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WRAPUP 1-Yum China cuts ties to owner of plant in meat scandal after arrests

* Five Shanghai Husi staff detained include head and quality chief -police

* Food safety violations at Husi were company-led, not individual acts -watchdog

* Over 1,000 tonnes of suspect meat products sealed from OSI in China

* More Japanese companies withdraw Husi-supplied products

(Adds Yum statement)

SHANGHAI/LANGFANG, China, July 23 (Reuters) - Yum Brands Inc's China division severed ties to OSI China after Shanghai police detained five people from that supplier's meat processing factory at the center of a food safety scare that has ensnared several major Western brands.

Shanghai police said on Wednesday the five individuals being held included the head of Shanghai Husi Food Co Ltd as well as its quality manager.

"Yum China has decided to immediately terminate all procurement from OSI China," including Shanghai Husi, Yum said in a statement.

OSI China and its Shanghai Husi business are part of Aurora, Illinois-based OSI Group LLC, which was not immediately available for comment.

KFC and Pizza Hut parent Yum, McDonald's Corp and coffee chain Starbucks Corp are among global brands that have pulled products from their outlets after it emerged that Shanghai Husi supplied expired meat to clients in China, as well as Japan, in the latest in a series of food scandals in the country.

Earlier, the official Xinhua news agency cited the Shanghai food and drug watchdog as saying that food safety violations at Shanghai Husi were company-led rather than the acts of individuals.

Yum said in its statement: "It is difficult to believe and completely unacceptable that the management of Shanghai Husi ... would oversee and organize illegal and dishonest operations."

The company added that OSI China was not a major supplier to its nearly 6,400 restaurants, which are mostly KFC outlets, in China.

Those restaurants have arranged for alternative suppliers, and Yum said it did not expect any disruptions to its KFC business in China.

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 meats that had expired and had been lying on the floor.

DIFFERENT STANDARDS

Huang Denggang, 20, worked as a night cleaner at the Husi plant, a modern warehouse compound in a Shanghai suburb, for more than a year, but does not plan to return when it reopens because of lower-than-expected pay and a medical claim.

He told Reuters on Wednesday that he had seen workers pick up raw meat from the floor and put it back into processing containers.

"The leader didn't say anything when you throw it back," he said at a local job agency where he works during the day.

Huang, who showed Reuters his Husi payslip as verification of his employment there, also said he had seen some workers handling raw meat without wearing gloves.

"If you wear gloves," he said, "maybe it slows you down if you want to pick up the chicken pieces because they're slippery." He added, however, that he did not work in that part of the factory.

Another Husi worker, who gave only the surname Zhang, said by telephone that he had worked on the production line, breaking up chicken into pieces, but had quit because of the low pay.

"When (raw meat) drops, they usually don't see it, and even if they do, it was fine to pick it up and put it back," he said. "There was an attitude of 'it doesn't really matter."'

The former employees' comments contrasted with what one worker at another of OSI's food processing plants in Langfang in the northern Chinese province of Hebei told Reuters. He said that rules there were very strict, all workers needed to wear special clothes, and unannounced spot checks were often held.

"The inspections are done by everyone: our own company, the government and also clients like McDonald's," said the worker, surnamed Wei, as he took a break at a nearby supermarket. He said the Hebei factory, which according to its website processes meat, vegetables and flour products, was still open for business despite ongoing government inspections.

DOCTORED RECORDS

Xinhua also cited Gu Zhenhua, deputy head of the Shanghai Municipal Food and Drug Administration, as saying that Shanghai Husi's controls systems and records for suspected products violated Chinese regulations.

In the Dragon TV documentary on Sunday, staff at the Shanghai Husi facility said they kept two record books on food products, one of which was doctored to be shown to anyone who came to audit the facility. According to the report, which claimed to show an inspection of the facility by McDonald's, Shanghai Husi staff learned of the visit a day in advance and made sure that only compliant products were being processed on the day.

Separately, the Shanghai food watchdog said it had sealed more than 1,000 tonnes of suspected meat products from OSI in China and another 100 tonnes of products from various customers.

In Japan, a spokesman for Seven & I Holdings Co Ltd said a licensee in Shanghai had been selling two hamburger products using meat supplied by Shanghai Husi. Both products were removed from outlets on Monday.

A spokeswoman for FamilyMart Co Ltd said the Japanese convenience store chain had begun a supply deal with Shanghai Husi this month. Sales of both products it was selling under the agreement were halted on Tuesday.

The company said there were no reports of customers falling sick from the products, "Garlic Nugget" and "Popcorn Chicken."

"The very fact that this happened means that I think that additional checks should be put into place to help reassure consumers," FamilyMart President Isamu Nakayama told reporters in Tokyo in a public apology.

On Tuesday, McDonald's Holdings Co (Japan) Ltd said the company had sourced about a fifth of its Chicken McNuggets from Shanghai Husi and had stopped selling the product on Monday.

(Additional reporting by Ran Kim, Shimizu Ritsuko and Olivier Fabre in Tokyo, Adam Jourdan in Shanghai and Lisa Baertlein in Los Angeles; Editing by Ian Geoghegan and Lisa Von Ahn)