Company Pulled Tainted Products Before Going Public

Sanlu Group, at the heart of a tainted milk scandal, ordered distributors to pull its products off store shelves in early July, weeks before it went public with the problem.

BEIJING (AP) -- The company at the heart of China's tainted milk scandal ordered distributors to pull its products off store shelves in early July, weeks before it went public with the problem, two distributors said Friday.

The statements by the distributors in Hebei province, where Sanlu Group Co. is headquartered, raise further questions about when the company and government knew that milk powder being feed to babies was tainted with a banned industrial chemical. A New Zealand stakeholder in Sanlu has said it was told in early August, before the start of the Beijing Olympics, that there was a problem.

The public was not told until Sept. 11 -- after its New Zealand stakeholder told the New Zealand government, which then informed the Chinese government -- that the powder, used in baby formula and other products, contained the chemical melamine. The milk is blamed for four infant deaths and the illnesses of 6,200 others.

"We were asked by Sanlu to take all their 2007 to July 2008 baby powder off the shelves in early July" and replace it with new powder, said one of the distributors, Zhang Youqiang.

"Then things got weird. In early August, they came to us again and said all the new Sanlu baby milk powder we had just put on the shelves did not pass 'qualified aviation standards,'" said Zhang, who declined to give his company name for fear of offending Sanlu. Zhang said he was never told what qualified aviation standards meant.

Zhang said he now has warehouses full of contaminated milk powder and is trying to get refunds from Sanlu.

Another distributor, Liang Jianqiang, said he was also trying to get money from Sanlu. He also took Sanlu baby milk powder out of stores in July. "They told me there would be a new formula that's better quality. They did this again in August and September," he said. Liang also did not want to disclose the name of his company.

Phone calls to Sanlu rang unanswered Friday and its Web site was not working. China's quality watchdog did not respond after asking that questions be faxed to it.

The crisis broadened Friday when the government said melamine had also been found in liquid milk produced by three of the country's leading dairy companies.

According to a report on the Web site of the General Administration of Quality Supervision, Inspection and Quarantine, about 10 percent of samples of liquid milk from Mengniu Dairy Group Co. and Yili Industrial Group Co. -- China's two largest dairy producers -- contained melamine. Milk from Shanghai-based Bright Dairy also showed contamination.

"AQSIQ will strictly find out the reason for adding the melamine and severely punish those who are responsible," the report said. It said all the batches that tested positive were being recalled.

Reactions were immediate, with major Hong Kong grocery chains PARKnSHOP and Wellcome pulling all Mengniu liquid milk from their shelves. A day earlier, Hong Kong recalled products made by Yili.

Starbucks Corp. said its 300 cafes in mainland China had pulled milk supplied by Mengniu. It said no one had fallen ill from the milk.

The recalls come as evidence is mounting that adding chemicals to watered-down milk was a widespread practice in China's dairy industry.

Farmers are cutting corners to cope with rising costs for feed and labor, said Chen Lianfang, senior dairy analyst at Beijing Orient Agribusiness Consultant Co.

"Before the melamine incident, I know they could have been adding organic stuff, say animal urine or skin," Chen said. "Basically, anything that can boost the protein reading."

Authorities said farmers or merchants who buy milk for resale to dairies might have added melamine to watered-down milk to fool quality tests. Melamine is rich in nitrogen -- as is urine -- and standard tests for protein measure nitrogen levels.

But the chemical can cause kidney stones and lead to kidney failure. Some 1,300 babies, mostly newborns, remain hospitalized, with 158 suffering from acute kidney failure.

The government says it found melamine in products from 22 dairies throughout China. Authorities have not said whether those arrested were working together. The product safety agency and the Health Ministry declined to answer questions Friday about how widespread the practice was believed to be.

"I don't know if this is an industrywide problem, but it is definitely not a single case. It is on a massive scale," said E.R. Hong, an executive of Hua Xia Dairy Ltd., a U.S.-owned dairy farm east of Beijing that has not been accused of supplying tainted milk.

Chen and others expressed surprise that so many farmers would know the process to add melamine to milk. Melamine is not water-soluble and must be mixed with formaldehyde or another chemical before it can be dissolved in milk.

"Farmers can't be well-educated enough to think of melamine," Chen said. "There must be people from chemical companies contacting them and telling them it's a good idea."

The widening crisis has raised questions about the effectiveness of tighter controls China promised after a series of food safety scares in recent years over contaminated seafood, toothpaste and a pet food ingredient tainted with melamine. In 2004, more than 200 Chinese infants suffered malnutrition and at least 12 died after being fed phony formula that contained no nutrients.

Associated Press researcher Bonnie Cao contributed to this report.

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