Simon Page: NZ dairy can win back its reputation in China

Dicyandiamide (DCD) residues were found in low levels in 10 out of 100 samples of whole milk powde. Photo / Mark Mitchell

The discovery of traces of the toxic agricultural substance DCD in New Zealand dairy products sold in China has sparked a major reputation crisis for our products in that country but also presented an historic opportunity.

Dicyandiamide (DCD) residues were found in low levels in 10 out of 100 samples of whole milk powder, skim milk powder and buttermilk powder made with milk late last year and both the Chinese and New Zealand Governments were victims.

Over 90 per cent of China's imported milk powder is from NZ and most of this ends up as infant formula. Because of the assurance from our Government that less than 5 per cent of farms here had used DCD and the very high amount of NZ milk present in the Chinese infant formula market, the Chinese Government made a request to the Government to recall 5 per cent of the brands affected by DCD in order to end the crisis.

Despite most of the major infant formula brands in China containing milk from our country, none is owned by NZ companies. Of the small percentage of brands that are actually made in NZ, very few are locally owned either.

Chinese citizens were demanding an immediate response amid escalating panic fuelled by local and global media speculation.

But there are over 4000 registered infant formula brands in China with no way for the Chinese Government to advise which were "safe".

The NZ Government was then also faced with a similarly difficult situation in who it should ask to conduct the product recall - the supplier of the tainted milk (Fonterra) or the multi-nationals whose infant formula brands dominate the Chinese market?

This scenario, the result of a long global food supply chain that no single Government could effectively monitor or manage, is the reason why both countries' Governments, and not just Chinese consumers, are victims of the DCD issue.

NZ dairy is regarded highly in China but the DCD issue has in fact changed this perception for the first time. Within a month, NZ dairy suffered three distinct, severe blows to its credibility and reputation.

News of large cancelled export orders and plunging sales of NZ milk products in China made headlines.

In the face of this global food manufacturing, distribution and safety monitoring "mess", can NZ dairy, as the backbone of our country's export industry, win back its reputation in China?

I believe that we can, because within every crisis lies an opportunity.

Just a few days after news of the DCD issue broke, a 30-minute discussion on the DCD issue was broadcast to millions across China and revealed Chinese officials and experts actually regarded NZ dairy so high as to represent an "ideal global standard", even as the DCD issue was unfolding. We also learned for the first time that 80 per cent of the infant formula in China contains NZ milk powder, although three-quarters of the profit (and tax) on infant formula sold in China is made by American and European multi-nationals.

The officials, experts and commentators involved still appeared to hold the notion of NZ dairy as the "ideal global standard" throughout the crisis, which should therefore give us optimism that there is a good possibility we can win back that reputation.

Despite enormous pressure during the DCD issue, the Chinese Government accepted NZ's milk sample test results that pointed to a figure of 5 per cent and requested a product recall of a corresponding amount of infant formula as a way to end the crisis.

How do we prevent this scenario from playing out again? The answer lies in establishing a product recall framework.

First, it would eliminate the lingering doubt that now exists amongst Chinese consumers with regards to NZ milk and win back their pre-DCD trust. Second, it would remove all pressure from China's FDA to find a solution to any issue involving NZ milk. Third, the NZ Government would not be in the political firing line, rather the issue would sit rightly with the company whose responsibility it would be to recall products in question.

In order to make a significant impact, we recommend the NZ Government set aside funding for development of the export chain for locally made value-added dairy goods to China, and that NZ-owned dairy suppliers, manufacturers and exporters commit a percentage of value-added China export revenue to product recall in a joint fund with the Government.

With a product recall framework in place, we will see those NZ dairy suppliers, manufacturers and exporters enforcing already high standards to even stricter measures at each stage of the production process.

The DCD issue comes as NZ milk is facing marginalisation in China by competition from Chinese dairy companies. In today's China, dairy enterprises have access to massive capital and are actively encouraged to invest abroad. Europe is every bit as, if not more attractive than NZ as a target for dairy investment. One large Chinese dairy enterprise is constructing a facility in France to process 100,000 tonnes of milk powder a year, enough to produce 100 million cans of infant formula. Other Chinese corporations are setting up shop across Holland.

It would seem that the race to quench China's thirst for dairy is well and truly on.

We believe that China and NZ have a chance to make a real contribution to the governance of the troubled global food supply chain.

We believe that as China changes from the world's manufacturing giant into the world's consumer giant, NZ dairy should fast-track completion of its end-to-end value-added supply chain to China as a base for future growth.

By doing so, NZ dairy can no doubt win back its reputation as the "ideal global standard" and drive other NZ industries to gain a valuable share of the world's future largest market.

Simon Page is the managing director of infant formula exporter BioPure Health and vice-secretary-general of the World Civilisation Forum, a think-tank on political, economic and regional issues.