TESTING MILK: A quality inspector collects samples at Shanxi Wei'er Dairy Products Co. Ltd., one of the 12 dairy makers in Shanxi to pass quality inspections (YAN YAN)

"The reserve fund was established in 2009, but even today, how the fund has been operated and managed in the last two years is unknown. The CDIA has failed to elaborate on this question," said Han.

"Establishing a compensation fund for the victims was a great idea, I'm not questioning that. But how the actual fund is being operated without oversight seems to be extending beyond the original kind gesture," Han said.

In line with common international practices, managing this kind of compensation fund should have input from the victims, lawyers, accountants and experts to ensure that the fund is being used fairly and appropriately. So why did the CDIA entrust the fund to a commercial insurance company? To make matters worse, the CDIA said they could not provide information about the fund, claiming it was an industrial or even a state secret, said The Beijing News.

"If the CDIA has earnestly fulfilled its responsibility, why is it still refusing to provide information to the public?" Han asked.

The CDIA said the parents of the 271,869 affected babies had received the one-off payment of 910 million yuan by the end of last year. But the CDIA did not give receipts for the transaction. The CDIA said the 910 million yuan was used to compensate victims' families—200,000 yuan ($30,740) for each death, 30,000 yuan ($4,611) for each serious case and 2,000 yuan for less serious cases, according to the compensation standard.

A breakdown of how many cases fell into each category was never released, or whether all the families had been compensated. The CDIA has failed to provide answers, said Lin Zheng, a lawyer from Beijing.

Challenges

After the Sanlu scandal, the Chinese Government issued a series of new regulations and laws on supervising dairy production. Pu Changcheng, Vice Minister of the General Administration of Quality Supervision, Inspection and Quarantine, said the pass rate of melamine avoidance in raw and fresh milk has been 100 percent over the past two years. But is milk necessarily safer?

The fact is that China did not tighten its quality standard as expected after the scandal. On the contrary, it relaxed its national milk quality standards in 2010, increasing the maximum limit of bacteria acceptable in raw milk from 500,000 per milliliter to 2 million per milliliter, said Wang Dingmian, Vice Chairman of the Dairy Association of Guangdong Province.

Obviously, more bacteria mean poorer quality and less safe milk products.

The biggest challenges for China's dairy industry are still quality and safety, said Gao Hongbin, Director of the Dairy Association of China.

"China's dairy industry is at a key point in its development from quantity expansion to quality improvement and industrial upgrading. We must control the quality of raw materials from the start by vigorously prompting standardized practices to raise cows. Supervision should be tightened on raw and fresh milk quality. The government should also crack down on illegal activities in outsourcing and transporting fresh and raw milk," said Gao.

As the major supervisor of the country's dairy industry, the CDIA is responsible for the quality of dairy products. It should solve two of the most important problems in the industry to dissipate the negative effects caused by the Sanlu scandal by ensuring dairy quality and dealing with the ensuing medical treatment and compensation issues of the Sanlu victims.

Once these two missions are fulfilled, the public's confidence in China's dairy industry may be restored, said Cao Xugang, a commentator with the Xi'an-based daily Chinese Business View.

Sanlu Scandal

Sanlu Group was a dairy joint venture based in Shijiazhuang, capital of Hebei Province. Sanlu sold various dairy products, but its milk powder sales ranked first in China for 15 consecutive years.

A scandal involving melamine-tainted powered milk broke on June 28, 2008, after an infant in Gansu Province, who had been fed Sanlu milk powder, was diagnosed with kidney stones.

The Department of Health of Gansu Province later conducted an investigation, leading to the discovery of more melamine-contaminated milk cases nationwide.

On September 13, China's State Council commenced a first-class national food safety emergency response to deal with the tainted Sanlu milk powder.

On September 15, the Gansu Provincial Government confirmed the Sanlu infant milk powder contaminated by melamine was the cause of death for two babies. The melamine was intentionally put into the milk to increase the protein content. High intake of melamine-contaminated milk may lead to urinary diseases.

The Ministry of Health said six babies died and more than 290,000 others fell ill, mainly diagnosed with urinary system diseases, after they had been fed with melamine-tainted milk powder produced by the Sanlu Group.

A total of 22 people involved in the case were detained, including Sanlu executives and milk producers and traders.

On January 22, 2009, Tian Wenhua, Chairman of the Sanlu Group, was sentenced to life imprisonment; and Zhang Yujun and Geng Jinping, who had sold melamine to Sanlu, were sentenced to death.

The Intermediate People's Court of Shijiazhuang announced Sanlu Group's bankruptcy on February 22, 2009.