June 19, 2012

 

Yili Industrial's shares slump on tainted milk products

 

 

Shares of Inner Mongolia Yili Industrial Group Co. has dropped after it recalled some milk powder products when the government quality inspection found "unusual" levels of mercury in them.

 

This incident also raised new concerns about the country's scandal-ridden dairy industry.

 

The recall underscores the severe challenges the government faces in improving food safety in the country, despite the constant pledges and periodic crackdowns that have followed the 2008 tainted-milk scandal that killed six children and sickened 300,000 others.

 

Yili said a test by the country's quality watchdog discovered that some of the company's Quanyou-brand infant formula products were tainted with mercury, and it has recalled products made between November 2011 and May 2012. The company's other products weren't affected, it added.

 

The company said it is investigating the cause of the contamination and pledged to promptly release any relevant information.

 

Officials from Yili didn't immediately respond to queries from Dow Jones Newswires on the matter.

 

Officials at the General Administration of Quality Supervision, Inspection and Quarantine couldn't be reached for comment.

 

In a statement released Thursday (June 14) evening, the quality inspection watchdog said that after a nationwide inspection, Yili was the only dairy manufacturer whose products were found to have contained unusual levels of mercury.

 

Word of the recall sent Yili's Shanghai-listed shares tumbling Friday. They were down by the maximum 10% daily limit at RMB21.85 (US$3.44) at the midday break. The benchmark Shanghai Composite Index was up 0.2% at 2299.77.

 

Yili's fall also hurt China Mengniu Dairy Co., the country's second-largest dairy producer by sales. The city's benchmark Hang Seng Index was up 1.3% at 19,053.

 

China has been hit by a series of food safety scandals in recent years, stoking public anger and posing a mounting threat to social stability.

 

The problem is particularly serious in the dairy sector, partly due to the fragmented nature of the industry and its poorly regulated supply chain.

 

In late December, inspectors found elevated levels of a carcinogen in a batch of Mengniu's milk, which the company blamed on spoiled cow feed.

 

A Mengniu spokesman said at that time that cattle that had eaten rotting, mildewed hay produced milk with excess levels of the chemical aflatoxin.