Coke says two-thirds of China suppliers fail audits

HONG KONG (Reuters) - Coca-Cola Co. (KO.N), a major sponsor of the Beijing Olympics, said on Thursday two-thirds of its suppliers in China last year were not compliant with company policies on things like workers' rights and the environment.

The soft drink giant said it had training and other remediation targets to bring errant suppliers up to standards, arguing in its 2007 Sustainability Report that working with them was better than cutting them off.

The Atlanta-based company, which first entered China in 1927, is far from alone in its supply chain difficulties.

A string of product safety scandals last year highlighted some of the pitfalls of sourcing in a country where government monitoring is weak, to say nothing of rising production costs and a strengthening currency. Experts say wage violations and poor working conditions are common.

Coke said 255 of the 371 Chinese suppliers it uses for things like packaging, ingredients and premiums, failed to comply in one way or another with a set of principles the company implemented in 2003 to promote respect for labour rights among its business partners globally.

Challenges are "prevalent throughout the supply chain," said the report, released on Thursday.

Forty-eight suppliers were labelled "significantly" non-compliant and viewed collectively as a "critical risk to operations," 144 were categorised as "moderately" non-compliant with issues like systemic wage or overtime violations or blocked emergency exits, and 63 were in "minor" non-compliance.

The report did not say what types of violations were most prevalent or give specific examples. It also did not say anything about problems and remediation issues at other facilities, like the 32 bottling companies it uses in China, Hong Kong and Taiwan.

On the environment, the report highlighted strides such as a 9 percent reduction of the water usage rate, a 14 percent reduction in solid waste and a 7 percent increase in energy efficiency in bottling facilities.