China Edible Oil Scam

A scandal over the handling of cooking oil has renewed concerns over food safety in China and cast a harsh spotlight on a major state-owned company.

An undercover report by the state-backed Beijing News alleged that it is an "open secret" that "to save costs," tankers used to transport fuel and chemicals are also used to move cooking oil and syrup without any cleaning. The report, published last week, named state-owned grain company Sinograin as one of those involved in the apparent misbehavior.

On Tuesday, official media reported that the State Council's food safety commission will investigate.

Following the news, shares of leading cooking oil supplier Yihai Kerry, known as Jin Long Yu in Chinese, plunged more than 8% in Shenzhen at one point during Wednesday morning trading, touching a record low.

The scandal has sparked a furious backlash on social media in a country where food safety is a long-running concern. After a week's silence, state broadcaster CCTV posted an unusually harsh commentary on the danger, saying that such misconduct could "consume the lives" of citizens.

It is not clear where the contaminated cooking oil was sent or how much. Multiple publicly listed companies have denied any such mishandling of oil in their supply chains "after internal investigations."

Sinograin said in a statement that it has blacklisted the tanker operator as a partner and has begun an internal inspection.

Hu Xijin, former editor-in-chief of state tabloid Global Times, also called for a thorough investigation. "Sinograin is a powerful state-owned enterprise," he wrote in an online post Monday. "I am not fully convinced that only Sinograin behaved this way while all other companies seem clean."

Mixed use of fuel tankers is not new in China. Over the past two decades -- for example in 2005, 2011 and 2015 -- local media outlets in different parts of the country reported that food companies were using such vehicles to transport cooking oil in between other types of shipments.

Since a 2008 scandal over baby formula that contained lethal amounts of the industrial chemical melamine, which affected around 30 million children nationwide and cost Beijing 2 billion yuan (US$275 million) in compensation, Chinese consumers have increasingly opted for imported food if they have the means.

Melamine-contaminated baby formula reemerged in 2010, but most of the diary brands ensnared in the scandal still exist.

A Beijing-based political scientist who declined to be named said strict inspections may bring about some regulatory changes but are unlikely to completely prevent such misconduct, especially in the current tough environment Chinese companies face. Already, in 2014, a regulation was imposed that cooking oil should be transported in dedicated tanks.

"The issue of the fuel tankers is just a microcosm of the 'involution' problem among Chinese companies," he said, using a Chinese buzzword that refers to an increase in labor input that does not yield proportional increases in output.

"Like most industries, profit in the transportation sector is very low. If every company were to use dedicated tankers for transporting cooking oil, they would have to bear the cost of empty return trips, in addition to tank cleaning fees of over $100" each time, the political scientist said. "This would potentially eliminate all the profit, and companies would not do that."

Some on social media have defended the companies, arguing that the contaminated cooking oil might be for industrial use. But public tracking records of a particular truck, featured in the Beijing News report, showed the vehicle had been in different coal oil and cooking oil factories in the past few months.

Yun Wuxin, a Beijing-based writer on biology and food engineering, said in a social media post that such behavior is a "serious violation of food safety operation regulations" and that once a container has been used to hold nonfood materials, it becomes "nonfood grade."

To regain "food grade" status, a highly complex cleaning process is required, followed by an inspection with much stricter standards than for new containers. "The operational cost is very high," Yun said.

Zhu Danpeng, a food and beverage analyst in Guangzhou, observed, "The mixed use of oil tankers has crossed the bottom line of food safety and represents the lack of supervision in companies' quality control system."

Courtesy: Nikkei Asia