When McDonald’s opened its first restaurant in China in the early 1990s, it did not turn to local suppliers for meat, which would have been cheaper. Instead, it relied on its longtime partner the OSI Group, which had been linked to the fast-food titan ever since Ray Kroc, the McDonald’s founder, in the 1950s tapped the Chicago butcher Otto & Sons to provide consistent, reliable meats to his expanding empire.
As McDonald’s grew so did OSI, quietly developing a sterling reputation that attracted many of the largest global restaurant chains, including KFC, Burger King and the Papa John’s pizza chain. The company’s focus on food safety was one of its selling points.
“As a private company in a foreign country, we’re setting an international standard for best practices in food safety,” Brady Sidwell, vice president for corporate development and strategy for OSI’s Asia-Pacific operations, wrote in a blog post last fall for the Graduate School of Management at the University of California, Davis.
Eight months later, OSI is caught up in a messy, very public food-safety scandal in China.
A television station there broadcast a program last month accusing employees in its Shanghai plant of doctoring labels to extend expiration dates on chicken and beef products and showing workers scooping up meat that had fallen on the ground and putting it back on conveyor belts for processing.
It was a rare black mark for OSI, one of the top US meat producers, with more than US$6 billion in sales and about 20,000 employees in dozens of processing plants in 17 countries.
“It was definitely a head-scratcher to me,” said Adam Aronson, chief executive of Arrowsight, which provides remote video auditing of OSI plants in the US.
“They spend a lot of money on food-safety systems, more than most others,” Aronson said.
That OSI — which other suppliers have looked to as a model — is dealing with these issues speaks to the broader weaknesses in the Chinese food-safety system.
After a series of food-safety scandals in recent years, regulators repeatedly have promised to tighten food-safety standards only to have another problem arise.
The country is making strides. Last month, the University of California, Davis and the Northwest Agricultural and Forestry University in Shaanxi Province started laying the groundwork for establishing a joint research center for food safety in China.
Roger Beachy, executive director of the UC Davis World Food Center, said the Chinese government had made food safety a top priority, particularly as it looked for consistent supplies to feed its rising middle class.
However, China is also playing catch-up to more developed nations — and on a much grander scale.
“Companies have grown so fast, but the rate of growth has not been met with equally robust systems for training and educating the workforce,” Beachy said.
OSI said in a statement that what had happened at the Shanghai facility was “terribly wrong” and “completely unacceptable.”
The company has reassigned executives in its China operations and started an investigation into the matter. It has also promised to bolster its systems. OSI has reached out to Arrowsight to help improve its processes in China.
“We will bear the responsibility of these missteps and will make sure that they never happen again,” OSI said.
The company declined to comment further.
Although the company had been in China for two decades, OSI embarked on a US$400 million rapid expansion plan in 2011 that included three new poultry production and processing facilities and additional capacity at its Shanghai and Beijing plants.
“The goal was to completely recreate the US system — from feeding and watering regimes down to the exact rate of airflow and size and placement of windows in the poultry houses — but to make it locally relevant,” according to David Bell, a Harvard Business School professor, in a case study last year about OSI’s China business.
At the three new facilities, the company used a so-called vertically integrated model, giving OSI greater control over its products, from the selection of breeding birds to packaging for shipment.
“For companies that have absolute raw material control, they get top priority and have a selling point around food safety,” Dennis Zhang, general manager of Shanghai Husi Food Co, OSI’s Chinese operation, told The National Provisioner, a trade publication.
Yet it also posed a new challenge for its bottom line. McDonald’s and KFC wanted to buy only the dark meat that Chinese consumers demand, which meant OSI was saddled with finding new customers for the rest of the bird, around 80 percent of it.
OSI’s strategy in China seems to have become a standard for other foreign food companies setting up shop.
Last year, Tyson, the world’s largest meat-processing business, began adopting a similar strategy for its poultry business in China, which started in 2001.
Also, Nestle, which is facing a lawsuit over pet treats containing ingredients from China and who sold under the Waggin’ Train and Canyon Creek Ranch brands, said this year that it was moving to a single supplier for raw materials sourced in China.
Dan Fogleman, a spokesman for Tyson, said in an e-mail that in addition to Chinese government oversight, the company deployed “dozens” of food safety and quality assurance workers in its facilities to verify compliance with its standards and existing regulations.
Those workers do not report to local management but rather directly to corporate headquarters in Arkansas.
“This independence ensures that their function is dedicated solely to food safety and quality monitoring, rather than any financial goals,” Fogleman wrote.
OSI also passed muster with the US government. The Shanghai plant was inspected by the US Department of Agriculture in 2004 and 2010 — and given a clean bill of health both times.
“The sanitary conditions and general operations of the establishment currently meet FSIS requirements and appear to be in compliance with PRC regulatory requirements,” the audit team wrote, referring to the People’s Republic of China.
However, experts in food safety and plant operations say that even the most rigorous protocols and standards can be undermined by culture, particularly at a fast-growing company — OSI’s revenues doubled between 2011 and last year — in a country where high monthly turnover of factory workers is not uncommon.
“The average Chinese factory worker comes from someplace where food has likely been scarce and picking up a piece of meat that has dropped on the floor and eating it would not be unusual — it’s not unusual for us to drop food on the floor and eat it anyway,” said Andy Tsay (蔡安達), a professor of operations management at Santa Clara University, who was one of the authors of a paper on recalls of Chinese made products in 2007.
Steve Gruler, chief executive of Global Quality Consultants, a firm that provides risk-management advice to a variety of companies, recalled visiting a grain elevator in China where workers were unloading grain onto trucks.
“A plume of dust comes from under the door of the elevator and rises up over the truck,” Gruler said. “Our eyes grew as big as saucers.”
Grain dust is highly combustible and such explosions have been deadly. Gruler and a colleague asked the engineer at the facility whether it had a dust collection system.
“‘Oh, yes,’ he said, but it had been shut off to conserve electricity,” Gruler said. “He didn’t understand that dust could cause an explosion that would blow the place apart.”
OSI itself acknowledged such challenges in interviews with Bell.
“When we began building modern broiler houses, we found that the workers often took shortcuts even though every detail was spelled out in the plans,” Stefan Chen, senior vice president and general manager for OSI’s poultry operations in China, told him.
“For instance, they would change the size of a window to save material. This seems like a small thing, but it affects the ventilation, which affects the production efficiency,” Chen said.
Additional reporting by Neil Gough
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