Shares of China Mengniu Dairy and Ausnutria Dairy Corp dropped yesterday after the Ministry of Health said it would investigate claims that infant formula produced by Qingdao-based Synutra International had been tainted with adult hormones causing baby girls to grow breasts, an allegation the company denies. Mengniu dropped 1.1 per cent to close at HK$23.10 and Ausnutria fell 3.3 per cent to HK$4.67. The overall market closed 0.16 per cent lower. Mengniu and other mainland firms such as Yili are still recovering from the last tainted milk scandal two years ago after their products were found to contain traces of melamine. The industrial chemical used to make plastics was illegally added to give the appearance of higher protein to infant formula, causing the death of at least six children and making more than 300,000 others ill. 'It's really a love and hate thing investors have with these dairy companies,' said Alvin Cheung, an associate director with Prudential Brokerage. 'While they know the profit growth is substantial given the market size, they are spooked by news that these products are contaminated. It's like holding a time bomb. I believe investors' confidence in the dairy industry is still very shaky.' To boost investor confidence in product safety, private equity fund Carlyle Group and privately owned Shanghai Fosun High Technology Group last week set up a committee offering guidance on food safety to infant formula producer Guangdong Yashili Group in which they have stakes. The Ministry of Health said it had asked an institute to carry out laboratory tests on samples of formula given to baby girls in Wuhan who were found to have abnormal levels of adult women hormones when they were taken to doctors last month. Following reports by the mainland media on the babies, shares of Nasdaq-listed Synutra dived to US$12.50 on Thursday from US$17.41 on August 6, a drop of 28 per cent. In a statement on Synutra's website, chairman and chief executive Zhang Liang said the company's products were safe and that it did not add hormones to them. Synutra, which listed on Nasdaq in April 2008, produces infant formula, baby food and supplements, supplying 540 independent distributors and 71,000 retail outlets. Wrong formula Adult hormones are said to have been added to Synutra's infant milk The drop in the share price of Synutra on the Nasdaq market since August 6: 28%
