Food safety in China: Killing the chicken to scare the monkeys

Hundreds of thousands of small food producers sell into the Chinese supply chain, and government monitoring is selective. Foreign food chains will need to remain vigilant.

Despite putting the issue at the top of the political agenda – alongside pollution – at this year’s National People’s Congress in Beijing, China’s food safety apparatus is failing spectacularly.

The latest major food safety scare to hit China is causing worldwide headlines and causing major damage to a number of multinationals including McDonald’s, Yum Brands, Starbucks and Burger King.

Shanghai police have now detained five people in connection with an investigation into US-owned Shanghai Husi Food, a unit of US-based OSI Group, which is suspected of supplying rotten meat to clients.

The investigation follows a TV report earlier this week which showed staff picking meat off the factory floor and mixing fresh meat with meat beyond its expiration date.

The Chinese government’s strategy for food safety reform is all about, as the well-worn Chinese idiom goes, killing the chicken to scare the monkeys.

Eager to hammer home the point that it’s not just Chinese companies caught up in unscrupulous practices, and to serve as a warning to smaller players in the food supply chain, the central government has taken control of the scandal rather than leaving it to local authorities.

On Wednesday, Communist Party mouthpiece the People’s Daily likened the scandal to the melamine milk crisis of 2008 and called for similar punishments.

In that now infamous case, six infants died and nearly 300,000 people fell sick after consuming milk powder tainted with melamine, a material used in plastics.

Two men were executed and the former chairwoman of the company involved was sentenced to life in prison. Clearly, the government is taking this latest scandal very seriously.

Gavekal Dragonomics China consumer analyst Ernan Cui says the government's response to the scandal at OSI's Shanghai operations has been very swift and quite strict.

"There have been previous food-safety problems at foreign companies in China, but what makes this one different is that OSI is a supplier to many different foreign-brand restaurant chains,” she said.

"In contrast, prior incidents have mainly involved one individual restaurant chain's operations. The impact of this food-safety scandal will therefore be much worse, as Chinese consumers may lose trust in several foreign brands rather than just one.”

Foreign companies have long served as the canary in the coalmine when it comes to food safety in China. McDonald’s and KFC were among the first violators exposed by the media in 2005 when a toxic chemical was discovered in fried chicken.

When the latest accusations broke, KFC was only just recovering from a 2012 scandal where local suppliers were accused of stuffing chickens with excessive amounts of antibiotics.

For much of this year, the restaurant has run an expensive celebrity-led marketing campaign to resuscitate its flagging sales and rebuild its brand. The company has even started giving many of its stores radical makeovers to change the dining ambience for customers.

But when it comes to this issue, a focus on big foreign brands doesn’t provide the full picture. There are hundreds of thousands of small producers who sell into the food supply chain in China, making it difficult for Chinese regulators to supervise all of them.

The list of food safety incidents in the past decade makes for nausea-inducing reading. Kebabs made from cat and rat meat, chlorine in soft drinks, soy sauce made from hair clippings and pork buns filled with so much bacteria they glow in the dark.

Foreign firms may hog the headlines globally, but local firms are providing a steady drumbeat of outrageous stories by the day. Public scepticism about the government’s response so far runs high.

While the opportunities for foreign food and beverage firms in China are still generally quite good, foreign brands can no longer coast on their past perceived reputation for good quality food, Ms Cui says.

“One of the selling points for foreign brands in China has been a promise of higher quality and better safety than domestic brands, which will seem less credible after this scandal.”

Until China undertakes root-and-branch reform of its shattered food supply chain system, foreign firms will need to be ever more vigilant.

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