Food Giants Scrutinize Chinese Suppliers

(Wall Street Journal)

 

The Chinese milk-safety scandal exposes one of the pitfalls of a key strategy of the world's big multinational food companies: relying on local suppliers in emerging markets.

 

On Monday, H.J. Heinz Co. said it will stop using milk from China in the baby food it sells on the mainland and in Hong Kong. Nestlé SA, the world's biggest food company by sales, said it is examining its procedures for buying milk in China, where it relies on a network of individual farmers.

Associated Press

 

British candy maker Cadbury said tests it did on products made at its Beijing plant have led to a decision to recall some of its items from store shelves in the region.

 

The announcements came as candy maker Cadbury PLC began pulling products made at its Beijing plant from store shelves across Asia after finding traces of the industrial chemical melamine in its chocolate. In recent weeks, companies like Cadbury had found their products and operations to be free of the contaminant, but now are finding minute amounts, adding to consumer jitters.

 

The problem shows how big food companies can struggle to impose food-safety standards on suppliers in the developing markets they increasingly rely on for sales growth. The companies can test their own factories and then later find problems with ingredients introduced earlier in their supply chains. Some, like Kraft Foods Inc., are seeking to address that challenge by conducting quality checks on local suppliers. Mars Inc., meanwhile, says it safeguards its products by using Chinese suppliers who own their entire production chains.

 

Chinese milk tainted with melamine, a chemical used in making furniture and other goods, has killed several children and made more than 54,000 sick in recent weeks. The U.S., European Union, India, South Korea and others have recalled or banned products as a result.

 

Chinese authorities continue to detain people involved with dairy distribution, according to the official Xinhua news agency. Police in Hebei province, in northern China, detained 22 people involved in a network connected with making and selling melamine and tainting milk, Xinhua reported.

 

The move by Pittsburgh-based Heinz to drop its Chinese suppliers comes just days after the company began to recall 270 cases of baby food in Hong Kong as a precautionary measure. Heinz said it has started testing all dairy ingredients in products made and sold in China for melamine, even if those ingredients don't originate in China. No one has gotten sick from consuming the Heinz products, the company said.

 

London-based Cadbury said it is recalling all 11 products made at its chocolate factory in Beijing as a precaution after preliminary tests "cast doubt on the integrity of a range of our products manufactured in China."

 

Cadbury's experience shows that a company can test its own operations, and still run into problems with its suppliers. Cadbury has employees or external experts in all its factories to test chocolates for dangerous microbes and contaminants, a spokesman says. The employees aren't responsible to the local factory manager, and instead report to the compliance division, which includes Cadbury's auditors.

 

But for its ingredients, Cadbury relies on suppliers to have their own tests, a spokesman in London said Monday. "Nobody can look for everything," he added.

 

In China, Cadbury's dairy suppliers had been cleared in the recent spate of government testing, but it decided to do further tests of its Chinese products. Some of those items came back positive for traces of melamine, said Trish Fields, a spokeswoman for Cadbury Asia Pacific, though she declined to say which ones. The source of the contamination wasn't known.

 

Nestlé says it does 70 different quality tests on its milk products, but only began looking for melamine on Sept. 14, soon after the milk scandal became public. The Swiss food giant recalled one product in Hong Kong, on orders from the local government, that had trace amounts of melamine. It is reviewing how it buys milk in China, said Nestlé spokesman Robin Tickle.

 

Part of the confusion appears to be that different tests produce different results. Over the weekend, Indonesia's Ministry of Health said its tests had found melamine in 12 types of products sold there, including M&M's and Snickers candy bars made by Mars. Mars questioned the findings, saying the Indonesian results don't match tests by other Asian governments that have cleared its products. Indonesian officials didn't respond to requests for comment Monday.

 

"We understand that melamine has been introduced into the dairy supply by unscrupulous traders that would buy it from farmers, dilute it with water and add melamine to increase the apparent protein level. One way to mitigate that risk is to have no middlemen or traders involved in your supply chain," said Khaled Rabbani, Mars's director of corporate and regulatory affairs for Asia Pacific.

 

Mr. Rabbani says Mars uses suppliers in China who "own and control the entire pipeline."

 

Not all Western food companies operating in China buy ingredients locally. France's Danone SA buys milk in Australia and New Zealand for its Chinese baby products, according to a spokeswoman, a situation that could help sales if the scandal spreads.

 

In Indonesia, meanwhile, the government also said it had found melamine in Oreo wafer sticks made by Kraft. Kraft spokeswoman Claire Regan said that while the Oreo wafer sticks sold in Indonesia are made in China, they don't contain any Chinese dairy ingredients.

 

"Other governments -- Malaysia, Korea and Thailand -- have tested Oreo wafer sticks, and they had negative results" for melamine, she said. Kraft says it is trying to work with the Indonesian government to understand how its findings differed from that of other governments. 9-30-08

 

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