese and casein (milk protein) products, according to the company's statement. But analysts said August's food safety incident was among factors that hurt its earnings.

In a statement published on its website, the New Zealand government said it accepted all 29 recommendations from a report on the whey protein concentrate incident in August.

"We are pleased to confirm it found the whey protein concentrate incident in August this year (2013) was not the result of any failure in the regulatory system," Primary Industries Minister Nathan Guy said in the statement.

But the New Zealand government recognized the importance of the Chinese market, which imports more than 80 percent of its dairy products from New Zealand.

"Exports to China have trebled since 2007," Guy said.

The government will allocate between NZ$8 million and NZ$12 million ($6.63 million and $9.94 million) a year on the key recommendations from the report, the statement said.

The fund will be used to strengthen "capability in emerging export markets, particularly China, with additional personnel," it said.

It will also increase dairy processing and regulatory capabilities, set up a center of food safety science and research and consolidate and simplify legislation and regulations, it said.

"The report was compiled by experts independently, which shows some loopholes do exist in its food safety management and milk source testing," Wang Dingmian, chairman of the Guangzhou Dairy Industry, told the Global Times Wednesday.

"If New Zealand can handle the fallout from the Fonterra incident well, it can still win back the Chinese market because of its geographical and cow breeding advantages and Chinese consumers' attachment to their dairy products," said Wang.

Fonterra announced in August that it suspected there may be a potentially harmful bacterium in three batches of its raw milk powder, and launched recalls of infant milk formula in nine countries, including China. China's government issued a ban on milk powder imports from New Zealand on August 4.

The New Zealand government confirmed later that the harmful bacterium was not present in Fonterra's raw milk powder.

But the damage was already done.

On Wednesday, Fonterra slashed its forecast earnings for the 2014 financial year by about a half, from NZ$1.02 billion.

The company attributed the cut to the lower returns from products like cheese and casein.

Fonterra could also be facing a possible legal battle with Danone which had asked for 350 million euros ($482 million) in compensation.

"The Fonterra incident might change the landscape of dairy imports so that more US and European dairy products might enter Chinese markets," Song Liang, an industry analyst with the Distribution Productivity Promotion Center of China Commerce, said.