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Sanlu Group (Chinese: 三鹿集团; where Sanlu literally means "three deers") is a Chinese dairy products company based in Shijiazhuang, the capital city of Hebei Province. The state-owned company is one of the oldest and most popular brands of infant formula in China.Sanlu is 43% owned by New Zealand's Fonterra.
In September 2008, it was involved in an adulterated milk powder scandal, affecting some 53,000 Chinese infants and killing four,Melamine can cause kidney stones and other complications.
Ownership and business
In December 2005, a joint venture agreement was signed which involved New Zealand dairy cooperative Fonterra taking a 43% equity stake in the Chinese dairy by injecting ¥864 million. The joint venture company started trading in 2006.The majority 56% stake is owned by Shijiazhuang Three Deers Limited (石家庄三鹿有限公司).
In 2007, its sales reached ¥10 billion Milk powder sales of the group ranked number 1 for 15 consecutive years, with a market share of 18 percent.The company prided itself in its stringent quality control procedures, boasting its extremely rigorous tests on its products. "Made in China", a special edition of the CCTV program "Quality Reports Weekly" aired on 2 September 2007 focused on the company, who claimed over 1,000 different tests were carried out before its products leave the factory. To that end, on 8 January 2008, it was awarded second prize at the 2007 National Scientific Techniques Awards in the category of 'Innovative infant formula research and other related techniques'. A number of its products were exempt from government inspection for having passed government quality checks three times in succession.
2008 Chinese milk scandal
In September 2008 Sanlu came to international attention due to product concerns regarding its infant milk formula, which was discovered to have been contaminated with melamine, a non-alimentary chemical which causes kidney stones. At least four infants have died so far and excess of 56,200 babies have been made ill, with many said to be "in serious condition.The dairy management is thought to have been aware of the problem since June 2008, according to company sales representatives. However, ministry of Health officials said that Sanlu had begun to receive customer complaints as early as March 2008. The Xinhua News Agency, meanwhile, reports that Sanlu received its first complaints about baby milk in December 2007.One customer, Wang Yuanping, told Sanlu of problems with his child's urine in May 2008. After writing an internet post about the problem, Sanlu offered him £200 of free milk to remove it. He complied and distributed it to friends.
Fonterra was alerted to the contamination on 2 August. There was an immediate trade recall, but Fonterra said that local administrators refused an official recall[16]. Fonterra notified the New Zealand government on 5 September. Three days later, Prime Minister, Helen Clark had Beijing officials alerted directly.Clark said: "I think the first inclination was to try and put a towel over it and deal with it without an official recall."
On 15 September, the company issued a public apology for the contaminated milk powder; Sanlu was ordered to halt production, and to destroy all unsold and recalled products. Authorities reportedly seized 2,176 tons of milk powder in Sanlu's warehouses. An estimated 8,218 tons of product had been recalled, and another 700 tons was on its way back to Shijiazhuang.
After testing samples from 491 batches of products sold by all 109 companies producing baby milk powder, the National Administration of Quality Supervision, Inspection and Quarantine said that all 11 samples from Sanlu failed the melamine test.Sanlu, whose products sell at half the price of equivalents on the market, recorded the highest levels of contamination among all the samples tested, at 2,563 ppm.
Tian Wenhua (田文华), Chairman and General Manager of Sanlu and Party Secretary was stripped of her party and functional posts during an extraordinary meeting of the Hebei provincial standing committee of the Communist Party of China; four Shijiazhuang officials, including vice mayor in charge of food and agriculture, Zhang Fawang, were reportedly removed from office. Mayor Ji Chuntang reportedly resigned on 17 September; Tian was charged under Articles 144 and 150 of the criminal code.
Since Sanlu, the region's largest purchaser of milk, was ordered to halt production, farmers in Hebei are suffering hardship because of the lack of purchasers for their milk. Many are said to be contemplating selling their cows into a buyers' market. On 24 September 2008, Fonterra announced that it had written down the carrying value of its investment by NZ$139 million (two-thirds), reflecting the costs of product recall and the impairment of the 'Sanlu' brand "as a direct consequence of the criminal contamination of milk in China". The Company CEO believed that perhaps some of the company assets might still be of some value.Chairman Henry van der Heyden said that the contamination was a criminal act which Fonterra could not have prevented. On 26 September 2008, Fonterra CEO denied that Fonterra is selling its stake of 43% of Shijiazhuang Sanlu Group Co.On 27 September 2008 China Economic Net reported that Sanlu may have been bankrupted and soon be taken over by Beiijng Sanyuan Food Company Ltd.. A Sanyuan source confirmed the company's acquisition plans.
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