Hebei Dairy’s Messy Supply Chain

“Outsourcing and lack of government oversight provided a fertile environment for tampering in Hebei’s dairy industry.” Beijing based magazine Caijing reports:

Using additives to manipulate the apparent quality of milk had become the norm in Hebei Province’s dairy industry long before September, when baby formula tainted with the chemical melamine caused the death of at least four infants and sickened nearly 13,000 others. The practice can be traced back to as early as 2005.

While many fingers now point to the “milk stations” – middlemen on a chain that connects farmers to big dairy – as the major source of contaminated milk, the convoluted supply channel that takes milk from the countryside to the supermarket has been a time bomb ticking for years. This autumn was merely its breaking point.

… But one industry source told Caijing that the high portion of melamine in ’s milk powder, 2.3 gram per kilo, can’t be blamed solely on milk stations. More likely is that at every link in the chain – from farmers to milk stations to companies – melamine was added.

The regulation vacuum that gave free reign to Hebei milk stations came to a head in the September crisis. The scandal declares the failure of the outsourcing model that initially brought Sanlu huge success and later an irreversible disaster. Some companies, including Mengniu and Yili, are in the process of firming up their supply chain. Many now own or are building their own diary farms, showing a new trend in the industry.

Prosecution of greedy milk station workers is ongoing. So far Hebei police have arrested 12 staff members from milk stations and six, illegal sellers of melamine. But the industry, with its messy supply chain, calls for a new system and, more critically, more oversight.

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