Wal-Mart Green Pork Scandal: A Lingering Odor of Victimization

October 28, 2011

This will make it three posts on Wal-Mart’s recent problems in Chongqing regarding the decision by the local government there to temporarily shut down 13 stores because of a food labeling problem. Now that the stores are back open, one would expect that everything is back to normal and the press attention would cease. But no, there seems to be a lingering belief that Wal-Mart was the victim here, punished unfairly because it is a foreign company.

It’s the tone of these articles that tell the story, like this one in The Economist:

Wal-Mart, an American supermarket chain, has been having a tough time recently in China, one of its fastest growing markets. On October 25th it reopened 13 stores in the south-western region of Chongqing which were closed for two weeks as punishment for mislabelling a pork product. Chinese officials have recently had a pang of food-safety conscience, and a big foreign firm has offered an easy target.

I wrote about this first on October 10, posing the question why Wal-Mart’s punishment was so severe given the comparatively harmless violation of mislabeling normal pork as organic meat. The possible explanations I cited included a get-tough campaign on food-related violations, the longstanding poor relationship between Wal-Mart and the local authorities in Chongqing, and the retailer’s status as a foreign-invested enterprise. I stated up front that I did not know the answer to the question I threw out.

My second post, on October 19, was a rant against a ridiculous exercise in China bashing masquerading as a news article on the Wal-Mart story that ran in the Wall Street Journal. In that article, the (unsupported) assumption was that Wal-Mart had been singled out chiefly because of its foreign company status.

I get the feeling that this is the memory we will be left with, and when folks look back on this mini-scandal in later years, the ‘Wal-Mart as foreign victim’ angle will be paramount. Demagoguery from the usual domestic suspects aren’t helping to stoke these fears, by the way, irrelevant though this commentary may be.

We’ve seen this sort of thing before of course. When Chinese wish to cite an example of American protectionism, they often use Huawei’s unsuccessful bid for equity in 3COM in 2008; similarly, when foreigners bring up incidents of Chinese protectionism, Coca-Cola’s failed acquisition of Huiyuan that same year is commonly listed. In both instances, protectionism was never more than speculation, never proven.

If Wal-Mart’s green pork scandal ultimately ends up on the list of protectionist horror stories, it would be a shame. Since the time I wrote my first post on this a few weeks ago, the details that have emerged about Wal-Mart’s problems in Chongqing have, if anything, reinforced the theory that the U.S. retailer brought a lot of this trouble on itself. Reuters has some of the uncomfortable background facts:

The Chongqing administration had already cited Wal-Mart stores 20 times in the past five years for violations ranging from food sold past expiration dates to selling products that were deemed “substandard,” including washing machines, television sets and women’s clothing.

[ . . . ]

Deciding it had a case, the AIC called in the police and expanded the probe. Authorities found that 12 of Wal-Mart’s 13 stores in Chongqing were selling mislabeled organic pork.

To the AIC, that was the last straw.

“Many times we sent our opinions and sent them notices,” Zhao said. “They never explained anything to us clearly.”

AIC investigators then delved into Wal-Mart’s inventory books.

“As the No.1 retailer, their management has been perfected,” Zhao said. “They can track anything.”

Investigators traced the organic pork to a local meat supplier called Gaojin. Interviewing employees at Gaojin, the numbers didn’t add up.

Investigators worked out that of more than 78,500 kilograms of pork sold in Walmart stores since January 2010 as organic, only 15,000 kg, or 19 percent, was organic meat.

“They sold more than 600,000 yuan ($95,240) worth of false organic pork,” Zhao said. “That’s consumer fraud.”

Thirteen stores and a lot of product. Doesn’t look so good, particularly for company that prides itself on inventory control. Yes, the AIC came down hard on Wal-Mart in this case, but again, given their history and the current food safety campaign, this does not appear to be a sinister pogrom against foreigners.

Prediction: if I do a keyword search on “China” “foreign investment” and “protectionism” one or two years from now, I will get more than a few hits about Wal-Mart and organic meat.

Update: Just saw this article in Bloomberg: “China’s New Protectionism.” Supports my overall point quite well I think.

7 thoughts on “Wal-Mart Green Pork Scandal: A Lingering Odor of Victimization

  1. slim

    It would be great to have some insight on why this Wal-Mart problem is confined to one region. Corrupt regional manager? Mob infestation?

  2. S.K. Cheung

    Walmart in Chongqing sounds like has had its share of screw-ups, and apparently some history of recalcitrance as well. So in isolation, this administrative penalty appears to be justified, or at least justifiable.

    I think the problem arises when you look at other food issues in China, and their respective non-penalties. If selling expired food and mislabelled food is a problem (and it certainly is…but walmart is not being accused of someone getting sick or dying from said items), then surely people getting sick and dying from tainted food would be a bigger problem. But proportional penalties have been lacking. I think it is this disproportionate response that gets tongues wagging.

  3. Mike

    Stan I usually agree with your positions but I got to slightly disagree with you here. I agree that the media has hyped this issue, and that this is not about protectionism. But I feel like you seem to be pointing the finger more at the western media rather than the real issue, which is the lack of transparency by the government in Chongqing and the fact we have no way of knowing if Wal-Mart was victimized or not.

    From the facts we have been told we know a couple things, Wal-Mart has been accused of doing a number of things wrong by the authorities in Chongqing. It is possible that Wal-Mart was guilty of doing these things since they have been written up by the authorities that many times, and because Wal-Mart didn’t challenge the accusations, maybe we can assume they did do these things. If Wal-Mart did these things should they be punished? I would say most definitely though I’d argue not so harshly. Were they victimized? I think there is a possibility.

    Was Wal-Mart victimized? It is possible because even though the Reuters report said the government official claimed that Wal-Mart had been the worst offender, we have no way of verifying or corroborating that story. How many times did they follow up a complaint about the other chain stores? How many times did they call the police to support the investigation of other companies? What were the complaints of the other stores and were they similar to Wal-Marts? Why was such a large punishment appropriate in this case and not others? Is this a precedent we can expect to see used against Chinese companies that do something similar? How many times were leads followed up with Chinese brand chain stores compared with foreign ones? How many times have they punished similar crimes? Answers to those questions would help us determine whether wal-mart was victimized or not.

    The reason people question the official and whether Wal-Mart was targeted or is a victim is because there of an utter lack of transparency that seriously effects this officials statement. It is possible he is telling the truth about everything, and Wal-Mart could have been the worst offender. But because there is little transparency in how government regulates, enforces, or tracks these issues how do we know this is true? It is unlikely Wal-Mart had any ability to fairly or reasonably appeal or dispute these charges without causing a bigger issue with the authorities. I don’t want to write an essay about the Admin Law in China so I will simply say that it would likely not be useful in this situation. So ultimately Wal-Mart is left in a position where even if it wanted to challenge this it couldn’t. Therefore, we are left in a situation where only side of the story can really be discussed, which is the government’s view. So we have no way of knowing if the government was telling the truth because there is not enough transparency to tell what the truth is, and not enough mechanisms in the system to allow people to dispute the facts without likely bringing more punishment on themselves or causing a bigger issue. Because we know there is no transparency the media assumes the government is victimizing wal-mart, because government is always “doing bad things”. Is it fair, maybe not, but without transparency how do we know what the real situation is with wal-mart?

    I agree with you that this wasn’t about protectionism, and I highly doubt that Wal-Mart’s hands are clean in this whole situation. But what I find amusing is that Wal-Mart likely comes out ahead in the long run from all this. They lost some money, but the US will use this as a rallying cry about foreign companies being targeted and victimized. The bad press may make Chinese national and local governments possibly less likely to take such actions in the future even if appropriate. Wal-Mart got tons of free publicity, because remember they are not accused of selling fake food, just non-organic, so the long term effect on the public is likely little. Not really that bad I think, unless revenue goes down.

    In this case though in my opinion China loses and this was handled poorly. Foreign companies, Chambers of Commerce, and foreign media will be watching China more closely and hounding on them about anything similar to this. And I would back your prediction 100%. China could have avoided this though by being more transparent, and so I don’t really pity them at all. Have the media made this bigger than it likely is, of course, but they do this all the time, it’s how they get readers and ad revenue. So while I do agree with you in part, I would argue we really have no way of knowing if wal-mart was a victim or not and this could have likely been avoided with some transparency by the government officials.

    I would be interested in your view, because I think most of western media “China Bashing” comes from the fact Chinese governments (national, provincial, county, etc…) are not transparent enough and so invite speculation upon themselves.

    1. Stan Post author

      Totally agree with you. Many of these kinds of media narratives would be stillborn if the government was more transparent. Plenty of blame to go around in that regard.

      With respect to the media, though, in my original post on this topic I was careful to say that I didn’t know if the punishment was appropriate or not, or what was behind it. Several news stories out there, unfortunately, jumped to a conclusion anyway. That’s my criticism. Speculation is fine as long as it’s clearly labeled as such and other possibilities are taken into account.

  4. Marius Schuetz

    As an organic egg producer in British Columbia, Canada (7,000 birds) and lawyer (in Nanjing resident as foreign expert at the Nanjing Institute of Industry Technology) holding both and M.Sc. in agriculture (University of Guelph, Ontario) and J.D. (Queen’s University, Kingston, Ontario) I know a thing or two about the origanic food market.

    Let me start to state unequivocally that in my opinion there is no market in North America where mislabeling is more rampant than the organic food market.

    So that there is the same problem in China should not raise any eyebrows anywhere.

    It is an unforgiveable shame that neither the Canadian government through the Canadian Food Inspection Agency nor the US Department of Agriculture does anything about it. The reasons are cut-backs and the idea that the whole organic food industry is an infant industry. Both are dog farts.

    Further, again in my opinion, Wal-Mart does not have any business to be in the organic food market.

    I would not trust anything in Wal-Mart anywhere that was labelled organic. Yes, not even the USDA labelling.

    Organic food is a premium product that cost a lot more to produce than conventional food. Pork in particular is very expensive to produce organically as there are many parts of the pig that cannot be sold in the organic market and must be sold at conventional pork prices. Chicken and eggs are much easier to produce organically as there in no such waste. On the other hand, beef is even more expensive to produce organically and that is why one hardly ever finds it even in WHOLEFOODS!!!!!!

    So respecting Wal-Mart in Chongqing: I would guess it is local management without supervisory control from the parent company that is trying to score points. Of course, the parent company is at fault because of its omissions. Clearly, the parent Wal-Mart is grossly negligent in its supervisory duties and it is getting what it deserves. Here is hoping, the same will happen in Canada and the US.

  5. lt

    That’s because selective enforcement of law makes protectionism hard to define. I believe that was the point. It leaves the question open to interpretation, so people like Stan can argue that it wasn’t protectionism, while the WSJ can suspect it is. There is no way to really prove either way. But the way the Chinese government throws the book at foreign online companies, or just blocking them outright, it would not surprise me if there was protectionist thinking involved.