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Japanese frozen food makers hit hard by fallout from tainted dumpling scare: frozen food sales declining for top five manufacturers. Frozen imports from China, source of tainted dumplings, also way off. Truth in country-of-origin packaging also at issue.

A much-publicized food poisoning scare involving pesticide-tainted frozen gyoza dumplings from China cut into sales of five major Japanese frozen food makers for fiscal 2007, costing them 16.4 billion yen, according to company reports.

Only ten consumers were ever definitely reported to have taken sick from the dumplings, but media reports suggested that victims numbered in the thousands, and the resulting panic has cut into Chinese imports as well as Japanese sales.

Of the five frozen food companies, Japan Tobacco suffered the largest earnings impact from the poisoning scare, with sales pushed down by 6.3 billion yen and operating profit by 1.4 billion yen. It was JT Foods, a subsidiary of Japan Tobacco that imported the tainted dumplings.

The scandal, which came to light in late January, also forced Japan Tobacco to book a special loss of 5.6 billion yen stemming from recalls of the tainted products in fiscal 2007 that ended in March. Japan Tobacco President Hiroshi Kimura said that Japanese retailers will likely refrain from selling the firm's frozen food products until around autumn this year.

JT bought a majority stake in Katokichi, another frozen food processor, earlier this year, aiming to team up on frozen food business operations. Earnings contributions from Katokichi, however, were offset by the slump in JT's frozen food sales. JT now plans to transfer all its food business operations, including frozen food and seasonings, to Katokichi by March 2009.

Sales declines totaled 4 billion yen at Ajinomoto, 3 billion yen at Maruha Nichiro Holdings, 1.6 billion yen at Nippon Suisan Kaisha, and 1.5 billion yen at Nichirei. Four of the five companies, excluding Ajinomoto, expect the food poisoning scare to continue having negative impacts on their group earnings in fiscal 2008. The four expect sales losses ranging from 2.5 billion yen to 22 billion yen.

Meanwhile, China's food exports to Japan for the first two months of this year took a tumble in the wake of the dumpling scandal. It won't help that two further instances of tainted dumplings came to light this year.

January and February Chinese food shipments to Japan totaled 471,000 tons worth $1.02 billion, a decrease of 17.1% in tonnage and 10.4% in value compared with the same period of last year, according to the Xinhua news agency.

In February alone, exports fell 30% to 186,000 tons, Xinhua said, citing General Administration of Customs figures. During January and February, China exported 144,000 tons of vegetables to Japan, down 17.7% from a year earlier, and 45,000 tons of aquatic products, down 12.5%.

When a pesticide called methamidophos was first detected in imported dumplings in December, Chinese authorities denied the organophosphate pesticide came from the factory that produced the dumplings and concluded instead that it was a deliberate case of poisoning by parties unknown.

But on April 28, Japanese authorities said that methamidophos had again been detected inside a sealed package of Chinese-made frozen dumplings. It marked the second time this year--the first was in February that the pesticide had since been detected in a product with packaging showing no holes or damage, indicating that the contamination must have occurred in China.

In yet more fallout from the tainted dumpling scandal the Japanese Agriculture, Forestry and Fisheries Ministry warned Ajinomoto Frozen Foods in May that countries of origin statements for ingredients used in its frozen gyoza dumplings are misleading, according to Yomiuri Shimbun.

Ajinomoto uses whichever domestic or foreign vegetables and meat are available at a given time as ingredients for the frozen gyoza. However, the ministry pointed out that consumers may be misled because the gyoza packaging includes Japan as a country of origin. The company started listing countries of origin for gyoza ingredients this March in the wake of food poisoning cases involving Chinese frozen gyoza.

Cabbage, onions, pork and chicken from various--and often changing--countries are used as ingredients for the gyoza. Countries of origin are described in the following manner: "Onion [Chinese, US, domestically produced, or Australian]" as it is difficult to change the packages' descriptions all the time. But the ministry is said to consider the description problematic, in part because it suggests ingredients actually come from Japan.

Domestic ingredients are often more expensive than imported ingredients, and create a better impression on consumers than their foreign counterparts. A law against unjustifiable lagniappes--small gifts given to a customers by merchants at the time of a purchase--also prohibits labeling that can lead consumers to believe certain products are of a higher quality than they actually are, preventing fair competition in the market.

"It's highly likely that descriptions that include the words 'domestically produced' along with the names of foreign countries mislead consumers, making such descriptions generally unacceptable," an official said.

In a related incident, a Chinese seafood company that was allegedly involved in exporting pesticide-tainted frozen mackerel to Japan insists that it had never bought, stored or used fatal pesticides during processing.

The company also revealed that the 18 samples including raw materials and packages, which it had selected for tests, were free of the pesticide. Kouzai Bussan Co. Ltd., a Japanese frozen food company, had said that pesticide was detected in frozen mackerel processed in and imported from China.

"We started investigations into the mackerel products immediately after learning that a Japanese nongovernmental testing organization detected fatal pesticides in our exports," said Miao Qiang, president of Weihai Yuwang Aquatic Foods Co. Ltd., which is based in the eastern Shandong Province.

The impact of the scandal was felt at Foodex Japan, one of Asia's largest food exhibitions. China's booths were comparatively quiet as domestic wholesalers and restaurant owners looked elsewhere for supplies.

"Compared with last year, we have seen a huge impact due to the incident," said a Chinese manager of Meikeduo Foods Co., who wouldn't give his name. "After the incident, we introduced stricter safety control of the products while advertising our efforts to the public," said the manager.

About 2,400 companies from 59 regions and states took part in Foodex, formally known as the 33rd International Food and Beverage Exhibition. More than 100 Chinese companies set up their booths--but none was selling dumplings. The Japan Management Association, one of Foodex's hosting institutions, said the Chinese section had been scaled down to two-thirds of the space given last year.

The Taiwanese section at Foodex, by contrast, was more vibrant, with the island's Chimei group advertising its dumplings and pork buns proudly. "We have received at least twice more orders from Japanese retailers," said Jimmy Fujiwara, chief manager of Chimei's Japan division. "Mass retailers had chosen Chinese manufacturers because of lower costs. But they are now looking to source outside of China regardless of cost."

Even before disastrous sales figures began coming in, JT Foods indicated it might start producing more of its own frozen food as part of a broader effort to improve quality control and revive recently shaken consumer confidence in the company. It will also expand the scope and frequency of inspections of finished food products and ingredients.

On food products for home use, JT began in April to list the factories where they are made, in addition to country of origin of ingredients, on packaging and the company's website. It also announced plans to establish a food inspection center in Sakai, northeast of Tokyo, in May; and another at Weihai in China's Shandong Province in July.

Following the dumpling incidents, JT and Nissin Food Products scrapped plans to merge their frozen food businesses. JT was planning to make Katokichi a wholly owned subsidiary and then sell a 49% stake to Nissin Food, paving the way for the three companies to consolidate their frozen food operations. JT, which currently holds 94% of Katokichi, said it would go ahead with a plan to increase its stake in the company to 100% as soon as it is convenient.

Japan imported 6 trillion yen ($56 billion) of food from China last year, excluding livestock. Imports of processed frozen foods such as gyoza dumplings have been increasing steadily in recent years, and Chinese products now account for about two-thirds of such imports, according to a Japan Frozen Food Association survey.

The survey covered the association's 34 member companies. It found that imports of processed frozen foods hit about 315,000 tons in 2006, a rise of about 270% on the 85,000 tons recorded in 1997. Chinese products accounted for 64% of the 2006 imports, or about 200,000 tons--up about 400% over the past 10 years.

According to the association, the Chinese imports have risen so fast because of the country's low labor costs. The ready availability of ingredients such as vegetables, seafood and meat in China is another reason, with such factors driving Japanese makers to establish joint ventures with Chinese firms, the association said.
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Publication:Quick Frozen Foods International
Date:Jul 1, 2008
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