10 Mar 2015

'No-one' cancels formula orders

9:43 pm on 10 March 2015

None of the 80 markets buying infant milk formula from New Zealand have said they will stop imports in the wake of the poisoning threat, according to Primary Industries Minister Nathan Guy.

Nathan Guy

Primary Industries Minister Nathan Guy Photo: RNZ / Alexander Robertson

Mr Guy said this afternoon, in reaction to the blackmail letters threatening to put 1080 in infant and other formula made in New Zealand, the Government had contacted overseas markets.

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There were about 80 buying formula from New Zealand and none had ordered a stop so far.

Mr Guy said it would be very difficult for someone to tamper with a can of formula without the consumer seeing it.

Watch this afternoon's media briefing by Prime Minister John Key

The dairy industry has condemned the threat to contaminate infant formula products with 1080 pesticide as a despicable act of blackmail against the country.

Dairy companies said they had been working with the Ministry for Primary Industries (MPI) and police since the threat was received at the end of November, to secure their production systems and supply chains against sabotage, which the perpetrator specified would be carried out at the end of March.

Tatua Co-operative Dairy Company CEO Paul McGilvary, who fronted a media briefing with Fonterra CEO Theo Spierings today, said companies had ramped up their security and testing and that would continue until the offender was caught.

"We routinely test for all manner of things under our food safety systems, and since we've known about this, the testing for this material has really ramped up. There's been something like 35,000 tests now, and to date, absolutely no detection of this chemical at all.

"So we are increasingly confident that the measures we have put in place to lock down our supply chains are working."

Watch footage from the press conference with Fonterra and Tatua

Fonterra said it was also testing every tanker of raw milk it processed as well as all the paediatric products and nutritional powders it makes, using MPI-approved testing methods.

Canterbury-based dairy processor Synlait said its food safety systems and security standards had been specifically designed to protect against the sort of threat that the police are investigating.

It said existing security at its manufacturing site, which includes electronic gates and closed circuit TV, has been boosted to include 24-hour security guards and staff security checks.

Markets respond to threat

The dollar bounced about following today's news of the threat.

The currency initially fell sharply by a quarter of a cent from 73.06 US cents to 72.72 US cents, but has recovered to above 73 US cents.

But it did decline against the currencies of New Zealand's major trading partners.

Shortly after 6pm, the New Zealand dollar traded at 73.01 US cents, 95.50 Australian, 48.42 British pence, 0.6764 euro, 88.86 yen and 4.57 renminbi.

Shares in dairy company Synlait fell 1.5 percent, or 5 cents to $2.90.

Fonterra Shareholders' Fund ended down 5 cents to $5.80.

Overall, the NZX50 Index fell 9 points to close at 5888.

Analysts said there was likely to be more reaction about the dairy sector threat over the next few days as investors assessed the fallout to the country's biggest export earner.

Threat latest blow to dairy industry

The threat comes at a time when the dairy industry has been buffeted by a number of headwinds, including a high dollar, drought and lower-than-expected product prices.

Fonterra in December dropped its forecast milk price to farmers from $5.30 to $4.70 per kilogram of milksolids due to weaker diary prices; the season before it paid out $8.40. However, since the December drop the dairy co-operative's key price, whole milk powder, has risen 45 percent.

John Wilson (centre).

Fonterra chair John Wilson Photo: RNZ / Diego Opatowski

Fonterra chair John Wilson recently said the increase in dairy prices was not sufficient to raise the pay out, due to volatility in international prices.

It is a similar refrain across the industry, with Westland Milk Products, the company's second-largest producer, also telling its suppliers late last year that its forecast pay out was dropping.

The dairy industry is a huge export earner for New Zealand. Last year Reserve Bank Governor Graeme Wheeler gave a speech on its significance.

The key statistics in it were the following:

  • At $15.5 billion, dairy exports make up almost a third of New Zealand's annual merchandise exports.
  • During the past eight years, dairy prices in NZ dollars were, on average, 65 percent higher than in the previous two decades and dairy cattle numbers increased by 30 percent.
  • China is our largest export market for every agricultural commodity except beef (where it is our second largest market behind the United States). It purchases a third of New Zealand's dairy exports
  • India, rather than China, is forecast by the Australian Bureau of Agricultural and Resource Economics and Sciences to be the major new market opportunity for dairy exports in the future.
  • The Bureau projects global demand for dairy products to increase from $US7 billion in 2007 to $US85 billion in 2050 (in 2007 US$). By 2050, India's import demand for dairy products is projected to be $US48 billion - more than three times China's $US15 billion.
  • Dairy debt almost trebled over the past decade, and currently stands at $32 billion. It is concentrated among a small proportion of highly leveraged farms with around half of the dairy debt being held by only 10 percent of dairy farmers.
  • The elevated debt level means that some farmers are potentially highly exposed if there are substantial declines in the milk price pay-out, or if land prices fall.

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