Fonterra is reported to be in talks to sell its stake in the San Lu Group, which is involved in a tainted milk scandal in China that killed four infants and sickened 53,000 children.
Reuters reports that Fonterra, which has a 43% stake in San Lu, says talks are underway on San Lu's future, including the option of it being sold.
Fonterra says the talks are ongoing and focused on all facets of its Chinese operations.
It says nothing has changed in terms of its long term committment to that market.
San Lu was one of more than 20 companies in China identified as producers of baby-milk powder contaminated with an industrial chemical, melamine.
On Friday, the Shanghai Daily reported San Lu is facing bankruptcy in the wake of the scandal. A group of Chinese dairy producers, including Wahaha Group, Wondersun, Sanyuan Food and Feihe Dairy were reported to be meeting to discuss a possible takeover.
Last month, Fonterra cut the value of its investments in San Lu to about $62 million and said the write-down reflected the damage done to the San Lu brand and the likelihood that it would not recover.
The scandal first came to light in September. The Ministry of Health said last week that 5,800 children were still in hospital - six of them in serious condition.