Food safety is crucial in China deal for baby milk

Six years ago, when tainted infant formula killed six babies in China and sickened 300,000, one of the biggest foreign investors in the sector was caught by surprise.

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The investor, the Fonterra Cooperative Group of New Zealand, one of the world’s largest dairy companies, had put millions of dollars into a partnership with the Sanlu Group, a Chinese maker of infant formula that was one of several found to have mixed an industrial chemical into milk powder to artificially raise protein readings.

Sanlu was declared bankrupt, and four of its executives were imprisoned. Fonterra was forced to write down the entirety of its investment of 200 million New Zealand dollars, or about $167 million at current exchange rates, in the Chinese venture.

Yet on Wednesday, Fonterra became the latest foreign company to make a new bet that it could turn a profit by bringing safer food to China. The company said it would spend more than $500 million in a deal with the Beingmate Baby and Child Food Company, a Chinese manufacturer of infant formula. A day earlier, Kohlberg Kravis Roberts, an American private equity giant, announced an investment of about $400 million in China’s largest chicken breeder, Fujian Sunner Development, in a deal intended to improve food safety and quality.

“China is a completely different environment now; Beingmate is a completely different partner,” Theo Spierings, the chief executive of Fonterra, said on Wednesday in response to questions from reporters about the Sanlu episode, according to Reuters. “We are very focused on learning from the past and moving on to the future.”