China Withdraws Milk as Fonterra Decries Sanlu Delay (Update3)

(Bloomberg – China)

By Lee Spears and Helen Yuan

 

China pulled more than 7,000 metric tons of dairy products from shelves as the nation's new quality regulator pledged “forceful” measures to tackle chemical contamination that's killed four infants and sickened 53,000.

 

Authorities seized 4,247 tons of milk powder and 1,562 tons of liquid milk laced with melamine, the official Xinhua News Agency said. The Philippines today banned Chinese dairy imports, adding to restrictions in 15 other countries and markets.

 

China, the world's largest agricultural producer, has sent inspectors to check dairy farms nationwide after Sanlu Group Co., China Mengniu Dairy Co. and 20 producers were found to have sold contaminated products. The scandal has revived concerns about China's food-safety controls after scares over tainted seafood, dumplings and pet food.

 

“The dairy industry chain has been badly damaged and will need a much longer time to recover,” said Chen Gang, Shanghai- based analyst at Sinolink Securities Co. “The scandal has involved many producers, giving most people a big surprise.”

 

Melamine, typically used to make plastics and tan leather, has been added to diluted milk to make the protein content appear higher than it is, the government said.

 

The Philippines today revoked all licenses to import Chinese milk products and Taiwan banned the sale of food made with Chinese milk powder, joining restrictions in 14 other places including Singapore, Malaysia, Vietnam and Indonesia.

 

Wang Yong, China's newly-appointed chief quality supervisor, vowed to “properly” manage the scandal, according to a statement today. Wang replaced Li Changjiang, the highest ranking official to be brought down by the scandal.

 

Pesticide-tainted Chinese dumplings sickened at least 10 people in Japan this year, and

industrial dye has been found in duck eggs and carcinogenic fungicides in turbot fish in the past two years. Mattel Inc. recalled more than 21 million Chinese- made toys last year because of excessive lead content.

 

Inner Mongolia Yili Industrial Group Co. fell 9 percent in Shanghai trading today, bringing the loss to 33 percent since its products were found to contain the chemical.

 

Beijing Sanyuan Foods Co., whose products were cleared from suspicion of tainting, surged by the daily limit of 10 percent for the fifth consecutive day, to 5.08 yuan. Sanyuan's market value has jumped 67 percent in the past six trading days.

 

New Zealand's Fonterra Cooperative Group today criticized an “appalling” delay by its Chinese affiliate in reporting complaints of sick infants.

 

Fonterra wrote down the value of its stake in the affiliate Sanlu by 69 percent, Chief Executive Officer Andrew Ferrier said, after the Shijiazhuang, Hebei province-based maker was the first company identified as having produced tainted milk.

 

Sanlu received complaints in December and knew of melamine contamination in June, Xinhua said, citing the government. Fonterra last week said Sanlu's board was informed of the contamination on Aug. 2, after receiving complaints in March.

 

“If they were lying about it, then they were lying about it to us too,” said Ferrier. “If this allegation proves to be correct that would be absolutely appalling.”

 

Fonterra in 2005 agreed to buy 43 percent of Sanlu for $107 million.

 

China's dairy farms produced 32 million tons of milk in 2006, according to the latest data available from the National Bureau of Statistics. The country's dairy market was expected to expand to $20 billion this year, from $18 billion in 2007, Euromonitor International Plc forecast before the scandal.

 

The government should license and regulate milk collectors, remove operators without fixed premises and set up a tracing system for products, the Dairy Association of China said today.

 

“I don't know why young women these days don't breastfeed,” Margaret Chan, director general of the World Health Organization, said in an interview yesterday. “Breastfeeding is the best food for babies.”

 

Retail sales of infant formula are projected to climb 19 percent to $8.5 billion in Asia this year, helped by a 29 percent jump in China, according to Euromonitor.

 

Murray Goulburn Cooperative Co., Australia's biggest milk processor, today said Chinese demand is rising as consumers seek alternatives.

 

“We've seen increased demand for our milk powder products and also a lot of inquiries about availability of infant formula,” Mal Beniston, general manager of international sales and marketing, said. The Melbourne-based cooperative accounts for 9 percent of the global dairy trade.

 

Vietnam found melamine in a 101-metric ton shipment of powdered milk from China and has asked milk producers in the country to test their products by the end of this month, Saigon Times Daily reported today, citing Nguyen Xuan Mai, deputy head of Ho Chi Minh city's Institute of Hygiene and Public Health.

 

Mars Inc., the U.S. maker of M&Ms and Snickers, said in an e-mail that its candy can be safely consumed because its China unit doesn't use “any milk powder or other ingredients for any of its products from any company which has been found to be selling melamine-contaminated dairy products.”

 

Hershey Co., the largest U.S. chocolate maker, said it never purchased milk ingredients from China, according to a voicemail by spokesman Kirk Saville.

 

Nestle SA, the world's largest food producer, yesterday said all its milk products sold in China are “absolutely safe.” 9-24-08

 

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