Establishing operations in China has been a challenge for many US food companies. This week, a Walmart store was investigated for using old oil in their store frying operation. (Not sure how this story garnered international media attention?.) In July, OSI, a supplier for McDonalds and KFC took a hit in the media as Chinese papers reported a scandal involving OSI's Chinese operation, Husi. In this report, Husi was cited for mixing expired meat into their process.
The thing that seems odd with the OSI related story is that, as detailed in the NY Times piece (below), OSI has had a sterling reputation, both domestically and abroad. So it seems weird that that they could let one of their operations fall off the rails?
No doubt, there is a lot of scrutiny on US food companies operating in China by the Chinese media and the local regulatory authorities. Why? One could speculate that with the increasing push of US companies into China along with mergers of Chinese and US companies for the stated purpose of improving quality (Smithfield acquisition), there may be some backlash against foreign companies pushing into the Chinese marketplace. Add to that the negative media exposure that the Chinese food system has received by the US media and it is easy to see why so much attention on US companies (when they could also be reporting on Chinese owned companies). So perhaps showing that US companies have their own issues is a way to make a stand. Perhaps even more importantly, this negative media barrage provides a leg up to Chinese firms that wish to compete against the likes of Walmart, McDonalds and KFCs in the Chinese marketplace.
Now it is hard to say for certain to what extent the food safety allegations are true. Certainly we have not heard any rational for the incidents from the US companies.. And while there could be some legitimate justifications for the actions used by OSI in China - perhaps the meat that was being mixed back had been frozen instead of refrigerated thus nullifying the date used on the packaging - the chairman of OSI provided no excuses but rather said they would make improvements.
Interesting though, the talking heads are still willing to take these Chinese reports at face value and spin them in order to spread fear on the safety of our own food supply.
Reuters
http://www.reuters.com/article/2014/08/09/china-walmart-idUSL4N0QF09U20140809
Chinese regulators investigating Wal-Mart store for food safety violations - Xinhua
Sat Aug 9, 2014 8:49am EDT
* Anonymous employee's video alleges violations at deli
* Shows images of black fryer oil, worms crawling in rice
* Shenzhen authorities investigating - Xinhua
* Wal-Mart: Internal, gov't probes uncovered no evidence
SHANGHAI, Aug 9 (Reuters) - Chinese regulators are investigating a Wal-Mart store in the southern city of Shenzhen for food safety violations, the official Xinhua news service reported, based on videos it said were taken by a Wal-Mart employee at one branch.
The U.S. retail giant told Reuters that it had launched its own investigation in response to the video and found no evidence to support its claims, nor had multiple visits by authorities uncovered any wrongdoing.
"We are comfortable saying, based upon this inspection, that none of the alleged activities exists in the store today," Wal-Mart said in a statement.
The voiceover to the video - made by an anonymous person who claimed to have worked for Wal-Mart for seven years - said employees in the store's deli section, operating under the principle of "don't change for a month," would often use cooking oil so old it had turned "black as soy sauce" to cook items like fried chicken for sale to customers.
They would also fry and sell meat that had passed its sell-by date, and sell rice infested with insects, the narrator said, showing footage of black oil in a fryer, expired meat, and worms crawling on rice.
The Xinhua article said no conclusions from the investigation by the Shenzhen Municipal Market Supervisory Administration had been made. Xinhua said Shenzhen authorities were testing samples of oil and meat from the store but results were not yet available.
The statement from Wal-Mart said the company was cooperating fully with local authorities and would take "immediate actions" to deal with any issues uncovered.
The Xinhua report said that reporters had accompanied law enforcement officers to check on the operations of the Honghu branch of Wal-Mart, and found that managers had used hand-written methods to specify the shelf-lives of some ingredients.
"Handwritten expiration dates can be changed at will, leaving supermarkets plenty of room to use expired ingredients," the report said.
However, the Xinhua report also quoted a local food safety supervision official saying that at present there is no legal mandatory requirement for when frying oil must be replaced, nor is there a law against adding new oil to older oil.
The video follows a series of undercover exposes of major Western food suppliers by Chinese domestic media, many using hidden video cameras.
For example, McDonalds and Yum Brands, owner of Pizza Hut and KFC, were forced to apologize in China after being caught up in a TV expose of questionable meat-handling practices by supplier Shangha Husi Food Co Ltd.
Wal-Mart came under fire in Chinese media earlier in the year after a supplier's donkey meat product was found to contain fox meat.
In 2011 Chinese authorities accused Wal-Mart of selling expired duck meat, and it was forced to shut down stores in Chongqing after they were accused of labeling non-organic pork as organic and selling it at a higher price.
(Reporting by Pete Sweeney; Editing by Mark Heinrich)
Reuters
http://www.reuters.com/article/2014/07/28/us-china-food-idUSKBN0FX0T720140728
U.S. group overhauls China business in meat safety scandal
By Samuel Shen and Kazunori Takada
SHANGHAI Mon Jul 28, 2014 6:58am EDT
(Reuters) - A leading U.S. meat supplier said on Monday that a Chinese unit at the center of a food safety scandal had issues that were "absolutely inconsistent" with the group's high standards.
"This is my company and events like these have a personal toll ... they simply don't represent the values I stand for or those of my company," Sheldon Lavin, the millionaire chairman, CEO and owner of Illinois-based OSI Group LLC told a news conference in Shanghai.
OSI said it was suspending operations at Shanghai Husi Food and would review all its China plants in a bid to limit further damage after losing two major customers.
KFC and Pizza Hut parent Yum Brands Inc last week severed its ties with OSI, while the Japan and Hong Kong units of McDonald's Corp said they were ending their relationship with the U.S. meat processor's Chinese unit following allegations it mixed expired meat with fresh produce.
David McDonald, OSI's president and chief operating officer, said the group was making senior management changes in China, and will set up a quality control center in Shanghai to better supervise its business. It will also bring in global experts to survey the China operations and improve auditing, including constant visual surveillance and extensive employee interviews.
In addition, it plans to spend 10 million yuan ($1.62 million) on a food safety education program in Shanghai.
OSI, which ranks among the top few dozen U.S. private companies with annual revenue of close to $6 billion, said its China operations had a certain amount of autonomy as the group wanted a decentralized business model that allowed decisions to be made locally, although global standards were not meant to be broken. McDonald said the China operations would come under the direct control of headquarters.
Shanghai Husi Food was accused earlier this month by a TV documentary of mixing expired meat with fresh produce and forging production dates. Regulators in Shanghai said Husi had forged the dates on smoked beef patties and then sold them after they expired.
Police have detained five people as part of their investigation. There have been no reports of any consumers falling sick.
"To date, we've found issues that are absolutely inconsistent with our internal requirements for the highest standards, processes and policies," McDonald told a packed news conference at a Shanghai hotel, adding all nine OSI food processing plants in China would be reviewed.
DAMAGING SCANDALS
China is McDonald's third biggest market by outlets and Yum's largest and is a big growth opportunity for foreign fast-food chains. But a series of damaging food safety scandals in recent years risks denting those prospects as many Chinese look to foreign restaurants for better quality.
McDonald's, which has more than 2,000 outlets in mainland China, took more meat dishes off its menus on Monday as it sought to fill the supply gap after OSI withdrew all Shanghai Husi products from the market at the weekend.
At least three McDonald's outlets in Shanghai and Beijing, visited by Reuters reporters on Monday, had stopped selling all or most of their meat products. Outlets in cities such as Tianjin and Wuhan were also hit, according to microblog postings.
A spokeswoman at McDonald's in China said its beef, chicken and pork products were affected at outlets across the country, though the level of impact varied. In an emailed statement, McDonald's said it had withdrawn all products from the Husi group in China since Friday. "As a result, we are now only offering a limited menu in our restaurants around the country."
The company said some of its China restaurants would resume offering a full menu in early August, while others may take a little longer.
"I wanted to order chicken products today," said Tan Qiang, 23, at a McDonald's in central Shanghai. "But they only had one type of combo and nothing else. I was disappointed not being able to eat what I want."
NY Times
http://www.nytimes.com/2014/08/01/business/international/weak-links-in-chinas-food-chain.html?_r=0
Weak Links in China’s Food Chain
By STEPHANIE STROM JULY 31, 2014
When McDonald’s opened its first restaurant in China in the early 1990s, it did not turn to local suppliers for meat, which most likely would have been cheaper. Instead, it relied on its longtime partner the OSI Group, which had been linked to the fast-food titan ever since Ray Kroc, the McDonald’s founder, in the 1950s tapped the Chicago butcher Otto & Sons to provide consistent, reliable meats to his expanding empire.
As McDonald’s grew, so did OSI, quietly developing a sterling reputation that attracted many of the largest global restaurant chains, including KFC, Burger King and the Papa John’s pizza chain. The company’s focus on food safety was one of its selling points.
“As a private company in a foreign country, we’re setting an international standard for best practices in food safety,” Brady Sidwell, vice president for corporate development and strategy for OSI’s Asia Pacific operations, wrote in a blog post last fall for the Graduate School of Management at the University of California, Davis.
Eight months later, OSI is caught up in a messy, very public food safety scandal in China. A television station there broadcast a program in late July accusing employees in its Shanghai plant of doctoring labels to extend expiration dates on chicken and beef products and showing workers scooping up meat that had fallen on the ground and putting it back on conveyor belts for processing.
It was a rare black mark for OSI, one of the top American meat producers, with more than $6 billion in sales and about 20,000 employees in dozens of processing plants in 17 countries.
“It was definitely a head scratcher to me,” said Adam Aronson, chief executive of Arrowsight, which provides remote video auditing of OSI plants in the United States. “They spend a lot of money on food safety systems, more than most others.”
That OSI — which other suppliers have looked to as a model — is dealing with these issues speaks to the broader weaknesses in the Chinese food safety system. After a series of food safety scandals in recent years, regulators repeatedly have promised to tighten food safety standards only to have another problem arise.
Continue reading the main story
The country is making strides. Last month, the University of California, Davis and the Northwest Agricultural and Forestry University in Shaanxi Province started laying the groundwork for establishing a joint research center for food safety in China. Roger Beachy, executive director of the U.C. Davis World Food Center, said the Chinese government had made food safety a top priority, particularly as it looked for consistent supplies to feed its rising middle class.
But China is also playing catch-up to more developed nations — and on a much grander scale. “Companies have grown so fast, but the rate of growth hasn’t been met with equally robust systems for training and educating the work force,” Mr. Beachy said.
OSI said in a statement that what had happened at the Shanghai facility was “terribly wrong” and “completely unacceptable.” The company has reassigned executives in its China operations and started an investigation into the matter. It has also promised to bolster its systems. OSI has reached out to Arrowsight to help improve its processes in China.
“We will bear the responsibility of these missteps and will make sure that they never happen again,” OSI said. The company declined to comment further.
Although the company had been in China for two decades, OSI embarked on a $400 million rapid expansion plan in 2011 that included three new poultry production and processing facilities and additional capacity at its Shanghai and Beijing plants. “The goal was to completely recreate the U.S. system — from feeding and watering regimes down to the exact rate of air flow and size and placement of windows in the poultry houses — but to make it locally relevant,” according to a 2013 Harvard Business School case study about OSI’s China business by Prof. David E. Bell.
At the three new facilities, the company used a so-called vertically integrated model, giving OSI greater control over its product, from the selection of breeding birds to packaging for shipment. “For companies that have absolute raw material control, they get top priority and have a selling point around food safety,” Dennis Zhang, general manager of Husi Foods, OSI’s Chinese operation, told The National Provisioner, a trade publication.
But it also posed a new challenge for its bottom line. McDonald’s and KFC wanted to buy only the dark meat that Chinese consumers demand, which meant OSI was saddled with finding new customers for the rest of the bird, around 80 percent of it.
OSI’s strategy in China seems to have become a standard for other foreign food companies setting up shop.
Last year, Tyson, the world’s largest meat-processing business, began adopting a similar strategy for its poultry business in China, which started in 2001. And Nestlé, which is facing a lawsuit over pet treats containing ingredients from China and sold under the Waggin’ Train and Canyon Creek Ranch brands, said this year that it was moving to a single supplier for raw materials sourced in China.
Dan Fogleman, a spokesman for Tyson, said in an email that in addition to Chinese government oversight, the company deployed “dozens” of food safety and quality assurance workers in its facilities to verify compliance with its standards and existing regulations. Those workers do not report to local management but rather directly to corporate headquarters in Arkansas.
“This independence ensures that their function is dedicated solely to food safety and quality monitoring, rather than any financial goals,” Mr. Fogleman wrote.
OSI also passed muster with the United States government. The Shanghai plant was inspected by the Agriculture Department in 2004 and 2010 — and given a clean bill of health both times. “The sanitary conditions and general operations of the establishment currently meet FSIS’s requirements and appear to be in compliance with PRC regulatory requirements,” the audit team wrote, referring to the People’s Republic of China.
Experts in food safety and plant operations say, however, that even the most rigorous protocols and standards can be undermined by culture, particularly at a fast-growing company — OSI’s revenues doubled between 2011 and 2013 — in a country where high monthly turnover of factory workers is not uncommon.
“The average Chinese factory worker comes from someplace where food has likely been scarce and picking up a piece of meat that has dropped on the floor and eating would not be unusual — it’s not unusual for us to drop food on the floor and anyway eat it,” said Andy Tsay, a professor of operations management at Santa Clara University who was one of the authors of a paper on recalls of Chinese made products in 2007.
Steve Gruler, chief executive of Global Quality Consultants, a firm that provides risk management advice to a variety of companies, recalled visiting a grain elevator in China where workers were unloading grain onto trucks. “A plume of dust comes from under the door of the elevator and rises up over the truck,” Mr. Gruler said. “Our eyes got about as big as saucers.”
Grain dust is highly combustible and such explosions have been deadly. Mr. Gruler and a colleague asked the engineer at the facility whether it had a dust collection system. “Oh, yes, he said, but it had been shut off to conserve electricity,” Mr. Gruler said. “He didn’t understand that dust could cause an explosion that would blow the place apart.”
OSI itself acknowledged such challenges in interviews with Professor Bell of Harvard. “When we began building modern broiler houses, we found that the workers often took shortcuts even though every detail was spelled out in the plans,” Stefan Chen, senior vice president and general manager for OSI’s poultry operations in China, told him. “For instance, they would change the size of a window to save material. This seems like a small thing, but it affects the ventilation, which affects the production efficiency.”
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