How multinational dairy companies convinced ministers to back away from new rules for baby formula

New baby formula standards were designed to prioritise infant nutrition and take the pressure off parents. But for formula companies, profits were at stake. And that's when the lobbying kicked in.

When Dr Gergely Toldi gives his tiny patients at Starship Hospital baby formula, he has no idea what brand it might be.

Like in nearly all hospitals around the motu, commercially-made infant formula given to term babies is prepared in a special room and brought to the ward in unbranded bottles. The formula supplier changes regularly.

And while breastmilk is always the first choice, when parents ask the consultant neonatologist what formula they should feed their baby, Toldi gives his standard response: "The one that best suits their budget. Because even the cheapest standard formula milk for an infant is safe enough to use."

Toldi's advice is founded on a fact infant formula companies do not want you to hear - that no matter the brand, the ingredients in baby formula are so highly regulated that all standard formulas are essentially the same.

Although some formula labels advertise special ingredients that will make a baby less fussy, healthier or even smarter, Toldi - who also researches the link between breastmilk and infant's immune systems at Auckland University's Liggins Institute - says it is best not to listen.

"Claims made about the inclusion of various ingredients are not necessarily always founded by strong scientific evidence."

Toldi says the ingredients in these "specialist" formulas, such as probiotics and prebiotics, types of proteins or breastmilk sugars, may not be harmful - but they are not necessary either. And there just is not enough robust evidence to confidently say they even work.

"It raises ethical questions around whether it's fair to try and convince parents to buy the more expensive product.

"It doesn't help parents make unbiased decisions, because it's a marketing-driven process."

There is currently no legislation in Aotearoa restricting how formula can be sold.

Instead, formula manufacturers follow a 20-year-old voluntary code run by the industry - overseen by the Ministry of Health - which prohibits them from promoting or advertising any of their products publicly.

Due to these self-imposed restrictions, the labels on formula tins are one of the few battlegrounds companies can use to sell their products.

Concerns about misleading marketing claims on the tins was one of the reasons public health experts from New Zealand and Australia spent the past decade writing a set of regulations that would prioritise infant nutrition above all other interests.

Over 11 years, officials commissioned 36 public reports, five consumer studies and 40 stakeholder workshops, and wrote draft after draft. The regulations were all but signed and due to be implemented this year.

But in August, the government opted out of the trans-Tasman proposal last-minute, citing costs to exporters. While Australia will implement the new standards in 2030, New Zealand now intends to develop its own.

"It was surprising and very disappointing, because this has been going on since 2013," Food Standards Australia New Zealand board member Sue Chetwin says. "There were countless consultations."

Food safety advocates like Chetwin say they were shocked at the government decision. They believed the regulations were about helping parents make better choices for their babies.

But what they did not know was that behind the scenes, a handful of formula companies had managed to capture the attention of ministers and were selling them a different story: one about billions of dollars in export revenue and the loss of hundreds of New Zealand jobs.

This RNZ investigation uses background interviews with industry insiders, officials and experts as well as documents obtained under the Official Information Act to show how the formula industry lobbied the government to put private profit before public health, and won.

'A heavy price'

The emails start arriving almost as soon as the ministers from the newly-elected coalition government get their feet under desks.

"We're very encouraged by the coalition government's policy programme," writes Steve Donnelly, the operations manager for infant formula company Danone New Zealand. "In particular, the renewed focus to not obstruct business and the emphasis on evidence to guide regulatory decision-making."

Donelley's email is addressed to Food Safety Minister Andrew Hoggard and Agriculture and Trade Minister Todd McClay. It is just before Christmas 2023, two months after the election and right on deadline for the summer break.

By this time, Proposal P1028 Infant Formula Standards, written by Food Standards Australia New Zealand (FSANZ), runs to more than 450 pages long.

The standards detail the minute details of how baby formula is made and sold: its ingredients, composition and colour must all meet strict rules. Packets cannot advertise ingredients or milk protein fractions - such as the A2 milk protein. Specialist medical formulas - those which meet the needs of infants with diagnosed medical conditions such as reflux or allergies - will be sold in pharmacies only.

During its decade of analysis, FSANZ has concluded the overall benefit to babies' health from stronger regulation will far outweigh the costs to formula companies to formulate and relabel their products.

But as ministers are about to find out, not everyone from the formula industry agrees.

The industry has three main sticking points: it thinks the new rules about how milk protein fractions, and ingredients, are displayed on labels are too strict. And they do not want specialist medical formulas taken out of supermarkets.

Donnelly, the representative from Danone, cuts straight to the heart of their argument. The "plain-packaging style labelling" will make its New Zealand operations "increasingly economically unviable", he writes.

It will not bring New Zealand and Australia into alignment with international markets as promised by FSANZ, but make them "outliers", meaning it will be harder to compete globally.

"This may leave us with an unavoidable choice to relocate our New Zealand operations to one of our other 22 international sites," Donnelly warns.

Danone, which sells the Aptamil and Karicare brands, is one of the biggest manufacturers of infant formula in the world and last year more than doubled its group net profit to 2 billion euros (NZ$3.6b).

It also has the lion's share of the New Zealand formula market, selling around $1b of formula exports, mostly to China and Australia, each year. Between its spray drying facility in Balclutha and a manufacturing and packaging site in Auckland, it employs about 450 people - meaning its removal offshore could cost hundreds of jobs.

Food Safety minister Hoggard, a dairy farmer himself and former farming lobbyist, meets Donnelly in Wellington after the holidays.

Danone has been meeting with officials throughout the previous year. Notes from a briefing by the Ministry for Primary Industries (MPI) show Danone's main worry is not other companies, but itself. It tells Hoggard the new labelling requirements will stop Danone's New Zealand operations from competing against other Danone companies that supply the same export markets, such as China.

It would mean Danone's European operations would still be allowed to import formula tins into China with ingredients and proteins clearly visible on the front label, but its New Zealand operations will not.

Donnelly writes to Hoggard again afterwards, reinforcing his concerns that reformulating and relabelling its products to meet the guidelines will result in consumers paying a "heavy price".

"The proposals remove the current competitive landscape where manufacturers can differentiate and compete on the quality of products. Companies innovate partly due to their ability to gain a return on investment, which should not be restricted," says Donnelly.

Later in February, Hoggard has another meeting about the standards. This time it's not just a single company: The Infant Nutrition Council (INC) represents 38 formula manufacturers on both sides of the Tasman.

Internally, the INC is facing a tricky position. Not all of its members agree with Danone. a2, the second-biggest exporter, holds the same positions on the labelling and pharmacy sales restrictions. But others such as Fonterra and Nestle, which both only have small stakes in the formula market, actually support the changes.

But Danone and a2 are the biggest, and will be hit hardest. So despite the mixed views, all members eventually agree that INC should take up the cause.

Hoggard and the government are now facing the weight of one of New Zealand's most profitable export businesses.

'A $1 billion export industry is at stake'

When their first meetings with Hoggard do not get the swift response they want, Danone hires a public relations firm.

"In fairness, Danone haven't [sic] been engaging with Minister Hoggard's office anywhere near enough on this," Blackland PR director Nick Gowland emails Hoggard's adviser in May 2023.

"But they've asked me to act on their behalf and keep you updated so Ministers fully understand the likely consequences. Danone global may well decide to move its NZ operation. A $1 billion export industry is at stake."

Gowland arranges a second meeting between Danone and Hoggard - this time with Danone's legal, compliance and regulatory director Maria Venetoulis, who is also INC chair.

Ahead of that May meeting, MPI tells Hoggard it supports the standards because FSANZ has followed a "robust regulatory process" and the outcome will ensure "products remain safe and suitable".

The golden ticket

Despite the meetings with Hoggard, when the finalised standards are issued in mid-June, the industry is dismayed to find the sticking points they oppose are still in place.

The only option now for the formula industry is for New Zealand to formally request a review of the three issues when trans-Tasman food ministers meet in Adelaide in July to adopt the standards.

MPI does not think a review is needed. While it acknowledges there are still some areas of concern from industry, it tells Hoggard the overall aim of the standards is to "protect infant health and safety".

Moreover, its own analysis finds most formula labels would not change if the labelling standards opposed by industry are adopted.

But Danone still wants them gone.

While many of its labels will be unaffected, it wants to protect its golden ticket in the ultra-lucrative formula market: China.

Each year $2b of New Zealand-made formula is exported. China takes half of that, with Danone and a2 dominating this export market.

But selling to China is not an easy process. There are three ways this happens.

The first requires Chinese government approval to sell New Zealand-made products in bricks and mortar shops with a Chinese language label.

The second requires MPI-approval to sell formula online directly to China. Just under half of a2 Milk's exports to China are made this way - with a catch: Chinese regulations stipulate the label on these tins must be exactly the same as tins sold in New Zealand.

The third method - an estimated 15 to 20 percent of sales - involves Chinese consumers travelling to Australia or New Zealand, buying up formula and selling it at home.

The industry argues that Chinese customers prefer buying formulas with English labels and the same packaging as in New Zealand, even though the product inside is exactly the same.

It also argues that Chinese consumers seek out particular ingredients so it is vital these are clearly visible on the front label.

"If these products can no longer highlight ingredients valued by Chinese consumers, for example, A2 protein milk, while European products continue to do so, New Zealand will lose further share in these export markets," INC chief executive Jonathan Chew writes to Hoggard a month before the Adelaide meeting.

It is unclear if the a2 Milk Company could even continue using its trademarks and brand name under these regulations, he says.

"This could be devastating for those companies which tie their brand to the a2 protein proposition."

CC'ing in the bosses

While driving home from Wellington in late June, Hoggard speaks to Danone's Venetoulis again.

The call is not officially recorded in the minister's diary - which is not totally unusual, his office says - and Danone follows up with an email the next day.

The uncertainty around the standards means it is "untenable" for Danone to confidently invest in innovation in New Zealand, but it is encouraged that Hoggard agrees they are unfair and will raise this at the upcoming Food Ministers Meeting with Australia, it says.

Five days later, Danone writes to Prime Minister Christopher Luxon, with senior ministers including Winston Peters, Shane Jones, Todd McClay and Nicola Willis copied in.

Danone wants a review of the standards, citing the "serious consequences" to export earnings if they are adopted.

It will make Danone's Zealand operations unviable and there is a risk its brands, such as Karicare, "will be delisted in favour of importing overseas brands", Venetoulis warns.

Danone tells Luxon it is pleased Hoggard "is doing everything he can" to push for a review, but "ministers at all levels must be made aware of the severity".

The next day, on 4 July, Hoggard tells Food Ministers Meeting chairperson and Australian MP Ged Kearney that due to the "negative implications" for New Zealand exporters, he is thinking of requesting a review when they meet in Adelaide. It is the first time he has signalled he may be aligned with the industry opinion.

Over the next few days there are a flurry of emails from formula companies asking Hoggard to push for a review.

"It places an unreasonable cost burden on industry or consumers," a2 chief executive David Bortolussi writes.

In a separate letter, a2 managing director Yohan Seneratnee does not think there is any public health benefit that warrants the adverse impact on companies.

Synlait chief executive Grant Watson warns the standards will result in parents having less information to make "informed choices".

Danone's Venetoulis writes again to Luxon in mid July, again copying in a raft of senior ministers.

"Minister Hoggard understands the risks of plain packaging and sales restrictions. We ask that you and your senior colleagues support his efforts to stop these plans."

She sends a Danone-commissioned survey of 1500 New Zealand and Australian parents, showing 94 percent trust the information on labels.

Danone's exports and "freedom for mothers and caregivers to make informed choices" are at stake, she warns Luxon.

Conflict with government breast-feeding policies

At the same time Danone is sharing its research with the prime minister, health officials are preparing advice for their own ministers on the issue.

They recommend Health Minister Shane Reti and Associate Health Minister Casey Costello support the standards, but are wary of industry influence.

"Infant formula manufacturers have likely been busy lobbying ministers on any aspects of the new standard they don't agree with," a public health official writes to a colleague.

Hoggard has sought feedback from his colleagues over concerns that restricting sales of specialised medical formulas to pharmacies or health professionals will make it hard for rural families to get hold of these products.

INC's Chew previously sent Hoggard a market analysis it commissioned showing 76 percent of special formulas are sold in supermarkets, with half of those for reflux control formulas. It argues restricting access to pharmacies will drive prices up.

Meanwhile, MPI is worried the restriction will result in formulas marketed as solutions to help with colic, reflux or lactose intolerance no longer being able to be labelled as such.

But the health ministry questions the scientific basis for these so-called remedies to help with "common and transient conditions", such as colic and reflux being sold in supermarkets.

"My concern… is the risk that parents are using them when they are not needed," a public health expert writes to her boss.

A major study published in 2023 analysing the marketing tactics of the commercial formula industry found typical infant behaviours such as crying, fussing and poor night-time sleep "are portrayed by the industry as pathological and framed as reasons to introduce formula, when in fact these behaviours are common and developmentally appropriate".

The health ministry supports banning ingredient labelling because they can be used as "promotional tools".

New Zealand's obligations under the World Health Organisation code of marketing for breastmilk substitutes mean mothers should be able to make a decision on how they feed their baby based on "impartial information and free from commercial influences", a ministry public health official writes.

"All formula products must comply with standards for composition. Therefore, no specific infant formula offers significant benefits over any other."

The influence of marketing is important given the low rates of breast-feeding in New Zealand, particularly among Māori and Pasifika families.

WHO recommends exclusively breast-feeding for the first six months of life, but only one in 10 babies in New Zealand actually reach that goal.

A grey area

Just before the food ministers meeting, Danone goes public with its threats to leave the country.

Behind the scenes, the industry is focusing its argument on its claim the labelling restrictions go a step beyond what is required by international regulations, such as Codex - which are United Nations food standards - and EU regulations.

But MPI tells Hoggard the rules are actually unclear.

"Neither Codex nor EU standards expressly prohibits or expressly permit such ingredient representations. This results in a 'grey area' for interpretation."

MPI again reiterates that banning ingredients on front labels "ensures caregivers are not misled".

The Dairy Companies Association of New Zealand offers a different view.

Executive director Kimberly Crewther - Hoggard's sister - emails his office with her opinion.

If international regulations intended to explicitly prohibit ingredient claims, which FSANZ is seeking to do, they would clearly state so - just like health and nutrition claims are not allowed, she says.

Crewther disagrees with FSANZ's view that putting ingredients on the front label implies there is a relationship with a health outcome.

"We contend that this is an unsuccessful attempt at a nebulous justification which has not been adopted or implemented either internationally or by other major competent authorities."

But the view from public health experts is that even if the labelling restrictions do make New Zealand an "outlier" - as industry says it will - it is the direction the world is heading in.

"New Zealand and Australia would have been first in the world to have these quite tough standards around labelling. And there's interest from other European countries, particularly from the UK," says Starship's Dr Toldi.

Britain's Competition and Markets Authority wants sweeping changes of the formula industry after finding high prices and branding are leading to poor outcomes for families.

It has even suggested the British government could have its own non-branded baby formula to drive down prices.

Crunch time

Three days before he flies to Adelaide, Hoggard meets with a2 and a lobbyist from Cosgrove & Partners, where they have one last go at convincing him to see their point of view.

It seems they have already persuaded Finance Minister Nicola Willis, who says in a radio interview there is "no way" New Zealand will support the standards because "exporters are too important" and a review will be sought.

At the Food Ministers' Meeting in Adelaide, Hoggard is outnumbered by Australian ministers 10 to one.

Australia opts into the standards. Hoggard's request for a review is declined.

New Zealand now has 10 days to decide whether it will join Australia or go its own way.

The next day Hoggard's staffer emails INC's Chew with an update: "Minister Hoggard did as he said he would and pushed hard for a review, but it was unsuccessful."

He suggests catching up to "work through the next steps".

Hoggard's office also receives an email from a FSANZ official with "plain English key messages" the minister can use if there is media interest.

FSANZ has a cost benefit analysis that found Australian and New Zealand formula products "will continue to be competitive" in international markets if adopted.

"No data was provided to substantiate [that] a significant economic impact would arise due to clarifying the already current restrictions on health and nutrition claims."

Hoggard is not convinced though. He does not believe FSANZ's economic analysis is thorough enough.

A few days later, Blackland PR, which represents Danone, texts Hoggard's office wanting to set up another meeting.

"The industry will be emailing the minister tomorrow with their assessment of how the government can live up to its promise to not have white labelling of formula in NZ."

Hoggard meets with INC, Danone and a2 the next day.

After this meeting, the industry believes Hoggard and the government want to support it, and opt out of the standards.

But over at the Ministry of Health, there is a conflicting view over what step Hoggard wants to take.

"Good news… The latest update that I have from MPI is that Minister Hoggard has now identified that his preferred option is to adopt the P1028 Standard (ie align with Australia) with industry able to seek to modify," a senior official writes to colleagues.

"The above option would be our preferred option from a health perspective."

Legal advice

Before Cabinet meets to make its decision, Danone obtains legal advice from a top Wellington law firm explaining exactly how it can be done and sends it to Hoggard.

"It has given us confidence that an opt out decision is reasonable, not drastic," Danone's Venetoulis says in an 1 August email.

The legal opinion, from Denton Kensington Swan partner Linda Clark, says New Zealand can use a clause in the 1995 Food Standards Treaty with Australia, on the basis it would impact its trade with a third country.

But Clark warns New Zealand should step up diplomatic efforts to ensure Australia does not take steps to limit New Zealand-made formula imports in the future.

It appears to be a risk Danone is prepared to take.

"Opting in, in the hope that the Australian Government accepts a modification to the standard later is a huge risk," Venetoulis writes to Hoggard.

"Opting out is the only viable path ahead. The INC, Danone and a2 stand ready to support you in communicating our preferred opt-out option to Cabinet on Monday."

Synlait Milk also urges Hoggard to opt out. But Nestle wants in.

"Maintaining a joint system is vital… a divergent system could cause confusion for parents," several senior executives write.

Nestle is worried opting out of the formula standards could lead to fewer joint standards across other foods.

The weekend before Cabinet is due to decide on the standards, there is another flurry of calls between Hoggard's office and Danone's representatives.

As a minister outside of Cabinet, Hoggard is not in the room when a final decision is made on Monday 5 August.

His colleagues gathered on the 10th floor of the Beehive decide to opt out on third country trade grounds. More than a decade of work with the Australians goes down the drain.

New Zealand will instead create its own standards over the next five years.

About half an hour before a post-Cabinet press conference is held, Hoggard's office rings Danone alerting them to the forthcoming announcement and within two minutes of the press release going out it is forwarded to a2's lobbyist.

In an interview the next day, Hoggard says he hopes "Danone would reward us by bringing more business here to New Zealand".

'I think it was appropriate'

Six months on, the Cabinet paper underlining the decision to opt out is yet to be released. When RNZ asks him, Hoggard is evasive about what finally convinced the government to opt out - and will not say whether it was his choice or he got overruled.

"All I can say is on that point, there were strong cases either way. It was a finely balanced decision," he says in an interview with RNZ.

While even insiders say the dozens of calls, meetings, studies and legal opinions amounts to "hard" lobbying, Hoggard does not think it was aggressive.

He denies Danone and a2's economic interests were prioritised above infant health.

"I think it was appropriate. They were the main ones that were going to be massively impacted by this, so it's important to hear from them."

Hoggard says he did not meet with infant nutrition or public health experts in the same way because they did not request it and his focus was on exports.

"It's $2b worth of milk powder coming from New Zealand that was going to be at risk."

He supports having ingredients on front labels, despite evidence it could influence parents to buy formulas they do not need.

"People are adults and I want to treat them that way and allow them to have choices, rather than remove every bit of information from them," he says.

"If it's not making a misleading claim, then what is the harm?"

Unsettling influence

The harm might be greater than Hoggard thinks, according to his predecessor.

Former Food Safety Minister Rachel Brooking says it is "unsettling" to see the potential industry influence on the issue.

She only met INC once during the six months she held the portfolio, and is perturbed by Hoggard's comments that Danone should now 'reward' NZ with more business for his efforts.

"My hope is that the government isn't making decisions on food safety labelling based on the hope of more economic development from one company."

Food standards are vitally important to the credibility of New Zealand's exports, she says.

Brooking, who is now Labour's Food Safety spokesperson, prefers working with Australia. But, if New Zealand does design its own standard it needs to be based on science, and infant safety, "rather than the economics of what companies want."

FSANZ director Sue Chetwin says the entire point of the regulations was to help parents.

"This is the direction that most of the world is going in because this is a very vulnerable population and they need to be protected.

"At the very last minute, a large international manufacturer seemed to have access to New Zealand politicians and were able to sink it."

Danone, meanwhile, is effusive about the win.

In a letter to Hoggard sent shortly after, the company praises the government for "asserting New Zealand's sovereignty" and opting out of the standards.

"We're pleased the government chose not to accept the severe consequences to mothers and caregivers, and infant formula exports."

Danone declined to be interviewed but in a statement said its primary concern was to provide caregivers with the factual information about formula.

"We are absolutely committed to advocating for the best outcomes for New Zealand parents, carers and infants - as well as the farmers, suppliers, and staff members we work with. "

Hoggard is now receiving advice on what a future New Zealand infant formula standard might look like.

Danone has already offered to help.

"We remain available to provide further information to you or your team at any time."

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