Bribery claims feed milk scandal

Updated: 2013-10-22 08:10

By Zhao Xu, Peng Yining and Yang Yang (China Daily USA)

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Parents face confusing choices over brand safety and integrity, report Zhao Xu, Peng Yining and Yang Yang in Beijing.

Any public scandal related to food safety or children is bound to arouse strong emotions, but when it comes to infant milk formula, the impact is not simply doubled, but increased tenfold.

The truth of that statement has been demonstrated by a number of recent scandals in China that have not only embroiled some of the world's leading providers of infant formula, but have also put doctors, hospitals and those in positions of authority on trial.

In mid-September, China Central Television reported that the government in Tianjin had accused doctors and nurses at public hospitals of accepting bribes from Dumex, a French company that makes nutritional products for infants and children.

The payments were made to induce medical staff and hospital authorities to recommend the Dumex brand to new and expectant mothers.

The evidence was compelling and included documents detailing every payment and the names of the medical staff involved. The monthly outlay between January and July was around 300,000 yuan ($49,000), the government said.

Dumex, a household name that entered the Chinese market in the late 1990s, is a unit of Groupe Danone, a Fortune 500 company with a global presence. It has pledged management changes in the wake of the scandal.

Moreover, earlier this year, Danone's Nutricia Advanced Nutrition Unit instigated an internal investigation after it was also accused of bribing doctors in Chinese hospitals to boost sales of its formulas.

Not only has the long-cultivated prestige of these brands been hit hard, but the confidence of millions of Chinese consumers who believed in, and indeed almost seemed to worship, the products, has been destroyed.

The news came five years after China's own domestic baby milk scandal, when a brand of infant formula made by Sanlu Group of Hebei province was tainted with the industrial chemical melamine, ingestion of which can cause cancer at worst, but can also irritate the eyes, skin and respiratory systems.

At least six infants died as a result of ingesting the formula and thousands more were taken ill.

Integrity in doubt

The latest scandals have left a question mark over something that's rarely been in doubt before - the integrity of foreign manufacturers of baby formulas.

In reality, the story may go back further than many imagined. Sales reps for foreign infant formula brands have been "working with Chinese hospitals and doctors right from the start", according to Sui Xiangyu, a milk powder dealer in Beijing who has been in the business for more than a decade and has earned a reputation for being outspoken.

"Back in the 1980s, Chinese people barely knew about formulas, let alone foreign brands. These companies opened up the Chinese market by cooperating with the hospitals," he said. "First, they made the doctors believe in the formula and then reached the parents through the doctors."

At first glance, nothing seems amiss, given that infant formula, although not comparable with breast milk, is widely regarded as the best supplement and, in many cases, substitute for it.

Bribery claims feed milk scandal

But as an increasing number of foreign brands started to make inroads into the burgeoning Chinese market, a number of unseemly twists and turns emerged.

"The rapid growth of the Chinese market, allied to the fierce competition among the foreign brands, has forced many people to trade their professional ethics for a larger share of the pie," said Sui, referring to the fact that China's infant formula market, currently valued at $12.4 billion, is expected to double by 2017.

"The bait these companies throw out to the medical professionals does not always come in the form of cash," he explained.

Qin, a Beijing-based pediatrician, who spoke on condition that her full name and medical institution were not disclosed, said the companies have shown "great caution or, one may say, cunning", when it comes to marketing their products via hospitals.

"Fully aware of the sensitivity of the matter, they've never acted in a foolhardy way, but have taken sensible, well-calculated steps," she said.

According to Qin, in addition to kickbacks, some powerful and well-connected brands have provided doctors with opportunities to speak at national or international conferences related to their field of research or have facilitated publication of their research papers in well-respected academic journals.

"For Chinese doctors, who usually receive 'red envelopes' containing a certain amount of 'thank you' money from patients, the promise of elevated status among their peers amounts to a much more tempting offer," she said.

Chen Yuan, PR director of a multinational advertising company whose clients include a number of big-name pharmaceutical outfits, said infant formula marketing ploys often come in the guise of welfare and educational projects.

"Apart from getting brand pamphlets distributed either by nurses or sales reps - some of whom don white gowns, which may mislead patients - pregnant women were often given lectures on feeding, with free samples of formula handed out at the conclusion," said mother of two Chen, who said she was given a Dumex gift card by her attending nurse at a military hospital in Beijing. The card could be exchanged for free samples at the hospital's pharmacy.

In a public statement issued in the wake of the scandals, Danone, the parent company, said the actions of some of its employees "were found to be related to a company-sponsored mother-and-child health education program."

"However, even though the program is in good condition, it has been found that the educational program was not appropriately managed in some cases. This resulted in some practices that contradicted the purpose of the program, which violated companywide policies," the statement said.

Whether it was a well-intentioned educational program that went awry or a clever marketing strategy with exploitable loopholes is a question that may remain unanswered. But for the moment, the sales reps and the hospitals have refrained from any further indiscretions, fearing a backlash.

"So many eyes are on us - we wouldn't dare to do anything we shouldn't," said Gao Man, a 33-year-old nurse at Beijing's Capital Institute of Pediatrics, referring to the arrests in September of a number of medical professionals who had accepted cash bribes or gifts from sales reps. As a hospital employee, Gao had received an "internal discount" from Dumex; buy one tin and get a smaller one free.

For observers and concerned parents whose confidence has already been dented, Gao's remarks may only serve to provoke further qualms.

For Chen, the problem is unlikely to be resolved anytime soon. "In fact, many people believe that some companies will return to underhand practices, once the doctors and reps have ridden out a tension-filled period," she said.

For one thing, Chinese parents' overdependence on doctors will never go unnoticed by the formula producers, said Gao. "Most parents are having their first, and most probably only, child. They don't know anything, except that they can't afford to make mistakes," she said. "Overwhelmed in the formula aisle, it's only natural that they turn to doctors for badly needed advice."

Although breastfeeding is strongly promoted by most Chinese hospitals, doctors still have ample opportunities to influence parents when there's a shortage of breast milk, something that usually happens as the child grows and requires more nutrition. Moreover, the baby formula companies are more than willing to make a long-term investment.

Fall from grace

Another factor believed to have worked in the interests of the overseas brands is the fall from grace of their Chinese counterparts, mainly because of the scandal surrounding the melamine-tainted formula produced by Sanlu Group, a state-owned Chinese diary products company.

The company, once a leading market player, was declared bankrupt and closed on the orders of a court, leaving foreign brands with almost 80 percent of the market for infant formula in major Chinese cities.

"Keeping that incident and its long-term repercussions for Chinese society in mind, it's little wonder that so few Chinese formula producers have tried to reach customers through the hospitals," said Wang Dingmian, deputy director of the Guangzhou Dairy Industry Management Office.

"Doctors would be reluctant to recommend brands that have earned the distrust of the public. Besides, even if they did, there's a high likelihood that the parents, who are now biased against all local brands, wouldn't follow their advice."

The huge demand in China has tipped the balance in favor of foreign brands, which are sold at a much higher price than homemade formulas, and has given these companies a big advantage when it comes to dealing with the hospitals, according to Wang.

"They can use a share of the enviable profits they have made in the Chinese market to reward their brand promoters among medical professionals, something that their more cost-conscious Chinese counterparts may not be able to do," he said.

But if all these elements can be counted as contributory factors, the roots of the collusion lie in a plethora of under-the-table deals at a much higher level, according to Chen, whose work involves refining and implementing her clients' marketing plans.

"Do you really think that the average doctor, not to mention nurse, would have the boldness or ability to arrange an in-hospital feeding lecture for parents to sell a certain brand of formula?" she asked.

"As far as I know, the decisions to hold these sessions are routinely made by hospital management, with doctors simply carrying out a directive knowing that they (the administrators) would not be doing it for nothing. And believe me, it doesn't stop at the hospital level."

"Foreign formula brands have been in China for more than two decades, and the depth to which they have ventured, or insinuated, themselves into various aspects of Chinese society is remarkable to say the least," she said. "To terminate their lengthy collaboration with the country's public hospitals would be to chop off the many tendrils of interest from both in and outside the country that have become intertwined and basically inseparable."

"I won't say we can't accomplish that, but it's certainly a daunting task."

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Bribery claims feed milk scandal

(China Daily USA 10/22/2013 page7)