China’s Latest Food Scandal Highlights Weak Regulatory Environment

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An American owner of a Shanghai based meat supplier is scrambling to contain a scandal involving the sales of expired meat. So far it appears that many American restaurant chains in China are going to take a big hit. McDonald’s Corporation (NYSE:MCD), Kentucky Fried Chicken, Burger King Worldwide Inc (NYSE:BKW), Pizza Hut and even Starbucks Corporation (NASDAQ:SBUX) are being swept up in the scandal. News of the scandal broke when the Chinese media discovered that the company was selling expired meat.

American Brands Taking A Bit Hit In Scandal

For now the company’s American owner, OSI, is attempting to shift blame towards its subsidiary, Shanghai Husi. The company’s management team released a statement saying that it was appalled to learn of its subsidiaries actions and that the company will cooperate fully with local authorities. The management team does believe, however, that the incidents uncovered by the Chinese media were isolated.

American brands will likely take a big hit given that Shanghai Husi was a major supplier for American fast food brands. Starbucks Corporation (NASDAQ:SBUX), McDonald’s Corporation (NYSE:MCD), and others are pulling products and suspending orders to Shanghai Husi but the damage has already been done.

China’s Regulatory Environment Remains Weak

Given that OSI is an American company and that Shanghai Husi is under its control, the Chinese media, regulators, and others will likely be relentless in their pursuit of the matter, and rightfully so. Still, this most recent case highlights one of the many weaknesses in China’s food and drug regulatory environment.

China’s worst food scandal in recent memory was the melamine-tainted milk scandal in 2008, which affected at least 300,000 Chinese people, resulted in the hospitalization of thousands of babies, and even claimed the lives of six infants. Following the scandal China moved to revamp its regulatory environment with the 2009 Food Hygiene Act with the Food Safety Law.

Regardless, experts argue that China’s system still remains fractured with various agencies overlapping in responsibilities. Further, inspections in the farm-to-consumer supply chain remains weak and sporadic, an issue highlighted in the most recent scandal. Interestingly enough, China’s laws don’t prevent the exporting of unsafe foods.

As much as some groups of people like to hate of the United States FDA and similar organizations across the world, these regulatory bodies provide vast levels of protection for consumers and customers. No regulatory body is perfect, of course, and approval processes can slow down the approval of new products. Still, as the recent case in China proves, it’s better to be safe than sorry.

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