Sanlu Group

The company began as Shijiazhuang Dairy Company (SDC) on 16 February 1956. After several acquisitions in 1995, Sanlu Group was formed in 1996. Tian Wenhua, then general manager of SDC, became President and general manager of Sanlu. Under Tian, Sanlu led the Chinese powdered milk market for 13 consecutive years in terms of sales. Tian was considered one of the most successful entrepreneurs in China for her role in building the company. She was named deputy chairman of the China Dairy Industry Association (中国乳制品工业协会), and elected to the National Committee of the Chinese People's Political Consultative Conference. The company was a collective; managers and workers both owned shares of Sanlu.

Sanlu became Shijiazhuang's largest taxpayer since it had become the largest formula seller in China for a continuous 15-year period. Richard McGregor, author of The Party: The Secret World of China's Communist Rulers, said that Sanlu became "an invaluable asset for a city otherwise struggling to attract industry and investment on a par with China's premier metropolises."

In December 2005, a joint venture agreement was signed which involved New Zealand dairy cooperative Fonterra taking a 43% equity stake in the Chinese dairy by injecting ¥864 million. The joint venture company started trading in 2006. The majority 56% stake is owned by Shijiazhuang Three Deers Limited (石家庄三鹿有限公司).

Milk powder scandal and demise

In September 2008, Sanlu came to international attention due to product concerns regarding its infant formula, which was discovered to have been contaminated with melamine, a non-alimentary chemical which causes kidney stones. An estimated 300,000 babies became ill, and six cases resulted in death.

The Xinhua News Agency reported that Sanlu received its first complaints about baby formula in December 2007. Fonterra was allegedly only alerted to the contamination on 2 August. There was no immediate trade recall. Fonterra said that local administrators refused an official recall. Fonterra notified the New Zealand government on 5 September after the scandal had already hit the Chinese press and after Fonterra directors left China. Three days later, Prime Minister, Helen Clark had Beijing officials alerted directly. Clark accused the company and officials of covering up to avoid an official recall.

On 15 September, the company issued a public apology for the contaminated formula; Sanlu was ordered to halt production, and to destroy all unsold and recalled products. Authorities reportedly seized 10,000 tons of product.

After testing samples from 491 batches of products sold by all 109 companies producing baby formula, the National Administration of Quality Supervision, Inspection and Quarantine said that all 11 samples from Sanlu failed the melamine test. Sanlu, whose products sell at half the price of equivalents on the market, recorded the highest levels of contamination among all the samples tested, at 2,563 ppm.

Tian Wenhua (田文華), Chairman and general manager of Sanlu and Chinese Communist Party Committee Secretary was stripped of her party and functional posts during an extraordinary meeting of the Hebei provincial standing committee of the Chinese Communist Party. Four Shijiazhuang officials, including vice mayor in charge of food and agriculture, Zhang Fawang, were reportedly removed from office. Mayor Ji Chuntang reportedly resigned on 17 September; Tian was charged under Articles 144 and 150 of the criminal code.

Since Sanlu, the region's largest purchaser of milk, was ordered to halt production, many small dairy farmers were put into hardship. On 24 September, Fonterra announced that it had written down the carrying value of its investment by NZ$139 million (two-thirds), reflecting the costs of product recall and the impairment of the 'Sanlu' brand "as a direct consequence of the criminal contamination of milk in China". Chairman Henry van der Heyden said that the contamination was a criminal act which Fonterra could not have prevented. On 26 September, Fonterra CEO denied that Fonterra is selling its stake of 43% of Shijiazhuang Sanlu Group Co.