China’s milk scandal bares government failures

Unlike the United States, where dairies run farms with thousands of cows and are better able to control quality, milk in China comes from a patchwork of producers. Most are small farms with just a few cows who sell the raw milk to collection stations, which in turn sell mainly to giant dairy processing companies.

“The middleman is where the system breaks down totally,” said David Oliver, a New Zealander who is a dairy industry consultant in Beijing.

Two giant processing companies — Mengniu Dairy Group Co. and Yili Industrial Group Co. — control nearly 60 percent of the total market for milk, yogurt and other dairy products, according to Beijing Orient Agribusiness Consultant Co.

But in the past three years, prices for feed, fuel and other costs rose — feed by as much as 30 percent. Further pressures came last year when Beijing enacted price controls to tame double-digit inflation for food.

Milk collectors found themselves squeezed between the farmers asking for more money and the processors who demanded that prices be held down, said Chen Lianfang of Orient Agribusiness.

That squeeze gave suppliers incentives to tamper with the raw milk, watering it down and then adding ingredients, said Chen.

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Melamine, a relatively cheap binding agent used in plastics and as a flame retardant, is rich in nitrogen, fooling widely used tests that check for protein. When mixed with formaldehyde, it dissolves in water.

In the wake of the scandal, inspectors found melamine in products from Yili, Mengniu, Sanlu and 19 other dairy companies.

Government officials have painted the middlemen as the main villains. A vice governor of Hebei province, where Sanlu is located, said one of the dairy’s suppliers began using melamine three years ago.

Chinese health officials have said no harm comes from consuming tiny amounts of melamine, less than 0.63 milligrams per kilogram. But some of Sanlu’s infant formula contained up to 4,000 times that amount, as much as 25 milligrams per kilogram.

Trouble with Sanlu’s products began brewing last December, with parents complaining to the company about infants sickened by formula, Chinese state television said. Sanlu bought off one complainer with free milk products. Doctors and reporters also sounded warnings.

At an editorial meeting at one state-run newspaper last week, editors were told that its Hebei-based reporter wrote an “internal reference” sent to Beijing in March about contamination of Sanlu products, said two participants. They requested their names and that of their newspaper not be used for fear of retribution by officials.

A pediatric urologist, Feng Dongchuan, said in a posting July 24 on his online journal that he had treated seven infants for kidney stones at the Pediatric Hospital in the central city of Xuzhou, an unusually high number.

“Coincidentally all consumed a certain famous domestic brand of formula,” Feng wrote. He said more cases were reported in nearby Nanjing.

That day a urologist who would not give his name sent a similar warning to the General Administration of Quality Supervision, Inspection and Quarantine, naming the brand of formula — Sanlu.

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The reply, posted a week later, said: “Please report this problem to the health departments.”

Meanwhile, Sanlu was quietly ordering distributors to remove milk powder and infant formula, distributors said. China Central Television said Sanlu knew in June that tests had detected melamine.

At board meetings in the Hebei capital of Shijiazhuang on Aug. 2 and again on Aug. 9, Sanlu executives were confronted by the dairy’s New Zealand investor, the Fonterra cooperative, which urged them to go public. Company executives and local government officials refused.

The central government said it only learned of the scandal Sept. 8 — it does not say how — even though inspection, health and other government departments in Hebei and Beijing knew earlier.

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