November 23, 2008
China's melamine scandal leads to higher imports of feed ingredients
Contamination is not merely endemic in China's dairy products or exported chocolate bars. With melamine having been found in fish and eggs, foreign feed grains are being substituted in place of contaminated domestic feed materials. This implies great changes not just to China's laws but also its underlying cultural values.
An eFeedLink Hot Topic
by Eric J. BROOKS

This article is an unfortunate post script on the melamine initially detected in China's milk supply in late August. By September, it was evident that melamine had contaminated not just dairy products but also a wide variety of food exports containing made-in-China dairy by-products. Everything from Cadbury chocolate bars to China's famous White Rabbit candy was found to be contaminated with it. By that time, the chemical has was found to be ubiquitous in dairy products, candy bars that used locally made milk, had led to the deaths of four infants and caused limited kidney damage in over 50,000 other people, most of whom were toddlers.
Moroever, in our previous Hot Topic article on melamine contamination, we noted that its contamination of China's feed supply and food exports was not new. The article noted that even in 2007, melamine had been detected in everything from made in China pet food to China-made pork and aquafeed exported to the United States.
eFeedLink analyst Shi Tao foreshadowed the extent to which China's feed supply (and therefore, meat supply) was found to be contaminated by melamine when he stated that, "All of China's protein meal like fishmeal, cottonseed meal, rapeseed meal and corn gluten meal may contain melamine." Shi added that, "The Chinese government has actually been checking on the presence of melamine in feed raw materials since last year, long before the recent scandal broke out." All this implied implied that melamine contamination may be a problem far beyond China's dairy industry.
Shi's fears for China's feed supply appear to have been borne out over the last six weeks. In late October, melamine was detected in Chinese eggs that had been exported to Japan. An investigation was launched in China itself. This investigation soon traced the source of melamine contamination to layer feed being used in China's Hubei province, where many of its egg producing layers are reared.
In this case, the economic fall out from melamine contamination hit the market much faster than it did during the contaminated milk scandal. According to a report in the ZhongXin News Agency, on November 6, the deputy director of Hubei Animal Husbandry Bureau Chen Hongsong remarked that the province's egg prices had plunged a whopping 40 percent and its egg inventory expanded to 10,000 tonnes in October because of the fact that melamine had been detected in the eggs.
Eggs, fish & their feed-all contain melamine
Hubei exports 600 million eggs annually, supplying about 50 percent of China's egg exports and 60 percent Hong Kong's eggs, according to Chen. According to him, the preliminary investigation revealed that the contaminated eggs from Hubei Jing Shan Peng Chang Agricultural Product Company were purchased from a nearby backyard farm while those of Hubei Jingzhou Shuangkang Poultry Breeding and Processing Pte Ltd were from Zhuanghe County, Liaoning. The eggs from these two companies were tested positive for melamine by Hong Kong authorities on October 28 and 29 respectively.
Later, in early November, melamine was discovered in a sample of fish feed from mainland China. Subsequent tests on the fish from the fish farm where the feed was reported found that melamine was also present in the fish they were raising. The fish feed was purchased from China and delivered to the city by a Hong Kong fish farmer, with a melamine content of 6.6 parts per million. This raises an issue that previously came up in North America in 2007: aquaculture fish, in some cases far away overseas from China, were contaminated and rendered unsuitable for commercial sale by melamine contaminated fish feed that originated in China itself.
Domestic consumer confidence impacted
According to the Centre For Food Safety, eight fish at four farms that have used the contaminated feed were tested. As was the case in the Hong Kong aquaculture facility, fish farms that unknowingly used aquafeed contaminated with melamine also were producing fish contaminated with melamine. It was said that the tainted fish feed came from Fuzhou Haima Feed Company in China's southeastern Fujian province.
In Hong Kong, the government announced that as the problem appears far more widespread than it appeared when melamine was initially exposed in dairy products, it will continue testing dairy products, eggs, meat and fish for melamine.
According to eFeedLink analyst Shi Tao, the detection of melamine in eggs has already diverted domestic Chinese consumption away from them and greatly dented consumer confidence in first dairy and later, egg products and confectionary items that use them. At this time however, the problem has gone far beyond the dairy, egg or sea food aisles in Chinese supermarkets. Melamine has put the export of everything from fish to candy bars into question, greatly impairing China's capacity to capture these vital segments of the global food market.
Importing foreign grain to avoid melamine contamination
Yet, even the solution to melamine contamination is now is also impacting not only China's food exports but also its grain imports. "It stands to reason that if the Chinese used melamine on a widespread basis that the only protein substitute would be soymeal, which could boost their demand," said Dan Basse, president of AgResource Co. As a result, American soy farmers are enjoying an uptick in exports. Even though the USDA earlier cut US soy export projections by 30 million bushels to 1.02 billion bushels, reports over the last few weeks are defying the otherwise recessionary global export forecast.
As of October 30, China committed itself to purchasing 280 million bushels of American soy beans. This is up by a whopping 23.8 percent or 54 million bushels ahead of its purchases at this time last year, said Bill Nelson, a grain analyst at Doane Agricultural Services. Most surprising of all, these sky-high soy import volumes from the United States are occurring even though this year's domestic feed demand is slack and the country's soy harvest is one of the best on record.
What is going on? According to AgResource's Basse, the reason why US soy exports to China are booming is because, "something is going on related to melamine", especially considering the record soy harvest China's is upposedly expecting. Essentially, China's melamine-tainted feed scandal is forcing the importation of foreign feed raw materials in order to avoid the risk of melamine contamination, especially in exported meat, livestock and eggs. 
According to Zhang Zhongjun, a program officer with the UN Food and Agricultural Organization, "it now appears that in the past, feed producers used melamine to falsely boost their  protein content", just as milk producers were caught doing so.. "China's "continued presence in the market signifies it's certainly looking for outside sources of feed," said Arlan Suderman, a market analyst with Farm Futures.
This spreading of the melamine scandal far beyond its initial dairy products base carries with it, profound implications for China's feed and livestock industry. Chinese feed was already suspect, as corn gluten that went into North American aquafeed was already found to be contaminated over a year ago.
Change must come from within
Now however, with not just dairy but the feed raw materials themselves contaminated with melamine, the safety issues that dog Chinese food and feed exports will become much more problematic. With melamine having already been detected on such a mass scale, countries everywhere are now actively, constantly checking for melamine, whereas before they did not do so. It appears that China's efforts to stamp out melamine contamination have come to nothing, yet the issue will most certainly block its meat and exports from here on in. Melamine has also proven itself of destroying sales, prices and market share for domestically produced milk and meat.
Hence, the entire issue of melamine will force upon China, some painful institutional changes that go far beyond mere new laws or public relations announcements. We can  now see that melamine contamination is not merely a case of a few corrupt producers but goes right down to the bottom of the food supply chain, in the feed itself.
This implies that China's feed, meat and livestock will only transform themselves into a safe, world-class export machine when the culture which contaminated it wills itself to do so. Ultimately, contaminated feed, milk and meat are merely metaphors for the need to change underlying social values.
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