By: Mark Wallace
Originally posted at: http://www.capitalistexploits.at
It seems I arrived in New Zealand just in time to see the country implode over a bit of botulism and bad PR. Good thing I haven't converted all my dollars into kiwis just yet!
For those who haven't flicked on the boob tube lately I'll bring you up to speed quickly...
On August 3rd Fonterra, a New Zealand dairy co-operative owned by 10,600 New Zealand farmers, said that three batches of whey protein concentrate (used in infant formula and other products) that it made last year MAY contain bacteria that can cause botulism.
Some of that product ended up in China, which isn't great considering nearly 90 percent of China's $1.9 billion in milk powder imports last year originated in New Zealand, with the majority coming from Fonterra! A good chunk also went to Russia, where Fonterra controls 20% of that dairy market.
RUH ROH... Look out below! The immediate effect was a limit down open in the Kiwi dollar the next morning.
The product is reported to have been sold to eight companies in seven countries, amounting to about 500 tonnes in aggregate.
The Chinese, Russians, Saudis, Vietnamese and a few of other "freedom loving, consumer-conscious" nations are up in arms. They've temporarily banned some or all New Zealand dairy products, and their government distraction and PR mechanisms are in full-swing.
Coordinated media/banker/evil controllers FOREX profit event? OR, just some tainted milk powder?
One Saudi Arabian newspaper headline ACTUALLY read: "Important warning: New Zealand Milk Kills Children in Saudi Arabia".
WTF!!?? Kiwis poisoning babies! Say it isn't so FOX News!
The fact that NOT ONE child has gotten sick, or God forbid died, should have no impact on selling newspapers or air time, right?
We can't read Mandarin, but we imagine the local Chinese PR/media propaganda probably goes something like this: "Beloved and valued citizens, those evil Kiwi white devils are trying to kill your baby with their poison milk powder. Trust us, your benevolent leaders have your best interest at heart."
You may recall that back in 2008 locally (Chinese) made melamine-contaminated milk powder caused an industry wide scandal in China, killing and sickening babies in the country. We touched on the topic in an article entitled Investing In White Gold.
"Concerned Chinese consumer, you should ignore 'rumors' of toilet water ice cubes, the rat meat passed off as 'lamb' and the hundreds of dead pigs floating down the river through the center of your town. The real problem is that New Zealand milk! You should now confidently and safely return to buying our own, very best, top brand, lucky #8 Chinese milk. Don't worry, no more melamine, we fix problem," said random Chinese media propaganda stooge.
So what does the "real" Chinese consumer think? A Chinese newspaper recently reported the following: "Domestic brands aren't very good. Now, neither are foreign brands," according to Mr. Zheng Zhiqing, A Chinese grandfather buying formula in Shanghai. I have no idea how I should choose."
Hmmm, we have a novel idea, why not let the media tell you what to believe and buy instead of doing your own research. After all, it's just your baby.
Meanwhile, a Mrs. Zizi Zhang, feeds her 18-month-old kid formula milk imported from the US. She said, "My impression of New Zealand formula was really good... the cows and sheep are healthy, so you think the milk they produce is of a higher quality. I doubt people will switch to domestic milk powder. I'm even more nervous (now). All mothers will react this way. I just hope now that the U.S. won't have problems."
Good choice Mrs. Zhang, I'm sure the rBGH infused Monsanto milk from the factory farmed dairy cow standing in her own shit eating more Monsanto GMO corn is MUCH better for your baby than the Kiwi stuff! The fact that contaminated whey NEVER made it into the New Zealand infant formula you were buying is totally irrelevant!
China's state-owned news agency, Xinhua said, "...Fonterra has had a series of problems and this is beginning to shake the confidence of some Chinese consumers in its '100 per cent pure' milk powder."
Chris and I have been keenly watching the Chinese dairy sector, and like true capitalists we (and our CPAN members) have invested in a company profiting from the
scandals, I mean demand. So far business is good... very good!
- Strike one: The 2008 melamine mayhem led to the collapse of Fonterra’s local partner, Sanlu Group.
- Strike two: In January of this year Fonterra had to assure China that traces of an agricultural chemical found in some milk posed no health risks.
- Strike threeeeeee: This latest "scandal" now has the Chinese government questioning New Zealand's overall "100% pure" image.
Fonterra YTD Stock Price
As a result of all this cumulative bad news, China is increasing its scrutiny of international (and it says domestic - err, right...) food companies.
What is most important to understand, and vastly different in this instance compared to Chinese domestic scandals in particular, is that Fonterra found the problem, reported it and told all the relevant parties what they are doing about it.
So, despite all this grandstanding by the media, sorting the "noise" from the reality is critical to drawing intelligent conclusions. Of course the media has NO vested interest in consumers of their "product" actually thinking it through. They'll tell YOU what you need to think!
I'm not saying the Kiwis are saints, but contrast Fonterra's reaction and response to what normally takes place in China. The 2008 Chinese melamine-contaminated formula scandal was NOT made public by the company itself. Quite the contrary; the company attempted to lie and deceive the public about it until babies died and/or got sick.
The result was a few Chinese executives being taken out back and literally shot in the face.
One can only imagine what else the Chinese (and Russian, and Vietnamese, and, and...) public hasn't found out about, and likely never will. Oh well, better not to know I guess.
The practice of claiming to have moral standards or beliefs to which one's own behavior does not conform; pretense.
cant - dissimulation - double-dealing - insincerity
How might this affect our investment decisions? One thing we are consistently struck by is the sheer stupidity exhibited by central bankers and government stooges in their bid to "save us all from ourselves". As a result we can be relatively assured of a world which continues to enjoy monetary madness, aka "money printing".
In this environment food and agriculture, as we've (and men far smarter than Chris and I) have mentioned countless times before, needs to form part of any rational investors portfolio.
Is this therefore an opportunity?
New Zealand WILL survive. Fonterra will survive... New Zealand products have been and will continue to be of superior quality, regardless of the sensationalistic media propaganda being spewed. Anyone who takes the time to understand WHERE their food comes and WHOSE producing it will quickly agree.
Like I said earlier, there have been NO confirmed reports of any illness linked to consumption of the affected products. It's a classic media shit show.
Apparently excitement over the royal baby and the Kardashians has waned.
The masses needed something else to focus on. Baby killing botulism from down under seemed as good a story as any.
We encourage you, our readers to think for yourselves and ignore the hype, even profit from it!
How do you do that? Well, the talk around town is that as a result of this "crisis" monetary policy in New Zealand will probably get a bit looser, at least in the short term. That would create a softer Kiwi dollar still, which ironically should benefit New Zealand's exporters.
We're not saying to run out and buy Fonterra tomorrow, but as a well-known Chinese proverb states, "In crisis there is opportunity" We're certain that a few prop trading desks are already on the case. Hmmmmm, maybe it was a conspiracy all along!?
Don't send me hate mail yet, as I actually don't believe in a milk conspiracy, LOL... But, in the manipulated and manufactured government propaganda-controlled media environment we live in, where the only people that profit are on the inside, and the only ones that get prosecuted are on the outside, what DO YOU believe?
Regardless of the complete idiocy and ridiculousness of the situation, it's nonetheless a serious PR nightmare, embarrassment and economic disaster for New Zealand, and they have not handled it well.
Kiwis are a polite, sensitive and apologetic lot. All of this attention and conflict doesn't mesh well with their laid back and under-the-radar demeanour. They are a bit like a deer in the headlights (or a roo in the headlights for our Aussie friends) when confronted with international conflict.
According to Stephen Toplis, head of research at Bank of New Zealand, “It’s reputational risk more than anything, and that will be determined by what happens over the coming weeks in terms of how the company responds.”
Our guess is that Fonterra will prove that the contaminated product has been identified and contained. It will reassure China and its other trade partners that quality control measures will be increased. No one will get sick or die.
China WILL lift the restrictions and continue to import New Zealand dairy products. They have to, especially now that they are reportedly doing away with the one-child policy. There's going to be a lot of new mouths to feed.
The Kiwis will assure their trade partners that new regulations and safety precautions will be considered to alleviate future quality issues and restore confidence. As a result, trade will rebound quickly, the Kiwi dollar will firm, banker's prop desks will profit and life will go on.
(Side note: We believe the NZD will eventually decouple from the AUD and actually trade higher than its neighbor versus the USD. It won't happen overnight, and when the AUD rolls over, which it will, the NZD will go with it...at first. However, New Zealand's strength in agriculture, social stability, geographic desirability and a few other "plusses" should make this tiny country shine. A long NZD/AUD trade could be a long-term winner.)
But fear not scandal-craving masses... The royal baby will have his first fart for the media to report, a Kardashian (or some other useless stooge) will release another sex tape, or maybe Paula Abdul will announce her comeback to "Idle"..? So much excrement!
Regardless of whatever happens with Fonterra, China and New Zealand dairy in general, it certainly won't stem the tide of Chinese student "tourists" and "cash immigration" into the country. Auckland real estate is out of control, and it isn't Graham from the countryside buying it!
So, poison whey or not, obviously this place ain't so bad! But, that's a story for another day.
"There have been no customer complaints." - Theo Spierings, Fonterra CEO
"It’s mostly self censorship. In fact I would say it’s probably the most significant one, historically, has been economic censorship. Where it is simply not profitable to publish something. There is no market for it. That is I describe as a censorship pyramid." - Julian Assange, Wikileaks founder