Chinese milk scandal causes ripples worldwide

Posted by Daniel Palmer on 25th September 2008

Milk splash

Following the contamination of Chinese milk products with the chemical melamine, China has removed over 7,000 tonnes of dairy products (primarily powdered and liquid milk) from retail outlets and food standards bodies around the world are testing Chinese milk-based imports and issuing precautionary product recalls.

Australian food safety authority FSANZ yesterday instigated a recall of White Rabbit candies after White Rabbit candies in New Zealand and Singapore were found to contain high levels of melamine. UK retailer Tesco has also initiated a recall of White Rabbit candies – a popular Chinese confectionery product that contains milk. The US is still testing their imports for melamine but some US retailers have decided not to wait for positive melamine tests and voluntarily withdrawn their dairy-based Chinese confectionery products.

“This is a serious concern,” said Sandra Daly, NZFSA’s (New Zealand Food Safety Authority) Deputy Chief Executive. “We have issued a Director General’s statement advising people not to eat these products as we cannot discount the likelihood of health risks resulting from the consumption of these sweets. The product appears to come from a number of manufacturers via a number of importers and we are advising against eating any of these products.”

The contamination of milk products with melamine, made to ensure milk appeared to have more protein and could consequently be sold to manufacturers for a higher price, has also led to a number of countries banning imports of dairy products from China and again placed the spotlight on food safety in China. France and South Korea have joined the growing list of countries placing a precautionary ban on Chinese dairy imports.

So far four babies have died and approximately 54,000 have fallen ill as a result of the contamination. The five known cases outside mainland China have been restricted to Hong Kong and Macau.

The fear created has forced several manufacturers to clarify the quality of their products, issuing statements outlining the safety of their food. Nestlé and Mars have been among those to state that independent testing has cleared their Chinese dairy-based products.

“Mars China does not source any milk powder or other ingredients for any of its products from any company which has been found to be selling melamine-contaminated dairy products. Just last week, AQSIQ (the Chinese food safety watchdog) tested product samples of Mars China’s milk powder suppliers and found them to be free of melamine,” the Mars statement reported.

Melamine has reportedly been found in milk products from 22 different Chinese dairy companies. In a bid to restore shattered consumer confidence many of these companies have since signed a statement pledging to produce safe milk and never let their standards slip again.

The first company implicated, Sanlu Group – which NZ dairy giant Fonterra holds a 43% stake in, has been criticised for their lack of response to the crisis. A Government investigation has suggested Sanlu management knew about the issue many months ago, well before the Sanlu and Fonterra Boards were told and a trade recall was instigated.

Fonterra Chairman Henry van der Heyden has advised that such findings were deeply disturbing. “The latest revelations that an official Chinese Government investigation has revealed San Lu management was investigating complaints of sick infants as early as eight months before the San Lu Board and Fonterra were first informed on August 2 is deeply concerning. That Fonterra was not informed earlier is frankly appalling,” he said.

The tragic events are set to cost the dairy co-op over $100 million, with Fonterra CEO Andrew Ferrier telling reporters the brand “cannot be reconstructed”.

“As a direct consequence of the criminal contamination of milk in China, Fonterra has recognised an impairment charge of $139 million against the carrying value of its investment in San Lu. This reflects the cost of the product recall and Fonterra’s anticipated loss of San Lu brand value. Following this impairment charge, Fonterra’s best estimate at this point in time, of the book value of its investment in San Lu is approximately $62 million,” a statement from Fonterra noted.

“We have recognised this charge as we are required to by accounting standards, but we are certainly not putting the financial consequences ahead of our primary priority of consumer safety,” Mr van der Heyden added. “We are focusing all our efforts on what Fonterra can best do to work with the Chinese authorities and help get safe dairy products to Chinese consumers.

“Throughout this crisis, Fonterra’s paramount concern has been for the health and safety of Chinese consumers and recalling contaminated product as quickly and effectively as possible in the Chinese environment.”

Sanlu’s operations have been shut down by the Chinese Government and former Sanlu Chairwoman Tian Wenhua is among those to be arrested in the wake of the scandal.