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Food Safety Issues in China and Taiwan

In: Business and Management

Submitted By d0tham
Words 4735
Pages 19
Business, Government and Society Final Group Project (G5)

Title of Assignment: Food Safety Issues in China and Taiwan
Should Producers Be Solely Responsible for Food Safety Issues?

Date of submission: 26 March 2012

Table of Content
1. Introduction 2. China Food Scandal 3. Analysis of China’s case 3.1 3.2 3.3 3.4

Conflict: Business vs. Business Conflict: Business vs. Government Conflict: Society vs. Government Implementations and Critique

4. Taiwan Food Scandal 5. Analysis of Taiwan’s case 5.1 5.2 5.3 5.4

Business Government Consumers Implementations and Critique

6. Alternative Solutions 6.1 6.2 6.3 6.4 Changing the business culture by incentivizing ethical practices

2-Prong approach Improve information symmetry Develop a systematic approach for food scandals

7. Conclusion 8. Appendix 9. References

1. Introduction In recent years, the world has seen many cases of food safety issues, especially in Asia and the effects are global. Our group has chosen China and Taiwan as our two main countries for analysis: China is one of the world’s largest exporters of food products and food safety issue is pertinent; Taiwan’s food products are exported to 15 major countries such as U.S., China, Germany, Hong Kong, and Malaysia (Wang, 2011), thus food safety issue is serious as well. If these hazardous products were circulated to different countries, the consequences would be widespread. This report provides the background information, analysis of the problem and solutions in the respective countries. In addition, our group will identify the root cause of the problem, generate alternative solutions and decide the best-fit solution. 2. China Food Scandal The China melamine milk scandal was uncovered in 2008, when 14 babies reportedly fell ill in Gansu Province in a span of 2 months ("Timeline: China milk," 2011). The problem was brought to light when further investigations showed that all the babies who showed health implications drank the same milk powder that was manufactured by Sanlu Group, which was contaminated with the toxic chemical melamine. Melamine is a white chemical usually found in “plastics, adhesives, countertops, dishware, whiteboards.” ("Global alert and,") and consuming it would lead to the development of kidney stones, kidney failure and even death. Sanlu Group is China’s leading state-owned dairy producer, and operates more than 30 plants across China. This milk scandal resulted in the death of 6 children, and affected about 300,000 young children (Barboza, 2008). The stakeholders involved are the consumers, Sanlu’s senior management, Sanlu’s employees, Fonterra, the Chinese and New Zealand Government, and even international companies that use China milk such as Cadbury, and Nestle. Causes

Starting at the source, when farmers feed their cows low quality cattle feed, the amount of nutrients in the milk produced by these cows are significantly decreased (Ramzy, 2008). Furthermore, manufacturing companies often “dilute the raw milk to increase its volume”, which further lowers the nutrient contents of the milk (Ramzy, 2008). In order to make up for the loss of nutrients, manufacturers then introduce Melamine into the milk. Negligence is another root cause as Sanlu’s milk formula has been “certified as an inspectionexempt product” for 3years by the General Administration for Quality Supervision, Inspection, and Quarantine in 2005, exempting Sanlu’s products from checks (Ford, 2008). Also, the failure of the Chinese government to react swiftly to the scandal and instead tried to keep the matter under wraps worsened complications (Mooney, 2008). A pertinent problem is the lack of business ethics (Ford, 2008). By contaminating their milk with melamine, Sanlu went against the implied warranty of merchantability and also took advantage of the asymmetrical information of the market. Although consumers have the rights to seek compensation via the Contractual Standards for Product Safety, the damage resulted is irreversible. What propels them not to act in the best interest of the society could be encompassed by the theory of contradiction between morality and interest - “enterprises’ interests will be damaged with moral behaviors and conversely profits will result from immoral behaviors” (Song, 2009). 3. Analysis of China’s case 3.1 Conflict: Business vs. Business Fonterra, a New Zealand company, had to undergo tremendous pressure from its Chinese business partner - Sanlu, and the Chinese government, to keep silent about the tainted milk scandal (Mooney, 2008). Fonterra realized that Sanlu’s powdered milk was tainted with Melamine and was ailing infants and young children in China and thus suggested a total recall of all Sanlu’s milk products. However, Sanlu refused on the grounds that the recall

would trigger a crisis, stir up anger from parents, and also cause massive unemployment for the business (Mooney, 2008). 3.2 Conflict: Business vs. Government Fonterra’s objectives conflicted against the Chinese government’s goals. As the Beijing Olympics was just 6 days after Sanlu was informed of the tainted milk problem, the Chinese government issued instructions to play down the negatives, while playing up the positive image of China to the rest of the world (Branigan, 2009, Mooney, 2008). Therefore, despite Fonterra’s urgency to solve the problem, the refusal of the Chinese government to cooperate led to the spiraling of the tainted milk scandal. 3.3 Conflict: Society vs. Government Even though Chinese reporters were said to have heard stories of infants falling sick after consuming Sanlu’s milk products, they were banned from reporting it in the news by the government (Mooney, 2008). As representatives of society, these journalists attempted to make the issues known to society through their blogs, but “censors eventually erased much of this” (Mooney, 2008). 3.4 Implementations and Critique In light of the tainted milk scandal, the Chinese government executed two people – a dairy farmer and a milk salesman for their involvement that caused China its reputation on product safety (Branigan, 2009). A trial for the executive members of Sanlu was held, with the former general manager Tian Wenhua sentenced to life imprisonment and fined 20 million Yuan. Another 19 executive members were sentenced to 5-15 years of imprisonment. In addition, the Chinese government made efforts to boost the reputation of the dairy industry and prevent similar food scandal from occurring. According to the China Food and Drink Report 2011, more stringent tests and inspection has led to China’s regulatory body, the General Administration of Quality Supervision, Inspection and Quarantine, to revoke

“operating licenses from 426 dairy producers and suspended operations for 107 after conducting inspection and quality tests on the dairy producer”. Although the Chinese government has taken measures in reaction to the tainted milk scandal, there are limitations and grey areas that are unaddressed. The sentences of the parties involved are quite controversial. While the senior management staff managed to escape the death row, it seems that the minor players in this scandal such as the dairy farmer and the milk salesman were executed. Furthermore, the officials involved in the scandal were not charged (Branigan, 2009). Thus, the unequal punishments have led critics’ conclusion that those executed were simply scapegoats by the government to appease the victims of the scandal (Branigan, 2009). Although compensations were supposedly given out, they still remained “elusive” 3 years after the scandal ("For Chinese, tainted," 2011). Firstly, there was inadequate compensations. More than 200 families voiced their complaints as the 1.1 billion yuan given out was not enough for the victims when divided by hundreds of thousands affected. Secondly, some victims did not receive their compensations, leading to speculation of where the money went (Branigan, 2009, "For Chinese, tainted," 2011). While compensation and punitive measures are in place, this is insufficient. The government should also focus on addressing the root cause. As prevention is a better than cure, the Chinese government should enforce stricter regulations and checks, and liability laws on the manufactures to deter them from using these illegal substances in food products. 4. Taiwan Food Scandal In May 2011, Taiwan's Food and Drug Administration inspector Yang Ming-yu discovered plasticizers being used in food and beverages and brought the scandal to light (Wang, 2011). The revelation exposed the use of industrial plasticizers in beverages called bis(2ethylhexyl)phthalate (DEHP) as a cheap substitute for more expensive ingredients, like palm

oil, to make food and beverages look richer in colour, more appealing and extending their shelf-life (Rain, 2011). Resembling the 2008 tainted milk scandal in China, this case has caused uproar among Taiwan’s public and government as the cancer-causing plasticizer DEHP if accumulated in human bodies can raise complicated health issues and pose threats to physical development (He, 2011). The consequences were extensive, directly affected by DEHP are: 130 food products, 95 manufacturers, 244 ingredient-manufacturing companies, with Yu Sheng and Pin Han Perfumery Co. the sources of this scam (Rain, 2011). Stakeholders involved are the producers - Yu Shen and Pin Han, suppliers, manufacturers, those along the supply chains like night market stalls, convenience stores, the Taiwan government and lastly the consumers. 5. Analysis of Taiwan’s Case 5.1 Business The web of this food scandal reaches beyond the original manufacturer through layers of intermediate suppliers and vendors before eventually reaching the consumers. Assuming the vendors and downstream suppliers have no idea of the illegal addition of DEHP in the product before selling it to consumers, then under the law of doctrine of respondeat superior, they are not to be held responsible for the health damages done to the consumers, as in this case, the Yu Sheng company is the “principal” who should be responsible for the actions of the intermediate suppliers who are merely “agents”. Moreover, the issue of utilitarian mutual benefit is not abided as the profits made by the manufacturers through such unethical production are at the expense of the consumers’ health. The Kantian respect of autonomy is also violated due to Yu Shen depriving smaller vendors of the autonomy of choice by monopolizing the industry market, and also misleading consumers to make uninformed decisions through information asymmetric.

It is clear that the manufacturer is at fault, but is he solely responsible? This brings us further into examining the word “Responsibility.” There are 3 senses of responsibilities, 1- cause, 2liability, 3- accountability. The DEHP chemical is the cause; the producers are liable for the misuse of chemical; the producers together with the intermediate suppliers are accountable for this misuse. Nevertheless, government should also be held accountable as well. 5.2 Government The fact that this food scandal has been around for the past 20 years without detection hints a case of negligence (reasonable foreseeability) on the authorities. DEHP in food products has gone undiscovered as it is not listed in the list of toxics by the EPA, who is responsible for classifying the toxic chemicals. The government has to be responsible for failing to curb the chemical at its production source and for not having tighter regulations for its distribution, which resulted in the opportunity of misuse. Even if the EPA does not yet list the illegal chemical, stricter screenings should have been conducted for the ingredients in the food products and its sources. Moreover, the government ought to have more stringent policies in place and monitor the security standard of huge corporations like Yu Shen Co. and Pin Han Perfumery Co., since they are the dominant market players. This will help to prevent such unethical abuse of illegal chemicals by producers and protect consumers from possible information asymmetry that results in a market failure. 5.3 Consumers Despite being the victims in this scandal, they were indirectly the reason that drove the producers to unethical practices due to conflict in interests. As all rational consumers aim to maximize the value of the money they pay, they desire products to look and taste good yet priced at a cheap rate. To suffice consumers’ wants, profit-driven producers, begin to exploit cheaper alternatives and eventually delve into unethical substitutes. According to consumer sovereignty, while businesses can produce and attempt to sell any goods, the purchasing

power ultimately lies with the consumers. Nevertheless, if consumers are misled to make those purchases, the consumers might be just pawns of this market instead of the rulers. 5.4 Implementations and Critique Immediate action to pin/punish culprit: Taiwan government seized the account of Yu Shen’s CEO who faces possible jail term up to 6 months (Huang, 2011) and detained 3 people in connection with the scandal (Mozur, 2011). PROS CONS

The prompt action taken by the The responsibility of the three people detained is highly government to hold the culprits questionable. As it is impossible to place a price tag on a answerable appeases the public person’s health, jail term and the seizing of the producer’s and victims. assets as punishment may not be a justified compensation.

Immediate action on affected products: The government responded swiftly, by recalling more than 460,000 bottles of sports drinks and fruit juice, conducting wide tests on products, and tracing the chemicals back to their origin and penalizing the owner of the company (Mozur, 2011). PROS The government CONS responded Due to the sheer magnitude of tainted products and with

swiftly in recalling the tainted some already exported, the efforts spent tracking and products to control the spread recalling them are both time-consuming and costly. The of the undesirable effects government should in fact direct more efforts in managing the distribution of the illegal chemicals to control the source and reduce the likelihood of another case of abuse.

caused by DEPH chemical.

Long-term deterrence/ preventive measures: Government authorities vowed to adopt stricter regulations to manage the use of clouding agents in consumer products as the food scare that has beset the nation in the past week

continues to escalate (Huang, 2011). Stricter regulations example, surprise inspection (Hu, 2011); increase fines to within the range of NT$1-10 million from the previous maximum of NT$300,000 and consider requiring companies to have food scientists on hand to oversee production (Mazur, 2011); legislators to adopt stricter measures to prohibit the use of DEHP, and other industrial-use chemicals in food products. PROS CONS there are so many

Stricter regulations deter unethical business practices. If Since

the punishment is high enough, under the cost-benefit unknown toxics that may be analysis, the costs of such unethical scandal may misused, more stringent

outweigh the cost-saving incentives induced by these regulations may not be able to illegal acts. Hence, driving companies to abide to lawful cover all the abuse of chemicals. practices.

6. Alternative solutions 6.1 Changing the business culture by incentivising ethical practices Whistleblowers are mostly discouraged and even punished, posing serious threats to the safety and ethics of the company. Legal laws to protect the safety of the whistleblowers should be passed. However, it may not be feasible in China. By hiding the milk scandal for the sake of the then on-going Olympic Games, the Chinese government showed that it will not compromise on its government’s goals, even if it means sacrificing the safety of the people. Taiwan already has laws and official organizations in place such as “The AntiCorruption Informant Rewards and Protection Regulation” and “Transparency International” (NWC, 2007) yet the practice of whistle-blowing is still unpopular with only 18% of businesses in Taiwan supporting it. (Thortnton, 2008). Hence legal laws protection is less applicable in Taiwan’s case.

Another culture that is uncalled for is the money-obsessed mind-sets of businesses where public’s safety comes after profits (Ford, 2008). To encourage ethical practices, government could consider awarding companies that obey food safety regulations. The rationale behind incentivising is to motivate companies to adhere to food safety regulations, as they will stand to gain more should they comply. Incentives could range from tax breaks, to recognition and monetary incentives, depending on the government’s ability. For instance, government can give companies tax breaks according to how long they abide by food safety regulations. The implementation of economic incentives to spur China’s food establishments to take food safety issues seriously is a viable option given that the economic gains is the main driver for Chinese businesses (Li, Ma, Yang, Zhao & Gong, 2006). For example, recognition and tax breaks for companies who have adhere to strict food safety regulations could improve companies’ reputations, increase their profits, and attract foreign investments which ensure their growth in the long run. Similarly, Taiwan should have similar incentives for vendors and producers who adhere to the food safety regulations, instead of depending on deterrence from liability laws since punishments seem to be less effective in Taiwan. Taiwan’s culture is majorly shaped by Buddhist teachings, where unethical businessmen misinterpret the religion to assume that as long as one seeks forgiveness after a wrong is committed, all mistakes can be foregone. Such unhealthy mind-set tends to breed unethical management. So, since repelling the businesses from unethical practices has failed, then the government should use the force of attraction to pull them towards ethical practices. Under costs-benefits analysis, incentives will entice businesses to observe the rules voluntary, where it will be a win-win situation for all parties, business, government and society. 6.2 2-Prong Approach

The first part of the approach: Countries with flawed history in food safety will have selected food products screened annually by World Health Organization. Countries that import substantial amounts from overseas could also have their own regulatory bodies to doublecheck that food safety standards are met. Organizations like USA’s Food and Drug Administration (FDA) and Europe’s European Food Safety Authority (EFSA) could double as another level of regulations and checks. The second part involves constant checks on the food products and its ingredients within the country itself. In the case of unknown harmful chemical being added into food products, the second prong complements the first by examining the level of safety of each ingredient used. In China, regulating these illegal chemicals in the F&B industry is challenging due to the size of China’s population compared to the size of the Chinese government bodies. While punitive and command-and-control regulations are put in place, its effectiveness will be limited if bribery and corruption continues in China. Therefore, international and regional organizations could help by pressuring the Chinese government to conduct checks or else risk being denied exporting to countries (Leow, 2007). The second part of the approach is especially applicable to Taiwan, where strict regulations on known illegal chemicals are in place but lacks closer examination of the various food components within the food product before it gets released into the market. Every ingredient and agent used in the food product will have to be reported at its production source when it passes through the multi-layered production chain and has to be certified with official approval as safe to consume, before reaching the hands of consumers. Such stringent checks may be time-consuming and costly, making them unfavourable measures. However, as compared to the amount of time, manpower and money went into recalling the tainted products after the scandal, the more stringent examination priory are a more worthwhile rational decision. Hence, the 2-prong approach ensures the known illegal chemicals are

properly regulated, while the possible abuse of unknown chemicals in F&B industry will be curbed from further distribution under stern security scrutiny checks. 6.3 Improve information symmetry Producers and industry players usually possess greater knowledge on food products as compared to the community at large. The asymmetrical information on food products disadvantages the latter as they are not able to make informed safe choices. As such, government is vital in improving the exchange of information aiding both consumers and producers to truly value such food products, via education and media could be a possible solution to resolve the food safety issues. Hence, government should enforce compulsory labelling of verified nutritional information on the food products allowing consumers to be well-informed. It is integral for health authorities to release timely information upon food standard inspections, so as to notify the public of potential detrimental effects if any. It is also essential for the consumers to be equipped with the basic food safety knowledge, bridging the problem of information asymmetry on food products in the market, as well as knowing how to respond to future food scandals. 6.4 Develop a systematic approach for food scandal The last solution proposed seeks to provide a step-by-step procedure for countries affected by food safety issues. This idea is adopted from Singapore’s Ministry of Health (MOH) Influenza Pandemic Preparedness and Response Plan. The advantage of having a response plan is that it shows a detailed outline of what countries should do after the outbreak of a scandal, and how to respond more quickly to minimize the possible impact on society. There could be different alert zones to indicate the severity of the problem, and countries can then respond accordingly.

In China, more prominent plans to prevent food scandals range from legislations, to monitoring, and lastly inspections and enforcement (Advancing food safety, 2008). However, the National Food Safety Emergency Response Plan suggested by the WHO (Appendix A) has not been well established in China, hence this is an area of improvement towards China’s response to possible food safety crisis in future. The maintenance of food quality could only be made possible “if all activities/ processes related to food production are subject to a systematic approach” (Will & Guenther 2007). Hazard Analysis Critical Control Point (HACCP) is one of such systematic approaches to establish, implement, and improve quality and assurance of food products, through hazard and risk analysis via effective systems. HACCP is a widely accepted food safety quality assurance and is increasingly used in food industry throughout the world, including both China and Taiwan. Producers will be able to enhance their competitive edge by building credibility in consumers with this thoughtful approach to food safety (LRQA, 2011). Both China and Taiwan can reinforce HACCP on a national level and look into similar systematic approaches to prepare and resolve similar food safety crisis. 7. Conclusion The “2-prong approach” is the finest alternative solution amongst the rest. In such a complex case with multiple parties and conflicting issues involved, one single solution cannot resolve the problem entirely. The 2-prong approach presents a more comprehensive solution addressing both the issue and the root cause. Especially when many stakeholders are responsible to the scandal in their own ways, a multidimensional approach is warranted to integrate the aspects of business, government and society better. The 2-prong will prove to be feasible and cost-effective in the long run and more importantly, depict a sustainable healthy business environment for the society. Therefore, producers should not be solely responsible as the scandal is a collective result shared by all stakeholders.

8. Appendix FAO / WHO framework for developing national food safety emergency response plans. (n.d.). Retrieved from * The Appendix is 28 pages long and we are afraid that the file would be too big to submit. We would kindly email the Appendix if needed.

9. References Australian Trade Government. (2011, November 17). Food and beverage to taiwan. Retrieved from Baker & McKenzie. Department of Health. (2007). Regulation on nutrition labeling for packaged food (0960403923 ). Retrieved from website: Barboza, D. (2008, December 29). China begins trials for 9 in tainted milk scandal. The New York Times. Retrieved from

Branigan, T. (2009, November 24). China executes two for tainted milk scandal. Retrieved from Business Monitor International Ltd, (2011). China food and drink report q3 2011. Retrieved from website: ource=fedsrch&accountid=28662 Consumer sovereignty. (n.d.). Retrieved from sovereignty Ford, P. (2008, September 17). Behind bad baby milk, an ethical gap in china's business. Retrieved from

Fao/who framework for developing national food safety emergency response plans. (n.d.). Retrieved from

For Chinese, tainted milk compensation remains elusive. (2011, June 02). Retrieved from

Government Information Office, EY. (2010, May 27). Food safety and regulation. Retrieved from

Grant Thornton, (2008). Less than half privately held businesses support whistleblowing. Retrieved from website:

Hartman, L., & DesJardins , J. (2007). Business ethics: Decision making for personal integrity and social responsibility. (1 ed.). McGraw-Hill/Irwin.

He, D. (2011 , July 5). Ban extended to more taiwan food imports. China Daily. Retrieved from

Huang, S. (2011, May 31). MOJ seizes assets of Yu Shen Owner. Taipei Times. Retrieved from website:

Hu Hsin-nan (2011, June 1). Taiwan’s night markets suffering from DEHP scare. Want ChinaTimes. Retrieved from website:

Leow, J. (2007, Aug 01). Politics & economics: U.S. pushes china on safety; envoy seeks accords to improve regulation of food and drugs. Wall Street Journal, pp. A.8-A.8. Retrieved from

Li, L. B., Ma, C. M., Yang, Y. Y., Zhao, S. K., & Gong, S. (2006). Implementation of haccp system in china: A survey of food enterprises involved. In ScienceDirect. Retrieved from,1108-1112.pdf

LRQA. (2011). Lrqa singapore - haccp. Retrieved from

McWilliams, J. E. (2008, October 16). China, america and melamine. The New York Times. Retrieved from

Mooney, P. (2008, October 09). The story behind china's tainted milk scandal. Retrieved from Mozur, P. (2011, June 3). A Darkness falls on Taiwan’s Night Markets. China Real Time Report. Retrieved from website:

National Whistleblowers Center, (2007). Transparency International-Taiwan. Retrieved from website: ew&id=602

Ortega, D. L., Wang, H. H., Wu, L., Bai, J., & Olynk, N. J. (2011). Got (safe) milk? chinese consumers’ valuation for select food safety attributes. In Retrieved from et al SAEA 2011.pdf

Questions and answers on melamine. Retrieved from website:

Rain, L. (2011). Taiwan’s plasticizer food scandal dehp plasticizer scandal. Retrieved from

Ramzy, A. (2008, September 26). China's tainted milk scandal of 2008. Retrieved from,8599,1844750,00.html

Riley, G. & College, E. (2006). Market failure- introduction. In tutor2u Retrieved from

Song, M. (2009). Business ethics reflected in sanlu milk incident. In International Journal of Business and Management.

The China path to global food safety. In (2011). Global Food Safety Forum. Retrieved from

Timeline: China milk scandal. (2011, January 25). BBC News. Retrieved from

Wang, C. (2011, September 20). Taiwan food inspector recalls dehp plasticizer scandal. Want China Times. Retrieved from

Wang, J. (2011, June 14). Taiwan's food industry needs better regulation: forum. Retrieved from

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