Scandal shows challenges in policing safety of restaurant food supplies

When inspectors visited Shanghai Husi Food Co earlier this summer, the production line at the plant now at the center of an international food scandal appeared in good order, with fresh meat being handled by properly attired workers and supervisors keeping a watchful eye over the process.

But if they had arrived unannounced a day before, they would have found piles of blue plastic bags filled with out-of-date meat stacked around the factory floor, a facility worker, said, adding that the old meat was often added back into the mix to boost production and cut costs.

"The next day, that meat just disappeared - someone must have disposed of it. The manager said it was an inspection," said the worker, who didn't want to be named because he wasn't authorized to talk to the media.

On July 20, after an undercover local TV report that alleged workers used expired meat and doctored food production dates, regulators closed the factory, which is part of OSI Group, a US food supplier. Police have detained five people, including Shanghai Husi's head and its quality manager.

The scandal - which has hit mainly big foreign fast-food brands, including McDonald's and Yum! Brands Inc, which owns the KFC and Pizza Hut chains - underlines the challenges facing inspectors in China's fast-growing and sprawling food industry. China is Yum's biggest market and third largest for McDonald's by outlets. Yum has around 650 suppliers in China.

The government has struggled to restore confidence in its $1 trillion food processing industry since six infants died in 2008 after drinking adulterated milk. The head of China Food and Drug Administration told China Daily this week that the food safety situation "remains severe", and the existing oversight system "is not effective".

China's food testing industry is expected to top 8 billion yuan ($1.29 billion) by next year, with more than 5,000 companies offering inspection services. Regulators overseeing the industry are thinly stretched, company executives say.

Laws on food safety are incomplete and responsibility for enforcing them is unclear, making it difficult for regulators to do their jobs, said Gao Guan, deputy secretary-general of the China Meat Association.

OSI, whose annual revenue approached $6 billion last year, said this week it suspended operations at Shanghai Husi and would review all its China plants.

The Shanghai Husi scandal exposes weaknesses in big foreign brands' ability to police their own supply chains and processing plants - whether in-house or through third-party auditors.

"The issue with quality control audits is that the factories usually know about it and get ready," said Max Henry, the Shanghai-based executive director of the Global Supply Chain Council.

Driven by extreme price pressures and an ambivalent workforce, suppliers often try to hide dubious practices from inspectors, showing them only certain parts of a factory or taking them to "fake" plants, so reports rarely give a full picture of compliance, auditors said.

Audits of the Shanghai Husi factory by the US Department of Agriculture in 2004 and 2010 to clear the way for potential Chinese poultry exports to the United States gave the facility a clean bill of health. However, links to USDA audit forms show a one-page "checklist" format that some food safety experts have criticized.

'Bankrupt system'

Gaps in the auditing process are not limited to China.

"It's a bankrupt system," said Mansour Samadpour, microbiologist and CEO of IEH Laboratories & Consulting Group in Seattle, noting that audits are normally scheduled ahead of time and organized around publicly available questionnaires.

Buyers such as Yum and McDonald's operate on huge volumes and demand very low prices from their suppliers, which compete fiercely for business on razor-thin margins.

Shanghai Husi is just the tip of the problem.

Reuters