China Tightens Baby Formula Rules After N.Z. Poisoning Scare

China stepped up scrutiny on New Zealand baby formula imports as orders for the product fell, sending the kiwi dollar to fresh five-week lows a day after the South Pacific nation revealed a plot to poison baby food.

New Zealand milk powder must have a government certificate and an importers’ examination report to prove it doesn’t contain the toxic pesticide 1080, China’s General Administration of Quality Supervision, Inspection and Quarantine said in a statement.

“Our major customer is China and I think what happens over the next 48 hours is going to be critical,” said Michael Barnett, chairman of the New Zealand Infant Formula Exporters Association. “It has the potential to be disastrous for exporters, whether they be big or small, because it’s reputational risk. It’s about food and it’s about New Zealand.”

Exporters say they’ve had some orders reduced or halted after police revealed Tuesday that they’re investigating an anonymous threat to poison infant formula with 1080 unless the government stops using it by the end of this month.

It’s the third dairy contamination scare in two years for a nation that relies heavily for economic growth on dairy exports, which are worth NZ$14 billion ($10 billion) a year and account for 29 percent of total overseas sales. China is the biggest customer.

The New Zealand dollar extended its decline, dropping to a five-week low of 72.31 U.S. cents. Shares in dairy companies were little changed after falling yesterday on the news.

Letter Threats

Threatening letters were sent to Fonterra Cooperative Group Ltd., the world’s biggest dairy exporter, and Federated Farmers in November, police said on Tuesday.

Tests of more than 40,000 samples had found no trace of the poison, the government said, defending its decision to delay disclosure while police investigated.

“I will continue to buy milk powder from New Zealand as I trust its quality and my girl is used to its flavour,” Isabelle Rao, a Beijing-based mother, said in an interview. “I don’t think the New Zealand government will let its pillar industry fall apart and will solve the problem very soon.”

Shares in the Fonterra Shareholders’ Fund, a publicly traded trust that tracks the cooperative’s dividend payout and earnings, closed unchanged at NZ$5.80 in Wellington after falling as much as 1.2 percent yesterday.

The poison threat comes after a botulism scare in 2013 prompted a global recall of some Fonterra products and an import ban by China until it was proved to be a false alarm.

In January that year, Fonterra said traces of a fertilizer additive had been found in some of its milk products. They were within safety guidelines and posed no health risk, it said.

‘Just a Nutter’

Milk safety in China became a major issue in 2008, when locally made melamine-contaminated milk powder may have killed at least six infants, causing the collapse of Fonterra’s partner Sanlu Group.

“We’ve made it clear to the Chinese we take these things seriously and we don’t sweep them under the carpet,” said Darren Gibbs, chief New Zealand economist at Deutsche Bank AG in Auckland. “The reality is it’s probably a hoax and probably just a nutter and probably no more risk than you get in any country.”

Some baby formula exporters reported their distributors had reduced order volumes or put orders on hold, though there has been no ban, NZIFEA’s Barnett said in an interview.

Police said today they are continuing their investigation to find the anonymous letter writer, who included 1080 samples with their threats. The pesticide is used to control rats, opposums and stoats that kill New Zealand’s native birdlife, such as the flightless kiwi.

Horrific Death

Some animal rights groups oppose use of 1080, or sodium monofluroacetate, saying it causes a slow and horrific death.

The government said Wednesday it would continue to use 1080 while announcing additional measures to make it “the most tightly regulated toxic substance in New Zealand.”

New Zealand markets itself internationally as a “100% Pure” food exporter and tourist destination. The slogan has been called into question by China’s official news agency Xinhua, which said in 2013 that buyers of Kiwi goods were losing faith in its clean, green image.

“We can fully assure our customers and consumers that all of our milk and products are safe and of high quality, and our supply chain continues to be secure and world-class,” Fonterra said in a statement.

Farmers backed the government’s decision to publicize the poison threat, saying transparency will utlimately improve New Zealand’s international reputation.

“If you look back at the last three episodes, while there’s short-term pain, the industry in this country has actually grown in reputation for being quite open and honest,” said Federated Farmers President William Rolleston. “The long- term international outcome will be positive. In other jurisdictions these things happen and they are not reported.”