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U.S. group overhauls China business in meat safety scandal

By Samuel Shen and Kazunori Takada

SHANGHAI (Reuters) - A leading U.S. meat supplier said on Monday that a Chinese unit at the center of a food safety scandal had issues that were "absolutely inconsistent" with the group's high standards.

"This is my company and events like these have a personal toll ... they simply don't represent the values I stand for or those of my company," Sheldon Lavin, the millionaire chairman, CEO and owner of Illinois-based OSI Group LLC told a news conference in Shanghai.

OSI said it was suspending operations at Shanghai Husi Food and would review all its China plants in a bid to limit further damage after losing two major customers.

KFC and Pizza Hut parent Yum Brands Inc last week severed its ties with OSI, while the Japan and Hong Kong units of McDonald's Corp said they were ending their relationship with the U.S. meat processor's Chinese unit following allegations it mixed expired meat with fresh produce.

David McDonald, OSI's president and chief operating officer, said the group was making senior management changes in China, and will set up a quality control center in Shanghai to better supervise its business. It will also bring in global experts to survey the China operations and improve auditing, including constant visual surveillance and extensive employee interviews.

In addition, it plans to spend 10 million yuan ($1.62 million) on a food safety education program in Shanghai.

OSI, which ranks among the top few dozen U.S. private companies with annual revenue of close to $6 billion, said its China operations had a certain amount of autonomy as the group wanted a decentralized business model that allowed decisions to be made locally, although global standards were not meant to be broken. McDonald said the China operations would come under the direct control of headquarters.

Shanghai Husi Food was accused earlier this month by a TV documentary of mixing expired meat with fresh produce and forging production dates. Regulators in Shanghai said Husi had forged the dates on smoked beef patties and then sold them after they expired.

Police have detained five people as part of their investigation. There have been no reports of any consumers falling sick.

"To date, we've found issues that are absolutely inconsistent with our internal requirements for the highest standards, processes and policies," McDonald told a packed news conference at a Shanghai hotel, adding all nine OSI food processing plants in China would be reviewed.

DAMAGING SCANDALS

China is McDonald's third biggest market by outlets and Yum's largest and is a big growth opportunity for foreign fast-food chains. But a series of damaging food safety scandals in recent years risks denting those prospects as many Chinese look to foreign restaurants for better quality.

McDonald's, which has more than 2,000 outlets in mainland China, took more meat dishes off its menus on Monday as it sought to fill the supply gap after OSI withdrew all Shanghai Husi products from the market at the weekend.

At least three McDonald's outlets in Shanghai and Beijing, visited by Reuters reporters on Monday, had stopped selling all or most of their meat products. Outlets in cities such as Tianjin and Wuhan were also hit, according to microblog postings.

A spokeswoman at McDonald's in China said its beef, chicken and pork products were affected at outlets across the country, though the level of impact varied. In an emailed statement, McDonald's said it had withdrawn all products from the Husi group in China since Friday. "As a result, we are now only offering a limited menu in our restaurants around the country."

The company said some of its China restaurants would resume offering a full menu in early August, while others may take a little longer.

"I wanted to order chicken products today," said Tan Qiang, 23, at a McDonald's in central Shanghai. "But they only had one type of combo and nothing else. I was disappointed not being able to eat what I want."

(Additional reporting by Paul Carsten in BEIJING; Donny Kwok, James Zhang and Nikki Sun in HONG KONG; Editing by Anne Marie Roantree and Ian Geoghegan)

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