Fonterra Takes a $139 Million Hit on Melamine Scandal

24 Sep 2008

Chinese officials now claim San Lu, the company Fonterra has a 43% stake in, had received complaints as early as last Christmas linking its formula to sick babies. It took months for tests to reveal the milk was contaminated with the melamine.

24/09/08 Fonterra has said that poisoned Chinese melamine scandal is estimated to have cost the dairy giant $139 million. This reflects the cost of the product recall and Fonterra’s anticipated loss of San Lu brand value. Following this impairment charge, Fonterra’s best estimate at this point in time, of the book value of its investment in San Lu is approximately $62 million.

“We have recognised this charge as we are required to by accounting standards, but we are certainly not putting the financial consequences ahead of our primary priority of consumer safety. We are focusing all our efforts on what Fonterra can best do to work with the Chinese authorities and help get safe dairy products to Chinese consumers,” Fonterra Chairman, Henry van der Heyden said.

So far at least four children have died after drinking powdered milk tainted with the chemical melamine, 54,000 have fallen ill and about 13,000 have been admitted to hospital with kidney problems.

“The latest revelations that an official Chinese Government investigation has revealed San Lu management was investigating complaints of sick infants as early as eight months before the San Lu Board and Fonterra were first informed on August 2 is deeply concerning. That Fonterra was not informed earlier is frankly appalling,” he said.

Mr van der Heyden said the Board had reaffirmed its long term, strategic commitment to the China market, believing that Fonterra was well placed to supply safe and healthy dairy products to Chinese customers and consumers and contribute towards helping improve the Chinese dairy supply chain.

Meanwhile Australian Food Regulators have commenced a formal request to wholesalers and importers to voluntarily withdraw White Rabbit Brand Candies from shops pending further results of testing for melamine. People are advised not to consume these milk-based sweets imported from China. This product is sold in retail packs through Asian retailers, supermarkets and restaurants.

Testing in New Zealand released late has confirmed that this product contains sufficiently high levels of melamine which may, in some individuals, cause health problems such as kidney stones if consumed in high quantities over a long period.

Food Standards Australia New Zealand said that anyone who has the product should not to consume it. It is unlikely that there could be a problem if consumed in small amounts but people with concerns about the consumption of this product should seek medical advice.