TL;DR

  • A harmful toxin was found in an ingredient used in Nestlé baby formula, prompting investigations, examinations of deaths and legal action.

Introduction

Nestlé is a multinational food processor based in Switzerland with a diverse portfolio of holding companies and assets in food products such as chocolate and Baby Formula. Founded in 1886, the food conglomerate has since established a significant market share in the food processing industry, alongside other notable companies such as Danone. 

However, in the new year, Nestle suffered a big shock in its production of Baby Formula due to the presence of Cereulide (A toxin) present in ARA oil (a fat substitute). Food safety regimes are now conducting investigatory work alongside information campaigns to mitigate further damage to families.

What's in the baby formula?

ARA oil is a substitute that mimics the fatty acids found in human milk. The company producing ARA oil is Cabio Tech, a company based in Wuhan. Traces of Cereulide, a toxin which causes nausea, were found in ARA oil batches. The Financial Times has reported that traces of the toxin have been found in products from 65 countries across five continents. 

What are the nations affected doing about it?

France has opened an investigation after the death of 2 infants due to suspected cereulide poisoning, but causal connections haven't been established yet. Nestlé argues that, in the absence of Cereulide regulation, it took action in accordance with the previous regulations.

Foodwatch has also filed legal complaints on behalf of 8 families who say their infant formula was contaminated.

What does this mean legally for consumers?

As food safety administrations take measures to address the contamination, this may lead to fines and further scrutiny. For example, if causality is established in the French case, it could be argued that Nestlé, among other formula processors, failed to meet food safety standards, possibly incurring a fine equal to 10% of the company's annual turnover.

As mentioned prior, Foodwatch are preparing legal action against Nestlé. The food administration watchdog alleges that Nestlé has failed to oversee the production standards of its products through negligent practices. Foodwatch also claims that Nestlé knew about the contamination; however, recalls were made too late. If Foodwatch wins a favourable ruling against Nestlé, it may result in further fines and compensation for affected families.

Overall, we may see greater scrutiny, especially in the EU and Britain, which could give consumers more power.

How is Nestlé impacted?

The contamination of its products not only erodes consumer confidence but also undermines investor trust.

On the 26th of January, Nestlé reached its lowest share price for the month. This could signal changes to their internal budget, meaning that less funding would reach some areas. 

As a result, this may signify an increase in restructuring efforts for less profitable departments. This action is not wholly unprecedented, as in October last year the company cut 16,000 jobs worldwide due to restructuring; hence, we could see a similar thing occurring here.

Future outlook

We can potentially expect much greater scrutiny of infant food products due to concerns about food safety standards. In the short term, we may see more legal action against food processors in response to what has happened. In the long term, this case could signal greater compliance by companies with food safety authorities.