JOHANNES EISELE/AFP--Getty Images
By Geoffrey Smith
July 23, 2014

Chinese police have detained five people in an investigation into a supplier of meat to fast-food chains including McDonald’s Corp (MCD) KFC parent Yum Brands Inc. (YUM) and Starbucks (SBUK), agencies reported Wednesday.

Those arrested include the head of the company concerned, Shanghai Husi Food Co. Ltd., which is owned by Chicago-based OSI Group. Chinese state-owned news agency Xinhua said that Zhang Hui, manager of Husi’s quality control department, had confessed during interrogation that the company “has been conducting the malpractice for years under tacit approval of senior managers.”

The scandal erupted at the end of last week after the network Dragon TV aired a documentary alleging that Shanghai Husi mixed expired meat with good meat and used meat salvaged from the floor in its shipments.

Reuters reported that Shanghai consumer protection authorities had sealed more than 1,000 tons of suspect produce from OSI in China, and another 100 tons of produce at selected customers.

OSI Group had said earlier this week it was “appalled” by the allegations, and is fully cooperating with the investigation.

“Our company believes this to be an isolated event, but takes full responsibility for the situation,” OSI said on its website.

Sheldon Lavin, OSI’s owner and chief executive, followed up with a statement Wednesday saying that what happened “is completely unacceptable.”

“I will not try and defend it or explain it,” he said. “It was terribly wrong, and I am appalled that it ever happened in the company that I own.”

Yum said in an e-mailed statement that it “It is difficult to believe and completely unacceptable that the management of Shanghai Husi, a division of OSI, would oversee and organise illegal and dishonest operations.”

It said it has stopped buying from Shanghai Husi and arranged alternative supplies, and consequently doesn’t expect any disruption to KFC restaurants in China. However, it said Pizza Hut might experience “some temporary shortages of certain products”.

The scandal has widened in the last couple of days as the extent of Shanghai Husi’s customer base has become clear. In addition to supplying meat to McDonald’s and KFC in China, it has also supplied chicken products to McDonald’s and to FamilyMart in Japan.

The scandal appears to be creating the risk of political consequences for the likes of McDonald’s and Yum, which have expanded rapidly in China over the last two decades. Xinhua quoted Zhao Ping, deputy director of an arm of the Ministry of Commerce specialising in international trade, as saying that inadequate management capacity and training was responsible for “continued food safety scandals.”

No-one at McDonald’s was immediately available to comment early Wednesday.

(This story was updated with a statement from OSI Group’s owner)

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