Bloomberg News

China Chicken Probe Hurts Profit as KFC Ends Deal: Liuhe

December 31, 2012

China Tainted-Chicken Probe May Hurt Profit, New Hope Liuhe Says

State-broadcaster China Central Television prompted greater scrutiny of the nation’s poultry industry this month when it reported Liuhe and other suppliers, which sell chicken to companies including Yum! Brands Inc. and McDonald’s Corp., weren’t properly inspecting chicken bought from farmers for antibiotics and hormones. Photographer: Nelson Ching/Bloomberg

China’s biggest poultry supplier said profits will be hurt by a report that some of its chicken wasn’t properly inspected, as Yum! Brands Inc. (YUM:US) and McDonald’s Corp. (MCD:US) said they stopped buying meat from the company.

Sales and profit will sustain a “certain amount of impact,” New Hope Liuhe Co. said in a Dec. 29 statement to Shenzhen’s stock exchange. State-broadcaster China Central Television reported Dec. 18 that Liuhe and other suppliers weren’t properly inspecting chicken bought from farmers for antibiotics and hormones.

In its statement, Liuhe said it shut the deep-freeze plant in the northern city of Pingdu that was cited in the CCTV report and is cooperating with a government probe. It also apologized for the negligence of its workers and said it will “ensure a comprehensive test system is in place.”

Concerns about antibiotics and hormones in chicken add to a series of food safety incidents that have included reprocessed cooking oil and the sale of tainted milk powder in 2008 that killed at least six children. Chinese leaders including Li Keqiang, who is in line to become premier next year, have pledged harsh punishment for those who violate regulations as the government seeks to assuage public outrage.

Liuhe Shares

The poultry supplier’s shares reversed an earlier fall to rise about 1 percent to 12.49 yuan at the close in Shenzhen, compared with a 1.6 percent gain for China’s benchmark Shanghai Composite Index. Liuhe’s stock has dropped more than 25 percent this year as the Shanghai Composite Index rose 3.2 percent.

New Hope Liuhe was created when the listed arm of Chengdu, Sichuan-based New Hope Group Co., co-founded by chairman billionaire Liu Yonghao, acquired Liuhe Group last year, according to the company’s website.

New Hope Group said in a statement posted on the Shanghai Clearing House’s website today that livestock authorities in Shandong and Sichuan found its subsidiary’s poultry products met standards after carrying out checks.

Liuhe Group has also spent 100 million yuan ($16 million) bolstering food safety measures since Dec. 18, New Hope said, adding that its own operations continue as per normal and are not “badly affected.”

Yum, Mcdonald’s Sales

Yum, which operates the KFC and Pizza Hut chains in China, said Dec. 28 that it stopped buying from Liuhe’s Lingyi factory in 2011 after checks on samples from the supplier found problems with the chicken.

The Shanghai Food and Drug Administration said on Dec 20. that tests conducted by a third-party agency from 2010-2011 found eight batches of chicken supplied to Yum by Liuhe had levels of antibiotics that didn’t meet prescribed standards.

The Louisville, Kentucky-based company, which got 44 percent of its revenue from China last year, said it stopped all supplies from Liuhe in August this year.

McDonald’s, which plans to have 2,000 stores in China by the end of next year, said Dec. 19 that it had stopped deliveries from Liuhe the day before that.

The cities of Beijing and Shanghai also said they were planning steps to tighten oversight of food safety following the CCTV report. Beijing’s municipal government will introduce a strict food-safety law, including banning producers and vendors for life if they are found to be making or selling unsafe food, the official Xinhua News Agency reported. Shanghai is also considering harsher punishments, Xinhua said.

China will take “strong” action against businesses violating food safety regulations to ensure people’s health over the New Year and Chinese New Year holidays, Xinhua reported yesterday.

The government in 2010 created a food safety commission under the State Council, China’s cabinet, and appointed Vice Premier Li its head. Li was named the Communist Party’s second- highest ranking official last month, putting him in line to replace Wen Jiabao as premier next March.

To contact Bloomberg News staff for this story: Liza Lin in Shanghai at llin15@bloomberg.net; William Bi in Beijing at wbi@bloomberg.net

To contact the editor responsible for this story: Paul Tighe at ptighe@bloomberg.net


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Companies Mentioned

  • YUM
    (Yum! Brands Inc)
    • $72.07 USD
    • -0.91
    • -1.26%
  • MCD
    (McDonald's Corp)
    • $93.9 USD
    • -0.46
    • -0.49%
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