BRICs and beyond: Fresh concerns over food safety in China
Mengniu Dairy blamed latest contamination on "mouldy and deteriorated" fodder
The Chinese New Year is marked on Monday (23 January) but the same old questions over the safety of food made in the country have reared their head once again. Contaminated milk at Mengniu Dairy has renewed consumer concern and infant-formula maker Synutra International found itself linked to the death of a baby boy. Chinese food makers are working on improving supply chains but there is still much more to do, as Dean Best reports.
A new page is about to be turned on calendars in China but consumer anxiety over the safety of the food they eat lingers.
Indeed, in recent weeks, that concern has been heightened after major Chinese dairy processor Mengniu Dairy admitted that state inspectors had found contaminated milk products at one of its plants in central China.
And it is likely the renewed unease led to speculation - which turned out to be unfounded - that infant formula made by Synutra International caused the death of a baby boy and the illness of his twin sister.
China's food industry has been rocked by a series of safety scandals in recent years. Questions over the safety of food made in the country are nothing new. However, the Chinese government, particularly after the melamine scandal in 2008, has moved to tighten regulations and step up inspections. It was a state inspection team that found a batch of milk products at Mengniu's site in Meishan contained excessive levels of a cancer-causing chemical. Food manufacturers, mindful of the impact that safety scandals and any concern over the quality of products can have on consumer confidence, are working on their supply chains and improving food safety.
"Most Chinese food companies are investing in supply chain and food safety," Torsten Stocker, partner at US consulting firm Monitor Group, tells just-food. "They realise that, as their model is shifting from distribution-led growth to building sustainable brands, this is absolutely critical. Of course, there are always exceptions, but the larger and more established firms fall into this category."
However, one of the more established firms, Mengniu, was the company that sparked the latest concerns over safety. A state inspection found a batch of Mengniu's milk products were contaminated with flavacin M1, which can cause liver cancer. The company said cows had produced raw milk containing the chemical. It blamed the contamination on "mouldy and deteriorated" fodder. It also maintained the affected products had not been released to market and insisted the items were immediately sealed and destroyed "without delay".
That was not enough to stop anger among some Chinese consumers. Reports said the company's website was hacked, with its address changed from mengniu.com.cn to "Hacked By:Drift". One hacker, Bloomberg reported, posted a message that said: "Mengniu once made the Chinese people strong and proud, but now it's doing harm to its own people".
There is, it seems, a sense of frustration that, despite promises from government and industry that the safety of food would improve, there are still regular episodes of contamination. Food safety is, according to some local surveys, the most important issue to Chinese consumers, ahead of medical bills and fees for education. Those fears could provide an opportunity for, perhaps, the multinationals operating in China to take advantage of any concerns over products made by local companies.
"Consumers will switch to other brands at least temporarily, and whether they come back really depends on what signals both the company and the government send about what will be done about the situation," James Roy, a senior analyst at China Market Research Group, says, referring to Mengniu's recent contamination.
Nestle is one company that could stand to benefit from any concerns over China's dairy processors. Two weeks after the contamination at Mengniu emerged, the Swiss food giant announced plans to build a farming "institute" in China to train local farmers, improve productivity and give them "much-needed management skills training".
A spokesperson for Nestle told just-food that the decision to set up the institute in the north-eastern city of Shuangcheng was a "continuation" of the company's "success story" in China, rather than a direct response to the scare at Mengniu.
The world's largest food maker refused to be drawn on whether it expected its sales to increase in the wake of the Mengniu contamination. "Nestle has made consistent efforts to ensure the quality and safety of its product irrespective of what is happening in the marketplace. Consumers will decide which product they choose. We are pleased that the Nestlé brand enjoys a good reputation amongst the consumers."
Nonetheless, multinational operators, backed by the experience of running vast supply chains in other markets, could have an edge on their rivals in China. That is not to say that major local processors are not investing in safety; it could just be a matter of perception for the country's safety-conscious consumers.
Of course, China is not alone in food safety scandals. 2011 saw major episodes of contamination in Europe and the US in which scores of people died. However, the fast-growing economy does have specific problems. "In China, and in particular in dairy, supply has not kept up with demand. This means that supply chains are not as robust as in other markets because companies are still building the hardware, and, more importantly, the software, the institutional capabilities, to ensure supply of quality inputs," Stocker says.
"The agricultural sector in China is still very fragmented. Most farms are small-scale operations, making them more difficult to control. I think the regulatory environment is also still emerging, both in terms of setting the right standards - i.e. those that focus on critical quality measures, but without unnecessarily burdening manufacturers - as well as in terms of enforcing them."
The pace of growth in China's economy, the change in consumer diets, the size of the country and the fragmented nature of much of the supply chain in the food industry are challenges that will take a long time to surmount. As the year progresses, it is likely that more scares over food safety will emerge.
Premier Foods plc this week announced another asset sale with the disposal of its ethnic flour business Elephant Atta to Associated British Foods....
- M&A Watch: Why Danone/Lifeway deal could be next
- Focus: The impact of Heinz's stevia ketchup
- Focus: Gen Mills turns to M&A to bolster US ops
- Shopper trends: Some confidence but promos popular
- Viewpoint: US health food in play - at a price
- Burton's "eyeing" United Biscuits merger
- Premier Foods revamp creates three divisions
- General Mills Q1 profits tumble
- Unilever to boost presence in Nigeria
- WhiteWave to buy dairy-free firm So Delicious