October 8/Beijing/USA TODAY -- When Charles Shao started spending millions of dollars in 2004 to build a Chinese dairy farm that meets international quality standards, "everyone thought we were fools," he says.

"Now they say, you were right to take such care. Send me your milk!" says Shao, an American and CEO of Huaxia Dairy Farm, an hour's drive from Beijing.

For the past month, China's government and dairy industry have struggled to contain the spread of tainted milk products, from Australia to South America. The government vowed this week to overhaul China's "chaotic" dairy industry. Premier Wen Jiabao apologized to the victims and promised "never again."

However, similar crises will happen again, predict Shao and other experts in China's massive food-processing business.

Wu Yongning, deputy director of the government's National Institute of Nutrition and Food Safety, says, "For now, farmers won't dare to put additives into milk. But after some time, if the government effort slackens, some farmers will feel the pressure of rising costs and falling profits. The chances of making fake products increase. There will be more food-safety problems after this."

The current scandal, which involves more than one-third of China's producers of milk powder, erupted last month when four babies died and more than 54,000 became ill after drinking formula tainted with melamine, an industrial chemical that fools tests to show a higher protein content. Melamine can produce kidney stones and other ailments. The chemical also was discovered in pet food last year that sickened hundreds of American pets.

"We have not learned enough lessons from the melamine problems last year," says Luo Yunbo, a food scientist at the China Agricultural University. "We need to toughen the inspection system and standards, and also raise the moral standards of businessmen."

That's a tall order, says Laurence Brahm, a political economist and resident of China for 25 years. China "has gone from socialism to extremist capitalism, in which money is absolutely supreme and there is no other value. Everybody takes shortcuts to squeeze costs, and the (consumer) is the one who ultimately suffers."

He points to recent food-safety scandals. In 2004, fake Chinese-made baby formula that contained minimal nutrition caused at least 12 deaths and malnutrition for hundreds of infants. Other incidents in the past three years include cooked duck eggs colored with industrial red dye, vegetables with harmful pesticide residue, fish with dangerous pharmaceuticals, and vegetables and fruit injected with hormones.

"Each time, there is a knee-jerk reaction, but this is a fundamental, systemic problem where there is no transparency, and the bureaucracy is so entangled that it breeds corruption," Brahm says.

Beijing resident Ren Suqin does not know which products to trust in her local supermarket.

"I am worried about other foodstuffs now: What ingredients do they have that they shouldn't?" says Ren, who was taking a sample of baby formula to the Chinese Academy of Inspection and Quarantine for testing. The testing center is one of 388 labs used by the government and companies that opened this week to individuals for the first time.

Ren's one-year-old nephew was raised on Yili baby formula, an Olympics sponsor, some of whose products tested positive for melamine.

"We consumers are very angry. We used to trust this brand. I have phoned Yili many times, and also the government quality ministry, but I don't believe what they say," says Ren, who paid $150 for the test that will take a week.

Public anger runs deep in the city of Shijiazhuang, home to dairy giant Sanlu, a government-controlled company and China's largest producer of milk powder. Sanlu is at the heart of the milk scandal.

"I am a doctor, and I save lives, but these criminals must be executed," says Qi Li, 55, whose three-year-old granddaughter, Hou Zhuoxiang, developed kidney stones after drinking Sanlu's formula.

Qi is angry that Sanlu was exempt from inspections under a policy to promote self-regulation of local industries. That policy was canceled last month.

The government has arrested 32 people in connection with the milk scandal and continues to restrict news reports.

In the village of Dongsu in Hebei province, home to Geng Jinping, one of the first people to be arrested for allegedly tampering with bulk milk, a USA TODAY reporter recently was prevented by 10 local officials to interview residents.

"We are actively trying to find other companies to buy local farmers' milk," said one official, Liu Xinping.

At the Huaxia Dairy outside Beijing, CEO Shao hopes the crisis leads to stricter standards in China's dairy industry.

In September, he shipped in 2,800 cows from Australia, as the company seeks to become China's largest raw milk provider and the first to be certified by the U.S. Food and Drug Administration. He has invested $22 million and says it will earn a 25% net profit this year.

The government's pledge to beef up supervision "won't change anything, because milk companies are not in control of the whole production process," Shao says. "There are big food-safety problems in China. There are a lot of laws that are not enforceable ... but those issues are why we are here."  

From the October 13, 2008, Prepared Foods e-Flash