December 29, 2011

China Mengniu Dairy Co vowed on Tuesday (Dec 27) to increase oversight of its suppliers after inspectors found elevated levels of aflatoxin in a batch of milk at its Sichuan plant, said to be caused by spoiled cattle feed.

Unlike the 2008 milk scandal, when producers added the industrial chemical melamine to milk, the contamination in Mengniu's milk had natural origins, said Mengniu spokesman Lu Jianjun. Cattle that had eaten rotting, mildewed hay produced milk with excess levels of the chemical aflatoxin, Liu added.

In response to the contamination, Mengniu has destroyed milk containing the toxin, and plans to increase oversight of its suppliers to ensure that cattle feed is properly stored and does not collect mildew, Lu said. "We plan to help farmers more in the future to prevent future incidents."

Inspectors from China's top quality-control body, the General Administration of Quality Supervision, Inspection and Quarantine, found the chemical in mid-October. Lu said government inspectors tested the milk early in Mengniu's production process, before the company would typically run its own tests.

Officials released the information on Saturday, saying also that they found aflatoxins in milk from another company, Fujian Changfu Dairy Group Co. Changfu, based in China's southeastern province of Fujian, recalled its products and apologised for the incident. It is unclear whether the milk reached consumers.

Mengniu's Hong Kong-listed shares did not trade on Tuesday because of a holiday there. But in Shanghai, other dairy-company stocks fell for the second straight day even though their names were not mentioned in the weekend disclosures. Inner Mongolia Yili Industrial Group Co was down 3.1%, while Bright Dairy & Food Co was down 4.1%. The broader Shanghai Composite Index was down 1.1%.

For Mengniu, the recent contamination poses a risk at a time when the company has been regaining consumer trust. Mengniu was among 22 producers whose baby formula was found to have contained melamine in 2008. The scandal caused the deaths of six infants and illnesses in 300,000 others.

After the 2008 incident, Mengniu set up consumer hotlines, offered apologies to consumers and boosted television advertising. Efforts have restored consumer faith, according to a recent report from research agency Millward Brown and media firm WPP on the 50 most-valuable Chinese brands. Mengniu ranked 18th this year with its brand valued at US$3.4 billion, up 66% from 2010.