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Tainted milk and website prompt Mengniu share slide

By Ben Bouckley , 04-Jan-2012

Photo Copyright: Dennis Jarvis
Photo Copyright: Dennis Jarvis

Shares in China's largest dairy producer Mengniu Dairy Co.slumped at the end of last year, following a new scandal over milk tainted with a cancer-causing chemical and a violation of the firm's website by hackers who claimed it was "doing harm to its own people".

Mengniu shares fell 24%, the biggest fall since September 2008, on Hong Kong's Hang Seng Index on December 28 after Chinese regulators found excessive levels of a toxin in its milk.

The dairy company's shares were trading at only $18.20 on December 29, 2011, but the stock had rebounded to HK$20.15 as of today.

The firm's website was also attacked by hackers on December 28, who posted a message stating: "Mengniu once made the Chinese people strong and proud, but now it's doing harm to its own people."

The Chinese General Administration Quality Supervision, Inspection and Quarantine said on December 24 that it had detected above average levels of the toxin flavacin M1 - listed by the World Health Organisation as a Class A carcinogen - in a batch of Mengniu milk products, specifically 250ml carton-packed goods produced in its Meishan factory.

Reacting to press reports on December 27, Mengniu CEO Yang Wenjun said the contamination was due to mouldy cattle feed, and that it had destroyed the contaminated batch - 24 out of 25 tested by authorities met relevant national standards, he said - and would strengthen quality controls.

"As the relevant batch of products had not been released to the market at the time of the inspection, the company had immediately sealed and destroyed all such products without delay. None of such contaminated products were released to the market," Wenjun said.

He added: "At present, all products on shelf in the markets within and outside the People's Republic of China, including the Hong Kong market, have passed the relevant standards.

"From the lesson learnt from this incident, the group will reinforce its quality control procedures by closely monitoring products quality over each production process from raw milk collection to final products delivery to ensure product quality and food safety."

But analyst Jason Yuan from UOB Kay Kian Holdings in Shanghai told Bloomberg the two incidents could rock Mengniu: "Internet users have called for a boycott of Mengniu's products. We believe some consumers could give up drinking milk or switch to other brands, which will affect Mengniu's sales," he said.

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