| SHANGHAI/HONG KONG, July 30
SHANGHAI/HONG KONG, July 30 When inspectors
visited Shanghai Husi Food Co Ltd earlier this summer, the
production line at the plant now at the centre of an
international food scandal appeared in good order, with fresh
meat being handled by properly-attired workers and supervisors
keeping a watchful eye over the process.
However, if they had arrived unannounced a day before, they
would have found piles of blue plastic bags filled with
out-of-date meat stacked around the factory floor, a worker at
the facility told Reuters, adding the old meat was often added
back into the mix to boost production and cut costs.
"The next day, that meat just disappeared - someone must
have disposed of it. The manager said it was an inspection,"
said the worker, who wasn't authorised to talk to the media and
so didn't want to be named.
On July 20, following an undercover local TV report that
alleged workers used expired meat and doctored food production
dates, regulators closed the factory, which is part of OSI Group
LLC, a U.S. food supplier. Police have detained five people
including Shanghai Husi's head and quality manager.
The scandal - which has hit mainly big foreign fast-food
brands including McDonald's Corp and Yum Brands Inc
, which owns the KFC and Pizza Hut chains - underlines
the challenges facing inspectors in China's fast-growing and
sprawling food industry. China is Yum's biggest market and
McDonald's third largest by outlets.
Behind the thousands of brightly-lit restaurants offering
what Chinese consumers see as better quality food lie supply
chains that rely on an army of poorly regulated and inadequately
audited processing plants. Yum has around 650 suppliers in China
China's government has struggled to restore confidence in
its $1 trillion food processing industry since six infants died
in 2008 after drinking adulterated milk. The head of China's
Food and Drug Administration told the China Daily this week that
the food safety situation "remains severe" and the existing
oversight system "is not effective."
China's food testing industry is expected to top 8 billion
yuan ($1.29 billion) by next year, with more than 5,000
companies offering food inspection services. Regulators
overseeing the industry are thinly stretched, company executives
Laws on food safety are incomplete and responsibility in
enforcing them is unclear, making it difficult for regulators to
do their jobs, Gao Guan, deputy secretary-general of the China
Meat Association, told Reuters.
"In developed countries people obey the traffic rules. You
wait when the light is red and you walk when the light is green.
But this is not the case in China. People walk when other people
walk and no one cares about the light. So in this particular
environment things like Husi are very hard to avoid," Gao said.
OSI, ranked by Forbes at 62nd on its list of U.S. private
companies with annual revenue of close to $6 billion, said this
week it suspended operations at Shanghai Husi Food and would
review all its China plants, which would now come under direct
control of its headquarters in Illinois. It said
it would "assign a vigilant rotation of global experts to
continuously survey these operations and implement exhaustive
audit steps," including constant visual surveillance of
production measures and document compliance.
The Shanghai Husi scandal exposes weaknesses in big foreign
brands' ability to police their own supply chains and processing
plants - whether in-house or through third-party auditors.
"The issue with quality control audits is that the factories
usually know about it and get ready," said Max Henry,
Shanghai-based executive director of the Global Supply Chain
Driven by extreme price pressures and an ambivalent
workforce, suppliers often try to hide dubious practices from
inspectors, showing them only certain parts of a factory or
taking them to "fake" plants, so reports rarely give a full
picture of compliance, auditors told Reuters.
"They want to give the customer the best picture of the
factory, so when something's going wrong, they have to hide it,"
said Evelyne Mazaleyrat, product manager, food service for food
auditor Bureau Veritas in Asia.
Audits of the Shanghai Husi factory by the U.S. Department
of Agriculture (USDA) in 2004 and 2010 to clear the way for
potential Chinese poultry exports to the United States, gave the
facility a clean bill of health. However, links to USDA audit
forms show a one-page "checklist" format that some food safety
experts have criticized.
To be sure, gaps in the auditing process are not limited to
"It's a bankrupt system," said Mansour Samadpour,
microbiologist and CEO of IEH Laboratories & Consulting Group in
Seattle, noting audits are normally scheduled ahead of time and
organised around publicly available questionnaires. "It's become
a way for people to abdicate their responsibilities for the
safety of the food product they are selling."
Buyers such as Yum and McDonald's operate on huge volumes
and demand very low prices from their suppliers, which compete
fiercely for business on razor-thin margins.
Shanghai Husi is just the tip of the problem.
Last year, Yum shareholders filed four lawsuits against the
company for failing to properly oversee its Chinese poultry
suppliers and misleading investors about growth in China,
according to U.S. court records. Yum says it audits each of its
suppliers at least once a year.
"The Western firms have put in place regimes that clearly
have holes in them, with KFC perhaps having the biggest problem
because they have the most suppliers," said Richard Brubaker, an
adjunct professor at the China Europe International Business
School and founder of the Collective Responsibility consultancy.
A sample audit report from Silliker, which lists McDonald's
as a client in some of its markets, covers basic information
such as a facility's location and workforce, and asks, too,
about cleaning, sterilization schedules and storage
Pony Testing International, which lists McDonald's and KFC
as clients, says it carries out physical and chemical tests
including for nutritional make-up, additives, non-food
substances, microbial indicators and pesticide residues.
(Additional reporting by Donny Kwok, James Zhang and Nikki Sun
in HONG KONG, Brenda Goh in SHANGHAI, Lisa Baertlein in LOS
ANGELES and P.J. Huffstutter and Tom Polansek in CHICAGO;
Editing by Anne Marie Roantree and Ian Geoghegan)