Sanlu, China's largest dairy, knew its milk was poisoned — and tried to keep it quiet

Sanlu Group was China's largest dairy company — No.1 in milk powder for 15 consecutive years with 18% market share, ¥10 billion in annual revenue, and a high-profile joint venture with New Zealand's Fonterra (43% stake). In December 2007, Sanlu began receiving complaints from parents whose babies were developing kidney stones after drinking Sanlu formula. The company investigated but did not escalate. By May 2008, a mother's online post had gone viral, forcing the issue to Sanlu's board.

Internal testing on 1 August 2008 confirmed that melamine — a chemical used in plastics and fertiliser — had been deliberately added to raw milk by suppliers to fake protein readings in quality tests. Sanlu's board decided on 2 August to conduct a quiet trade recall, pulling tainted stock from distributors without alerting consumers or regulators. The board also agreed to report to Fonterra and 'deal with it internally.' For six weeks, Sanlu managed the contamination as a supply problem rather than a public health crisis, continuing to ship formula from tainted batches.

The cover-up collapsed on 5 September 2008 when Fonterra, alarmed that the problem was not being disclosed to Chinese authorities, notified the New Zealand government. New Zealand's government confronted Beijing, and on 13 September the Chinese government made the scandal public. Tests later showed that 22 of China's 109 dairy companies had melamine in their products — Sanlu had the highest concentration at 2.56 grams per kilogram. More than 300,000 children were affected, 54,000 hospitalised, and at least six died.

Sanlu collapsed fast. The company filed for bankruptcy on 24 December 2008 with ¥1.1 billion in net debt. Fonterra wrote down NZ$139 million of its investment. Sanlu's plants were sold to Beijing Sanyuan for about ¥800 million in March 2009. The Chinese Dairy Association estimated the total industry-wide cost at ¥20 billion. The scandal destroyed China's largest dairy company in less than four months.