Bloomberg News

China Meat Scare Adds Foreign Suppliers to Food Worries

July 25, 2014

Shanghai Husi Food Factory

Workers sort food nuggets at the Shanghai Husi Food Co. factory in Shanghai on July 20, 2014. Source: AFP/Getty Images

China is suffering through yet another food-safety scandal, and this time even the foreign-owned suppliers are under the microscope.

For five days, restaurant patrons from Shanghai to Tokyo have been reeling from revelations that hamburgers, chicken nuggets and other products they bought from some of the world’s best-known food chains -- including McDonald’s Corp. (MCD:US) and Yum! Brands Inc. (YUM:US)’s KFC and Pizza Hut -- were made with spoiled meat.

The meat came from a Chinese unit of OSI Group Inc., a global food processor based in Aurora, Illinois. The unit, Shanghai Husi Food Co., was featured in a local television report on July 20 that showed workers repackaging old meat and changing expiration dates before shipping it to retailers. Municipal police have detained five people in connection with an investigation into the supplier.

While such scares have exploded every few months in China since toxic milk killed six infants and sickened 300,000 six years ago, those have centered on local suppliers. The latest claims involving a foreign-owned company that sells to retailers in Japan, the U.S. and elsewhere suggest China’s food chain problems run even deeper than previously thought.

“I don’t think there’s any food in China that is safe,” said Yang Xue, 30, an office worker from Shanghai. “Even if you choose others, the same problem will occur again. The government should take responsibility because of their lack of supervision.”

OSI Apology

The report by state-owned Dragon TV showed undercover video of workers in Shanghai Husi facilities taking past-due chicken and beef and giving it sell-by dates of another year. After it aired,Starbucks Corp. (SBUX:US), Burger King Worldwide Inc. (BKW:US) and 7-Eleven convenience stores stopped selling products from the company. Japan’s government also halted imports from Shanghai Husi after FamilyMart Co. pulled the processor’s items from its Japanese outlets.

Yum and Starbucks said this week it had ended its relationship with OSI, which makes products ranging from bacon to bread sticks at more than 50 processing plants worldwide, including 10 in China. McDonald’s said it would continue using food produced at other OSI facilities.

In Hong Kong, the local unit of McDonald’s halted sales of products including chicken nuggets and chicken fillets from the supplier, the company said on its website. In Japan, FamilyMart pledged today to pay refunds to customers who bought chicken made by Shanghai Husi, the company said in a statement.

OSI’s Chairman Sheldon Lavin apologized to Chinese customers in a statement on its website yesterday, adding that the company had sent their best team of global experts, with more on the way, to work with the local team on the issue. “What happened at Husi Shanghai is completely unacceptable,” Lavin said. “We will bear the responsibility of these missteps and will make sure they never happen again.”

’Peace of Mind’

Chinese consumers’ distrust of local milk and other food products has driven them to foreign brands. China’s three largest baby formula brands in 2013 were foreign companies, with Mead Johnson Nutrition Co. (MJN:US), a Glenview, Illinois-based company, leading the market with a 11.1 percent market share, followed by Nestle SA and Danone, according to data from researcher Euromonitor.

This preference for an overseas label benefited foreign food chains in the past, as Chinese customers perceived overseas chains as having cleaner food, said James Button, a director at Shanghai-based industry consultant Smithstreet.

“Consumers before perhaps had an illusion of safety,” Button said. “If you were eating at a small-mom-and-pop restaurant, you may not fully trust that they are using clean oil or if the meat is fresh. That same concern is now extending to all” food-and-beverage sellers.

Additional Cost

Some foreigners, such as Su Lim, a Singaporean who has lived in China for nine years, only eat at established restaurants and use filtered water.

“There is an additional cost, but you pay more for a peace of mind,” said Lim, who runs a chain of facial salons in Shanghai.

Shanghai Husi is one of the most prominent foreign-owned food suppliers to have been caught up a safety scare in China.

The Shanghai unit successfully defended itself from a local lawsuit brought against it last year by a former employee, who claimed it tampered with food-production dates and ran an unsafe workplace, according to a Shanghai Jiading District People’s Court document dated Jan. 6 and posted on the website of the Supreme People’s Court.

Claims Dismissed

The employee, Wang Donglai, who worked on a quality-control team assigned to Shanghai Husi’s production line from 2007 to 2013, accused the company of violating food-quality laws and faking the dates of its products. The court dismissed the case, saying Wang lacked evidence to prove the food-quality claims.

“Most foreign-owned firms in China will have well-developed food-safety precaution measures, but they are still dealing with local staff,” said Sebastien Breteau, the founder and CEO AsiaInspection, whose firm helps brands, retailers and importers run food-quality checks in China. “In Asia, the food manufacturing industry is less mature and has had less time to develop an emphasis on quality control, which requires time and education.”

Supervision challenges remain in food production and quality control, said Peter Ben-Embarek, a Geneva-based food safety officer at the World Health Organization. Food producers in China know little about their role in ensuring food safety and are willing to cut corners for profit, said Ben-Embarek, who was a former officer in the WHO’s China office.

Stricter Rules

On paper, China’s food safety standards are often stricter than those in many developed countries, such as the U.S., according to Chen Junshi, senior research professor at the China National Centre for Food Safety Risk Assessment. The problem is that local food producers are only encouraged, rather than required, to adopt global-compliance standards in their manufacturing process, he said.

In the U.S., food suppliers are required by law to check for possible safety breaches, identify potential hazards and develop plans to prevent them.

Inspector Shortage

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 is seeking to strengthen food safety in the country by increasing penalties for violations, adding food-safety information scrutiny and raising compensation for consumers in a new draft law. The country is also tightening oversight of the infant formula industry.

“I won’t eat meat products in McDonald’s and KFC again in future,” said a 21-year-old graduate student from Shanghai surnamed Yu. “I can’t imagine they even used those expired meat that are likely to make people sick.”

To contact the reporters on this story: Liza Lin in Shanghai at llin15@bloomberg.net; Jing Jin in Shanghai at jjin32@bloomberg.net

To contact the editors responsible for this story: Stephanie Wong at swong139@bloomberg.net Brendan Scott


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