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Babies in China have been hospitalised with kidney stones after drinking a formula allegedly made by Sanlu Group, 43 per cent owned by Fonterra.
Fonterra said the Shijiazhuang Sanlu Group dairy company was moving to ensure the Chinese company's products were safe.
In China, the provincial public health bureau is investigating possible connections between Sanlu milk powder and the kidney stones.
But Sanlu has said the milk powder may have been a counterfeit of its product, Xinhua newsagency reported today.
The China Daily newspaper noted that in 2004, 13 infants in Anhui province died of malnutrition and 171 others were hospitalised after consuming substandard milk powder, falsely labelled as being made by Sanlu.
A Fonterra spokesman said today the co-operative had seen media reports on potential links between milk powder and kidney stones in China.
"Sanlu is in active dialogue in China with relevant authorities to get to the bottom of these issues," the company said.
"Sanlu has also advised us that they are taking all appropriate measures to ensure their products are safe for consumers."
Sanlu had previously used milk of Chinese origin and milk powder from various parts of the world, but not from New Zealand.
"Very recently it has purchased New Zealand milk powder from Fonterra but we are 100 per cent confident that there are no quality issues with that Fonterra milk powder," the company said.
Fonterra last year set up a model dairy farm with 3000 cows to supply Sanlu, but said today it was confident that "all milk coming out of Fonterra's farm is safe".
Asked what concern it had that its staff or workers for Sanlu might be prosecuted for any perceived role in the latest food safety scandal, Fonterra said: "It is not helpful to engage in speculation at this time".
"Anything to do with potential food safety is taken very seriously by Fonterra and our people," the company said.
"The appropriate authorities need to get to the bottom of this issue first.
"We are confident the Chinese authorities will act appropriately based on hard facts, and not speculation."
After the 2004 scandal - which did not involve Sanlu or Fonterra products - China said it would punish nearly 100 people implicated in at least 200 babies in eastern Anhui suffering malnutrition, with 13 dying.
Officials who neglected their regulatory duties were jailed for two years, and shopkeepers for eight years.
Fonterra said its first priority was ensuring the welfare of consumers.
"Any food safety incident is taken very seriously because Fonterra's reputation is based on high-quality product," the company said. "It is far too early to understand how this incident might impact on any company".
Cases of babies developing kidney stones had emerged in at least four hospitals in Gansu and also in Jiangsu, Shandong, Hunan, Ningxia and Shaanxi provinces, Xinhua said.
Zhang Wei, chief urologist at the No 1 Hospital of the People's Liberation Army, in the provincial capital Lanzhou, said it was possible that more babies may be affected but parents had not sought treatment because of high medical costs.
"It is extremely rare for babies to get kidney stones, let alone so many getting them all at the same time," he said.
Fonterra has predicted that eventually China will account for 10 per cent of its global dairy market. It paid $150 million - 864 million renminbi - for its stake in the Shijiazhuang Sanlu Group dairy company in December 2005.
- NZPA
