October 8, 2008


Sanlu told to increase purchase of melamine detection equipment five-fold


Sanlu, the company that sparked off China's hunt for melamine-tainted milk, is being ordered by the local government in Shijiazhuang to increase its purchase of melamine detection five-fold to RMB 5 million (US$732,000).


The company had imported equipment to test for melamine two months before the incident broke out, according to the Wall Street Journal.


The Chinese Government shut down production at Sanlu and all its products were recalled after its baby formula was found contaminated with industrial chemical melamine, leading to the deaths of four infants and hospitalizations for tens of thousands of children who had developed urinary problems.


China has since posted inspectors to monitor dairy companies and imposed rules to improve accountability among milk suppliers, as it moved to restore consumer confidence.


Sanlu and its minority stakes holder Fonterra had known about their tainted milk supply since August 2, after imported equipment identified melamine in Sanlu'sinfant formula. However, the company said it was told by local authorities not to release the news until well into September, when cases of infants sickened by the milk had already escalated.


A Sanlu manager quoted by the newspaper Beijing News said the dairy received complaints in March and June but could not track down the problem.


It was only when the equipment arrived that the company discovered the milk did contain melamine.


 Melamine was added at some point in the supply chain to boost the apparent protein levels in milk, probably after it had been diluted.


Another 21 companies were found to have contaminated powder, but the highest levels of contamination were found in Sanlu milkpowders.


In the wake of the scandal. farmers in Hebei province, where Sanlu is based, are given subsidies as authorities try to prevent the industry from imploding.


Experts have said the milk crisis will likely cost billions of dollars and it could be a year before consumer confidence in dairy companies is restored.


Fonterra poured about US$200 million into Sanlu to own a 43-percent  stake in the company.


But it has now written down the investment's book value by US$139 million, leaving it worth only about US$62 million after its CEO said the Sanlu brand could not be re-constructed.


Meanwhile, Chinese shoppers to neighbouring regions like Vietnam and Hong Kong during the week-long National Day holiday have been snapping up infant milk formulas produced by foreign milk companies, local media reported.  In Hong Kong, Bonjour, a retail chain, has reported that it has had to constantly restock supplies of its Japan made Meiji infant milk formula as supplies went out as fast as they came in. The retail chain has limited shoppers to eight tins each as some have bought as many as 32 tins. 

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