Nestlé and Danone: The infant formula recall isn't entirely their fault
Stocks rise on the stock market: contamination may have been caused by a Chinese ingredient
Nestlé and Danone are having a sunny day on the stock market today. The Vevey, Switzerland-based confectionery giant is up 2.5% on the Zurich stock exchange, while the French multinational is up 41% on the CAC40 in Paris. The two food giants' shares are riding high on the back of rumors reported by the Financial Times that the recalls of their baby products, initiated by Nestlé on January 7 (see EFA News ) and by Danone (and Lactalis) on January 27 (see EFA News ), were attributed to external factors and not their fault.
Yes, because the storm that engulfed global brands and even prompted Nestlé's CEO to publicly apologize (see EFA News ) was apparently caused by a toxin found in a Wuhan laboratory, which led to the recall of various products. In short, what jeopardized the brands' reputations was an ingredient in the milk powder they sourced from a single supplier in China.
The ingredient, arachidonic acid (ARA)-rich oil, exposed to a toxin called cereulide, appears to have come from a laboratory in Wuhan: it was added to hundreds of baby product lines before they were shipped to more than 65 countries on five continents.
According to sources familiar with the matter, the contamination originated in a plant owned by the Shanghai-listed biotech company Cabio Biotech. The company was established as a joint venture with the U.S. commodities trading company Cargill until 2012, when the latter exited. The biotech company produces ARA oil, designed to mimic a fatty acid found in breast milk, derived from fermented mushrooms. Cabio Biotech shares are down 1.5% today, but have lost 6% over the past week and about 20% over the past month.
The ARA oil at the center of the scandal has rekindled concerns about the development of the infant formula industry. To offer the most innovative and expensive formulas, companies are adding a growing list of ingredients to make them more similar to breast milk. Innovations include the addition of supplements such as vitamins, prebiotics called human milk oligosaccharides (HMOs) to improve gut health, and ARA to improve brain function and immune development in infants. But researchers debate the effectiveness of these supplements.
The infant formula industry is dominated by a handful of companies, including Nestlé and Danone, as well as US groups Abbott Laboratories and Mead Johnson, which is owned by Reckitt.
Analysts argue that the infant formula industry has been plagued by a series of contamination crises, from the 2008 melamine scandal in China to the 2022 Cronobacter outbreak in the United States. Analysts say that after this ordeal, the loss of trust in trusted brands could outlast the product recalls, leading to a structural erosion of market share, brand degradation, and strategic exits.
Experts emphasize that companies manage their internal quality and microbiological testing systems in-house; however, analysts and NGOs argue that the complexity of ingredients and supply chains may make their testing protocols deficient. Many experts argue that, given the risk profile and regulatory scrutiny, manufacturers should further outsource some of their quality control and testing, especially for highly sensitive ingredients and products.
Analysts argue that the infant formula industry has been plagued by a series of contamination crises, from the 2008 melamine scandal in China to the 2022 Cronobacter outbreak in the United States. Analysts say that after this ordeal, the loss of trust in trusted brands could outlast the product recalls, leading to a structural erosion of market share, brand degradation, and strategic exits.
Experts emphasize that companies manage their internal quality and microbiological testing systems in-house; however, analysts and NGOs argue that the complexity of ingredients and supply chains may make their testing protocols deficient. Many experts argue that, given the risk profile and regulatory scrutiny, manufacturers should further outsource some of their quality control and testing, especially for highly sensitive ingredients and products.
Fc - 57200
EFA News - European Food Agency
EFA News - European Food Agency