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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.

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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.

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