The Wall Street Journal-20080206-Japan Frozen-Food Venture Canceled After Poisoning

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Japan Frozen-Food Venture Canceled After Poisoning

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TOKYO -- Japan Tobacco Inc. canceled plans to integrate its frozen- food operations with another Japanese food maker, which would have created one of the nation's largest frozen-food businesses, after consumers were sickened by pesticide-laced dumplings from China.

JT, the world's third-largest tobacco company by sales volume, and instant-noodle maker Nissin Food Products Co. said in November they would jointly buy struggling frozen-produce maker Katokichi Co. JT acquired 94% of Katokichi's shares under a tender offer that ran through December, and was due to sell a noncontrolling stake to Nissin, paving the way to merge their frozen-food businesses.

But Nissin pulled out of the plan following a food-poisoning outbreak linked to frozen dumplings imported from China by JT's food unit. They contained traces of the pesticide methamidophos and sickened at least 10 people. At least six packs of dumplings imported by JT were found to contain traces of pesticide.

The frozen-food deal was a part of JT's strategy to expand beyond its core business of cigarettes, as the number of smokers in Japan declines. Still, JT plans to stay in the food business, JT President Hiroshi Kimura said at a news conference in Tokyo. "There is no change to our strategy of making our food operations a pillar of the company," he said.

The recall was widely publicized in Japanese media, and dealt the latest blow to the image of Chinese food imports in Japan. Japan's imports of Chinese food have grown as consumers here have become increasingly sensitive to price. In 2006, the latest year for which full-year data are available, Chinese food imports in Japan reached $8 billion, up 35% from 2001, according to the quasigovernmental Japan External Trade Organization.

But Japanese consumers have become increasingly nervous over Chinese food imports in the past few years, following discoveries of pesticide in spinach and disinfectant in eel and mackerel imported from China.

Japan's health minister said yesterday that the dumplings had likely been poisoned deliberately at the factory where they were made, which is run by a unit of the Hebei Foodstuffs Import & Export Group. Japanese police have set up a joint task force to investigate the case on suspicion of attempted murder. Initial checks by China's food safety watchdog and a Japanese inspection team found no traces of the pesticide.