Fonterra Cooperative Group Ltd. has suspended its distribution agreement with China's Jiawa following the arrest of 19 people suspected of repackaging and reselling expired milk powder from New Zealand.

Jiawa is Fonterra's authorized China distributor since March. The expired products were believed to be sold by a former Jiawa employee before any contact with the New Zealand firm, the NZ Herald reported.

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"It is our understanding from reports that part of the current investigation in China relates to Fonterra product that a former Jiawa employee may have sold to others prior to our contract with them," Teh-Han Cho, President NZMP, Greater China, said.

The expired milk products were reportedly sold by a Shanghai-registered trading firm named Jiang Di International Trade Co. and not all of the 276 tons of milk products were sold via online channels, Scoop New Zealand noted citing original reports.

A Fonterra representative said the dairy maker is being "hyper-vigilant" considering the sensitivites of China's new food safety policies.

"Because we aren't part of the official investigation, we have very limited access to the real facts and need to be overly cautious, as a result, we've suspended Jiawa's status as an authorized distributor. It's important to remember that in this case Jiawa was not one of our authorized distributors at the time of the alleged activity," Teh-Han noted.

Meanwhile, Fonterra said it is giving Chinese authorities its full support to investigate and arrest the people believed to be responsible for the scam.

On the other hand, Fonterra has also initiated an internal probe following the arrest and will review the case internally.

TagsFonterra, milk scandal, milk scam, Jiawa, china, food safety