USA: U.S. Debt-Cap Accord – What are the prospects for Congress approving an increase in the U.S. debt limit?

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I just read on Bloomberg that “Senate Leaders Say They’re Optimistic on U.S. Debt-Cap Accord

Well if Congress wants to buy time and avoid a global financial meltdown (at least in the short term) they had better be optimistic. Especially since its the dysfunctional bi-partisan US political system rather than the the state of the that is driving this present crisis [for the most part part].

Notwithstanding the the undeniable fact that the raising of the debt ceiling is really tantamount to putting putting ‘some ointment and a band-aid’ on a wound that needs surgery followed by a course of antibiotics.  However without this band-aid the US Treasury has said it will reach the debt cap of US$16.7 trillion  on 17 October 2013.

The US Congressional Budget Office pulled no punches issuing a warning  that if Congress does nothing, the US federal government will not be able to meet repayments between 23 Oct. and 31 Oct. 2013 (starting with the US$12b Social Security payment which is due on 23 October 2013).  A US default would send shock waves through Wall Street, triggering another economic crisis as borrowing costs would spike across the economy. These shock waves would reverberate outwards affecting country after country.

Jason Lange of Stuff.co.nz in a piece (How the US could default) posted last week on 8 October put it like this:

[In the event of a US default, the US economy] would sink like a stone. Once default began, the [US] government would have to slash its spending overnight by about a third. The fiscal drag, if it lasted a full year, would be the equivalent of up to 4.2 per cent of national economic output, according to calculations by Goldman Sachs.

That doesn’t take into account the potential for a financial crisis. If investors lost their cool, stock markets could tumble, hitting pension funds and leading consumers to spend less of their money. Credit markets could freeze up because investors around the world might reassess the value of US debt, which serves as collateral for trillions of dollars in loans and other financial transactions [around the world]. The Treasury has warned a default could trigger the worst recession since the Great Depression.”

Incidentally this nightmare that would result  from the imminent default in the event of a congressional impasse would coincide with the arrival of Halloween. Oh the irony!

According to Blomberg the Agreement will:

The emerging agreement would suspend the debt limit through Feb. 15, 2014, fund the government through Jan. 15, 2014, and require a House-Senate conference on budget matters by Dec. 15, according to a Senate source familiar with the talks, who spoke on condition of anonymity to discuss them.”

The Recent USA Federal Government Services Shutdown

In recent weeks we’ve seen picture son TV of federal government shutdown where with the prospect of a looming US default after Republicans in Congress ruled out the ability of the US to borrow any more,  without concessions (mostly Medicare) from President Barack Obama. The inability to borrow resulted in the systematic shutdown of US Federal services.

A graphic produced by the Chicago Tribune which was featured by stuff.co.nz last week breaks down the shutdown by State and by Government service.

The Effects of the USA Federal Govet. Services Shutdown across the USA (source Chicago Tribune)

The Effects of the USA Federal Govt. Services Shutdown across the USA (source Chicago Tribune)

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Chinese Exports down & Imports up! China set to overtake the USA as the Largest OPEC Importer!

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According to Sydney Morning Herald China’s export growth decreased in September driven by a ‘tumble’ in  sales to South-East Asia tumbled.

China’s exports dropped 0.3 per cent in September from a year earlier, the Customs Administration said on Saturday, sharply confounding market expectations for a rise of 6 per cent, and marking the worst performance in three months. Imports fared better, rising 7.4 per cent in September from a year ago, better than forecasts for a 7 per cent increase, shrinking China’s monthly trade surplus to $US15.2 billion.”

Analysts cite worries about flagging global demand for Chinese products in in emerging markets – especially when tighter US monetary policy pushes investors away from developing economies. According to Analysts data showed Chinese exports to Southeast Asia, China’s fastest-growing export market in the past year, dived to a 17-month low in September.

According to SMH:

A breakdown of the data showed exports to Europe, the second-biggest buyer of Chinese good after the United States, South Korea, Taiwan, and Australia all fell last month. Shipments to Taiwan struck a 17-month low while those to Australia posted their worst growth in three months. Japan was the lone bright spot, registering growth for Chinese exporters for the first time in eight months. Sales to the United States cooled, even though the monthly value of exports were at their highest in over a year.”

Other analysts have cited a strong renminbi has one driver behind the erosion of China’s export competitiveness.

But we’ve heard this all before… Indications of DECLINE… Yet so far the hard landing that all the analysts have been long predicting has yet to happen. A slowndown in one quarter is not indicative of a trend. SMH although quick to show a drop in exports went so far as to acknowledge this:

…dismal exports performance comes after the world’s No. 2 economy showed encouraging signs of stabilisation, having fought a slowdown that lasted in 12 of 14 quarters. Trade, factory production and the services sector all picked up in the past two months.

Attention now turns to China’s third-quarter gross domestic product data and other figures for September due next week. Economic growth is expected to quicken to 7.8 per cent in the third quarter from a year ago, up from 7.5 per cent in the previous three months.”

One indication of continued churning of Chinese market machinery is the sustained demand for oil. Which this last September, saw more crude head China’s way than to any other state including the USA.  WSJ Asia China is on track to become the world’s top buyer of oil from the Organization of the Petroleum Exporting Countries:

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China set to become Top OPEC Customer

The video above sees WSJ’s Deborah Kan talks to Wood Mackenzie’s President of Global Markets William Durbin about China’s growing demand for Middle East oil and its commercial and geopolitical consequences.

This is re-iterated by the Sydney Morning Herald that also provides readers with some data:

Average imports of crude in September stood at 6.25 million barrels per day (bpd), up 28 per cent on the year and topping the previous record of 6.15 million bpd set in July.

Net imports of 6.23 million bpd show that China overtook the United States in September as the world’s biggest net oil importer, a trend which the US Energy Information Administration said would continue through 2014.

In terms of monthly tonnage, September imports of 25.68 million tonnes was the second-highest on record after July, bringing total shipments in the first nine months to 211.3 million tonnes, up 5.4 per cent from a year ago.

Traders have attributed the monthly gain to a slew of large refineries going online after completing scheduled maintenance.”

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The demand for Salmon in Korea is exponential – Norway moving to ensure it is them that will meet it!

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I read yesterday on “Norway” (the official Norwegian Government Sth Korean Consular type website) that a Norwegian seafood company (Marine Harvest) opened a Seafood Processing Plant in Incheon, South Korea.

I have to admire the initiative. I admire South Korea for addressing the demand for Salmon, and acting upon that demand by facilitating its continued supply… by what can only be (I postulate) some type of joint venture that will help their foreign joint venture partner successfully navigate complicated domestic market and country of origin rules for imported seafood.  I admire the Norwegians for getting out there making the most of their FTA with South Korea, and securing a market for their Salmon with an adherence to quality, aggressive marketing, and a “can do” attitude.

Norge Seafood has a significance presence in South Korea, with sales not only limited to salmon products (http://blog.naver.com/norgeseafood/)

Norge Seafood has a significance presence in South Korea, with sales not only limited to salmon products (http://blog.naver.com/norgeseafood/)

"Innovation Norway' has a team on the ground in Seoul (of mostly Korean nationals), to facilitate linkages between Norwegian and Korean commerce. In their own words "Planning establishment in South Korea? Or are you looking for business partners in this exciting market? Contact us and we set up a meeting with you in Norway"(see http://www.innovasjonnorge.no/Kontorer-i-utlandet/korea/)

“Innovation Norway’ has a team on the ground in Seoul (of mostly Korean nationals), to facilitate linkages between Norwegian and Korean commerce. In their own words “Planning establishment in South Korea? Or are you looking for business partners in this exciting market? Contact us and we set up a meeting with you in Norway”(see http://www.innovasjonnorge.no/Kontorer-i-utlandet/korea/)

The Norway article refered to the opening speach of Norwegian Ambassador to the Republic of Korea, H.E. Torbjørn Holthe:

The investment in this packing plant shows Marine Harvest’s commitment to bringing fresh Norwegian salmon to South Korean consumers

The Marine Harvest processing facility (which opened two days ago in Incheon) is essentially a salmon filleting and packaging facility. The article quotes Henrik Vikjaer Andersen, Norwegian Seafood Council Director for Japan and South Korea as saying:

With this modern factory Marine Harvest can make an even stronger case to South Korean consumers that their fresh Norwegian salmon is as safe to eat as it is tasty.

But I read the subtext like this:

With this facility in place, we (Norwegian Marine Harvest) can readily supply South Korea (and other North Asian markets China and Japan) with ‘cheaper’ high quality product, that is prepared locally, which not only enables more connectivity with the local North Asian Market, but strategically places Marine Harvest salmon products right in the middle of the domestic mass market (at least in South Korea for the time being). In addition, the move also provides Marine Harvest with considerable leverage over other regional producers whose products will continue to be perceived by locals (and thereby forcing those other products to market themselves in South Korea) as premium foreign products.

The Article continued:

Since the FTA between Norway and the Republic of Korea came into effect in 2006, Norwegian fish exports to South Korea have seen a sharp increase. Norwegian seafood exports totalled NOK 462 million in 2012, about half of which was salmon. In 2012 South Korean imported more fresh Norwegian salmon than frozen for the first time, a trend that continues in 2013.

“Marine Harvest’s brand new facilities will further fuel this development. In just a few days a salmon swimming in pristine Norwegian waters is transformed into high quality seafood ready for consumption in South Korea” H.E. Ambassador Holthe continued.

Marine Harvest is a world-leading seafood company present in all major salmon farming regions in the world and it produces one fifth of the global salmon production. In addition to fresh and frozen salmon, Marine Harvest offers a wide range of value added products such as coated seafood, ready-to-eat meals, finger food and smoked seafood. The company employs 6 200 people and has operations in 22 countries worldwide.”

The move by Norway should be an inspiration to others. It should at least inspire producers from my native New Zealand. I am looking at the similarities between New Zealand and Norway, and the advantages New Zealand has (in a farmed salmon context that is). I think New Zealand should do something similar… if not better. It isn’t as though New Zealand is not able.

New Zealand has an FTA with Hong Kong – a market of 7.155 million people (2012 World Bank). This market although only around 14% of the size of the South Korean market also also enjoys a high demand for salmon products. The same goes for Singapore (with whom New Zealand has a CEP Agreement) which has a market of  around 10% of the size of the South Korean Market. Singapore also also enjoys a high demand for salmon products.  But I am thinking more about New Zealand’s  FTA with China, whose massive market (a staggering population of 1.3 billion people) also has a high demand for salmon products… To top it off, just like Norway, New Zealand produces fantastic Salmon. I would go so far to argue that New Zealand’s farmed Chinook salmon (which is characterised by its large size) is in a league of its own.

Marlborough Sounds, New Zealand. Home of New Zealand King Salmon... Producers of which say that they "Sustainably produc[e] the world’s best salmon." (see http://www.salmon.org.nz/)

Marlborough Sounds, New Zealand. Home of New Zealand King Salmon… Producers of which say that they “Sustainably produc[e] the world’s best salmon.” (see http://www.salmon.org.nz/)

Yet the salmon farming in New Zealand is nowhere near as cohesive as it is in Norway.

Recently I saw a presentation by New Zealand King Salmon, CEO Grant Rosewarne… and to be honest I was both inspired and saddened. I was inspired by Rosewarne’s boldness and clear vision. He presented a picture of New Zealand King Salmon doing great things for our region, both economically and environmentally.  But I was saddened by the lack of boldness and lack of vision shared by so many other New Zealanders, who cannot see Rosewarne’s vision (or refuse to see it), who just cannot internalise Where New Zealand is now and then take a long term strategic view of the market, nor can the anticipate the relationship between between development at home and market engagement abroad.

Without that cohesion and shared entrepreneurial spirit that Norway obviously has, New Zealand cannot possibly begin to make good on it’s potential, and utilise the full potential of not only it’s resources and it’s spirit, but also the international relationships New Zealand possesses, and recognition brand New Zealand receives abroad.

To truncate a long story, and postulate a point – New Zealand has to provide it’s primary producers with the requisite social licence to operate. At present New Zealand cannot produce enough salmon to meet global demand not only for salmon, but for New Zealand salmon.

Table showing Global Farmed Salmon Production per year

Farmed Salmon production

New Zealand King Salmon has applied to bring this total annual production up to 30,000 tonnes, which although a significant increase in productivity; at 1.8% of total farmed salmon production, is still considerably less than the Faroe Islands and Tasmania, and miles from the production of Norway (whose farm salmon comprises almost two thirds of the market).

As of yet the approval (“the social licence to operate” ) to expand the King Salmon operation from 5 ha to 12 ha is still pending… with ferocious opposition coming mostly from New Zealand’s considerable ‘green’ lobby.

However I am an optimist. I am hoping the reason will win the day and that the New Zealand Government will realise that if they do not facilitate growth; notwithstanding the high quality of New Zealand salmon, the larger producers will continue to occupy a higher share of the market, and worse still,  our customers who demand New Zealand salmon, and who are unable to source New Zealand Salmon, will buy the next best (probably Norwegian) as shoppers usually do. And as we’ve seen above, this is going to be easier with Norwegian salmon now being processed and packaged locally, in Incheon.

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New Zealand: Currently ranking sixth among major global markets for IPOs?

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I just read a story in the Asian WSJ (New Zealand’s Privatization Effort Propels IPO Market) which totally took me surprise… little New Zealand with its population of only 4.5 million people, “this year ranks among major global markets for initial public offerings (IPOs), thanks to a government privatization drive that has put the stock exchange on pace for one of its best-ever years for IPOs by value.”

So far this year, the NZX Ltd. has hosted a total of US$2.3 billion of IPOs, nearly double the $1.3 billion raised over the previous six years combined, according to data provider Dealogic. That has catapulted it into sixth place among the Asian-Pacific region’s top IPO markets—behind Japan, Hong Kong, Singapore, Australia and Thailand—and puts it in 14th place world-wide.

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Furthermore according to the Asian WSJ “the benchmark NZX-50 share index hit an all-time high last week and is the second-best performer in the region this year, behind only Japan’s Nikkei Stock Average.”

Analysts who note that the NZX-50 gained 16% this year add that “New Zealand has growth fundamentals that a lot of countries would like to have.” This has no doubt “further underpinned consumer confidence.”

Air New Zealand

Air New Zealand

According to the Asia WSJ”

The privatization program driving the new listings is intended to help restore the government’s budget to a surplus in the fiscal year through June 2015, ending five years of deficits, by raising around five billion New Zealand dollars (NZ$4.2 billion). The government has already raised NZ$1.7 billion from the sale of a 49% stake in electricity generator Mighty River Power LtdOn Friday, government officials revealed details of the biggest sale of a state-owned asset in the country’s history—the IPO of Meridian Energy Ltd. The government wants to sell 49% of the company, which supplies electricity to households and businesses, and estimates the stake to be worth at least US$1.6 billion. The targeted listing date is Oct. 29.

It also plans to sell 49% of Genesis Energy Ltd. and 23% of listed flag carrier Air New Zealand Ltd. The Air New Zealand stake is valued at about NZ$350 million and might be sold later this year. The Genesis Energy offering, likely to raise around NZ$1 billion, is expected early next year.”

So how is this impacting neighbouring Australia?

The new life in New Zealand’s IPO market is giving a helping hand to the Australian Securities Exchange, where listings of domestic companies have stagnated. Mighty River Power and New Zealand fuel retailer and refiner Z Energy Ltd., which raised US$677 million in an IPO last month, were also listed on the ASX. The New Zealand government also plans a secondary listing in Australia for Meridian.”

Furthermore “expectations that the New Zealand dollar will rise against the Australian dollar have kindled interest in the IPOs among Australian fund managers looking to place bets on swings in the currencies.”

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New Zealand: According to Key, New Zealand could sign FTA with South Korea within a year

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New Zealand could sign a free trade agreement (FTA) with South Korea within a year, Prime Minister John Key says, as he warned (Kiwi Chamber – a Seoul business group) talks needed to be treated with urgency. Talks (which stalled in 2010) maybe resuming as soon as October according to South Korean President Park Geun Hye.

“Both New Zealand and South Korea have signed FTAs with other countries, and need to ensure that the stiff tariffs imposed by South Korea did not hurt the relationship. In the very least according to New Zealand Prime Minister John Key “We need to get our deal done to ensure that the bilateral trade relationship keeps pace with the trade relationships we have with other countries.”

Key is confident that a deal could potentially be signed within a year, and the odds of an agreement within three years was 65 per cent: “There are always potentially sticking points and in the end it can come down to quality of the agreement but I’d have to say, on balance, I’m better than 50:50 we’ll get there.”

An FTA with South Korea could be worth “billions”, Key said.  South Korea has a population of 50 million, their wealth per capita is similar to New Zealand’s and they are destined to become wealthier.

Sir Graeme Harrison, the founder of meat processing company ANZCO and chairman of the NZ International Business Forum, said New Zealand had only limited product to sell to the world, but a deal with Korea would help spread risk. “This is about a balance of risk, because clearly we don’t want to put all our eggs in one basket.” Harrison said business with South Korea was already being eroded by its agreements with other countries. Exports of beef were being hurt by the US FTA with South Korea while kiwifruit exports to were being hit by Chile’s agreement with Seoul.”

It is important to keep in mind that New Zealand’s tariffs on products to China, Hong Kong and Taiwan – which for the purpose of the free trade deal is with Chinese Taipei – will be eliminated by 2016. Yet for New Zealand products entering South Korea, a tariff of up to 40% in some cases is still being imposed. This cannot be good for both New Zealand and South Korea.

Related articles

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New Zealand: 100% Pure Over-reaction? Or is brand New Zealand irreversibly damaged as some fear?

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Notwithstanding the voluntary nature of the recall of whey product by Fonterra, the fact that the recall was due to a risk of botulism, rather than someone actually getting it, and the botulism risk being only ever ‘one in millions’ … China has raised alarm from the rooftops, cracking the New Zealand nut with a sledgehammer.

But how much damage has China really done to their free trade partner?

People in New Zealand are valve bouncing! Well they are according to farmer.co.nz, where in an Op-Ed (Faith in New Zealand ‘shattered’) Andrea Fox paints a rather bleak picture:

As New Zealanders move on from Fonterra’s botulism food safety fiasco, disillusioned Chinese people are cancelling their plane tickets to this country. While Kiwis’ faith in Fonterra is bruised, China’s trust in New Zealand is shattered, say experts in the culture of our biggest export customer.

“The injury is very deep,” says expat David Mahon, a veteran investment adviser in Beijing. “People have cancelled visits to New Zealand because it is not 100 per cent pure,” says Massey University associate professor of marketing Henry Chung, who has studied the Chinese market for more than 20 years. “After this event, the Chinese consumer and the (Chinese) government cannot tolerate any more. If anything happens again, any explanation will be considered redundant.”This is the last chance to get it right.”

Strong words, which many Kiwis will no doubt brush off as an over-reaction to a food safety scare that has claimed no victims.

But they help explain why no fewer than nine senior Government ministers, including the Prime Minister John Key and Finance Minister Bill English, hastily formed a damage-control team when New Zealand’s biggest company and controller of 90 per cent of the dairy industry dropped its botulism bombshell in the wee hours of last Saturday.

There is, so far, no health crisis. But it seems our relationship with our biggest export market, which accounted for $2 billion of Fonterra revenue last year, is on a knife edge.

Chung and Mahon say the reason is simple: Fonterra IS New Zealand, and New Zealand and China had a unique and long relationship.

Mahon says: “New Zealand has been trusted more than nearly every other OECD country. We were in a special category and have been viewed that way since 1949 (the year of the communist revolution).” “There is an unbroken relationship of trust that New Zealand was different. In the space of 12 months we have managed to unravel that. “

Chung, who migrated to New Zealand from Taiwan 20 years ago, says Chinese people are very aware that New Zealand was the first country to recognise their government, and the first country with which they signed a free trade agreement.

“People in China are asking a very interesting question – ‘if New Zealand [product] is no good, who else is good?’. That is being asked by a lot of consumers. That is a compliment, but it’s also a huge responsibility to deliver a high-quality, and most importantly, healthy product.”

Trade and marketing experts say the injury being felt by Chinese consumers is because New Zealand has heavily promoted the “pureness” of its export products – and extracted premium prices for it. And because of China’s own poor food safety standards, evidenced by a string of scares and casualties, its people have come to rely on New Zealand food – dairy in particular.

That faith has been sorely tested this year [...]

Then last weekend came the announcement that Fonterra, which brings in 25 per cent of New Zealand’s export earnings, had, five months ago, in March, found “elevated” levels of a botulism strain in whey protein concentrate it had sold as an ingredient in the making of baby formula, as well as other products, including sports drinks, yoghurt and animal feed.

Fonterra said that on July 31 it received the results of tests on the previously flagged strain which confirmed it had the potential to be toxic. As some of the product containing the potential toxin had already been sold, customers had been alerted, Fonterra said.

Fonterra quaintly headlined its announcement “a quality issue”, and said the potentially affected product involved 38 metric tonnes of whey product manufactured at its Hautapu processing plant near Cambridge.

By Wednesday Fonterra was saying it was confident it had secured the location – domestic and international – of all potentially affected product. On Thursday, the Government, which sent MPI officials into Fonterra’s plants and offices to do an emergency audit, confirmed the whey product was confined to three batches made at Hautapu last year, and that no other New Zealand dairy products were affectedNo one was sick, no-one had died. The frenzy is over, but the reckoning is to come.

Mahon, who has been a consultant to Fonterra in China, is critical of Fonterra’s handling of the botulism scare alert, saying it “drip fed” mixed information which had the effect of “traumatising” Chinese people.

“It wasn’t up front or with clarity, all good reasons for people here to have a crisis of confidence over New Zealand – and it’s cumulative.

“The sense is what is New Zealand doing? Do they take China seriously as a market, or are they throwing product at us? The sense here is that they used to trust New Zealand, it was a place of integrity. That is now doubted.”

Mahon says there has been “‘huge” damage to New Zealand’s credibility in China and he believes a concerted, long and sincere “campaign” by this country in China is necessary if the relationship has any chance of being restored. It is my understanding that what the market expects . . . [what] the consumer wants to have explained to them is why this took place, what was the issue and how is it no longer an issue.”

Fonterra chairman John Wilson responded that the company’s efforts in China would be “ongoing”. “Fonterra must always earn the respect, and no doubt at a whole lot of levels we know right now. That’s why I apologised… There was confusion in the first days because it was not Fonterra itself recalling product, it was our customers. The sheer complexity of that, to all of our concern, meant the messages were mixed and not as simple as we would obviously have liked.”

Multiple inquiries will flow from the fiasco.

[...]

O’Connor says it must be acknowledged that “Fonterra has produced millions of tonnes of dairy product over the years that have been “admirably safe and high quality. We have hundreds of ‘New Zealand’ dairy brands in China now . . . and I don’t know them and have never heard of them, and I’m meant to be a specialist in New Zealand brands… “

“Every time a product goes out, we need to make sure it is high quality because in the end they [China] don’t view Fonterra as Fonterra, they view it as the whole country. One tiny thing can ruin the whole country’s image.” © Fairfax NZ News

Chinese Bans some Fonterra Milk Product

Click he Picture to view – Wall Street Journal Video – “New Blow to New Zealand’s Dairy Industry”

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China: Making a mountain out of a Fonterra molehill in order to possibly milk domestic potential?

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What is China Doing? Well according to the Wall Street Journal China’s media has been talking this up. Why? Simply, they are using the misfortune of Fonterra and ultimately ‘brand’ New Zealand to promote their own domestic dairy brands – which severely lack market prestige.

In the opinion piece “China Milks a Scandal: Foreigners are not the enemy when it comes to food safety” (Review and Outlook Asia. 8 August, 2013) The Wall street journal calls the Chinese media out:

“Another week, another food-safety scare in China. This time Beijing has been quick to trumpet the news that a product of New Zealand’s dairy cooperative Fonterra was contaminated with bacteria that can cause botulism. Chinese authorities are suggesting that this incident proves that domestic products are no riskier than the imports that consumers increasingly demand.

The scandal does raise serious questions for Fonterra, one of New Zealand’s largest exporters. The contamination affects whey powder—a diary by-product used as an ingredient in other foods—that was exposed to the botulism bacteria when it passed through an improperly cleaned pipe. This is a dangerous type of contamination, although in this case no one is known to have fallen ill.

But Beijing has compounded the problem with its actions since the contamination was disclosed (voluntarily by Fonterra). State media featured the story and questioned the conventional wisdom that imported foods are safer than their Chinese equivalents. A Xinhua editorial even attributed the Fonterra case in part to New Zealand’s “blinkered devotion to laissez-faire market ideology.”

People’s Daily quoted a Chinese dairy expert as saying “Chinese testing and technologies excel those in New Zealand, as China has a rather strict testing system on dairy products” (although elsewhere People’s Daily reports that this regime does not include testing for botulism). An associate professor at China Agricultural University was quoted as saying that “Chinese consumers should drop blind trust in foreign dairy brands and choose safe baby milk in a rational way.”

This is consistent with Beijing’s goal of restoring confidence in the domestic dairy industry, which hasn’t recovered from a 2008 scandal in which milk powder sold by Sanlu Group and others was contaminated with melamine, an industrial chemical. That incident killed six infants and injured hundreds of thousands. In another anti-foreigner move this week, Beijing imposed fines of $100 million on six foreign dairy firms for allegedly fixing prices.

All signs so far are that consumers aren’t buying Beijing’s propaganda. Yet Beijing’s approach to the safety scandal is still dangerous. Its insistence on peddling a questionable story about foreign-food contamination undermines public confidence in the honesty of regulators, even as Beijing has made some genuine progress in improving its safety monitoring.

The nationalist tone is hindering an important discussion about what China could learn from foreigners about food safety. Though New Zealand authorities will investigate the timeliness of Fonterra’s disclosure, the company did release the news not long after the contamination was found. This is a significant difference from the 2008 melamine case, when the contamination news was delayed for several weeks so as not to disrupt coverage of the Beijing Olympics.

Fonterra also offers a lesson in how a transparent system fosters accountability. Politicians in New Zealand have a strong incentive to assure voters that they are properly regulating the safety of a product many Kiwis consume and that is one of the country’s main exports. Fonterra farmers have expressed dissatisfaction with management and may push for changes to protect the value of the company they partly own. All of these issues will be ventilated by an independent press.

Fonterra’s botulism contamination appears to have been accidental, but the melamine scandal and other Chinese cases involved deliberate efforts to adulterate the food supply. Chinese consumers understand this distinction, and Beijing faces an uphill battle to restore public confidence in the food supply. That won’t happen until authorities speak honestly and adopt the successful foreign methods that the Chinese public still trusts to deliver safer food.

Sanlu Group

Sanlu Group (Photo credit: Wikipedia)

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