Sanlu Milk Crises #1
On 12 September 2008, Sanlu Group, the biggest producer of milk powder in China, rocked the country when it admitted that its infant formula had been contaminated with the toxic chemical melamine. China's national inspection agency extended its investigation to other dairy manufacturers across the nation. Shockingly, products of 21 other dairies, including some famous Chinese brands, also tested positive for melamine. Due to consumption of melamine-laced milk products, more than 56,000 infants and young children had become sick and four babies had died from kidney failure by the end of September. The melamine scare also resulted in many countries recalling and banning goods using milk products from China. The Sanlu incident has spotlighted the inadequacy of China's entire dairy supply chain and has forced the government and the industry to make a collective effort to restore consumer confidence in Chinese dairy products.
How did the crisis arise?
According to the investigation by China State Council, the first complaint to Sanlu about the melamine-laced milk powder was received in 2007.The first person who brought the problem to public is a father named Wang Juanping of a 13-year-old girl whom told him she had urination problem. Sanlu tried to ignore the complaint from Wang Juanping hoping he will give up with the requirement of test report of milk powder, but Wang posted his problem to internet instead. This effort was end up with compensation from Sanlu by providing four cartons of milk powder for free. Wang agreed to delete his internet post at last.
Two key actors in this crisis is Fonterra Company and New Zealand government. Sanlu had tried to cover up the news until being prompted by its New Zealand partner, Fonterra, which later alerted the New Zealand government. As Amid rising concerns, the New Zealand government finally raised the issue directly with Beijing on September 8. As a result of the milk crisis, the local government of Shijiazhuang, where Sanlu was headquartered, was accused of holding back the news from the central government. Fonterra wrote off all its investment in Sanlu, and Sanlu finally declared bankruptcy on 24 December 2008. Meanwhile, Japan, Brunei, Singapore, Malaysia, Myanmar, the Philippines, Hong Kong and Taiwan have already banned or recalled Chinese milk products.
As learned about the actions both Sanlu and local government took since Sanlu began receiving complaints about sick infants as far back as December 2007 to cover up the contamination and even tried to buy off critics, (Because those info is illegal in China, that I had no idea about it at all until I came to US last month. Obviously, they did a very good job of cover-up) I would say there was little chance to reveal the crises to the public in China or globally without involvement of New Zealand government.
There were many reasons why the Sanlu milk crisis occurred. Between 2000 and 2007, China’s dairy consumption increased an average of 23% per year. This large increase put pressure on the dairy industry, which was having difficult time meeting consumer demand. The shortage of raw dairy product prompted many companies to outsource from dairy farmers without properly conducting due diligence and fully vetting their operations. Also, the cost structure of the dairy industry and lack of government regulations incentivized dairy farmers to dilute their milk so they could sell more of their product. The dairy industry adopted a crude protein test as a quality control measure; however, many dairy farmers were able to cheat this test by artificially boosting protein levels by adding melamine to its product.
Outsourcing is considered to be a solution of getting sufficient raw dairy product with limited investment of space, facilities and labor in this industry. Moreover, local farmers of a large number rely on the relevant stable income from...