Food Safety Crisis in China –What Does It Mean to Western Brands?

After a series of recalls of frozen food products, including dumplings, because they contained traces of staphylococcus aureus bacterium, the China Ministry of Health announced a new rule on November 24 allowing a small amount of the potentially lethal bacterium in frozen food.  The old rules had zero tolerance.  The bacterium, sometimes called golden staph, can cause a range of mild to severe infections (and may even cause deaths in some cases) if it enters the body. This new rule received massive criticism from the media and internet users in China. 

Melamine contaminated milk powder, steroid clenbuterol in pork products, gutter oil, and now staphylococcus aureus in frozen food.  The food safety problem in China has now run deeper and become an issue of mistrust.  Many Chinese consumers, particularly the rising middle class with more consuming power who care more about their health and well being, simply no longer trust domestic brands. Many young parents in China only buy imported milk powder for their babies because they believe it is safer than local milk powder.   According to a report, foreign brands of baby milk powder now occupy over 50% of the total market share and nearly 85% of the high-end market in China.  Not only the baby milk powder, such mistrust has also spread to many other categories, such as daily supplements, thereby presenting enticing export opportunities to Western brands. In addition, western companies manufacturing food-related equipment may also find themselves gaining grounds in China.  A month ago, the local government in Shanghai announced that all the restaurants in Shanghai must install oil/water separators in the kitchen by the end of 2012. 

The flipped side is that American companies in the food industry may face a tougher time in China.  For example, Wal-Mart was recently sanctioned almost $600,000 and ordered to close its 13 stores in Chongqing after it was discovered to mislabel ordinary pork as organic for a higher price.  The officials are trying to crack down on the safety violations all the time but their achievements are so far very limited.  Thus, the government needs to alleviate public anger and dissatisfaction, and Wal-Mart, as the giant supermarket chain employing more than 100,000 employees in China, offers such an easy target.  On the other hand, this incident may very likely set Wal-Mart back and become a great opportunity for its high competitors to take advantage. 

Posted by: Pei Zhang

Categories: China Desk