Jiawai gained authorised reseller status only in March and a former employee was alleged to have carried out the powder fraud before that time.
Chinese reports said he divided Fonterra milk powder with an expired best-before date then on-sold smaller packets several times at below market price through wholesalers and e-commerce channels.
Fonterra said it was not part of the official investigation into the use and sale of its expired products in China and was therefore restricted in what it could say on the products involved, the expiry dates, when they were sold and to whom.
Reports said 300 tonnes of milk powder were involved and 19 people had been arrested.
“We believe this is an isolated criminal incident not directly related to Fonterra and we are confident our systems are robust and working as they should be,” a spokesman said.
“We provide guidelines to direct customers on how expired or damaged products should be managed in a responsible way and we expect these to be adhered to.
“In this case it seems the issues have occurred much further along the supply chain, not with a direct customer.
“Because we aren’t part of the official investigation we have very limited access to the facts and need to be overly cautious.”
Hence the preliminary suspension of Jiawai until all details were known.
The Chinese authorities had acted strongly and swiftly to investigate and arrest the people they believed were responsible and Fonterra fully supported their actions.
If the product was whole milk powder, which comprised the majority of Fonterra tonnage into China, then the 25kg bags would carry a best-before date.
Industry sources said milk powder would still be usable and safe after that date.
Without details of the products concerned, Fonterra was not prepared to comment on the degree to which it kept tabs on product life, use and disposal after sale.
Any breach of the terms and conditions of sale, including management of expired or damaged goods, would be taken very seriously, Fonterra said.
It was also using the incident to confirm its own systems were robust and that work was under way.
It would look at what more it could do to prevent on-selling of products.
