By Shihar Aneez and Ranga Sirilal
COLOMBO (Reuters) - A Sri Lanka state institute said it would test all milk powder in the market after finding a toxic chemical in products sold by New Zealand's Fonterra, while a nationalist party called for the closure of Fonterra's local subsidiary.
The Industrial Technology Institute (ITI) found the agricultural chemical dicyandiamide (DCD) in two batches of milk powder it tested - one of Anchor full-cream and another of the Anchor 1+ brand for young children - manufactured between October and December 2012, ITI Chief Executive G.A.S. Premakumara said.
"Now we have decided to test all the milk powder in the market including other Fonterra products," Premakumara told reporters on Thursday.
"It is unfair to say all Fonterra products are DCD contaminated. We did the same test in some Fonterra products that were manufactured after June 1, and we found no DCD in those products," he said.
Milk production is a political issue in Sri Lanka, and the government is working to increase domestic production and reduce imports. Farmers, many of whom own dairy cows, are President Rajapaksa's main voter base.
Tests so far on locally produced milk products have found no DCD.
Fonterra has disputed the accuracy of the ITI testing, but the local company Fonterra Brands Lanka last week told Reuters it had recalled two batches of Anchor-branded products in accordance with the health ministry directive.
Fonterra and its top officials may face charges of contempt of court after a Sri Lankan health sector trade union obtained a court order banning sales, distribution, and advertisement of its milk products.
More than 100 members of the National Freedom Front, a hardline nationalist political party in President Mahinda Rajapaksa's ruling coalition, protested on Thursday in front of Fonterra Brand Lanka's head office, 30 km north of Colombo, demanding a ban on all Fonterra products in Sri Lanka.
As riot police watched, they held up banners saying, "We should make our own milk powder", and "Ban toxic yoghourt advertisement immediately", while carrying a coffin with large pictures of all Fonterra brands.
Sri Lankan opposition follows a global food scare after Fonterra said earlier this month that some of its products could contain a bacteria that can cause botulism. Its products have been removed from shelves from China to Saudi Arabia, while other countries have restricted imports.
"Stop filling our children's tummies with toxic milk," Mohammed Musammil, the spokesman of National Freedom Front, told the protestors.
"It is not a difficult task to close down Fonterra for a country which eradicated terrorism. We request all the people to unite to send Fonterra home in the same way they united to end the terrorism."
The Sri Lankan government has made efforts in recent years to popularize fresh milk to boost local production and achieve self sufficiency, helping reduce imports of dairy products by 12.3 percent to $307.3 million in 2012.
Last year, the government ordered state-owned milk company, Milco to buy all the farmers' unsold milk to improve self-sufficiency.
(Writing by Shihar Aneez; editing by Jane Baird)