The New Zealand dollar has already dropped to a new low at NZ$0.767 against the US dollar following a chain of events that began last week with the discovery that some batches of the whey protein concentrate it sells for infant formula products were contaminated with the bacterium that can cause botulism.
China quickly placed a temporary ban all whey and dairy powder from New Zealand until Fonterra can prove its contaminated products have all been recalled and the situation is under control.
Economic damage
“The ban will greatly affect New Zealand’s economy since almost a fifth of its dairy products are exported to China,” said Ding-Mien Wang, director of Guangzhou City Dairy Product Association. “This incident will also damage Chinese customers’ trust in dairy products from New Zealand.”
But while Fonterra is working hard to get the crisis under control and reduce damage to its reputation, it also gives its Chinese counterparts a chance to close the gap between them and the dairy giant, although it might well only have limited impact on Fonterra’s overall value.
“Fonterra’s market price will still be determined by customers’ mentality,” added Wang. “This crisis damages customers’ trust in the products, but it doesn’t have direct impact on the dairy market itself. As a result, there won’t be a huge difference in terms of market price.”
The crisis began just one month after Chinese authorities proposed a plan to encourage diverse ownership and competition in the dairy market.
Product preconception
Fonterra has been dominant in the Chinese market for years and is the world’s biggest provider of raw materials to foreign and Chinese dairy manufacturers. According to experts, the botulism crisis has uncovered several problems facing China’s dairy industry. One of them is customers’ preconception that foreign dairy products are safer and better.
“This crisis has proved that the quality of foreign dairy products are not as good as most of us think,” said Yi Chu, associate professor at China Agricultural University. “Chinese customers need to stop blindly worshipping foreign dairy products and give domestic dairy brands a chance.”
Chun Ku from Shanghai University thinks that Chinese dairy brands should learn about the importance of transparency from Fonterra’s crisis. They also have the chance to replace foreign dairy brands by gaining trust in customers with their improved quality.
“While the production of dairy products includes many complicated steps, Chinese manufacturers should pay attention to each step and detail during the production process,” said Ku. “They should focus on establishing a trustworthy and safe system. Security and quality should always be their priority.”