Distributors: Company, Chinese Government Knew Milk Was Tainted

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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 the company 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 milk powder being feed to babies was tainted with a banned chemical.

A New Zealand stakeholder in Sanlu has said it was told in earlier August, before the start of the Beijing Olympics, that there was a problem. The stakeholder told the New Zealand government, which informed Chinese officials.

The public was not told until Sept. 11 that the powder, used in baby formula and other products, was laced with the industrial chemical melamine. The tainted milk is blamed for four infant deaths and illnesses in 6,200 others.

Melamine is a toxic industrial chemical that can cause kidney stones and lead to kidney failure.

"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, one of China's best-known and most respected brands. 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 to be sent a fax with questions.

China's latest tainted product crisis widened Friday after tests found the industrial chemical melamine in liquid milk produced by three of the country's leading dairy companies, the quality watchdog said.

The crisis roiling the nation's dairy industry was thought to have been initially confined to tainted milk powder.

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

The agency "severely punish those who are responsible," according to a notice posted on the agency's Web site. It said all the batches that tested positive were being recalled.

Hong Kong's two biggest grocery chains, PARKnSHOP and Wellcome, pulled all liquid milk by Mengniu from shelves. A day earlier, Hong Kong had recalled milk, yogurt, ice cream and other products made by Yili Industrial Group Co.

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

The scandal began with complaints over milk powder by Sanlu but it quickly became a much larger problem as government tests found that one-fifth of the companies producing baby milk powder had melamine in their products.

Though most of the dairy products involved are only sold domestically, two of the companies exported their products to five countries in Asia and Africa.

On Friday, regulators for consumer product safety in the United States, European Union, and China met to announce a joint initiative that will allow for direct cooperation between the three parties on consumer safety issues.

"The situation underscores the need for these kinds of conversations," said Nancy Nord, acting chair of the U.S. Consumer Product Safety Commission.

Thousands of parents brought their children to hospitals, worried about their safety. Some 1,300 babies, mostly newborns, remain hospitalized, with 158 suffering from acute kidney failure.

Melamine has no nutritional value but is high in nitrogen, making products with it appear higher in protein. Suppliers trying to cut costs are believed to have added it to watered-down milk to cover up the resulting protein deficiency.

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.