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The Sanlu Trial: Diary of a Dairy Disaster

01-15 12:03 Caijing Magazine

Trials for more than 20 executives, middlemen and dairy farmers exposed the ugly depth of China's melamine-tainted milk scandal.

 

By staff reporters Wang Heyan, Zhu Tao and Ye Doudou

From Caijing Magazine

 

A nation’s outrage over poisoned baby formula is focusing on the trial of a former dairy executive who, at first glance, looks anything but a criminal.

 

Tian Wenhua, 67, took the stand December 31 in a courtroom in Shijiazhuang, in north China’s Hebei Province, for her involvement in the melamine contaminated milk scandal that’s rocked China for months.

 

Tian is a mother and former veterinarian described by associates as modest and kind. But she may face life in prison after pleading guilty to producing and selling poisonous food while serving as president of Sanlu Group, the most prominent of nearly two dozen dairies linked to the milk that sickened about 300,000 children across China and killed at least six.

 

And Tian was not alone. She was one of more than 20 defendants brought to court for a series of trials that began December 26 in Shijiazhuang and ended a week later. Sentences were expected to be announced January 16.

 

In addition to Tian and other executives, the defendants included dairy farmers and milk station operators who added melamine, an industrial chemical, to fresh milk before it was sold to Sanlu for processing. Melamine artificially boosts protein readings in milk, but causes kidney ailments in people who consume it.

 

Tian shared her court day with three other senior Sanlu managers: former vice president Wang Yuliang, former general manager Hang Zhiqi, and the former director of the company’s milk resource department, Wu Jusheng. Each was accused of producing and selling poisonous products. 

 

The scandal also brought down a number of senior government officials, including local officials as well as the director of the nation’s General Administration of Quality Supervision, Inspection and Quarantine (AQSIQ), Li Changjiang, and Wu Xianguo, party secretary of Sanlu’s hometown Shijiangzhuang.

 

Delayed Reporting

 

Sanlu halted production in September and declared bankruptcy December 24. But dairies across the country as well as government food inspection agencies have been shaken by the scandal.

 

China’s product quality watchdog said September 16 that products from 22 dairy companies across China were contaminated, including companies with popular brands such as Yili, Mengniu, Yashili and Shengyuan.

 

The scandal broke September 8 when the media reported that 14 babies in Gansu Province had been diagnosed with kidney stones and related ailments after drinking Sanlu baby formula. Tian was arrested 10 days later.

 

Prosecutors at Tian’s trial said Sanlu had received consumer complaints about the baby formula as far back as late 2007. The complaints said some children had shown negative symptoms after drinking formula.

 

On May 17, according to trial evidence, Sanlu’s consumer service department reported the situation to a company management team including Tian and Wang. An investigative team headed by Wang was formed three days later.

 

The investigation moved slowly. Eventually, investigators discovered Sanlu’s baby formula contained excess nitrogen – levels up to six times higher than other formula brands.

 

The nitrogen finding raised suspicions of melamine contamination. But not until July 24 did Sanlu send 16 batches of baby formula for testing to the Technical Center of Hebei’s Inspection and Quarantine Bureau. A week later, the bureau said 15 batches contained melamine.

 

By the time the testing was complete, many babies were already sick, and reports said several had died. Still, prosecutors said, Sanlu managers dragged their feet. The company started replacing tainted products already on the market after deciding August 1 to temporarily withhold all products in storage.

 

Wang was appointed to test products and raw materials already in stock. Hang was responsible for daily inspections of purchased fresh milk.

 

However, prosecutors said Sanlu failed to halt production and sales even after the contamination was proven.

 

On August 13, as Sanlu finished testing products in storage, Tian and Wang held a meeting where they decided to continue selling products with melamine levels below 10 micrograms per kilogram, while withholding products with higher readings.

 

The company also decided to replace high-level melamine products already on the market with products that registered melamine levels of around 20 micrograms per kilogram. The goal was to gradually withdraw tainted products.

 

After the meeting, Wang announced that products with melamine levels below 10 micrograms per kilogram could be sold.

 

Caijing learned that more than 180 tons of fresh milk with high melamine readings were processed at Sanlu plants into more than 269 tons of consumer-ready milk, yoghurt and other products – all of which sold out.

 

The government finally stepped in September 12, halting Sanlu’s production lines and sales. But the company had already sold 69 batches of tainted baby formula, weighing more than 813 tons, between August 2 and September 12.

 

Tian’s Role

 

Tian pleaded guilty to producing and selling poisonous food. But her lawyer said her action was unintentional, arguing that local government officials were properly informed and measures taken for product recalls.

 

Tian helped Sanlu grow from its start as a small dairy to become one of the nation’s leading milk products companies. After a stint as a veterinarian, she became general manager of Shijiazhuang Dairy Co. in 1987.

 

Tian helped the dairy buy several other companies in the Shijiazhuang area in 1995, and eventually formed Sanlu Group in 1996, taking the helm as president and general manager.

 

Under Tian’s direction, Sanlu milk powder led the Chinese market in sales for 13 consecutive years. During that time, the company expanded across the country and signed a cooperation agreement with New Zealand’s Fonterra, one of the world’s largest dairies, in 2005.

 

According to government files, Sanlu reported 1.6 billion yuan in assets and 395 million yuan in liabilities at the end of 2007, helping the company maintain a healthy asset-liability ratio of around 30 percent.

 

Tian won honors for her contributions to Sanlu. She was considered one of the most successful entrepreneurs in China, named deputy chairman of the China Dairy Industry Association, and elected to the National Committee of the Chinese People’s Political Consultative Conference, the nation’s top political adviser.

 

Melamine Chain

 

But the supply chain that led to success for the company and Tian included melamine. According to a local newspaper, Shijiazhuang police found 41 dairy farms and milk stations in 13 area counties added the chemical powder to fresh milk.

 

Police arrested several milk station workers for buying melamine powder that was added to milk sold to Sanlu. Like Tian, they were accused of selling and producing poisonous food products.

 

Dairy farmers were caught in the criminal web as well. One was Zhang Yujing, 40, a Hebei dairyman arrested for his role in the production and sale of a melamine mixture locally called “protein powder.”

 

At Zhang’s trial in Shijiazhuang on December 26, the court found he started producing protein powder in early 2007 after hearing that the business was highly profitable. Eventually, he produced 775 tons of the powder by mixing melamine and the food additive maltodextrin, selling about 600 tons for between 8,000 and 12,000 yuan per ton.

 

Caijing learned that Zhang, one of several defendants charged with “endangering public security,” sold most of the powder to milk stations in Shijiazhuang, Tangshan, Xingtai and Zhangjiakou.

 

Government Shakeup

 

Shijiazhuang city officials initially blamed the milk stations for the melamine in Sanlu’s products, clearing the company of responsibility. But a top level investigation by the State Council, China’s cabinet, prompted Hebei provincial officials September 16 to send four investigative teams to Sanlu.

 

That same day, Tian was ousted and a number of local government officials were dismissed, including Zhang Fawang, Shijiazhuang deputy mayor in charge of agricultural production, and Sun Renhu, the city’s animal husbandry administration chief. On September 17, Shijiazhuang Mayor Ji Chuntang city was removed.

 

On September 22, the State Council labeled the milk crisis “a serious food safety accident.” And AQSIQ’s Li resigned amid public furor. Wu Xianguo, party secretary of Shijiazhuang, was sacked for delayed reporting of the tainted milk.

 

The State Council teams also concluded that Sanlu and the Shijiazhuang government tried to cover up the contamination and delayed reporting to higher authorities, violating regulations.

 

Caijing learned Sanlu officials had decided to recall tainted products secretly after discovering the contamination. But the move was rejected by Shijiazhuang government officials.

 

On August 2, senior city officials including former deputy mayor Zhao Xinzhao held a meeting with Sanlu management to discuss a possible recall proposed by Wang. It was decided that any measures were to be taken after the Beijing Olympics in August. Moreover, the government officials opposed the recall idea and suggested pacifying victims by paying compensation while keeping the issue secret.

 

Zhao was dismissed December 28.

 

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