Milked to the degree of danger

Mary-Anne Toy in inner Mongolia
September 27, 2008

As Zhai Zhigang prepared last night to become the first Chinese man to walk in space, China's leaders were hoping in vain that a successful Shenzhou 7 space mission might divert the public from the most reprehensible food-safety failure since 13 babies died from fake milk powder four years ago.

It is more likely to put government and corporate competence and morality into sharper focus. If the Government can spend billions to allow a man to walk in space, people are asking, why can it not ensure the safety of baby milk powder - infant formula the Government has allowed dairy companies to promote at the expense of breast milk?

More than 50,000 children, most under three, have fallen ill after drinking China's top-selling infant formula, made by the Sanlu Group, which is part-owned by the New Zealand dairy giant Fonterra. The real numbers are likely to be greater. Four children have died and almost 13,000 are in hospital. At least 100 of those are in a critical condition from kidney failure.

An emergency cabinet meeting chaired by the Premier, Wen Jiabao, last week described China's dairy industry as "chaotic". The Agriculture Minister, Sun Zhengcai, said the industry was "out of control".

The Government initially blamed a rogue producer, ignoring the fact Sanlu is state-owned. Later investigations found a fifth of China's infant formula makers - including Mengniu, the dairy giant that until June supplied China's taikonauts (astronauts) and sponsored its space program, and the Olympic dairy sponsor and supplier Yili - also had melamine-tainted products. (Melamine boosts the apparent protein content in watered-down milk.)

The day before the scandal broke, Sanlu outbid Mengniu and Yili to take over as as the preferred milk supplier for China's taikonauts.

Dairy farmers, milk collectors and dairy company staff in Inner Mongolia, the heart of the dairy industry, told the Herald substandard milk had long been accepted by Mengniu and Yili, China's two biggest dairy manufacturers, but this had stopped last week after the scandal broke.

A Mengniu employee said production was now down because the scandal had forced the plant to stop accepting suspect milk. "Before there was no testing as strict as there is now," he said.

Mr Xiao, a milk dealer from Helingeer, the county where Mengniu is based, said previously it was rare any of his shipments were rejected. "There was only one standard, the milk was either qualified or not qualified," Mr Xiao said. "But they paid two prices, 1.9 yuan per kilogram [for poorer milk], or 2.6 yuan."

Questions have been raised as to how much local party and government officials knew about the milk tampering in order for the widespread fraud to continue. "The procurement people of the dairy manufacturers were all aware of the problem, but they still take in tainted raw milk. It is either because of the shortage of supply or because they are connected to the agents and accepted bribes," an industry source told the South China Morning Post.

China's Caijing, an investigative magazine that has ignored directives to restrict itself to official reports of the scandal, attributes the dairy industry's explosive growth to reforms in 1987 by Sanlu's now disgraced chairwoman, Tian Wenhua. Tian split farming and processing into separate operations, encouraging farmers to raise cows, leaving dairy companies free to process and market the milk. Millions of peasants, encouraged by the Government and cheap loans, became dairy farmers overnight. Sanlu and the Government later helped farmers set up another link - milk collection centres or brokers who could better organise the logistics of transporting the milk to the dairy factories.

A bigger dairy industry was a long-held objective of Beijing because it promised to improve rural incomes and health. An influential survey in the 1990s by Beijing Medical University revealed that Japanese teenagers, long shorter than their Chinese peers, were now 1.7 centimetres taller on average. This shocking result was attributed to Japan's greater dairy consumption.

Caijing said that quality control was not a problem initially because there were so few dairy companies it was a buyers' market. Companies such as Sanlu could refuse substandard milk. But by 2005, private and state-owned dairy companies had multiplied and, in the scramble for milk supply, quality controls were abandoned. "Government supervision was practically nonexistent," Caijing concluded.

Six of the 22 dairy companies whose infant formula was later found to be melamine-tainted, including Sanlu, had been exempted from regular inspections because they were deemed "famous brands", which could be trusted to ensure quality. One of the Government's first actions after the scandal broke was to abolish the system of exempting famous name brands from regular inspections.

The Sanlu group lied about problems with its infant formula for more than eight months, investigators sent by the State Council (China's cabinet) found. They also blamed local government officials in Shijiazhuang, Hebei's capital and the site of Sanlu's headquarters, for saying nothing to higher authorities.

Shijiazhuang officials were formally told on August 2 about the melamine problem, but given Tian Wenhua is a leading Communist Party official and so part of the local government, it seems likely local officials were aware of what was happening. Tian has been arrested, with 17 others.

The nation's product quality watchdog, the General Administration of Quality Supervision, Inspection and Quarantine had had reports all year about Sanlu formula making babies ill, including two reports posted on its website, that have since been removed. It, too, failed to act. The agency's head resigned this week.

Sanlu's New Zealand partner, Fonterra, which owns 43 per cent of the company, found out on August 2 but kept silent and failed to report the matter to the New Zealand Government or the World Health Organisation.

Beijing, if not directly complicit in the cover-up, had made it clear to all levels of media that it wanted no bad news aired before the Olympics. The real test of its commitment now will not be another overhaul of safety standards - which were allegedly reviewed a year ago after a string of scandals about contaminated toothpaste, seafood and pet food - but whether the Government will allow an unprecedented class action.

More than 100 lawyers have volunteered to represent parents, but allowing a class action on tainted milk would create a troubling precedent for a Government that shut down similar moves by parents whose children were killed in the Sichuan earthquake because of shoddy school construction.