Baby Formula Scare Hurts China's Synutra

Posted by: Bruce Einhorn on August 9, 2010

Following the well-publicized scandals surrounding Made-in-China products, how nervous are Chinese consumers and investors about food safety? Look at what happened Monday to the stock price of Synutra International, a mid-tier manufacturer of infant formula that has offices in Qingdao, China and Rockville, Maryland. The company’s Nasdaq-listed shares plunged 27 percent on Monday following reports in the Chinese media linking Synutra’s formula to premature breast development in three baby girls in the central Chinese city of Wuhan. According to the media, the girls all drank the same formula produced by Synutra. Of course that doesn’t mean Synutra’s to blame. The company issued a statement yesterday decrying claims that are “highly irresponsible and based on speculation instead of scientific evidence.” Liang Zhang, Synutra’s chairman and CEO, said in the statement that China’s Center for Disease Control and several leading scientists had said there was no evidence tying Synutra’s formula to the girls’ problems. “We are completely confident that our products are safe and our quality levels are industry-leading,” Liang Zhang said.

Still, it’s easy to see why people would jump to conclusions, given the 2008 safety scare surrounding Chinese infant formula tainted with the industrial chemical melamine. At least six babies died and 300,000 others were sickened by poisoned formula. Synutra was one of the companies tainted by the scandal: Its sales dropped 14 percent last year after the government in September 2008 found melamine in some of its products.

The one-day plunge in the stock price could make Synutra an easier takeover for Western companies looking to expand in China. For instance, Nestle needs to grow in emerging markets - and has a huge cash pile thanks to $28.1 billion from Novartis for Nestle’s majority stake in contact-lens cleaner Alcon. Bloomberg News reported last month that one possible target is Synutra. Back in April, Bloomberg reported that analyst Alexia Howard of Sanford C. Bernstein wrote in a report that Synutra might be attractive to H.J. Heinz. The ketchup giant also makes baby formula and CFO Art Winkleblack told Bloomberg in February there’s potential in China. “The infant-formula market is still highly fragmented outside the U.S. In China, there are eight or ten players who have a piece of the pie, and not all of them are folks you would recognize.”

Reader Comments

Husin O'Bama

August 10, 2010 3:07 AM

High Time to put an end to the hormone enhancements in the industrial food chain.

C Cam

August 10, 2010 8:26 AM

How ironic - artificial milk inducing breast growth in infants who are not breast fed! Anybody who has shares in infant milk companies is ethically deficient. The mothers of these children have been driven into factories and into working conditions which deny them the opportunity to breast feed their children - a most basic human right. Human health is severely compromised as a result of these market forces.

DanTe

August 10, 2010 10:31 AM

Yeah, it's only a "scare". So what if those 3 little babies started growing breasts and that's what caused their parents to complain. Love the oaf-ficials' response there: nothing is wrong. Go away. And if you go Beijing we will have thugs waylay you.

Strategery

August 10, 2010 11:57 PM

That's what China needs: an oligopoly on baby formula so they can charge $30 per can like they do in the USA.

City on the Sea

August 11, 2010 3:57 AM

C Cam, I don't wholly disagree with you, but the reason a lot of women choose not to breast feed is faulty information that makes them think that bottle feeding is better for their babies.

Nick

August 11, 2010 5:51 AM

China is really in chaos. The Chinese people are tired of the regime.

Johnathan

August 11, 2010 9:33 PM

Lazy workers for their family - quit complaining about your child's health. Pump the milk at night and have your sitter feed it to the child in day duh.

Breast milk beats formula in every way.

stop buying chinese goods - 300,000 sick babies ans some dead babies - lazy (let everyone do your work for you )People.

Excuses are good for those who make them. Them and them alone. Get back to natural, and take care of your family - why do you work??

Haroon Rashid

August 24, 2010 4:38 PM

Whether it be Huawei Technologies, or Sanutra infant forumula its all same with bad Chinese lobbyists. From High Speed train, to telecom., hardware gear, to infant formula for children. All products are standardised and on strict international standards. All what is wrong a bad PR/lobbying which Americans should teach the Chinese. As Toyota learned from the
Americans.

Post a comment

 

About

Bloomberg Businessweek’s team of Asia reporters brings you the latest insights on business, politics, technology and culture from some of the world’s biggest and fastest-growing economies.

BW Mall - Sponsored Links

Buy a link now!