In late September of 2008, the incidents of Chinese milk and powdered milk products laced with the chemical melamine became very public, and the outrage within China and other countries was highly charged.  Six infants died and more than 300,000 children were made ill, some seriously, as result of digesting tainted milk and milk powdered products.

At the time of the incident, I penned a Supply Chain Matters commentary expressing my personal outrage and calling for Chinese officials to once and for all crackdown on these scurrilous practices which had a previous history in other product areas as well.  As more and more information began to leak out regarding the incident, it became apparent that Sanlu Group, China’s largest producer of infant formula, was aware of the magnitude of the problem as far back as August, but neglected to make full disclosure due to the sensitivity for the upcoming Olympic games being held in China at the time. Other milk producers were also impacted, and brands such as Fonterra and Nestle were dragged into the effects of the scandal.

It’s a little over a year since these incidents and we can now observe the after effects.  China‘s Xinhua New Agency reported today that two people have been executed for their involvement in the scandal.  One, a Chinese farmer, was convicted of endangering public safety by dangerous means by producing more than 770 tonnes of melamine-laced milk.  Another, a major distributor of milk to Sanlu Group, was convicted of selling more than 900 tonnes of milk tainted with protein powder.  Both were executed.  The former board chairwoman of the Sanlu Group was convicted of manufacturing and selling fake or substandard products and was sentenced to life in prison.  All together, according to Xinghua, three individuals were jailed for life, and 15 were imprisoned for terms ranging from two to fifteen years in prison. One received a suspended death sentence.

I also came across a related news article from July which noted that Chinese dairy farmers in the home province of Sanlu Group were just getting on their feet as a result of the backlash from the incident.  An official of the Hebei Food Industry Association was quoted as indicating that the market has recovered to 70 percent of pre-scandal milk consumption. Market prices of raw milk which plummeted to 1.6 yuan ($0.23 USD) in December of 2008, had bounced back to 2.6 yuan per kg. by July, but diary farmers were still economically suffering. In all, the Hebei provincial government had to provide 40 million yuan in direct subsidies and 60 million yuan in low-interest loans to help diary farmers survive the crisis. Nationwide, the Chinese Ministry of Agriculture found that 3908 of that country’s 20,393 total milk collection stations, roughly 20 percent, to be defective and were shut down.

The consumers of China, the Chinese dairy industry, and the unscrupulous individuals involved have all paid a price as a result of China’s tainted milk scandal. China’s quick actions in response to this unfortunate and tragic incident are commendable. While exercising the death penalty in so short a time can be viewed as extreme, it certainly leaves little doubt of China’s intent to send a message that its tolerance for profit over the safety of consumers is waning.

We trust that China’s producers and governmental oversight agencies have learned from this incident, and will restore consumer trust in Chinese branded products.  Time and continued diligence will provide the real answer.

Bob Ferrari

The more I observe the incidents of critical product recalls involving highly sensitive food and drug related supply chains originating from China, the more outraged I, and all of us should become regarding this culture of insensitivity toward human life and widespread suffering.  The recent incidents involving the contamination of the life saving drug heparin, pet food, and now milk safety, show a consistent pattern of initial high visibility and regulatory focus to the targeted contaminated end product, followed by days or months of tracing back to the origins of the raw material supply chain uncovering the real scope and magnitude of the problem.  This has often proved to be too late and too time consuming to protect consumer safety, and masks the real problem, which was further upstream in the origins of the supply chain.

The latest tragic incident of contaminated infant formula in China is now playing itself out through various milk suppliers, with implications to other dairy and food related products.  Since Supply Chain Matters initial post on this incident on September 12 (Baby Formula Recall in China- Another Product Safety Concern), Chinese health officials now indicate nearly 53,000 children have been sickened, of whom 158 are reported with kidney failure. Tragically, there have been four reported deaths of infants.

The origin of this latest contamination is diluted milk in which the industrial chemical melamine has been added to mask protein count in quality tests. The chemical melamine was also the target of the pet food contamination problem in 2007, where 700 tons of wheat gluten exported to the U.S. was suspected of being laced with this harmful chemical.  Thousands of cats and dogs died as a result of that incident.  The incident related to the critical blood thinning drug heparin in early 2008 involved a Chinese factory as a suspected source of the contamination. A compound made from animal or shark cartilage, which was seven times cheaper than the inert heparin drug, was substituted by a downstream supplier.  That incident resulted in 82 deaths and hundreds sickened in the U.S. and other countries.

As more and more information leaks out regarding this incident, there are indications that Sanlu, China’s largest producer of infant formula was aware of the magnitude of the problem as far back as August, but neglected to make full disclosure due to the sensitivity for the upcoming Olympic games being held in China.  Once acknowledgement was made of the potential human extent of the infant formula problem, the Chinese central government has been fairly quick to move beyond the apparent coverup and inspect its nationwide producers of milk.  Those inspections have revealed that the problem is much more widespread, with melamine found in samples of milk from many other dairy producers, including two of China’s largest producers. Other world brands,  such as Fonterra and Nestle,  are being dragged into the effects of this scandal on their supply chains.  Meanwhile the World Heath Organization indicated this scandal highlighted flaws in the country’s entire food supply chain which caused the resignation of the minister of China’s Quality Supervision and Inspection agency. China’s central government is now taking extraordinary actions to assure its citizens that food supply chains are safe.  The suspected contamination has spread beyond the mainland, with Japan, Singapore, Taiwan and Hong Kong recalling Chinese-made dairy products, breads and candies made from these products.

Chinese consumers, and all of us as citizens of this world, are rightfully outraged by these terrible incidents. While the government of China has extraordinary means to manage the after effects of this situation, including the potential death penalty to any specific individuals involved, the fundamental problem of corruption in a supposedly requlated supply chain remains. I and other bloggers will be no doubt penning additional posts on the lessons learned and watch outs for the broader supply chain community, but for now, my thoughts and concerns are with the citizens of China who must deal with the after effects of this tragedy and absolutely demand reforms to their food supply chain. The question is whether the sickening and death of innocent children will prove to be the turning point.

What’s your view?  Do you feel that China’s central government can reform its regulation and safety of food and drug-related supply chains?  If your supply chain involves Chinese supply, are you concerned toward action?

 Bob Ferrari