Hearing of the House Energy and Commerce Committee's Oversight and Investigations Subcommittee, Panel II - Security of the Nation's Food Supply?

Interview

Hearing of the House Energy and Commerce Committee's Oversight and Investigations Subcommittee, Panel II - Security of the Nation's Food Supply?

REP. STUPAK: And now I'll call our second panel of witnesses to come forward. On our second panel we have Dr. Michael Martin is an analyst in Asian Political Economy at the Congressional Research Service. Mr. James Rice is vice president and country manager for Tyson Foods in China.

It's the policy of this subcommittee to take all testimony under oath. Please be advised that witnesses have the right, under rule of the House to be advised by counsel during their testimony. Do any of you gentlemen wish to have -- be represented by counsel at this time?

(Off mike.)

REP. STUPAK: Okay, let the record reflect both witnesses indicate they do not. Therefore, let me administer the oath.

(The witnesses are sworn in.)

REP. STUPAK: Okay, let the record reflect the witnesses replied in the affirmative. You are now under oath.

Dr. Martin, would you like to give -- start with the opening statement for five minutes.

MR. MARTIN: Am I on? Okay, thank you. Chairman Stupak, ranking member Whitfield, distinguished members of the subcommittee, thank you for the opportunity to appear before you today. With your permission, I'd like to submit my statement for the record and provide you with a brief summary of its contents.

You've asked me to testify on how Hong Kong and Japan ensure the safety of their food imports from Mainland China. While concern about safety of food imported from China has arisen in the United States in 2007, this issue has been important to Hong Kong and Japan for a number of years. In December, 1997, Hong Kong slaughtered over 1.5 million chickens to combat an outbreak of the avian flu that claimed the lives of six people. Virtually all those chickens had been imported from China.

In July, 2002, Japan banned the import of frozen spinach from China after several shipments were found to contain an unacceptable level of pesticides. Prior to the ban, China had supplied Japan with 99 percent of its imported spinach. As a result, the Hong Kong government has been aware of the issue for at least 10 years, and the Japanese government has been aware of it for at least five years.

Food imports from China are of particular concern to the Hong Kong and Japanese governments because China is an important source of food. China supplies Hong Kong with about 80 percent of its food, and Japan with more than 10 percent of its food, second only to the United States.

Under Hong Kong law, the primary responsibility to ensure the safety of all food, imported or domestically-produced, is placed in the Hong Kong Food and Environment Hygiene Department, and its recently-established Center for Food Safety. In 2006, the Center for Food Safety was given specific responsibility for planning and implementing Hong Kong's food safety policies; negotiating and managing relations with overseas food authorities, including China; and consulting with the businesses and people of Hong Kong about its food safety system.

Over the last 10 years, Hong Kong's Food and Environmental Hygiene Department, and its Mainland Chinese counterparts, have agreed to a set of administrative procedures to ensure the safety of food shipped to Hong Kong. These special procedures include joint visits to farms and food production facilities in China, technical exchanges, and frequent meetings to discuss food safety issues. In order to expedite inspection, Hong Kong limits the number of points of entry for imported food. Failure to comply with Hong Kong's laws and regulations governing the import of food is punishable by up to six months in jail, and a maximum fine of $50 thousand Hong Kong dollars -- about $6,400 U.S. dollars.

In 2006, the Center for Food Safety took over 64,000 samples for microbiological and chemical testing. The overall failure rate was 0.3 percent. However, in its latest report which covers July through August, 2007, the Center found a slightly higher failure rate of 0.6 percent. Neither report indicated what percent of the imports were tested.

Turning to Japan, the Food Safety Basic Law disseminates the enforcement of food safety throughout Japan's federal, provincial and local governments. In general terms, the federal agencies handle food safety enforcement for imported goods, and the provincial and local governments focus their efforts on domestic enforcement issues.

The Food Safety Basic Law also created the Food safety Commission, a cabinet-level independent agency that oversees the government's activities on food safety. Food imported into Japan is subject to inspection by roughly 300 inspectors located at 31 quarantine stations. Inspections cover over 300 food products and nearly 800 agricultural chemicals, and include nearly 55,000 inspection criteria.

Between April and September, 2006, the ministry inspected 10.3 percent of the shipments, 0.7 percent were found to be in violation of Japanese law. The most recent amendment to Japan's Food Sanitation Law raised the highest penalty for violation of the law: to up to three years in jail, or a fine of up to $3 million yen -- approximately $26,000 U.S. dollars.

Relations between Japan and China on the issue of food safety takes place in two separate arenas: government-to- government relations and company-to- company relations. On the government-to- government side, Japan has negotiated over 30 separate agreements with China specifying equivalency standards for the range of food items. Under these agreements, Chinese health officials certify that specific farms and food production facilities meet the agreed standards.

In Japan -- oh, I'm sorry, in Japan, food shipments from these certified farms, Chinese farms and facilities, are afforded preferential treatment to imports from non-certified farms and facilities. As a result, on the business-to-business side, Japanese importers tend to source their food products from the certified farms and facilities, often offering a higher price for the goods in order to lower the risk of shipments being affected or impounded.

Based on the preceding summary, as well as my written testimony, I would like to offer four, somewhat interrelated, observations. First, collaboration, generally, has been used more than confrontation. Part of the overall strategy of Hong Kong and Japanese food safety officials, when dealing with their Mainland Chinese counterparts, seems to be focusing on the shared issue of protecting people from unsafe and unsanitary foods.

Second, the carrot has been used more often than the stick. In their dealings with Chinese officials and businesses, both Hong Kong and Japan appear to have adopted an approach providing incentives to the Chinese government to cooperate, rather than penalizing failures to comply.

Third, food safety is not simply a matter of laws and regulations. Another element of the Hong Kong and Japanese approach to food product safety is the apparent focus on creating incentives for businesses to comply with the laws and regulations. Both Hong Kong and Japan seek to create an environment in which the best interests of the Chinese food producers and exporters, as well as the Hong Kong and Japanese food importers, to make sure that the imported foods are safe and sanitary.

Fourth, no system is perfect. No matter how well-designed the policy, or how well the policy is implemented, it is impossible to guarantee that every morsel of food -- every morsel of imported food, whether it's from Mainland China or some other location, is 100 percent safe and sanitary. The Hong Kong and Japanese governments have food safety policies in place, but they both continue to experience problems with tainted and unsafe imported food products.

Chairman Stupak, ranking member Whitfield, distinguished members of the subcommittee, this concludes my statement. Thank you again for the opportunity to testify on these issues. I'll be pleased to respond to any questions you might have.

REP. STUPAK: Thank you, Dr. Martin. We appreciate your testimony, and a wait for questioning.

Mr. Rice, you have a five-minute opening statement, if you would, and if you have anything longer, if you'd like to submit it.

MR. RICE: Thank you.

REP. STUPAK: Thank you, go ahead.

MR. RICE: My name is James Rice, and I'm vice president of Tyson Foods, Inc., and I'm country manager for Tyson's China operations. I also serve on the board of governors of the American Chamber of Commerce in Shanghai. I have worked with Tyson for the last three- and-a-half years, but my involvement in China began 20 years ago when I was an exchange student from the University of California in 1987.

In 1991, I returned to China and have worked and lived there continuously until now. Tyson's Foods has a significant export business from the United States to China. Of the U.S. poultry industry's $500 million in exports to China this year, Tyson's share will be approximately $200 million, and or business is growing at 25 percent a year. China is now the largest destination of U.S. poultry exports, and the largest U.S. exporter to China by dollar value, as poultry. Tyson also exports cattle hides and pork from the U.S. to China.

In China, Tyson produces meat and poultry products, for both domestic and export consumption, through two joint venture operations. We maintain relationships with Chinese poultry companies who produce products on our behalf for global customers in Japan and in Hong Kong. So I hope to draw from this experience to share with you some insights on China's quality management processes.

Despite wide news coverage, China does have modern food producers who are able to produce quality products for domestic and for export consumption. China's general Administration of Quality Supervision, Inspection and Quarantine, what's commonly known as the AQSIQ, has processes that ensure quality food products are exported. The evidence on the ground, from what I have seen, indicates that modern manufacturers and the AQSIQ can do their jobs and their processes are improving.

China has a vital interest in improving its food safety programs for many reasons, and the country is learning that national food safety assurance systems require time, resources and flexibility to accommodate industrial and technological changes. For example, the AQSIQ is now developing a food recall system, improved labeling requirements, and also a traceability system.

Another example is China's export food safety program, which requires that all export food must originate from an AQSIQ-registered plant, and be certified by a local China inspection and quarantine agency, which is the local version of AQSIQ.

The AQSIQ only authorizes 12,700 of the country's 450,000 food- producing companies to export. And this list is expanded and shortened by the AQSIQ based on the performance of companies, just like the USDA maintains a list of authorized meat and poultry exporters in the United States.

The way it works is that Chinese food processors are certified to export; they will notify the AQSIQ when they are going to produce for export; and the AQSIQ or CIQ inspectors will be present during the process.

These inspectors will evaluate the suppliers, the raw materials, the production process and the finished products. Only after this process, will they issue a certificate for export. It is my understanding that, for the most part, food safety issues we have heard about in the United States have come from companies other than those authorized by the AQSIQ.

Chinese poultry exports to Japan have an additional level of quality assurance. The AQSIQ has selected 35 of the best poultry producers in China to be eligible to export to Japan. Then Japanese Ministry of Agriculture, Forestry and Fisheries, the MAFF, visited and certified these plants. They are inspected annually by Japan's MAFF, but it's the AQSIQ that has responsibility to ensure these 35 plants meet compliance with both the Japanese import regulations and also the Chinese export regulations.

Today these plants operate at a higher level than do their competitors, not only because the Japanese customers require it, but because the responsibility for food quality and safety is shared equally and completely between the manufacturer, the AQSIQ and the Japanese MAFF.

When Tyson manufactures products in China, both for domestic and export consumption, we use only these Japanese-certified suppliers, ensuring that we start with the best suppliers. These suppliers and their suppliers are audited regularly by our American quality assurance manager, and we practice at our facility 100 percent inspection of all incoming raw materials.

When Tyson products are manufactured by our partners, our quality assurance manager and our American plant manager are in those facilities to ensure the same quality standards are maintained. Our global customers also audit our plants and our suppliers, and the net result is that regulators, the manufacturer, and the customers are working together to ensure the quality of our products.

As a brand owner, our job is to be certain that all levels of private and public-sector quality assurance work together to identify, manage and mitigate all food safety risks. In this way, regulators, brand owners share food safety responsibility with foreign regulators and manufacturers. Not that the responsibility is divided, but that every entity shares 100 percent responsibility to be sure the product is right before it leaves the Chinese plant.

There's no question that China plays an enormous role in the global economy, as both an importer and an exporter of foods and many other products. We need to consider how to work with China and make sure that relationship is mutually beneficial. The end result is that both countries can implement the same quality standards and sell the same high-quality products to both countries. Thank you.

REP. STUPAK: Thank you, Mr. Rice. Appreciate your testimony.

BREAK IN TRANSCRIPT

REP. STUPAK: Well, thank you, Mr. Melancon.

Mr. Rice, besides poultry, any other products you produce in China?

MR. RICE: We are a minority owner of a pork processing plant, but we don't export from there.

REP. STUPAK: Okay. You indicated you use poultry -- (inaudible) -- from certified -- Japanese certified farms, right?

MR. RICE: Right.

REP. STUPAK: Are there other countries that have certified plants or farms in China? Korea, or --

MR. RICE: Korea has certified plants. Singapore has certified plants; so does Malaysia. And I believe the European Union is working on something.

REP. STUPAK: Okay. And the U.S. doesn't have any certified plants?

MR. RICE: Not that I know of.

REP. STUPAK: Do you use other certified plants then for poultry, or just the Japanese ones?

MR. RICE: We use just the Japanese ones.

REP. STUPAK: Have you considered using any other country farms there?

MR. RICE: Well, I have, but there's less -- there's less quality control systems in place in those plants, so I would have a higher risk if I did so.

REP. STUPAK: In these -- is it fair to call them poultry farms?

MR. RICE: Yes.

REP. STUPAK: Is the feed used in that poultry farm and all the other things used, does it all come -- generated from internally China, or do you bring it in from Japan or the United States, the feed and other medicines and thing like this you'd use?

MR. RICE: It's domestically sourced.

REP. STUPAK: In China?

MR. RICE: Yes.

REP. STUPAK: So those sources would also have to be certified then, for the feed and everything else?

MR. RICE: Yes. Yes, and for Japanese plants for sure, because they have different requirements on residuals.

REP. STUPAK: Okay. Could -- by you, Tyson, being there for how long, 20 years?

MR. RICE: Well, I have been there 20 years. I think Tyson's been there about five.

REP. STUPAK: Okay. So this agreement to use a Japanese -- for the company of Tyson just came about in the last five years?

MR. RICE: Yes. The Japanese certification process began about three or four years ago.

REP. STUPAK: Okay. And that's because of a outbreak of illness they had in Japan, right?

MR. RICE: That's because China's outbreak of avian influenza.

REP. STUPAK: Okay. And they did not want it to get to China -- I mean, excuse me -- to Japan, so that's why they used the certification --

MR. RICE: Right.

REP. STUPAK: Any reason why that certification would not work with the U.S.? Any reason why the U.S. could not go and certify --

MR. RICE: I -- I don't believe so. I don't know why it wouldn't work. It's at least a good starting point to consider how to manage that process.

REP. STUPAK: Okay.

Mr. Martin, if I may -- Dr. Martin, thanks for being here. How is it determined whether specific farms and production facilities in China meets Japanese safety standards and thus able to export? How do they do that?

MR. MARTIN: Basically through a process whereby Japanese officials go over to China, meet with Chinese counterparts. They go out to the facilities and inspect it jointly. Now --

REP. STUPAK: Does the Japanese have people permanently stationed in China?

MR. MARTIN: They do not have people permanently stationed there, as far I can understand, but they have people who will go over there and check out facilities.

REP. STUPAK: Okay. When does Japan inspect food shipments from China?

MR. MARTIN: When do they physically inspect the shipments?

REP. STUPAK: Right.

MR. MARTIN: Japanese officials will inspect it when it arrives in Japan at the port. They'll make a determination on whether or not that food shipment is going to be selected for inspection --

(Cross talk.)

REP. STUPAK: And then you said there's three -- three layers of inspections, right?

MR. MARTIN: Correct.

REP. STUPAK: The first comes in --

MR. MARTIN: The first is not done by the Japanese officials. They're basically relying on the Chinese system.

REP. STUPAK: Chinese -- okay.

MR. MARTIN: And part of which Mr. Rice explained. The second part is when it comes into port and is clearing customs or is being brought in. If that particular shipment is selected for inspection, it goes to a quarantine center. There's 31 of them, I understand, in Japan, where it'll go through a physical inspection. If it passes the inspection, then it's released. The importers can take the shipment, and then it goes into the market of Japan.

But at that point municipal authorities, or prefectural employees -- the equivalent of state here, will then inspect on the shelves on a regular basis.

REP. STUPAK: In the testimony from our previous panel, of our investigators here from the committee, they were talking about China's certification process. Japan doesn't rely on China's certification. They have their own certification process, is that correct?

MR. MARTIN: Japan, for the -- only for the poultry plants.

REP. STUPAK: Right.

MR. MARTIN: For the 35 poultry plants that ship to Japan, it is -- the Japanese have certified their process, but when the product is shipped, AQSIQ is validating that that was -- that plant with the Japanese law.

REP. STUPAK: Well, the point I was trying to get at, from the testimony it looked like the China Deputy Minister Wei was telling our group that if you'd just rely upon our system, it would all work. You would not have the problem with the melamine, as you had because it wasn't certified by us -- which is certified. But it sounds like there's a -- I won't say a lack of trust, but maybe a double-checking or a check-and-balance system here. Not only do you rely upon the Chinese certification, but you have your own certification. Japan has its own certification -- or I should say inspection and certification. And even though China may have other certified farms, poultry farms, you rely upon the ones that Japanese have inspected and you inspect, is that correct?

MR. MARTIN: That's correct. If you could understand it as the -- of all food processors in China, if you rely on those system, your universe of food companies that could ship to you is 450,000. So it's this big. If you rely on the AQSIQ system, that shrinks to 12,700. And in the case of the Japanese, they again shrink that to 35.

REP. STUPAK: And then the premium, you said, was 30 percent more?

MR. MARTIN: It's -- can be 20 (percent) to 30 percent more in price.

REP. STUPAK: What would that mean to the average consumer, would you think? Just use your own product.

MR. MARTIN: Because that's not 100 percent of the cost of a product, it could (be in the ?) 10 percent to 15 percent pricing.

REP. STUPAK: Of the product.

MR. MARTIN: Right.

REP. STUPAK: Okay. And each country can create its own food safety standards for Chinese imports, like -- my impression is -- Japan has one set of standards, Hong Kong has another, and Russia has another, you mentioned. Everyone has a different standard. You're shaking your head yes, right?

MR. MARTIN: Yes. I'm sorry. (Chuckles.)

REP. STUPAK: It's okay. I think my time's expired.

BREAK IN TRANSCRIPT

REP. STUPAK: Thank you, Mr. Burgess.

Mr. Rice, does Tyson notify the Japanese officials if they find a problem with one of their suppliers -- something coming into your plant?

MR. RICE: No.

REP. STUPAK: But you receive your product from Japanese certified suppliers.

MR. RICE: That's correct.

REP. STUPAK: Why wouldn't you notify them?

MR. RICE: Because we're talking about isolated shipments where we might find foreign objects like hair or a piece of wood or something like that, I don't know. It's not --

REP. STUPAK: What if it was a chemical that should not be --

MR. RICE: Then we would notify the AQSIQ. And one process that might help that is that such a company would end up on the blacklist of the AQSIQ, which would be available publicly to all countries.

REP. STUPAK: Okay.

Well, with -- you know, with the AQSIQ -- whatever it is there, are they required to pass it on to the Japanese or just publish it?

MR. RICE: I don't know what the agreement is between AQSIQ and MAFF.

REP. STUPAK: The growers or suppliers that you use, do they supply exclusively to Tyson and to Japan, or can they -- other countries or other processors like yourself?

MR. RICE: They would supply to multiple customers --

REP. STUPAK: Okay.

MR. RICE: -- and be part of the business. In general, it's not more than 10 or 20 percent of their business is Japan and the rest would be a domestic market. It could be Southeast Asia or Korea as well.

REP. STUPAK: We've indicated throughout this testimony that in Japan, I think they inspect about 15 percent. U.S., it's less than 1 percent. Do you -- is there a number you think would be appropriate -- 5percent, 15 percent, 25 percent of food products coming in this country should be inspected?

MR. RICE: I would not know that.

REP. STUPAK: Mr. -- Dr. Martin, any guess on that?

MR. MARTIN: I couldn't give you a number, but what I would say is that my anticipation is a statistician would ask you what's your goal or objective.

REP. STUPAK: Okay.

Mr. Rice, you have eight lab people or inspectors out of 250. What percentage of your budget is for safety, for inspection, for going to that farm to make sure things are right? Is that -- can you give me an estimate?

MR. RICE: I would guess it's between 3 (percent) and 4 percent.

REP. STUPAK: Three (percent) and 4 percent.

MR. RICE: Right.

REP. STUPAK: Okay. Does Tyson use -- in your operation that you're familiar with, do you use carbon monoxide when you ship any of the poultry?

MR. RICE: No, we do not.

REP. STUPAK: Okay. No further questions.

Thank you, Dr. Martin. Thank you, Mr. Rice. Thank you for your testimony today. It was very helpful.

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