China urges Nestle to work quickly on baby formula recall

BEIJING - The Chinese authorities are urging Nestle to work quickly in

recalling baby formula products

in the mainland over potential contamination concerns. 

The State Administration for Market Regulation said on Jan 8 that Nestle had an important corporate responsibility to protect the rights and interests of consumers in China – which is the world’s largest formula market. 

China’s comments come after the Swiss food group on Jan 7 widened a recall of some baby formula products beyond Europe to Asia and the Americas, over concerns that they may be contaminated with cereulide, a toxin that can cause food-borne illness including vomiting. 

The voluntary recall, which relates to batches of infant nutrition products including the BEBA and Alfamino brands, began in Europe this week after cereulide was detected in an ingredient from one of its oil suppliers.

No reports of illnesses have been made, the company said on its website.

Nestle said it has notified the local authorities in nearly 50 countries, and it is up to those bodies to announce public recalls. Countries that have issued public recalls so far include Germany, Australia, Brazil and China.

While Nestle has yet to tally the total cost of the global recall, it does not expect a significant financial impact. The affected batches represent significantly less than 0.5 per cent of annual group sales, Nestle said.

However, some analysts are estimating a potentially heavier impact, with Jefferies suggesting the worst-case total sales risk could be as much as 1.3 per cent of group sales, equivalent to about 1.2 billion Swiss francs (S$1.93 billion). 

The potential reputational risk for Nestle could be a bigger problem, according to Mr Jean-Philippe Bertschy, an analyst at Vontobel.

“Infant nutrition is a strategically important, high-trust category in which Nestle holds more than 20 per cent of the global market,” he said. “Reputational risk is our main concern rather than the absolute financial impact.”

Consumer behaviour following a recall can vary by market, according to Mr David Hayes, an equity analyst at Jefferies.

“The 2013 false alarm contamination recall of Danone’s Dumex brand in China nearly wiped out about €800 million of brand sales,” he said.

“When Abbott recalled some of its Similac brand in 2010 and in 2022 in the US, the brand market share recovery was achieved within about a year.”

A large-scale recall will be a further headache for Nestle’s new chief executive Philipp Navratil, who is trying to revamp performance at a company that has been buffeted by scandal in the past year.

The executive, appointed after the sacking of Mr Laurent Freixe for failing to disclose a romantic relationship with a subordinate, is already in the midst of cutting thousands of jobs at the company and fighting to drive up volumes and free cash flow. BLOOMBERG