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 The U.S. food maker apologized to Chinese consumers last week and
said it would tighten controls over suppliers after it was forced to
recall some infant cereal from store shelves due to excess levels of
lead.
Food safety scares erupt regularly in China - KFC parent Yum Brands
Inc, McDonald's Corp, Wal-Mart Stores Inc and Fonterra Co-operative
Group Ltd have all suffered recently - and such incidents can
seriously dent sales.
But barcode tracking systems for produce, common in the United
States and Europe, are largely absent.
"Standardized traceability of food products does not currently exist
in China. It's a long way from it," said David Mahon, Beijing-based
managing director of an investment firm focusing on China's food and
beverage sectors.
China's food traceability systems and regulation were classified as
"poor" in an August report from the Institute of Food Technologists.
This was the lowest score of around 20 countries included.
Food safety barcodes store details such as the farm of origin, dates
of harvest, planting, storage and shipment, meaning clients down the
line can trace a particular batch and find out how and why any
issues occurred.
Some firms have tried to bring the system into wider use in China -
French grocer Carrefour SA launched a barcoding system last year for
fruit and vegetables - but the technology has failed to catch on due
to the high costs of implementation throughout scattered supply
chains.
SENSITIVE MARKET
Heinz said it had identified the supplier and ingredient - a skimmed
soybean powder - responsible for the recall of four batches of its
AD Calcium Hi-Protein Cereal from stores in eastern China, but added
the firm needed to do more to keep suppliers in check.
"We will keep improving traceable food safety control systems from
'farm to factory'," Heinz said in a statement posted on its Chinese
website.
Heinz, which was bought out by Warren Buffett's Berkshire Hathaway
Inc and private equity firm 3G Capital last year, did not respond to
requests for further comment.
Consumers in China are highly sensitive to issues of food safety,
especially with baby products, after powdered milk tainted with the
industrial chemical melamine led to the deaths of at least six
infants in 2008.
Danone SA and Abbott Laboratories saw infant formula sales in China
plunge last year after concerns over a potentially fatal bacteria in
a supplier's product. Tests later showed the initial finding was
incorrect.
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China has soaring levels of soil and water pollution, with seven out
of the top 10 farming provinces amongst the areas most exposed to
heavy metal pollution such as lead, according to a March report from
HSBC.
Major firms, including fast food chains McDonald's and Burger King
Worldwide Inc, said they had put in place stringent testing and
auditing procedures in China to avoid issues such as contamination
from water and soil pollution.
"We have rigorous and overlapping internal and external testing
procedures and audits to ensure that our suppliers in China, and
around the world, meet our strict specifications," said Vijay Guyah,
a Singapore-based spokesman for Burger King.
BROKEN CHAINS
Agricultural supply chains in China tend to be highly fragmented
with most farms still small-scale.
Even with stringent auditing processes of suppliers - which
multinational firms such as Heinz would carry out - it's difficult
to keep track of all suppliers along the line, some of whom may be
tempted to subcontract to cut costs.
What's more, while China's regulators have tight food safety rules,
industry insiders said the watchdogs simply did not have the
manpower to properly enforce them.
"It's not that the technology doesn't exist in China, it's just the
chains are too fragmented," said an industry executive in China, who
previously ran a food processing plant serving multinational firms
in China and abroad.
The former executive said that one batch of frozen vegetables that
his firm shipped to the Japanese market had become contaminated by
chemicals after an audited, long-term supplier topped up its harvest
from a neighboring farm.
"When supply chains are so large, you can't always prevent a
supplier buying from someone else if someone else has a cheaper
price," the former executive said. "It's a matter of one guy doing
things wrong and the product is contaminated."
(Reporting by Adam Jourdan; Editing by Alex Richardson)
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