OSI Group: A Look At The US-Based Company Behind China's Meat Scandal

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  • OSI
    Security guards stand inside the Husi Food factory in Shanghai July 23, 2014. Shanghai police said on Wednesday they detained five people in an investigation into a Chinese-based supplier of foreign fast-food brands, including KFC, McDonald's Corp and coffee chain Starbucks Corp, over allegations the firm supplied old and rotten meat. The five detained include the head of the company - Shanghai Husi Food Co Ltd, a unit of U.S.-based OSI Group LLC - and the firm's quality manager, the police said in an online statement.
  • OSI Group Flag
    The company flag of OSI (R), and U.S. and Chinese national flags flutter in front of OSI's food processing plants in Langfang, Hebei province, July 23, 2014. Shanghai police said on Wednesday they detained five people in an investigation into a Chinese-based supplier of foreign fast-food brands including KFC and McDonald's Corp over allegations the firm supplied out-of-date meat. The five detained include the head of the company - Shanghai Husi Food Co Ltd, a unit of U.S.-based OSI Group LLC - and the firm's quality manager, the police said in an online statement. It gave no other details. Illinois-based OSI has said it was "appalled" and was investigating the matter after a Chinese TV report on Sunday showed staff at its Shanghai Husi facility using expired meat and picking up meat from the floor to add to the mix.
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A processing plant in Shanghai is at the center of China's investigation into the distribution of rotten meat, but the firm is merely a subsidiary of a U.S. company called OSI Group LLC.

Chinese authorities said Wednesday they had detained five individuals connected with Shanghai Husi Food Co Ltd., including the branch’s top official and its quality control manager. The announcement came after a local television station’s undercover investigation revealed that the plant had distributed rotten or expired meat to several fast-food chains throughout China and Japan.

Shanghai Husi is an outpost of OSI Group, a privately held Illinois-based company that has operated in China for more than two decades. The group is China’s largest meat supplier, boasting nearly 20,000 employees and more than $6 billion in global revenue in 2013, PrivCo notes.

Investigators were ordered to inspect all eight of OSI’s processing plants in mainland China to determine if the issues with food-safety protocols are indicative of employee behavior at each branch. The company apologized for the scandal in a statement published to its website.

"OSI Group takes very seriously a recent media report on Dragon TV regarding products manufactured by its subsidiary, Shanghai HUSI Food Co. Ltd. Company management was appalled by the report and is dealing with the issue directly and quickly. The company has formed an investigation team, is fully cooperating with inspections being conducted by relevant, supervising government agencies and is also conducting its own internal review,” the statement said.

Prior to its current troubles, OSI Group had maintained a particularly lucrative relationship with McDonald’s (NYSE:MCD), serving as the American fast-food chain’s sole provider of chicken and beef throughout China. In the wake of the Shanghai Husi scandal, China’s McDonald’s pulled all meat from its menus and issued an apology to its customers.

“Food safety is the most important thing for McDonald's, and we always strictly abide by national laws and regulations and related standards to ensure consumers can enjoy our products at ease,” McDonald's said in the statement.

But OSI’s relationship with McDonald’s is just one of several affected by the rotten meat scandal. The company also provides meet to Yum! (NYSE:YUM), the Fortune 500 corporation that operates KFC and Pizza Hut. Like McDonald’s, Yum! has pulled all meat products from its subsidiaries’ menus in China. OSI Group also supplies meat to Starbucks (NASDAQ: SBUX), Papa John’s (NASDAQ:PZZA) and privately held Subway, all of which could choose to reconsider their business arrangements.

Aside from its clients in China, Shanghai Husi also supplied about a fifth of all Chicken McNuggets sold at McDonald’s restaurants in Japan, as well as distributing chicken-nugget filling to Family Mart, a Japan-based convenience store chain, the Financial Times reports. The company has pulled chicken nuggets from the menus of all 10,000 of its outlets.

Despite its current issues with health regulations, OSI reportedly spent at least $750 million on the development of three “vertically integrated” poultry processing centers in China, Quartz reports. The company said in a 2013 press release that the facilities would “provide the highest level of certainty in delivering biosecurity, food safety and traceability throughout the supply chain.”

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