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A selection of Beingmate infant formula tins.
A selection of Beingmate infant formula tins.

BusinessJune 20, 2018

Fonterra embroiled in new Chinese infant formula safety controversy

A selection of Beingmate infant formula tins.
A selection of Beingmate infant formula tins.

Fonterra rejects claims by Chinese media that formula maker Beingmate reportedly failed to check additives came from licensed suppliers.

Chinese media have reported that Fonterra’s troubled investment Beingmate failed to check additives in its infant formula came from licensed suppliers, and the additives were certified for use.

On Friday 15 June, Chinese authorities announced the results of an inspection of Beingmate’s infant formula factory in Heilongjiang. The announcement (in Chinese) says a DHA algae oil powder (similar to fish oil powder) used in its products “is classified into other foods and is inconsistent with the material requirements of your company”.

It says Beingmate failed to comply with food safety provisions (an English language version can be found here) which require manufacturers ensure that suppliers providing ingredients for use in food (including baby formula) are correctly licensed, and their products are certified.

Chinese state media website The Global Times reported the announcement last week, while Shenzhen Daily published an article yesterday with a headline warning mothers to “be aware”. Another article on asks whether the news will reignite controversy over milk powder safety in China.

Alongside Beingmate, several other infant formula companies were also found to have breached manufacturing rules, including Dumex China, which was previously owned by French group Danone before being sold to Yashili in 2015.

Fonterra has vigorously defended its Chinese partner and downplayed the breach as a technical issue. A spokesperson for the co-operative said an enterprise standard (individual company standard) had been used on packaging by Beingmate’s regular supplier, rather than the national food safety standard. They said the issue was rectified the same day and there was no issue with the product. “It was not a food safety issue, no product was recalled or removed from shelves and no warning was issued to consumers by Chinese authorities.”

The breach related to “a technical issue caused by the ingredient standard listed on the DHA packaging label from Beingmate’s supplier being different to the standard noted in Beingmate’s own documentation”.

In response to a media report that Beingmate “did not purchase through proper channels”, the spokesperson said that was categorically untrue, and a misreading of what was a generic and non-specific breach notice issued by authorities. The spokesperson said that of the 100 or so audits, “pretty much everyone had an issue” and that Beingmate had the highest standards in every area, adding that these technical issues happened quite regularly in a big business.

When questioned on whether consumers should be concerned about regular technical issues at formula manufacturers, the Fonterra spokesperson said they were “not suggesting it’s not sloppy”, and reiterated health and safety was Fonterra’s top priority. As an 18.8% shareholder in Beingmate it wasn’t Fonterra’s business, the spokesperson said.

But as the second largest shareholder in Beingmate, Fonterra is liable for Beingmate’s financial losses, and they can also be held liable for Beingmate’s infant formula food safety issues in China, Auckland-based dairy commentator Jane Li told The Spinoff. 

“This is a very significant infant formula food safety breach and a deliberate act by Beingmate,” Li claimed.

(Screenshot: YouTube)

Li said that in February she warned Fonterra chairman John Wilson there was “a moderate to high risk” Beingmate would be implicated in a food safety issue involving infant formula in China. In March, Li also warned that financial losses in the Beingmate investment wasn’t the “worst-case scenario”, telling Rural News that there was “potential for more serious risk exposure”.

“The most concerning aspect is that this is not an accidental food safety issue. All food manufacturers can experience accidents and is expected at some point. In this case, it is not possible that an established baby food company such as Beingmate can accidentally not check suppliers are licensed, and that the ingredients carry necessary certification to be suitable for baby food. This is very deliberate cutting corners and should be a huge concern for all.”

“Whether accountability is brought depends on Chinese authorities and various political factors. This might not happen in this case, but the fact it has happened is a huge red flag.”

In March 2015, Fonterra paid $755m for an 18.8% stake in Beingmate Baby and Child Food as it wanted a Chinese business partner with established marketing and sales channels to sell its Anmum infant formula, and other food products. At the time, analysts were already sounding the alarm about its new partner’s financial health. 

Since then, Beingmate has failed to meet every forecast made since Fonterra announced its decision to invest in August 2014. In March, Fonterra posted a net $348 million loss after writing down its investment in Beingmate by $405m.

Fonterra chairman John Wilson reportedly said Beingmate has found it difficult to adapt to China’s regulatory drive to improve milk quality and safety which also included culling numerous formula brands, as it battled massive debts and management issues (it’s had seven chief executives in the last four years). He told media earlier this year there had been big changes in the Chinese infant formula market with registration, but that should play out well for Beingmate. “Clearly there are challenges in the distribution channels that they have got and that they need to fix,” he said.

This story has been updated to include new comment from Fonterra.

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