Wellington, Sept 24 - New Zealand dairy export giant Fonterra Co-operative Group slashed the value of its Chinese investment by nearly 70 percent on Wednesday after it was caught up in a scandal over contaminated baby milk.
Fonterra cut the value of its 43 percent stake in China's San Lu dairy to about NZ$62 million ($42 million), and again stressed its role in first raising the alarm on the contamination, which has so far killed four babies and made 54,000 ill.
It said the writedown reflected the damage done to the San Lu brand and the likelihood it would not recover.
"We have recognised this charge as we are required to by accounting standards, but we are certainly not putting the financial consequences ahead of our primary priority of consumer safety," said Fonterra Chairman Henry van der Heyden, adding the group was commited to staying in China.
San Lu has been at the centre of the scandal in which milk products were found to have been laced with the industrial chemical melamine.
Fonterra repeated that it first knew of the contamination in early August, and took what it regarded as the best action by working with local Chinese authorities on a product recall.
"If something did exist prior to that we're shocked that it did and we obviously feel that if people were aware of it it should have gone to the board," chief executive Andrew Ferrier told a media briefing.
The contamination did not become public until mid-September after the New Zealand government informed the Chinese government, although there are allegations that San Lu managers were investigating complaints of sick infants eight months before they told the board and Fonterra.
FARMER PAYOUT CUT
The world's biggest dairy exporter said its opening price for the 2008/09 season starting in October would be NZ$6.60 a kilogram of milk solids against its May preliminary forecast of NZ$7.00 a kilo.
"High prices have dampened global consumer demand and, at the same time, have encouraged production increases in exporting regions around the world," said van der Heyden in a statement.
He said a lower New Zealand dollar would not necessarily offset the lower prices. So far this year the kiwi has fallen around 11 percent.
Fonterra confirmed the payout for the 2007/08 season would be NZ$7.90 a kilo milk solid, confirming a forecast made in May. Its opening forecast for the season had been NZ$5.53 and it paid out NZ$4.50 a kilo in the previous season.
Fonterra, an unlisted co-operative owned by around 11,000 farmers, is New Zealand's largest company and controls about a third of the world's dairy exports. It generates more than 7 percent of the country's gross domestic product.
Fonterra, whose brands include Anchor and Fresh n'Fruity, also controls around a fifth of Australia's milk supply.
In addition to its San Lu investment, it also owns 99 percent of Chile's largest dairy company, Soprole, and has a joint venture with Dairy Partners of America in Latin America.
It competes on world markets against food conglomerates such as Nestle, Kraft Foods Inc and Danone . ($1=NZ$1.47)