January 2, 2013

New Hope Liuhe's profits badly hit by chicken scare news


Profits of New Hope Liuhe Co. will be hurt by a report that some of their chickens were not properly inspected, as Yum! Brands Inc. (YUM) and McDonald's Corp. (MCD) said they stopped buying meat from the company.

Sales and profit will sustain a "certain amount of impact," New Hope Liuhe Co. said in a December 29 statement to Shenzhen's stock exchange. A report on December 18 said that Liuhe and other suppliers were not properly inspecting chicken bought from farmers for antibiotics and hormones.


State-broadcaster China Central Television (CCTV) prompted greater scrutiny of the nation's poultry industry this month when it reported Liuhe and other suppliers, which sell chicken to companies including Yum! Brands Inc. and McDonald's Corp. were not properly inspecting chicken bought from farmers for antibiotics and hormones.


In its statement, Liuhe said it shut the deep-freeze plant in the northern city of Pingdu that was cited in the CCTV report and is cooperating with a government probe. It also apologised for the negligence of its workers and said it will "ensure a comprehensive test system in place."


Concerns about antibiotics and hormones in chicken add to a series of food safety incidents that have included reprocessed cooking oil and the sale of tainted milk powder in 2008 that killed at least six children.


New Hope Group said in a statement posted on the Shanghai Clearing House's website that livestock authorities in Shandong and Sichuan found its subsidiary's poultry products met standards after carrying out checks.


Liuhe Group has also spent CNY100 million (US$16 million) bolstering food safety measures since December 18, New Hope said, adding that its own operations continue as per normal and are not "badly affected."


Yum, which operates the KFC and Pizza Hut chains in China, said on December 28 that it stopped buying from Liuhe's Lingyi factory in 2011 after checks on samples from the supplier found problems with the chicken.


The Shanghai Food and Drug Administration said on December 20 that tests conducted by a third-party agency from 2010-11 found eight batches of chicken supplied to Yum by Liuhe had levels of antibiotics that did not meet prescribed standards.


The Louisville, Kentucky-based company, which got 44% of its revenue from China last year, said it stopped all supplies from Liuhe in August this year.


McDonald's, which plans to have 2,000 stores in China by the end of next year, said on December 19 that it had stopped deliveries from Liuhe the day before that. The cities of Beijing and Shanghai also said they were planning steps to tighten oversight of food safety following the CCTV report. Beijing's municipal government will introduce a strict food-safety law, including banning producers and vendors for life if they are found to be making or selling unsafe food and is also considering harsher punishments.