Outside the Beltway

Outside the Beltway

There’s No Substitute for Inspections

Dave Schuler
8

The milk scandal in China about which I posted over the weekend and in which four children have been killed and at least 53,000 sickened through consuming milk contaminated with melamine continues to broaden:

New Zealand’s Fonterra Cooperative Group today criticized an “appalling” delay by its Chinese affiliate in reporting complaints of sick infants.

Fonterra wrote down the value of its stake in the affiliate Sanlu by 69 percent, Chief Executive Officer Andrew Ferrier said, after the Shijiazhuang, Hebei province-based maker was the first company identified as having produced tainted milk.

Sanlu received complaints in December and knew of melamine contamination in June, Xinhua said, citing the government. Fonterra last week said Sanlu’s board was informed of the contamination on Aug. 2, after receiving complaints in March.

“If they were lying about it, then they were lying about it to us too,” said Ferrier. “If this allegation proves to be correct that would be absolutely appalling.”

Fonterra in 2005 agreed to buy 43 percent of Sanlu for $107 million.

Companies that use milk in their products are quick to rally ’round and deny that they’ve got any problems:

Mars Inc., the U.S. maker of M&Ms and Snickers, said in an e-mail that its candy can be safely consumed because its China unit doesn’t use “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.”

Hershey Co., the largest U.S. chocolate maker, said it never purchased milk ingredients from China, according to a voicemail by spokesman Kirk Saville.

Nestle SA, the world’s largest food producer, yesterday said all its milk products sold in China are “absolutely safe.”

While they may not be receiving any product from companies that have been implicated directly, there is, unfortunately, no way for them to know whether any of their suppliers are reselling melamine-contaminated milk other than by testing. In a world in which a Chinese milk distributor can sell to a Singaporan importer which sells to a Swiss importer which sells to a candy manufacturer there’s no substitute for inspections.

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8 responses to “There’s No Substitute for Inspections”

  1. JT Avatar
    JT

    Part of the shocker about this is that these Chinese companies are causing harm to Chinese children. This is different than the toy issue which came up last year, that caused harm to American children. These companies are allowing harm to come to citizens of their own nation. The Chinese government needs to do something serious about this.

  2. Matthew Stinson Avatar
    Matthew Stinson

    To expand upon your main point, the big dairy companies here in China all had the right to operate “inspection-free” for the last few years. That right has since been revoked, but it makes me wonder how many other food operations in China are considered “trusted enough” to go without inspection.

  3. Dave Schuler Avatar
    Dave Schuler

    As I understand the way the dairy system operates in China they’ve got hundreds of thousands of small-time producers who sell to wholesalers who in turn sell to the big-time dairy companies, just two of which have 60% of the market or more. The problem doesn’t seem to have originated with the big-time dairy companies other than through a failure of quality control. It’s suspected that the problem stemmed from an unknown number of unscrupulous wholesalers but it could have been through an equally unknown number of milk producers.

  4. Dave Schuler Avatar
    Dave Schuler

    JT:

    It’s not as though there haven’t been multiple product defect and product quality problem within China that don’t make the news here. They’re frequent.

    It isn’t a case of Chinese manufacturers fobbing off shoddy stuff on foreigners. There’s a more general product quality problem. Indeed, I’ve read frequent complaints from the Chinese complaining that the good stuff gets shipped overseas and they’re left with the dreck.

  5. Matthew Stinson Avatar
    Matthew Stinson

    Actually, JT, there’s a strong possibility that the poison products sold in the States have been widely sold in China, it’s just that consumer protection here and reporting is so weak (censored) that it takes a massive incident like the milk poisoning to actually register.

    If anything, Chinese products sold outside of China are more safe than products sold inside China. For instance, some of the dairy companies in question have stated that their products sold outside of China are of a higher quality — and thus foreigners shouldn’t worry about them — which unsurprisingly angered Chinese consumers.

  6. sam Avatar
    sam

    The Chinese government needs to do something serious about this.

    Well, the PRC Consumer Product Safety Commission is a firing squad. I expect it to be busy in the coming months.

  7. Dave Schuler Avatar
    Dave Schuler

    sam, punishing a few miscreants won’t solve China’s problems, however severely. There are powerful incentives to keep doing things just the way they have been, the civil infrastructure isn’t up to the task of stopping them, and the likelihood of any given nogoodnik being detected and punished are low.

  8. sam Avatar
    sam

    I understand that Dave. I was just pointing out, perhaps lamely, one aspect of consumer protection in China. Indeed, it may well be that the lopping off a few heads will serve to distract the Chinese people from the need for any real, thoroughgoing reform.

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