New Zealand's food scandal

With dairy products representing a quarter of the country's economy, no one (even the PM), is dismissing the possible impact of a major food scare.

NZ's dairy reputation under threat

New Zealand's reputation is under threat as Fonterra oversees an international recall of contaminated products, including infant formula.

Radio New Zealand,

6 August, 2013

Fonterra on Saturday announced the international recall of 900 tonnes of contaminated products, including infant formula.

Thirty eight tonnes of contaminated whey was produced in May 2012, by a dirty pipe at one of Fonterra's processing plants in Waikato.

China is the destination for 19% of New Zealand's dairy exports. It has banned all imports of New Zealand milk powder products as has Russia.

Financial Times Beijing bureau chief Jamil Anderlini toldMorning Report that this latest scandal is a blow for Chinese consumers already concerned about the safety of domestic products.

Listen to more from Jamil Anderlini on Morning Report

Imports are highly prized in China after a tainted milk formula scandal in 2008 killed six babies and made 300,000 infants sick.

Tim Groser.

New Zealand Trade Minister Tim Groser said China's action was "entirely appropriate".

"It's better to do blanket protection for your people then wind it back when we, our authorities, are in a position to give them the confidence and advice that they need," he said on Sunday.

Economic Development Minister Steven Joyce told Morning Report the scare is a serious economic risk, especially if it is not resolved quickly.

Listen to more from Steven Joyce on Morning Report

The BBC reports China has named four domestic companies that have imported potentially contaminated products from New Zealand. According to state media, these companies have begun a recall.

Other countries affected include Australia, Thailand, Malaysia, Vietnam and Saudi Arabia. Russia is also reported to have begun a recall of Fonterra products.

Fonterra said there had been no reports of any illness linked to the affected whey product.

The dairy industry powers New Zealand's economy, with the country exporting up to 95% of its milk.

Safety questions

The Ministry for Primary Industries says it needs far more information before it can say how safe some milk powder products are.

MPI acting director Scott Gallacher told Morning Report that there have been no cases of infant botulism reported in New Zealand, since any of the potentially contaminated products have been on the market.

But Mr Gallacher said parents should avoid those products, until the ministry has better information about whether they are safe.

He said if anyone is worried their child might have had contaminated formula, they should immediately contact a doctor.

Listen to more from Scott Gallacher on Morning Report

The Ministry of Primary Industries is recommending babies not be given two Nutricia products - regardless of the batch numbers

Those products are:

Karicare Infant Formula Stage 1 for babies aged up to 6 months

and

Karicare Follow On Formula Stage 2 for babies aged from 6 to 12 months.

The ministry is recommending parents are caregivers use alternative products until further notice.

Other companies

Fonterra has listed the international companies affected by the contamination scandal.

Danone, which owns infant formula company Nutricia, has since recalled two of its Karicare products from New Zealand shelves. Its infant formula in China, Dumex, has also been recalled.

Fonterra's animal feed subsidiary, NZAgbiz, has also issed a recall on a small amount of calf milk replacer.

VitaCo Health Ltd confirmed with Fonterra it used some of the contaminated protein, but Fonterra says VitaCo has since carried out health checks on its products and is confident their goods are safe.

An unnamed company in Vietnam has issued a recall, although Fonterra wouldn't confirm what the company's name or product was.

Fonterra named one of the two animal feed companies affected in Australia as Maxim, but Fonterra says both companies have managed to keep any affected product out of the market. The other company was unnamed.

In China, Fonterra confirmed both Hangzhou Wahaha and Coca Cola China received some of the affected protein, but both companies are confident none of their products have been contaminated.

This is how Hong Kong media is covering the subject

Botulism bacteria found in New Zealand dairy products

Beijing tells NZ to ensure tainted goods don't reach Chinese consumers

Beijing yesterday demanded New Zealand take "immediate measures" to protect Chinese consumers after global diary giant Fonterra said it had found a bacteria that can cause botulism in some of its products.

South China Morning Post,

5 August, 2013

China, which buys most of its imported milk powder from New Zealand, asked domestic importers to recall any products that may have been contaminated.

A Hong Kong government spokesman said the city did not import the affected products.

Fonterra, the world's biggest dairy exporter, said three batches of its whey protein had been contaminated with Clostridium botulinum, which can cause botulism, which affects the muscles and in serious cases can cause respiratory failure.

Forty tonnes of whey protein had been contaminated, according to New Zealand's Ministry of Primary Industries. The whey concentrate found its way into nearly 900 tonnes of other products, the ministry's acting director general, Scott Gallacher, said.

Fonterra said most of the protein was sold to eight manufacturers to make their own products - three food companies, two beverage companies and three animal feed firms.

Fonterra said those firms would initiate any consumer product recalls.

Chinese newspaper The Mirror reported three of the customers were based in China.

New Zealand authorities have contacted officials in Australia, China, Malaysia, Thailand, Saudi Arabia and Vietnam.

So far, the only product the ministry has identified as problematic is the Nutricia Karicare follow-on formula, which is popular in China. Nutricia said none of the affected batches had got to supermarket shelves.

Fonterra chief executive Theo Spierings is flying to Beijing this weekend from Europe to discuss the matter.

The General Administration of Quality Supervision, Inspection and Quarantine said it had asked New Zealand to take immediate measures to "prevent the products in question from harming the health of Chinese consumers".

Fonterra said the contamination was the result of unsanitary pipes at a factory in Waikato, New Zealand, and was identified in March. But it did not disclose the "potential quality issue" until the most deadly strain of the bacteria was discovered last week.

Chen Lianfang, a dairy industry analyst with Beijing Orient Agribusiness Consultancy, said Fonterra was China's largest supplier of imported milk.

The announcement comes as Fonterra is planning to launch its own branded milk formula in China, five years after its involvement in a scandal in which melamine-tainted infant formula killed at least six babies and made 300,000 ill. Fonterra previously held a 43 per cent stake in Sanlu Dairy, the company at the centre of the crisis.

Professor Wei Ronglu, of the Western Dairy Development Association, said China should improve its dairy industry instead of relying on imported products.

"If the government had done a better job, Chinese consumers would not be so miserable depending on overseas products."

The incident prompted shock and criticism in the country. Liu Kai, a mother in Beijing with a three-year-old boy, relies on foreign formula powder. "I thought only Chinese producers would do such things," she said. "It's way too late to tell us now. Most of the problematic products might have been used already."

Unhappy about the popularity and high price of foreign dairy products, Beijing launched an anti-trust probe in June, forcing foreign brands, Fonterra among them, to lower their prices.

China bars powdered milk from NZ in botulism scare

Imports from New Zealand dairy giant halted after products used by mainland companies were found to be contaminated with bacteria

South China Morning Post,

5 August, 2013

Beijing has halted all milk powder imports from New Zealand after several major drinks and baby formula companies were found to have used products contaminated with bacteria that could cause botulism.

The products were manufactured by Fonterra, the world's biggest dairy exporter.

Trade minister Tim Groser told Television New Zealand that Chinese authorities had imposed the ban on all milk powder products from the country, including those shipped through Australia.

He said the action was "absolutely appropriate".

"It's better to do blanket protection for your people and then wind it back when we … are in a position to give them the confidence and advice that they need before doing that," Groser said.

The ban was not officially announced by Chinese authorities. Inquiries to the Ministry of Commerce and the General Administration of Quality Supervision, Inspection and Quarantine were not answered yesterday.

China is the largest importer of dairy products from New Zealand, with 80 per cent of China's imported milk powder from the country, Xinhua reported.

Professor Wei Ronglu , with the Western Dairy Development Association, said the ban would not have a significant effect on the mainland's dairy industry, as similar products could be imported from Europe.

Fonterra said on Friday that three batches of its whey protein had been contaminated with clostridium botulinum, which can cause botulism and affects the muscles. In serious cases, it can cause respiratory failure.

About 40 tonnes of the Fonterra products were sold to three Chinese clients. China's General Administration of Quality Supervision, Inspection and Quarantine said four domestic companies may have been affected.

They are Shanghai Yanjiu; Dumex Baby Food, a Danone brand; and Wahaha Health Food and Wahaha Import & Export, both of which are under the Chinese food and beverage giant Hangzhou Wahaha.

Representatives from Dumex, Hangzhou Wahaha Health Food and Coca-Cola (China), which had purchased some of the imported whey protein from Shanghai Yanjiu, were summoned yesterday to meet the State Food and Drug Administration.

The watchdog urged them to stop sales of such products and to recall all goods produced using potentially tainted materials.

Dumex, which imported 209 tonnes of whey protein from Fonterra, said 12 batches of baby formula were produced from the problematic raw material, amounting to 664 tonnes.

It said some of products had not been distributed, while those that had been distributed - about 420 tonnes - would be recalled and destroyed.

Coca-Cola (China) said that nearly five tonnes of imported whey protein had been safety quarantined and that 25kg had been used to produce bottled Minute Maid fruit milk.

Coca-Cola is tracking the production and distribution records of affected products for recall. But it said the production process ensured safety, as it involved high-temperature sterilisation.

Chinese debt

5 signs that China is about to fall off of a debt cliff

Quartz,

17 June, 2013

In a classic case of procrastination, China has been keeping its massive debt crisis at bay by issuing more debt. However, Fitch’s Charlene Chu, a leading expert on China’s debt, thinks the country’s time is up. ”The credit-driven growth model is clearly falling apart,” said Chu in a recent report. Chu’s argument is that usually “stress starts in the periphery and moves to the core.” 

Here are five signs that she’s right:

1) Plummeting exports in May

A government crackdown on fake trade invoicing likely caused a sharp drop-off in exports, which rose 1% year-over-year in May, compared with 14.7% in April. (Export traders overstate export orders to take out cheap loans in Hong Kong, funneling those loans into shadow banking investment products, which offer higher returns.) That means export growth (and economic growth overall) has been much less than China’s headline data suggest.

2) The spike in interbank rates continues

Smaller banks are scrambling to get cash. Interbank rates began spiking in early June, when the export invoice crackdown officially began. The immediate cause was the alleged default on mid-tier Everbright Bank’s 6 billion yuan loan from Industrial Bank. The crackdown on invoicing probably worsened the resulting liquidity shortage. The one-week rate has come down only a little from early June.

3) A crackdown on unsecured loans is imminent

A scheme similar to fake trade invoicing is brewing in short-term bank notes. In Q1 2013, banks issued 670 billion yuan in short-term bank notes, up 198% from the same period in 2012. ”Over the last couple of years is that banks will kind of invent assets out of thin air in order to create loans,” Anne Stevenson-Yang, founder of Beijing-based J Capital Research, explains. ”The main one over the last few months is reverse [repurchasing agreements], which manage not to be booked against a bank’s loan-to-deposit ratio, so it’s kind of like free money.” If the government blocks this form of interbank trade, mid-tier and smaller banks will suffer even more.

4) Businesses are lying about profits and drowning in debt

The latest report from Caijing says that 71 firms in Guangdong exaggerated their earnings by more than $1 billion combined. And the problem extends beyond Guangdong. ”It is an open secret that aside from state revenue, all the other economic data are jellyfish,” (link in Chinese) a Fujian township accounting worker told Yicai (the implication being that jellyfish are 90% water). As companies lean more on credit-fueled investment in real estate and infrastructure projects (link in Chinese), they are more likely to inflate earnings to mask their lack of genuine growth. And as we recently discussed, corporate debt could amount to as much as 220% of the GDP.

5) Local government financing platforms are desperate for loans

China’s businesses and local governments aren’t bringing in anywhere near enough cash to keep up with debt payments. As a result, local government-affiliated investment vehicles are willing to borrow at rates of 17.5-20%  and they’re padding their balance sheets with fake collateral, based on a recent government survey. Obtaining those kinds of new loans to pay off the old ones will become nearly impossible if the crackdown on fake invoicing and short-term bank notes dries up all that excess liquidity.

The Australian economy

With the bad news always comes a dose of Hopium

Exports drop as trade deficit widens

A fall in coal exports and other mining commodities have increased the trade deficit.

the Age,

7 March, 2013

Australia’s trade deficit widened to $1.057 billion in January from a deficit of $688 million in December, figures released today by the Australian Bureau of Statistics show.

ANZ head of Australian economics Justin Fabo said it was worse than expected.

‘‘It looks like the coal exports numbers and a couple of other things on the non-rural side have come in weaker than expected,’’ he said.

‘‘It’s a bit worse than expected but we think the trade balance will get better through this year, just because of better export volumes.’’

Mr Fabo said it is hard to say but it looks like a slump in coal prices were having a longer lasting effect on exports than anticipated.

He said an improvement in coal prices should help the trade balance in the coming months.

National Australia Bank senior economist Spiros Papadopoulos said the fall in coal exports was due to flooding in Queensland during the month.

‘‘We knew coal exports were going to take a bit of a hit during the month so it was on the cards that we’d get a bit of a deterioration during January,’’ he said.

Mr Papadopoulos said the trade figures were likely to improve during the first few months of 2013.

‘‘We are seeing an improving trend coming through in the trade deficit and in coming months we expect that our exports will continue to improve and we’ll get closer to the zero line,’’ he said.

The Iranian economy

Carrots & Sanctions: Iran non-oil exports boom amid tough times

Of all the economic penalties imposed on Iran over its nuclear energy program, the oil export ban has hit the country the hardest. But despite the fact it's undoubtedly damaged the economy overall - it's also helped strengthen other industries in Iran.

New Zealand drought - collapse of NZ agriculture?

In yesterday's panel on Radio New Zealand the possibility of the collapse of the NZ economy through drought was mentioned (their expression, not mine)

It was pointed out that a projected surplus in the balance of payments of $125m turned into a deficit of $305m.

One-third of New Zealand's export receipts come from dairy; dairy production is particularly susceptible to drought. Already, according to Federated Farmers production is down 20%;another source said that milk production was down 20% every day.

To give an indication of the effects of drought, the years 2007-9 saw a triple drought on the East Coast. Estimates are that this cost the country $2.8 billion in export receipts.

Not a single menton of climate change was made – the talk was solely of mitigation and water conservation.

I recommend the Radio NZ interview below, that gives a good idea of the extent of the problem.

I would say that the New Zealand economy, and in particular, agriculture, are under extreme pressure. These come from the global economic collapse, climate change and disastrous government policies.

I will deal with some other possible contributors to a collapse of NZ agriculture separately.

--Seemorerocks

Northland drought strains farmers

For the third time in four summers Northland has looked like a scene from a western, and once again a drought has been declared, recognising how dire the situation is for farmers like Malcolm Welsh

3 News,

27 February, 2013

“[I am] struggling just feeding animals, [with] financial pressure, extra cost,” he says.

Northland’s last drought cost the local economy $30 million. The Government knows that could happen again.

“Yes, that is a concern,” says Mr Guy. “The Waikato situation in ‘07, ’08 took about $1 billion out of the bottom of the line for New Zealand, so we do know this is going to take a hit on the Government.”

The official drought status means in extreme cases farmers will be eligible for an emergency benefit. But the majority of support will come in the form of advice, such as help negotiating with creditors.

Parts of Northland have had their driest February since records began in 1948, and there's no sign of any significant rainfall on the horizon.

But Northland is not alone. Much of the North Island is teetering on drought status.

“We have a whole large area in New Zealand where the soils are extremely dry or significantly dry,” says NIWA climate scientist Georgina Griffiths. “So all of the North Island is bordering on that category.”

NIWA monitors soil moisture levels, and says historically Otago and Canterbury are dry in February.

But this year, as well as the South, much of the North Island is designated "extremely dry". Many areas are classified as also being “significantly dry”.

Niwa says it's going to take weeks of regular rainfall for the soils of the North Island to recover, and farmers like Mr Welsh can only anxiously wait.

GOVERNMENT POISED TO DECLARE DROUGHT IN NORTHLAND

Lynn Freeman talks to Julie Jonker, Northland Rural Support Trust coordinator and dairy farmer from Mata; Tafi Manjala, from Dairy NZ, an industry organisation owned by dairy farmers; and James Houghton, dairy farmer and Federated Farmers' Waikato provincial president