China food scares

Ben Simpfendorfer, Silk Road Associates

Walk along the chilled meat aisle in Wellcome, a Hong Kong supermarket chain, and Betagro’s pork products stand out. The company is one of Thailand’s largest poultry and pork producers exporting nearly $700m annually with the large share shipped to Europe and Japan, where buyers are attracted by not just the product’s price, but also its quality.

Indeed, it’s the latter that makes Betagro’s pork products stand out from its competitors in Hong Kong. Each package has a QR code that allows customers to trace the product’s origins right back to the farm-gate, a major attraction in a market where food health safety concerns are an increasingly big driver of consumer preferences, local and foreign. 

Hello China

China’s distressingly frequent food quality scandals are bad news for Chinese citizens but may be good news for UK food exports – so long as China can be persuaded to eat foods it has never eaten before, and UK food brands can adapt their traditional fare for a different kind of palate. 

One of the corollaries to Orwell’s famous six rules for good writing is “never use three words when two will do”.

Multinational executives would do well to heed a similar dictum when speaking off the cuff in China: never use a particular five-word phrase when one word will do instead. 

Product recalls can often cause havoc with individual companies – just ask Toyota. But it’s rare that such an event can send shockwaves through an entire economy.

Yet that seems to be the case with China’s decision to recall milk powder imported from New Zealand over concerns that some of it could contain bacteria that causes botulism. 

Shares in Mengniu, China’s largest milk seller by volume, soared more than nine per cent on Monday on news that Danone of France was set to invest €325m in two joint ventures with the Chinese company.

Danone will take a four per cent indirect stake in Mengniu through a joint venture with Cofco, a state-owned agricultural company that is Mengniu’s largest shareholder. Danone is also purchasing a 20 per cent stake in Mengniu’s yoghurt businesses, subject to regulatory approvals. 

The quality of Chinese infant milk is not just an issue for mothers and the market – now Ai Weiwei, the artist Beijing most loves to hate, has been inspired by the formula scandals to create a piece of protest art.

The dissident artist told the South China Morning Post that his new sculpture, to be unveiled in Hong Kong next week at an exhibition dedicated to the history of epidemics, was inspired by the continuing crisis over the quality of mainland infant milk – a crisis that has had repercussions around the world, with grocery stores as far away as the UK restricting sales as mainland consumers rush to procure safer supplies overseas

China has gained such fame for food safety crises that Chinese consumers are normally delighted to be told that what they are eating is imported rather than local.

But on Tuesday Ikea turned the tables by announcing that the Swedish meatballs in its mainland cafeterias are safe – precisely because they are Chinese. 

As expected, a dreadful fourth quarter for Yum! Brands following furor over a food safety scare in China.

Like-for-like sales growth in China – a market that now accounts for half of total group revenues and profits – fell 6 per cent for the quarter, compared to the 21 per cent increase seen during Q4 of 2011.

But the worst is yet to come. The company said it expects same-store sales in China to fall “approximately 25 per cent for January and February combined”. 

So it was the toxic chicken accusations afterall.

Shares in Yum! Brands fell more than 5 per cent in aftermarket trading on Monday after the inanely-punctuated US owner of KFC, Taco Bell and Pizza Hut said China sales fell more than expected. 

China’s dairy industry is the cow that keeps on giving – scandals.

Earlier this month it was mercury in the baby formula of Yili, the mainland’s largest dairy producer by revenue. In December, products of Mengniu, China’s second largest dairy, were destroyed after they were found to contain aflatoxin, which can cause severe liver damage. Four years ago it was melamine in milk: an industrial chemical added to boost apparent protein content, it eluded government quality control until hundreds of thousands of chinese infants had kidney stones from it.

So what’s the lastest? 

Just another week in the life of a Chinese housewife: first it was yogurt made from old shoes, then tea tainted with pesticides and now comes news that even the sacred xiaolongbao – small steamed dumplings, the signature dish of Shanghai – may be harbouring dangerous additives. 

Care for some pesticides with your tea? That’s what tea drinkers in China, the world’s biggest consumer of tea, are asking themselves after the latest revelation of toxic tea leaves for sale across the country.

On Wednesday, a report from Greenpeace outlined the pesticides — including carcinogenic and banned chemicals — found in 18 Chinese teas, including some of the country’s best-known brands. 

Those bored with ordinary milk – healthy but uninteresting as far as drinks go – might want to try the Chinese variety. Laced with kidney-ravaging toxins, harmful bacteria and carcinogens, milk in China is anything but dull. Drinking it is a high-risk activity.

That at least is the impression from the latest scandal to hit the country’s beleaguered dairy industry. But there is some room for optimism.