SMELLIE SNIFFS THE BREEZE: Our value to China

SMELLIE SNIFFS THE BREEZE: Our value to the Chinese

by Pattrick Smellie

Aug. 11 (BusinessDesk) – Not for the last time, Fonterra has had to deal with a food safety crisis in China.

Perhaps for the first time, it has been able to deal with the story – at home –in a firm, low-key way.

In China, no one on the street knows who Fonterra is, but they know they want to drink milk products from New Zealand because the local stuff is so dodgy.

First its melamine, some toxic chemical that gives babies gall-stones or something, and now a product that makes small girls grow breasts? These are public relations nightmares, but hopefully and rightly, only for the brands involved, which only Chinese consumers have ever heard of.

Fonterra, paradoxically, can expect to win from this latest Chinese food safety scare in the same way as it did after the San Lu melamine disaster.

Obviously, Fonterra didn’t welcome the wealth destruction that came with losing the San Lu brand, but it did help the New Zealand brand.

The fact is that the institutions of a civil society as we understand them don’t work that well in China.

There’s a lot of corruption, and state governments make the rule of law precarious and full of surprises for foreigners investing in an authoritarian one-party state that’s also getting rich.

The attempted bilking of NZX-listed Copthorne Millennium Hotels by one Cheung Ping Kwong is a case in point.

Cheung was a shyster straight from the pages of Tim Clissold’s classic account of modern Chinese capitalism, “Mr China”.

Millennium says he used intimidation to make off with the company seals of a joint venture company, then sold properties worth US$44.9 million, approximately 28% of its net assets, to various associates. Some NZ$21.5 million is Millennium’s share of the remaining exposure.

The company is now “heavily dependent on the assistance and cooperation from all the relevant official authorities” to chase Cheung, who may have some degree of “untouchability”.

By comparison, the process of applying to buy land in New Zealand seems farcically ethical by comparison, and that’s partly the point.

In a country where you don’t trust the government or food producers to act in your best interests, one of the first things you’ll do when foreign products start appearing and wealth starts accumulating is to buy them if you can afford them.

The Chinese will use their new-found wealth to buy many things, and in food, it will partly be trust, which New Zealand has in spades.

Forget the reality of dirty dairying and campylobacter from dodgy chicken raging through too many of the nation’s digestive systems. They can't go on unchecked, and they probably won't. Gormless we may be a bit, but this country has a good name when it comes to natural products.

Yes, China buying farmland in New Zealand is partly about securing food production for a billion-plus citizens who now have money.

But this food trustworthiness is also a major part of the value inherent in New Zealand agricultural production.

Fonterra is our best-placed entity to ensure the country profits from this sometimes frightening opportunity to deal with an emerging superpower.

Hence the leadership it shows in farming politics that is so starkly absent in traditional quarters.

But Fonterra cannot be complacent. Repeated food safety scares could put consumers off the products altogether, and just like Nike had to monitor factory conditions, Fonterra will face corporate citizenship pressure to influence Chinese food safety practice and regulation, even where it is simply a supplier.

(BusinessDesk) 00:00:15

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