Nestle runs factories 24 hours a day to avert baby formula shortages after recall

Nestle is ramping up production of infant formula to avert a shortage after a contamination crisis led the Swiss food-maker and rival producers Danone and Groupe Lactalis to recall hundreds of batches.

Five Nestle factories in France, Spain, Germany, Switzerland and the Netherlands are running 24 hours a day to boost supply, particularly of products for babies under the age of one, it said.

A filing seen by Bloomberg showed Nestle asked the Swiss authorities for permission to conduct night and holiday work at its Konolfingen plant on Jan 6, the day after the global recall began.

German manufacturer Hipp and Swiss company Holle – neither affected by the recall – also stepped up production to meet increased demand.

The moves come as the infant formula crisis drags into its third month, with products from at least five companies recalled in more than 60 countries.

It began when Nestle discovered bacteria that can cause cereulide – a toxin that can trigger sudden nausea and vomiting – at a factory, which then ballooned into the industry’s largest-ever recall.

While only a handful of countries have definitively linked cases of babies falling sick to consuming the formula, the publicly listed formula producers have been pummelled by investors reacting to news that a probe was announced.

Probes

Reports that the French authorities are investigating whether a third baby’s death in the country is linked to consuming Nestle infant formula sent both the Swiss company and Danone’s shares down again on Feb 11.

The French company’s stock rebounded on Feb 12 after China said no poisoning cases linked to formula have been reported in the country. That is particularly significant for Danone, which has a large presence there, according to Barclays.

Nestle’s shares edged lower in early trading in Zurich on Feb 13, while Danone’s were little changed.

China’s market regulator also ordered formula makers to test for cereulide – a move that could help keep investor confidence intact, given the critical role of a Chinese company in the industry. Cabio Biotech Wuhan supplies arachidonic acid-rich oil to formula makers, including Danone and Nestle.

While neither company has named the supplier, it has since been confirmed that Cabio is the source of the cereulide contamination. 

Meanwhile, the production boost in Europe, coupled with a broader supply chain in the region, will likely mean Europe will avoid a repeat of what happened in the US in 2022. The temporary shutdown of an Abbott Laboratories factory at that time led to empty shelves and panicked hoarding by parents.

Still, even a limited supply disruption can have a dramatic impact, given the reluctance of many parents to switch brands, particularly given the high dependence on a product with no alternative.

Infants under the age of one rely on breast milk or formula as their only complete source of nutrition. Paediatricians warn that cow’s milk, plant-based drinks or homemade alternatives can cause serious health risks, making formula shortages especially concerning for mothers who cannot breastfeed.

Dominant Companies

“Global giants or large local companies dominate the infant milk market in every region,” Bloomberg Intelligence’s Mr Duncan Fox and Ms Diana Gomes said in a recent note, adding that Nestle, Danone and Reckitt Benckiser Group’s Mead Johnson make up 35 per cent of the global market.

“That may make switching brands hard for parents if a company is slow to recall potentially dangerous products and if babies are feeding well on their current brand.”

That has not stopped some producers from ramping up production. While Holle does not publish specific output numbers, its production boost is a response to the current market situation, spokeswoman Karin Henke said.

“In order to counteract potential bottlenecks at an early stage, we have increased our production volumes as much as possible within the limits of the available raw materials,” she said.

Other producers, including Danone and Groupe Lactalis, as well as British company Nannycare and Dutch company FrieslandCampina, said they have not yet seen any signs of a shortage and are maintaining their existing output.

German producer DMK is also maintaining production levels, as is Swiss manufacturer Hochdorf, one of the companies affected by the cereulide contamination recall.

British brand Kendamil and Arla Foods, the Danish-Swedish dairy cooperative, did not respond to requests for comment on their production levels. BLOOMBERG