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Fonterra didn't insist on melamine in the milk. The company Sanlu that fonterra part owned knew melamine was being put in the milk but the fonterra directors who sat around the boardroom could not speak chinese and were kept in the dark. Sanlu was keeping it quite because the government was worried about the up coming Olympics.
It was a fonterra director who finally found out and forced the issue into the public. For this fonterra lost all their investment in Sanlu and all the assets were given to other chinese companies.