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BREAKINGVIEWS- Nestle's Indian nightmare is worth chewing over
August 12, 2015 / 3:50 AM / 2 years ago

BREAKINGVIEWS- Nestle's Indian nightmare is worth chewing over

(The author is a Reuters Breakingviews columnist. The opinions expressed are her own.)

By Una Galani

HONG KONG, Aug 12 (Reuters Breakingviews) - Nestle’s Indian nightmare is worth chewing over. Maggi noodles, a store-cupboard staple sold by the Swiss giant’s Indian unit, are already banned. Now local authorities want damages of 6.4 billion rupees ($99 million). The attack is a reminder that life remains unpredictable for multinationals in India.

Maggi noodles have been banned in India since June 5, after the country’s food safety authority found they contained excessive lead. Nestle India has challenged the ban in court. The $9.6 billion dairy and drinks company insists the noodles are safe and says different testing methods explain the inaccurate results.

Companies operating in India must work hard to ensure that supply-chains stretching from farm to factory are not contaminated. And India has every right to ensure its consumers are safe. Yet the proposed fine seems disproportionately huge at almost half of Nestle India’s annual net profit.

And India’s substandard food-testing facilities make it equally easy to believe that there is no problem with Nestle’s noodles. The ban appears even more questionable now that agencies in the United Kingdom, Canada, Australia, and Singapore have all declared Indian-made Maggi noodles fit to eat.

The tangle is taking its toll. Nestle India has been forced to replace its boss and take a write down which left it nursing a net loss during the quarter that ended in June. Shares of the listed unit have recovered a bit since the ban was announced but remain 13 percent below where they were on May 27. Maggi noodles formed the bulk of the only division at the company to report any volume growth in 2014.

Nestle India may be too small for its woes to weigh on its Swiss parent. But it is large enough to worry foreign companies eyeing an entry into India on the back of Narendra Modi’s promised reforms. The prime minister pledged, for example, to end the “tax terrorism” that has angered Vodafone and others. But he has so far failed. If Nestle India’s noodle scare turns out to be a false alarm, India will face an even tougher time convincing multinationals to land.

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CONTEXT NEWS

- Indian authorities are seeking 6.39 billion rupees ($99 million) in damages from Nestle India for misleading consumers about the safety of Maggi noodles, a government official told Reuters on Aug. 11.

- The company would be the first foreign firm to be asked to pay damages on behalf of consumers, the official said, declining to be named.

- The Ministry of Consumer Affairs filed the complaint with the National Consumer Disputes Redressal Commission. The case will be heard on Aug. 14, according to the website of the NCDRC, which has semi-judicial powers.

- A nationwide ban against Maggi noodles was ordered in June after the Food Safety and Standard Authority of India said tests found excessive lead in 15 out of 29 samples.

- The local unit of the Swiss company has challenged the ban in the Bombay High Court and a verdict is expected soon.

- Nestle India recorded a one-off charge of 4.5 billion rupees in the three months ending June 30 relating to the estimated cost of recalling and destroying up to 350 million packets of noodles. The company swung to a net loss of 644 million rupees for the quarter, from 2.6 billion rupees a year earlier.

- June 5 FSSAI order: bit.ly/1GqaJtM

- Reuters: India set to seek $99 mln in damages from Nestle after food scare - govt source

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