KEY POINTS:
Let us be quite direct. The melamine scandal is catastrophic for Fonterra. As I write, four children are dead and more than 6000 are sick from melamine poisoning. On Thursday, 158 were reported to have acute kidney failure. The forlorn and agonised expressions on the faces of those poor babies in their hospital beds are deeply disturbing and heart wrenching.
As Fonterra boss Andrew Ferrier says, this is as bad as it gets for any food company.
The food from Fonterra's Chinese factory is killing children and will kill more. The name San Lu is dirt in China. The name Fonterra will be too.
My, how things can change in just a few short weeks. Only last month the NZ Herald carried a bright, optimistic and bullish story about the managing director of Fonterra China, Bob Major.
Bob cannot speak highly enough of the place and praises "the dynamism, sheer rate of growth and bold decisions people make in China".
The rest of the world was very dim by comparison. China is the world's fastest-growing dairy market and the fourth biggest for Fonterra. Its fourth biggest market. Fonterra had revenues in China of $401 million last year, an increase of 31 per cent on the previous year. Great stuff. And Fonterra was embracing that growth by becoming local participants in the local market. That is why Fonterra bought a 43 per cent stake in the local 21-factory giant, San Lu, for more than $100m. Bob was not too bothered by any debate about human rights, either. "We operate from a business point of view," said Bob. "Business is business." Yes, cooking with gas. And melamine, but we did not know that then. So much for all Bob's swashbuckling talk. So much for the dynamism, the sheer rate of growth and bold decisions the people in China make.
The Chinese reaction to warnings about sickness among babies being given Fonterra product was anything but dynamic. The only growth was in the numbers of people being poisoned and in the sales of melamine. And there was nothing bold about any of the decision-making until it was, tragically, too late.
But two things are very strange and problematic with that NZ Herald article and possibly also problematic for Bob.
First, he is a member of the San Lu board of directors and secondly, it's date, August 12. Fonterra tells us it was informed about the melamine poisoning on August 2. And there is Bob talking its China operation up gangbusters 10 days later. I don't know when Major did the interview with the newspaper. If it was before August 2, things may not be as bad for him. But if it was after August 2, his gall is unbelievable and his callousness unforgivable. "Business is business" indeed.
As one of Fonterra's San Lu board members and as Fonterra's main man in China, he surely must have known at the same time as Auckland knew of the looming scandal that was going to outrage China and the opprobrium about to consume Fonterra's name. If he did that interview after August 2, he must have known of sick and acutely damaged children, complaints to San Lu and melamine. I do not find it likely that the reporter, Owen Hembry, would sit on an interview with Fonterra's China boss for nearly a fortnight. Interviews with the Fonterra bigwigs don't come along every day. It took Ferrier 24 hours to make an appearance after the crisis broke.
But here is another curiosity. Bob Major was not alone in breathlessly pumping Fonterra's $1.5 billion Asia success story. A certain Mark Wilson is featured in the Dominion Post on August 20. Wilson is Fonterra's boss in Asia, based in Singapore. In the Dominion piece, Wilson is full of Fonterra's brilliant achievements across the region. And Wilson, wouldn't you know, is also a Fonterra member of the San Lu board.
Put the two men here together doing newspaper interviews and what you have is Fonterra preparing for the storm, praising the achievements in advance. Not a mention of what both men must have known, that the milk product Fonterra was making in China was killing people. Wilson, "raised and educated in Britain", has a flash mantra he repeats to the reporter several times. "Ultimately demography drives economics." Which is simply a way of saying that where there are people there is money. Demography drives economics. Going to find that out real fast, aren't we Mark? Another issue that raises big questions in this affair is that of the melamine. Despite what Ferrier says, it stretches credibility to believe Fonterra, a major food production conglomerate by any standard, with 14 per cent of the world's dairy production, did not know about the potential wicked use of melamine in Chinese food production. Ferrier says they cannot test for every poison. Well, maybe so, if you put it like that.
But melamine? It was melamine that killed those 1500 pets in the pet food China sent to the United States last year. If you Google melamine you are offered more than five-and-a-half million sites. On Google's first melamine page you get a list of places to buy it. Melamine use in Chinese food production, an evil little ruse to claim greater nutritional value, is said to be an open secret in the country. Ferrier, as boss of a major world food manufacturer, seems naive. When 21 other companies have been pinged now for the use of melamine in their milk production it looks like the poison is everywhere there. China got the better of Fonterra.
So the great questions hover. Did San Lu wilfully put melamine in its milk? Did the broker San Lu bought the milk from put the melamine in? If San Lu was not putting the melamine in the product, why did it not test the milk for melamine? And why did it not test the milk when it arrived at the loading bays? Did the melamine get into the product at one or more factories? In other words, was the introduction of melamine a unique corruption or was it systematic?
What did the San Lu board know and when? What did the Fonterra members of the San Lu board know and when? What did Major know of rumours of kids getting sick since March? When a Mr Wang Yuan-Ping tried to get San Lu to release test results on samples he sent them of product he thought might be making his child sick, San Lu refused to give them to him. Did Bob hear anything about that?
So the chairwoman of San Lu has been arrested and may be executed. If she is lucky, she'll face a long period of re-education. More than 12 others have been detained and will probably be shot. It is hard to see how the head of China's food quality watchdog agency will keep his job. When the Chinese premier, Wen Jiabao, has to chair meetings on this matter so soon after the Olympics and Paralympics triumphs, we can be sure people are going to pay a mortal price.
And it is hard to see heads not rolling at Fonterra. The Chinese might more or less require it. Certainly, they will expect it. And New Zealand's economic prosperity might yet demand it. Be sure of one thing. It is going to be a nightmare for New Zealand food producers getting their stuff smoothly into China for a while.
