McDonald’s Corporation (NYSE:MCD) is not a happy place in China right now, its third largest market. The fast food giant has suspended the sale of chicken nuggets after a weekend report by China’s Dragon TV accused a meat supplier of selling expired and tainted product.


McDonald’s: Shanghai Husi is at the center of a food scare

McDonald’s Corporation (NYSE:MCD) said it imported certain meat products from Shanghai Husi, a Chinese joint venture with US-based OSI Group, from July 2013 to June 2014, that is at the center of a food scare. Five employees at Shanghai Husi Food have been detained by Chinese authorities, the Wall Street Journal is reporting,  while McDonald’s is standing by OSI, its long-time Illinois-based meat supplier.

The scandal gained a life of its own when a Dragon TV report showed Shanghai Husi staff using long expired meat and picking up meat from the floor to add into into the deliverable product.

There have yet been no reports of consumers reporting sickness as a result of the scare, but this could soon change.

McDonalds outlets halt shipments from Shanghai Husi

Regional McDonald’s Corporation (NYSE:MCD) outlets have halted shipments from Shanghai Husi. McDonalds Japan used the company to supply one fifth of its chicken nuggets and completely halted nugget sales.  McDonalds Hong Kong stopped selling its McSpicy chicken filets, chicken and green salads, expanding the list of haulted products to anything supplied by a related company, Guagzhou Husi, including lettuce, corn, onions and tomato.

Yum! Brands, Inc. (NYSE:YUM) has followed suit, as its KFC and Pizza Hut restaurants have been ordered to seal up and stop using all meat supplied by the Husi factory.

The company at the center of the scandal is 105 year-old OSI, a company that started as a small meat packer from the Chicago area, then called Otto and Sons, when it made a fortuitous connection with a then small but growing restaurant entrepreneur named Ray Kroc.

The two companies grew together, the report notes, and OSI, now located in Chicago’s western suburbs, is to this day the exclusive supplier of meat to McDonalds.

“They (OSI) was one of the first to realize the growth potential of these big quick-serve restaurant chains,” Thomas Elam, president of FarmEcon LLC, a food industry consultant, was quoted as saying.

Those long time bonds will now be tested as is the US relationship with China