China's top dairies battle to regain public trust after tainted products

HOHHOT, China -- China's dairy giants opened their factories to a government-led media tour Thursday in a bid to stave off losses and regain the public's trust after their products were found tainted with a chemical that killed four infants and sickened tens of thousands.

Executives from Mengniu Dairy Group Co. and Yili Industrial Group Co. -- both based in Inner Mongolia, where sprawling grasslands serve as grazing land to some 2.5 million cows -- promised that stepped up testing and new procedures would ensure that similar contamination won't happen again.

Together the companies control more than half of China's dairy market.

"Provide 100 percent safety to consumers," read a slogan on a red banner in the spotless processing and packaging hall at Yili's headquarters in Hohhot, the capital of the Inner Mongolia.

The media tour is part of a joint effort by the government and the dairy industry to contain the fallout after baby formula contaminated with melamine was blamed for the deaths of four infants and the sickening of about 54,000 other children in China.

The Health Ministry said Wednesday that 5,800 children were still hospitalized -- six of them in serious condition.

Authorities blame middlemen at milk collecting stations for the food safety scandal that began last month, saying they added melamine to watered-down milk to fool quality control tests and make the product appear rich in protein.

Nitrogen-rich melamine, a chemical used to make plastics and fertilizers, can cause kidney stones as the body tries to eliminate it and, in extreme cases, lead to life-threatening kidney failure. Infants are particularly susceptible.

At Yili headquarters, reporters were shown a new station for melamine testing where workers wearing lab coats and gloves used testing equipment they said cost the company $15 million to import from the United States and Japan.

"After this incident, we have increased melamine checks on all raw milk supplies [and] only that which passes the tests goes into the factory," said Yili executive president Zhang Jianqiu. "All of Yili's products on the markets for sale ... meet the standards."

Government checks of Yili and Mengniu dairy products in September showed the presence of melamine. But executives from the firms said they did not know about melamine contamination before last month, even though it has been revealed the practice of adulterating milk was widely known in the industry.

The central government has also said it only learned of the scandal Sept. 8, even though inspection, health and other government departments in Hebei and Beijing knew earlier.

Government testing since has shown melamine contamination to be widespread, with one-fifth of the country's dairy companies implicated, including its most reputable names.

Mengniu, China's No. 1 dairy producer in total volume, said last month that only a small portion of its products were contaminated and blamed the contamination on "the illegal acts of some irresponsible milk collection centers and raw milk dealers."

Hohhot mayor Tang Aijun echoed the denials, saying that the addition of melamine had nothing to do with the management or production processes of the dairy companies.

Police have detained six suspects in Inner Mongolia for tampering with milk, officials said.

The scandal has devastated public trust in Chinese dairies, according to a survey conducted by Beijing-based media research firm All Media Count. Less than half of respondents who formerly purchased major brands said they would consider buying them again, according the company's survey of 900 consumers across China.

Mengniu and Yili have seen their shares plummet since the scandal broke, and the leading business magazine Caijing reported that the two companies' combined losses were expected to top $526 million over the next four to five months.

Officials and company executives told reporters the industry would also shift toward sourcing milk from larger U.S.-style farms, where thousands of cows are kept together and modern milking technology will allow for better quality control.

Small dairy companies in China used to own farms as well as cows, but this was split up in the late 1980s as the companies started to expand and concentrate on producing and marketing their products.

The companies now purchase from scores of small-scale farmers who take their cattle to milk collection stations. Those stations will be merged into larger operations in the future, executives said.

"The biggest lesson from this affair is that regulating the supply of milk is the hardest thing," Ren Yaping, a vice governor of Inner Mongolia, said. "The most important thing at the next stage is to start from the raw milk and improve the inspections right through the production process."

The tainted milk scandal has led to more than 30 countries restricting Chinese dairy products, and in some cases all Chinese food imports.

Italian authorities discovered two containers of milk and one of yogurt containing melamine in illegally imported Chinese products being sold by retailers catering to Chinese immigrants in the southern cities of Bari and Naples, the Health Ministry said Thursday.

It was the first melamine contamination found in food products in Italy but authorities stressed that it posed a non-lethal health threat.

The Health Ministry said in its statement that inspections at hundreds of import companies and shops that sell Chinese products had resulted in the three positive tests, out of 48 samples analyzed.

In Vietnam, health officials said Thursday that three milk products imported from a Japanese company's factory in Singapore were found to be contaminated with melamine.

The products' Vietnamese distributor, Huong Thuy Company Ltd., said the milk melon, cappuccino coffee and milk coffee all came from Pokka Corp.'s factory in Singapore.

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Associated Press writers Dikky Sinn in Hong Kong, Cara Anna in Shanghai and Ariel David in Rome contributed to this report.