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Chaotic distribution system provides fertile ground for fake formula

By RJ Whitehead

- Last updated on GMT

Related tags: Milk powder, Milk, China

Photo: iStock
Photo: iStock
Chaotic sales channels are to blame for Chinese counterfeiting scandals such as the recent case involving 22,600 cans of fake milk powder produced and sold under the brands of US infant formula maker, Abbott, and Chinese infant formula maker, Beingmate.

Industry experts, including analyst CCM​, have absolved the two companies, among China’s biggest infant formula brands, of blame for their roles in a case of widespread counterfeiting that saw fake powder distributed in Henan, Anhui, Jiangsu and Hubei.  

Currently, the whereabouts of a further 3,300 cans of fake Abbott formula is still unknown.

No supervision on the dealers between the manufacturers and the end market should really be blamed for such a scandal​,” said Xu Simin, editor of Dairy Product China News​.

The sale of milk powder in China is different to that in Western countries. In China, it is usually the dealers who purchase infant formula from the manufacturers and sell them to different supermarkets or stores​.

The government only supervises the quality of milk powder from the manufacturers and conducts spot checks on the milk powder in supermarkets or stores. Without supervision over the dealers in between, it is easy for fake milk powder to flow onto the market​.”

Following an investigation by China’s Public Security Bureau, a number of individuals suspected of producing and selling of counterfeit milk powder have been arrested. They were all long-time formula distributors who were familiar with infant formula production processes. 

The saga began last September, when Abbott’s Shanghai headquarters reported that it had identified fake milk powder to the city’s Public Security Bureau.

Nine suspects were later detained by the bureau after a three-month investigation during which more than 1,000 cans of fake Abbott infant formula, over 20,000 empty steel cans and around 65,000 fake Abbott logos were found and seized.

By March 11, officials had arrested six of the suspects for the alleged production and sale of fake milk powder, and a further 4,000 cans of unsold fake Abbott milk powder had been seized.

They are alleged to have manufactured over 11,000 cans of Fake Beingmate infant formula at a packaging factory operated by an alleged gang member, and sold it to distributors through a wholesaler in Chongqing. The total sale amounted to over RMB1.6m, prosecutors allege.

Meanwhile, counterfeit plastic cans of Abbott infant formula are thought to have been manufactured at Dongguan Lanqi SuJiao in Guangdong. The labels for the packaging are believed to have been manufactured at a printing workshop in Taizhou, Zhejiang.

It is a typical criminal case​,” said Ma Chunliang, team leader of the inspection team at the State Council Food Safety Office. “The criminal offenders made exorbitant profits by faking infant formula using the milk powder purchased in a low price​.”

The quality and safety of Abbott product and the health of our consumers are always the priorities for Abbott​,” said a spokesman for Abbott, which has operated in China for almost 20 years and runs 10 offices, three factories and two research and development centres in the country.

The company, whose global nutrition sales reached US$1.79bn in 2015, believes the counterfeiting will have little impact on its Chinese business.

We don’t get affected in such a short time and there is no relevant data now​,” said an official.

Moreover, this latest fake milk powder case was unrelated to Abbott own sales channels, according to Song Liang, a senior dairy analyst.

Abbott in China has a quite good distribution system​,” said Song. “Nothing would have gone wrong if the infant formula sold by the traders were imported, manufactured and authorised by Abbott​.”

In fact, chaotic sales channels in China’s dairy industry were responsible for helping to fake the milk powder, whereas in countries like Australia, supermarkets usually purchase products directly from manufacturers with no traders are involved, said Wang Dingmian, former director of Dairy Association of China.

In China, many manufacturers devise a number of sales regions, with representatives covering everything from broad territories through to provinces and municipalities.

The more levels of sales representatives there are, the easier it is for milk powders to get lost in the market​,” said Wang.  

For example, manufacturers might think they sell only 10 tonnes in total but 15 tonnes of milk powder are consumed in the market. That’s because there are too many sales representatives and it is difficult for the manufacturers to supervise all of them​,” said Wang.

In the long-term, the government is expected to become stricter in its supervision of the processes between production and sales, while evolving legislation should make it easier for companies to monitor their distribution. 

Especially with the implementation of the ‘one brand, one formula’ policy for infant formula in China, a brunch of brands will be eliminated. With fewer brands, it will be easier for manufacturers to supervise the sales channels and the flows of their products​,” said Song.

More stories from China…

Halal legislation taken off the table once again

Lukewarm reaction to a draft law on halal food has prevented it from being listed in China's legislative work plan for 2016 in spite of an announcement last month by the State Council’s legal affairs office that put it firmly on the agenda.

Halal

The subject was first raised in 2002, when the council ordered an ethnic affairs committee to draft national halal regulations, though it has been on and off the legislative programme ever since. 

The committee suggested speeding up passage of the legislation in 2012 and 2015, saying that the legislation was "reasonable and necessary​" as it relates to "national unity and social stability​."

However, a mixed response to the draft this year, especially among scholars who believe that a new halal law would set a precedent for allowing China’s secular government to have authority over religious issues.

Xi Wuyi, a Marxism scholar at the Chinese Academy of Social Sciences, said the legislation would "violate the principle of separation of state and religion​”. 

Yet the issue is widely supported by Chinese Muslim minorities. According to an official from the religious affairs department of the Xinjiang Uyghur Autonomous Region quoted by Legal Daily​, at least 20m Chinese eat halal food, and would benefit from having national legislation in place for halal products.

Wei Dedong, of Renmin University of China, told the Global Times​ that the best solution was not a national law, but stronger enforcement of present laws on food safety. 

Wei also said that a unified standard could be issued by religious authorities, instead of by a national law, which would authorise the secular government to define Islam-related issues.

French dairy’s Chinese joint-venture could boost Sodiaal’s fortunes

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Candia

Backed by initial funds of 50 million renminbi (EUR7.3m), the Sodiaal business unit will concentrate on Greater Shanghai and Jiangsu and Zhejiang provinces by selling its products in dedicated shops developed with ZIB, independent retailers and internet platforms.

"This agreement allows us to enlarge the horizon where we can propose our products​," Candia director-general, Giampaolo Schiratti, told Reuters.

With a 10% stake in the joint-venture, Candia hopes to help its parent company—France’s biggest dairy co-operative, with 13,200 members and sales of EUR5.4bn in 2014—to market over 40m litres of French milk annually.

The deal was signed in France by Chinese premier Li Keqiang at a time soon after European Union milk quotas were removed.

Schiratti said the Candia-ZJNAC deal would take time to develop amid a global slump in milk prices: "It will help in the long run but not solve [dairy’s] short-term crisis​.”

Shanghai food safety hotline gets 300,000 calls in four years

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Hotline

The 12331 number, which also has trained staff available to field food and drug safety-related questions, was also used for more than 100,000 tip-offs about illegal activities, of which two-thirds were subsequently successfully verified.

Shanghai citizens called the hotline last year with 91,378 complaints and questions, with staff responding to all of them, according to officials in charge of the scheme. Overall, 97.4% of all complaints and questions were resolved over that period, they added.

A new plan for rewarding people who call in with reports has been in place since February this year that increased the number of categories under which callers can receive rewards from nine to 30. 

So far, over 3,400 rewards worth nearly 2.4m yuan have been paid by the Shanghai food and drug authorities.

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