Corporate Governance & Business Ethics Case Study

Baby Milk Powder Contamination at China’s Sanlu: Violation of Business Ethics

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Abstract:
In 2008, Sanlu, a Chinese dairy farm was accused of producing melamine contaminated milk. After drinking this milk formulation, nearly 53,000 infants across the country were affected with 13,000 infants immediately hospitalised. Negligence of the company, lack of proper food safety measures and cut-throat competition within the industry were some of the factors which led to such a scandal. The company was badly affected as a result. Sanlu was driven into a huge financial crisis and ultimately became bankrupt. To save the company, the Chinese government invited other companies to acquire Sanlu. Finally, Sanyuan Food Co agreed to acquire it. The Chinese government launched a thorough in-depth investigation to find out the actual cause behind the scandal. Stringent quality check measures were adopted by the government. Investigators were instructed to check each and every batch of milk produced in the dairy farms. These measures finally helped the government to ensure that contamination free milk was produced after 14 September 2008. Although the Chinese government was able to stop the further spread of the contamination, the future of Sanlu remained doubtful. Critics were sceptical about Sanlu's ability to regain its lost status and goodwill in the industry. The pedagogical objectives are to: (1) analyse the factors that led to the milk contamination at Sanlu; (2) estimate the measures taken by Sanlu to bring things under control; and (3) understand the measures adopted by the Chinese government to prevent further occurrence of such a milk scandal.

Pedagogical Objectives:

Keywords : Melamine contamination; Chinese dairy industry; Fonterra; Baby milk powder scandal; Product recall; Inner Mongolia Yili Industrial Group; Sanyuan Food Co; Food contamination; Protein content; Rich in nitrogen; Adulteration; Kidney stones; Fraudulent middlemen; Cut throat competition; Cyanuric acid