When the yellow liquid in a test tube containing tiny pieces of string beans turns clear, Chloe Fan knows why. A nearby computer screen quickly confirms her suspicion: Pesticide levels in the sample are twice as high as accepted standards. Fan, a Wal-Mart Stores (WMT) food scientist in Guangzhou, runs another test, then has the shipment of beans pulled, stopping a batch of chemical-laced vegetables from reaching customers at the retailer’s stores in China. Hers is a job that can’t be taken for granted. “China has food safety rules,” says Fan, 24, clad in a white laboratory coat and surrounded by beakers and test tubes, “but not all suppliers in China understand and follow them.”
Wal-Mart has learned that lesson repeatedly on the mainland, most recently when authorities earlier this year said meat sold as donkey at its Chinese stores contained fox DNA, triggering a recall by the Bentonville (Ark.)-based retailer. That wasn’t an isolated occurrence. A seemingly endless string of scandals—from melamine-tainted milk that killed six infants and sickened 300,000 others in 2008 to rat meat recently sold as mutton—has made China the Wild West of food safety. Inadequate government oversight also is forcing big Western companies, from Wal-Mart to Nestlé (NESN:VX) to French supermarket operator Carrefour (CA:FP), to put on their sheriff’s hats and take food policing into their own hands.
The reason is simple: Western companies that sell tainted products can suffer damage to their reputations and incur legal liabilities, even if they had nothing to do with the manufacturing of the goods. “Many giant retailers have a strong incentive to take actions where state and local governments are not doing what they are supposed to do,” says Ching-Fu Lin, a researcher at the Asian Center for WTO and International Health Law and Policy.
Wal-Mart promised to boost inspections of suppliers after the donkey meat recall and now conducts more DNA tests of meat in China than it does anywhere else in the world. The company already had said last May that it would spend 100 million yuan ($16 million) over three years to increase food safety in China after being stung by previous scandals there, including the sale of sesame oil and squid with hazardous levels of chemicals in 2012 and the mislabeling of regular pork as organic the year before. Wal-Mart says that since 2012 it has slashed its number of pork suppliers in China by almost 80 percent, to about 100, to ensure better food quality and more supplier accountability.
The world’s largest retailer has two vans making unannounced visits to stores every day to take samples of vegetables, seafood, and meat to check for melamine in dairy products, clenbuterol in pork, and excessive antibiotics in chicken. It does this only in China.
Nestlé says it employs more inspectors and scientists to perform quality tests on the milk at its Chinese dairy factories than in any other country. And, unlike in other nations, the company employs full-time staff to visit dairy farms, teaching ways to improve herds through animal vaccinations and special feeds. It will also open a dairy university in China this year to educate milk farmers—its first worldwide.
Carrefour has also set up 50 laboratories in China to test for pesticide residues and excessive food additives, and its shoppers can scan QR codes, which can be read by smartphones, to trace the production origins and expiration dates of products and the growers of fruits and vegetables. China is the only country where it goes to such lengths to reassure customers.
The world’s largest milk producer, Fonterra Co-operative Group, has gone even further. Each year since 2007, it has transported via cargo ship as many as 7,000 cows from its New Zealand home to its large-scale dairy farms on the mainland. Operating its own farms is a first for the Auckland-based dairy co-op, which typically sources from local farmers. But it says it needs tighter control to guarantee safer milk sources in China.
Not being vigilant can be costly. Sales at Yum! Brands’ (YUM) KFC restaurants took a beating in 2013 after a widely publicized investigation in China of a former supplier that fed its birds large amounts of antibiotics and hormones to boost their weight. Despite a public apology by Yum in January 2013, sales at its KFC outlets in China fell 20 percent in the first quarter of 2013, and they continue to be hurt by public opinion.
Ironically, China’s food safety standards are comparable with those in developed countries such as the U.S. and are often stricter, says Chen Junshi, senior research professor at the China National Centre for Food Safety Risk Assessment. But he says problems arise because of a lack of laws to ensure foods are safe early on—at the grower level or during the production cycle—before they are sold.
Producers in China are only encouraged, rather than required, to adopt global compliance standards in their manufacturing process. The U.S. system puts the responsibility of checking for problems mostly on the manufacturer. This helps to identify food safety breaches early, Chen says. U.S. companies are also required by law to identify potential hazards and develop plans to prevent them.
“It all starts at the source,” says Zhang Jianjun, a food safety officer at a Shanghai wholesale market that sells dried seafood and red dates. Last year the police busted a supplier in a neighboring market for selling rat, fox, and mink meat as mutton. “Once you have supervision of the source, it’s going to be much easier to regulate and keep food safety incidents to a minimum,” he says.
Economics are often behind such food quality lapses. A year ago, thin margins from selling mutton drove one supplier to use fox meat as a substitute. Fur producers were looking to get rid of carcasses, the man said last May in an interview from prison with state-run broadcaster China Central Television. Boiling the fox meat gave it a taste similar to that of lamb and helped fool many buyers, he said.
China has too many tiny food businesses for the government to effectively police, and the lack of education among farmers and processors often results in food safety lapses, according to the World Health Organization. There are 500,000 food production and processing companies in China, and about 70 percent of them have fewer than 10 employees, according to market researcher Mintel Group. This compares with 30,000 such companies in the U.S. Estimates peg the number of Chinese inspectors at just one for every 420 farming households.
China was the sixth-largest exporter of food to the U.S. last year, supplying more than two-thirds of the tilapia and apple juice and about half the cod that Americans consume. Chinese food imports increased by about 250 million pounds, or about 7 percent, from 2008 to 2012, according to the U.S. Department of Agriculture. Greater exposure to China’s less-regulated suppliers comes with risks: In the last four years, FDA inspections in China have uncovered cases of dried octopus and raw scallops containing salmonella, jelly beans and gum drops laced with lead, and a producer in Fujian province misdeclaring potentially poisonous puffer fish as monkfish.
The FDA plans to expand its two-man team of food inspectors in China to nine over the next 18 months as the number of food exports to the U.S. grows. The agency is encouraging Chinese regulators to move food safety responsibility to food producers, says Christopher Hickey, the FDA’s China chief. “A movement toward industry taking responsibility in food safety and for the government to take the role in enforcement of those standards is the most effective way to make sure food is produced in a safe way,” Beijing-based Hickey says.