Carrefour China Says Sales of Dairy Products Halved by Scandal

By John Liu

Sept. 27 (Bloomberg) -- Carrefour SA, Europe's biggest retailer, said its dairy sales in China fell by 50 percent after government tests showed chemical tainting of milk products.

Sales started to recover in the past week and may be back to normal in about a month, said Eric Legros, Carrefour's managing director for China. Dairy products account for about 1 percent of the Paris-based company's total revenue in China.

``The most important thing we need now is to be rational because without being rational you have panic and panic is no good for anyone,'' Legros said in an interview today at a regional development conference in the western city of Chongquing.

China pulled more than 7,000 metric tons of dairy products from shops after they were found to be laced with melamine, typically used to make plastics and tan leather. Twenty-two dairy producers were found to have used the chemical that has caused kidney stones in babies. Tainted milk formula killed four infants and sickened 53,000 in China.

``I think it's important that we explain to consumers that there's nothing wrong with milk,'' Legros said. ``It's only that some processors added bad stuff to the milk.''

The contaminated products were first found in baby milk powder produced by Sanlu Group, 43 percent-owned by New Zealand's Fonterra Cooperative Group.

Carrefour spokesman Chen Bo said the chain had pulled Sanlu milk powder off its shelves, Xinhua reported on Sept. 12.

The French company, which has 120 stores in China, supplies fruits from China to Europe, while it doesn't ship milk or dairy products, Legros said.

Outlet Expansion

Carrefour plans to add 20 to 25 China outlets a year within the next few years, China Knowledge reported, citing people it didn't identify.

Sales in China gained 4.6 percent in the second quarter, the company said on July 9. Growth slowed after an earthquake struck the southwestern part of the country on May 12, killing about 70,000 people.

Revenue in the country dropped as much as 20 percent between April and May after some consumers in China called for a boycott of Carrefour stores. The protest followed French President Nicolas Sarkozy's announcement he might not attend the opening ceremony of the Olympic Games in Beijing because of China's March crackdown in Tibet.

Carrefour agreed to increase its stake in a supermarket venture in southern China to 80 percent from 55 percent, Chinese partner Guangzhou Grandbuy Co. said in July.

Foreign companies in China, including Carrefour, have until Dec. 5 to sign collective labor contracts with employees, the China Daily said on Sept. 24, citing the Shenzhen Federation of Trade Unions. Pay increases must take into account price inflation, the English-language newspaper reported.

To contact the reporter on this story: John Liu in Shanghai at jliu42@bloomberg.net