China's dairy market, which was thrown into chaos by a scandal involving tainted baby milk formula, is seeing encouraging signs of recovery in response to crisis management efforts.

Liu Xiuqin, a retiree in Beijing, bought a Yili brand box containing 20 minibags of fresh milk for 28 yuan (some US$4) at a downtown Beijing Wal-Mart on Thursday afternoon. She got six soft bags for free.

"It is cheap and the store operators have put up a placard above the stack saying the milk has tested free of melamine. I believe they are safe and healthy," said Liu.

A man surnamed Cao in his 20s said he bought two boxes of Mengniu brand, kiwi-fruit-flavor yogurt each containing four cups for 10.48 yuan on Saturday at a Beijing outlet of Carrefour, a French retailing giant, and got two more boxes for free.

"People made a beeline for yogurt with a production date of September 14," recalled Cao, who lives near the Temple of Heaven in downtown Beijing.

"When I read the apology written by Niu Gensheng, CEO of Mengniu Dairy, over the scandal, I found him sincere in taking responsibility, and I made the purchase to show my support and confidence in the brand."

Both Yili and Mengniu were on the watch-list of 22 Chinese dairy companies whose products have sickened tens of thousands of children.

Yu Guoming, a professor in the School of Journalism and Communication, Renmin University of China, said consumers' re-acceptance of dairy products from domestic makers with tarnished images, such as Mengniu, showcased the effect of crisis control.

Start of a scandal

The tainted baby formula scandal was exposed on July 16 after 16 babies who were fed on milk made from powder produced by Hebei Province-based Sanlu Group in northwest China's Gansu Province were found to have developed kidney stones.

The exposure triggered a nationwide investigation.

The State Administration of Quality Supervision, Inspection and Quarantine (AQSIQ) announced last Tuesday it had found the chemical melamine in 69 batches of baby milk powder produced by 22 companies nationwide.

The agency issued a watch-list of the 22 companies and their tainted products on the same day. The authorities ordered a halt to the sale of the products, including the well-known brands of Sanlu, Mengniu, Yili and Yashili, among others.

Melamine is used in plastics and other industries. Experts say it is added illegally to raw milk to increase the apparent protein content.

The tainted milk is known to have killed at least three babies and left 13,000 others hospitalized with kidney problems.

Crisis management

Major dairy companies responded quickly when the scandal emerged, promising to be responsible for the aftermath.

Both Yili and Mengniu, two publicly-listed companies, issued written apologies to consumers last Wednesday.

Yili said in a written apology that it had recalled all the unsold contaminated baby formula for 3- to 6-year-olds after it was told of the inspection result by AQSIQ on Tuesday.

Mengniu also promised in a written statement to take back all types of contaminated baby formula, and added that it would bear all the costs of doing so. Baby milk powder production lines were halted, and changes in production would take place, said Mengniu in the written apology, without specifying what those changes would be.

All the adulterated milk powder and dairy products were ordered to be removed from shelves and destroyed

As of Tuesday, 7,074 tonnes of tainted dairy products had been removed from retail outlets across China, the State Administration for Industry and Commerce (SAIC) said. This included 4,246.7 tonnes of milk powder and 1,562.1 tonnes of liquid milk products contaminated with melamine, SAIC statistics showed.

There were other repercussions for the industry, such as investigations and assigning responsibility for the problem.

Seven government officials were sacked. They included Li Changjiang, who was ousted from the post of GAQSIQ director on Sept. 22, and Wu Xianguo, the Communist Party chief of Shijiazhuang City, the epicenter of the scandal.

Police in Hebei Province, the focal point of the scandal, have arrested 18 people and detained 10 others. Six of those arrested allegedly sold the melamine, while the remaining 12 were dealers suspected of selling contaminated milk.

Tian Wenhua, 66, board chairwoman and general manager of Sanlu Dairy, was detained by police for questioning after she was stripped of titles including secretary of the Sanlu Group Committee of the Communist Party of China and deputy to the local legislature.

Commitment to quality

In the meantime, 109 Chinese dairy companies and 207 distribution businesses on Tuesday issued a joint letter of commitment pledging to guarantee good quality.

Many shops have taken steps to ease consumers' concerns.

At CenturyMart near the Shuangjing Flyover in Beijing's Central Business District, grocery workers put up notices above shelves fully packed with baby formula. One informs customers that Sanlu baby formula produced before Aug. 6 was tainted and should be returned for a refund.

The other says bottles bearing some of the watch-listed brands such as Yili have been tested and are melamine free.

At a grocery in Ganjiakou Mansion in western Beijing, dairy products bearing some of the watch-listed brands including Yili and Mengniu have green, red or yellow labels showing them also free of melamine.

"Once a reputation is damaged, it will take time to rebuild trust, " said a saleswoman surnamed Gong. "Most people now buy other brands they believe to have a better reputation, such as Sanyuan. Few people will buy the watch-listed products, so the sales are low. We have to wait."

Lessons learned

Crisis management is closely related to the brand and credibility of an enterprise, but many Chinese enterprises have not developed the capability to react properly when a crisis emerges, said Yu.

"One principle of crisis management is to take a responsible attitude immediately and in a sincere manner, which is of great help for enterprises to rebuild their credibility," Yu said.

Sanlu, the center of the scandal, provided a bad example of crisis management. When it was first exposed, Sanlu refused to take the blame and passed the buck to innocent dairy farmers, which ignited great anger nationwide.

A further official investigation showed Sanlu had lied about its contaminated baby formula for months while thousands of infants got sick and at least three died.

Sanlu didn't openly admit its products were toxic until Sept. 11. It eventually recalled baby formula manufactured on and before Aug. 6.

The scandal led to the fall of chairwoman Tian and the disappearance of all dairy products bearing the brand of Sanlu.

Answering a question on China's food safety at a luncheon honoring his visit to the United Nations on Tuesday, Premier Wen Jiabao said China needed to do everything possible to ensure the quality of products, particularly the safety of food, and to tighten institution building, as well as improve social ethics.

These, he said, were the three lessons China learned from the milk scandal.

(Xinhua News Agency September 26, 2008)