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CHINA: China Food-Safety Chief Resigns in Dairy Scandal

by Loretta Chao and Jason LeowWall Street Journal
September 23rd, 2008

China's top food-safety official resigned as a dairy contamination scandal brought more international recalls of Chinese products and heightened fears among dairy farmers that their livelihoods were in danger.

On Monday, Nestlé SA was forced to recall a type of milk it sells in Hong Kong and New Zealand's prime minister criticized her country's top dairy company for not speaking out sooner about problems with the baby formula it produces in a Chinese joint venture.

[Li Changjiang]Associated Press

Li Changjiang resigned from his post as head of China's food-safety watchdog.

Complications from toxic melamine in formula have been linked to the deaths of at least three children in China and the illness of more than 50,000. The scandal began when officials revealed on Sept. 11 that milk powder made by Shijiazhuang Sanlu Group Co. was the cause of a spate of kidney stones among babies. A subsequent investigation found over 20 other companies had tainted products. Melamine was also found in Chinese-produced liquid milk and yogurt.

Li Changjiang, 63 years old, minister of China's General Administration of Quality Supervision, Inspection and Quarantine since 2001, resigned Monday, "taking the blame for supervision default," according to China's official Xinhua news agency.

Mr. Li, who during his tenure often defended the international reputation of Chinese products, is the highest-ranking official to leave his post because of the dairy scandal. Others to resign include the mayor of Shijiazhuang, where formula-maker Sanlu is based.

Sanlu and New Zealand's Fonterra Co-operative Group Ltd., which owns 43% of the company, have been criticized for not immediately notifying the public when the contamination was confirmed in early August.­

Milk dealers have been arrested and government officials fired as milk powder laced with melamine poisoned more than 12,800 babies and killed 4. WSJ's Loretta Chao reports.

New Zealand Prime Minister Helen Clark said in a radio interview Monday she felt there was an unsatisfactorily "long period of time before Fonterra spoke" out, according to the Associated Press. Fonterra's chief executive said last week that company officials tried to "encourage" the Chinese company to go public with the problems.

Chinese supermarkets, schools and Starbucks outlets have voluntarily pulled dairy products off the shelves, and consumers have been flocking to foreign brands.

But on Monday, Nestlé issued a recall of one brand of its milk sold only in Hong Kong to caterers and other commercial customers, after health authorities in the city found traces of melamine in a sample of the product.

In a statement, Nestlé said it was issuing the recall of the product in Hong Kong to comply with orders from Hong Kong's food-safety department. The company said that the product was never shipped to customers and that the trace amounts of melamine in the product in Hong Kong don't pose a health risk.

Nestlé added that its other products have been tested extensively and cleared by regulators in Hong Kong and Beijing.

Spilled Milk

Chinese dairy recalls -- and concerns -- have spread since the scandal broke

Sept. 12: Sanlu recalls 700 tons of baby formula in China.

Sept. 14: Taiwan authorities seize thousands of bags of Sanlu commercial milk powder.

Sept. 16: Chinese authorities find melamine in baby formula from 22 producers and order recall; Hong Kong supermarket chain Wellcome recalls line of Yili frozen yogurt bars after authorities find melamine.

Sept. 19: Starbucks discontinues use of Mengniu milk. Singapore suspends import and sale of dairy products from China.

Sept. 20: Japan's Marudai Food Co. announces precautionary recall of five Chinese-made products; Gabon officials ban import and sale of Chinese powdered milk.

Sept. 21: Hong Kong authorities say they found traces of melamine in a batch of Chinese-made Nestlé commercial milk.

Sept. 22: Hong Kong authorities force Nestlé to recall the milk line.

A separate statement from the Hong Kong government said that it is researching the threshold at which melamine becomes harmful for human ingestion and suggested that the chemical may sometimes make its way into food naturally.

Taiwan, Japan, Singapore, Malaysia, Bangladesh, Brunei and Gabon are among other importers to have issued recalls or bans of Chinese-made dairy products. The EU last week told its 27 member nations to boost border controls for all Chinese milk products. It was a symbolic gesture: The EU refuses to let in most food imports from China, including dairy products, because of safety concerns.

China's dairy exports are small in comparison to its domestic consumption, but the international concerns compound damage in the past year to China's reputation as the world's manufacturer. Recent lapses have involved toys containing lead paint, melamine-contaminated pet food and toothpaste tainted with a chemical used in antifreeze. The latest scandal involved adulterated supplies of heparin, an anticlotting drug produced in China that was linked this year to more than 80 deaths in the U.S.

This time, most of the known victims have been in China, putting greater domestic pressure on Chinese leaders to take action.

That Mr. Li, who held a minister-level position, was allowed to step down rather than face dismissal suggested the government doesn't intend to blame him for the problems, but wished to show a degree of accountability.

In recent history, some other senior officials who have resigned or been fired amid scandal have been given new appointments. Xie Zhenhua, who headed the State Environmental Protection Administration until he quit in 2005 for a river-pollution disaster, was appointed vice minister of the National Development and Reform Commission last year. Meng Xuenong was dismissed as Beijing mayor in 2003 amid the search for accountability for the poor handling of the SARS outbreak. He later became governor of Shanxi province -- only to resign this month after a mining accident.

As the current scandal unfolds, tensions are high in milk-producing centers in Shijiazhuang and the sprawling farmland around Hohhot, the city in Inner Mongolia where China's biggest dairy companies, Inner Mongolia Yili Industrial Group and Mengniu Dairy Co., employ thousands of workers.

Dairy farmers say they are shouldering the brunt of the fallout, as companies return their milk, citing poor quality, or stop buying it altogether.

Mr. Liu, a 52-year-old dairy farmer in Hohhot, said he is watching his savings dwindle as his family's milk, which is no longer being bought by the companies, is poured out day after day. Dealers paid him 4.6 yuan, or 68 cents, per kilogram (about 31 cents a pound) of milk. "This life really is hard," he said.

At one milk station, where milk was rejected for three days in a row, Li Sixi, a 52-year-old sanitation worker, said the situation was making farmers uneasy. "If this kept going for longer ... farmers would have had to kill their cows," he said.

Mr. Liu said he is close to paying off the $2,900 he borrowed in 2001 to begin raising milking cows. He spends about 1,000 yuan on feeding seven cows every month, and earns a monthly profit of 500 yuan.

Mr. Liu said the business was more profitable for him than farming corn and potatoes, and he's hoping he'll be able to sell his milk again once the scandal dies down.

Many farmers in Shijiazhuang who relied on Sanlu said they doubt the company will survive. A 26-year-old dairy farm owner there says he has been pouring more than ten tons of milk into a river near his home every day for over a week, with no end in sight.

Mr. Li's resignation is the latest development in the government's effort to overhaul an industry that is seen to be rife with supply-chain control problems.

Zheng Yongnian, director of the East Asian Institute in Singapore, said an industry overhaul needs to take into account the many people along the long production chains. "China can't just commercialize its milk industry and adopt the U.S. model overnight. ... Millions of dairy farmers will be jobless and there will be big social instability," said Mr. Zheng.

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