Dollar drops after threats to contaminate dairy products revealed

The New Zealand dollar fell sharply after government officials said police have been investigating threats to contaminate infant formula and related dairy products with the pest-killing poison 1080.

The kiwi traded at 72.98USc  at 5pm in Wellington. It fell as low as 72.75USc after the announcements, from 73.31USc late yesterday. The trade-weighted index dropped as low as 76.65 from 77.04 before the announcements and from 77.05 yesterday.

The Ministry for Primary Industries has tested more than 40,000 raw milk and product samples since November, when Federated Farmers first received anonymous threats in the mail, which included infant formula laced with the poison. That letter threatened to contaminate dairy formulas if the use of 1080 wasn't abandoned by the end of this month. Trading was briefly halted in the shares of dairy companies and on the NZX Dairy Futures and Options market. No contaminated product has been found.

"It caused a scare in the kiwi as the story hit the headlines," said Imre Speizer, strategist at Westpac Banking Corp.

Dairy products are New Zealand's biggest export and contribute enough to the economy for global prices and drought in farming areas to be on the radar of the Reserve Bank. Food scares can damage the reputation of the nation's products in export markets, as happened with Fonterra Cooperative Group's whey protein contamination scare in 2013, which turned out to be groundless.

Fonterra chief executive Theo Spierings, who also received a threat in the mail, told a briefing in Auckland that the government and police are leading the investigation and had informed New Zealand's key trading partners, while the dairy industry had worked together to lock down the supply chain.

He said it was "far too early" to think about the financial implications the threat might have on its global business and Fonterra is focusing on ensuring the safety of consumers.

The kiwi increased to 88.91 yen from 88.77 yen late yesterday and was little changed at 95.44Ac from 95.31Ac. The local dollar traded at 67.50 euro cents from 67.64 cents yesterday and dropped to 48.40 British pence from 48.68 pence.

(BusinessDesk)