Sanlu Group was created in 1996 after several acquisitions in prior years. It was one of the oldest and most popular brands of infant formula in China. Tian Wenhua, the CEO and Chairwoman of Sanlu led the Chinese powder market for 13 consecutive years in terms of sales. Tian was considered one of the most successful entrepreneurs in China for her role in building the company. In December 2005, a joint venture agreement was signed which involved New Zeeland dairy cooperative Fonterra taking a 43% of company equity. Sanlu employed nearly 10,000 people, and was one of the largest employers in Shijiazhuang, the capital of Hebei province. Since the 1990s, Sanlu launched multiple rounds of successful acquisitions, labeled as “low-cost expansions.” Three of those major acquisitions were made in 2006 alone. In February 2006, the group opened a dairy plant in Tangshan with an annual output capacity of 200,000 tons of formula milk powder. In April 2006, Sanlu acquired a liquid milk production base in Weifang, which was capable of producing 300,000 tons of liquid milk every year. In October of the same year, the company invested in production facilities with an annual capacity of 100,000 tons of lactic acid bacteria drink and yogurt. Sanlu prided itself on its stringent quality control by boasting extremely rigorous test procedures for its products. In 2007, the Chinese Ministry of Commerce awarded Sanlu the titles of “the Most Competitive Brand” and “the Renowned Brand in China.” Forbes ranked Sanlu number one on its list of top Chinese dairy enterprises. In late 2007, multiple consumer complaints and media reports began to emerge, blaming tainted baby powder milk for a number of cases of infant kidney failure. Some of these cases had a confirmed link to products from Sanlu, which had been China’s number one seller of baby formula consecutive years and had accounted for more than 18 per cent of the Chinese baby formula market in 2007. Sanlu had manufactured a product containing melamine that was 5,125 times higher than the European Union safety limits. The scandal swept through the Chinese dairy industry, which was valued at RMB122, billion (US$18 billion) in 2007. All over the world, Chinese dairy products were recalled and banned. By December 2008, the official numbers of victims included more than 290,000 infants sickened, 51,900 hospitalized, 11 suspected deaths and three officially confirmed deaths. January 2009 People’s Court of Shijiazhuang declared Sanlu’s bankruptcy as a legal entity.
The case discusses the tainted milk scandal that was unearthed in China in 2008. The milk scandal became public in August 2008, after it was disclosed that the baby formula produced by the Chinese dairy products company, Sanlu Group was contaminated with melamine, which caused kidney failure of many children, resulting in death in some cases. Later, the investigation by the government revealed that the products of 21 other Chinese dairy firms were also contaminated with melamine.
As soon the crisis became public, the Chinese Health Ministry ordered the dairy firms to recall the contaminated products and to destroy the unsold and recalled products. The Chinese Health Ministry started testing dairy products across the country. Top executives of Sanlu were arrested. Government offficials who were found guilty were also sacked. China's dairy industry association announced that the affected children and their families would get compensation from the responsible dairy firms. To support the affected dairy farmers, the government also announced a subsidy.
As a result of this scandal, many countries like Hong Kong, Taiwan, Singapore, South Korea, Australia, and Indonesia banned Chinese dairy products. Several foreign companies which sold China made products or products which used Chinese ingredients recalled their products. The scandal severely affected the reputation of China as one of the leading food products exporting...