The Trade Impacts of a Food Scare: The Fonterra Contamination Incident

Abstract This paper examines the impact of a food contamination scare in the dairy sector on dairy exports. We investigate this question in the context of the 2013 Whey Protein Concentrate contamination incident in New Zealand. We assess the impact of this incident on dairy exports using synthetic control methods. A synthetic counterfactual scenario where the incident did not occur is developed using weighted information from other countries unaffected by the scare. We find that there was an initial negative shock to the exports of products that were thought to have been contaminated, but that there were no significant sustained impacts on other dairy products. The affected products made up only a small proportion of New Zealand dairy exports, with the vast majority of dairy exports being unaffected. Infant formula exports appear to have recovered more than a year after the scare. However, whey product exports (the contaminated product) remain lower than they otherwise would have been.