October 15, 2013 / 2:03 AM / 7 years ago

Danone to name new management at China unit after bribery scandal

BEIJING (Reuters) - French food maker Danone S.A. (DANO.PA) said it will appoint new management at its Dumex infant milk powder operation in China and has suspended a nutrition programme for mothers in the wake of a bribery scandal at Chinese hospitals.

A sales assistant (back) helps a customer to select Dumex milk powder at a supermarket in Hefei, Anhui province August 5, 2013. REUTERS/Stringer

Dumex China expressed “deep regret” for what it called shortcomings over a programme that was intended to raise standards in paediatric care and included advice on nutrition.

The company launched an investigation after the official China Central Television (CCTV) reported in September that Dumex had bribed doctors and nurses across hospitals in northern China to recommend its infant formula to mothers.

Authorities in the northern city of Tianjin had punished 13 medical workers for taking bribes to recommend the infant formula, the local government said on Monday.

China is a magnet for foreign milk powder makers, with the country’s $12.4 billion (7.75 billion pounds) market expected to double by 2017.

But foreign firms are under intense scrutiny after a spate of media reports alleging corrupt sales practices in the industry. Authorities in August also fined a group of mostly foreign milk powder producers including Danone a total of $110 million for price fixing.

Danone reports third-quarter sales on Wednesday, giving the firm an opportunity to brief investors on its problems in China.

“Disciplinary actions will be taken according to the relevant company regulations including appointing new management personnel to deal with relevant issues,” Dumex China said in a statement.

Dumex said its policies included support for maternal breast feeding, as well as compliance with all local and national regulations in China.

However, it said some practices had contradicted the purpose of the nutrition programme. It did not elaborate.

Additional mandatory training to ensure compliance with the company’s marketing policies would be given to all employees, the statement said. Dumex added it would make no further comment.

The statement did not refer to separate accusations published in a Chinese newspaper last month that Danone’s advanced medical nutrition unit Nutricia had bribed more than 100 doctors in Beijing to boost sales. Danone has said it was investigating that report.

The CCTV report on Dumex led to Tianjin’s government and police launching an investigation into the bribery accusations.

The “serious violators” received penalties ranging from cancellation of medical licences to salary deductions, Tianjin’s government said in a statement on its website. Several of them had to go through Communist Party disciplinary procedures.

Local government investigators said the workers were among 116 people from 85 hospitals and health groups who took bribes from Danone to give talks to parents of newborns, recommend Dumex formula and give out product samples.

World Health Organization guidelines, implemented in China, say doctors must advise new mothers to breastfeed unless there are medical reasons to use formula instead.

Infant formula has been controversial in China since a scandal in 2008 when the industrial chemical melamine was added to baby milk and killed at least six children and left thousands ill.

The incident seriously damaged consumer confidence in local firms and led to international competitors gaining market share.

Corruption is widespread in China’s health care system, fuelled in part by low salaries for doctors and nurses.

Additional reporting by Megha Rajagopalan. Writing by Dean Yates; Editing by Edwina Gibbs

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