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News : Global Economy Last Updated: Jun 15, 2015 - 11:23 AM


Western consumer groups under pressure in China and India
By Michael Hennigan, Finfacts founder and editor
Jun 14, 2015 - 2:43 PM

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Last week Nestlé SA of Switzerland took Indian food regulators to court to challenge a ban on the company’s instant noodles, which authorities claim contain hazardous levels of lead. Meanwhile in China, Western consumer product groups such as Unilever are feeling the heat as large numbers of Chinese are turning from shopping malls to e-commerce retailing.

Nestlé, the Swiss food giant, which is the world's biggest food and beverage group, has been struggling to respond to claims by state regulators that they found illegally high amounts of lead in samples of Maggi 2-Minute Noodles — one of Nestlé’s best-selling products in India.

Paul Bulcke, Nestlé chief executive, flew to India stress that Nestlé has repeatedly tested the noodles and found no evidence that lead exceeded the amount permitted.

Swissinfo said the Food Safety and Standards Authority of India (FSSAI) notified the food commissioners of all Indian states on Monday to send samples of instant noodles, macaroni and pasta sold by various brands to authorised testing labs.

The FSSAI had ordered Nestlé to recall all samples of its Maggi brand of instant noodles on June 5 for containing levels of lead that were above the acceptable limit, as well excess monosodium glutamate (MSG); allegations that Nestlé contests.

“Various test results on Maggi and some other similar products have raised serious health concerns,” said the official notice. “In view of the same, it would be advisable to draw regulatory samples for similar products for which product approvals have been granted by the FSSAI.”

Other international players in the firing line include the Top Ramen brand of Japanese company Nissin and the Foodles brand that belongs to UK’s GlaxoSmithKline. Instant noodles sold by Indian companies like the ITC group will also be scrutinised by the authorities.

In addition, the FSSAI has also ordered the recall, removal and destruction of similar products that have not received product approval from the regulatory body.

The crisis for Nestlé began when the food commissioner for the Indian state of Uttar Pradesh sent samples for testing to a lab, which found concentrations of lead of 17.2 parts perm (ppm) well in excess of maximum permissible 2.5 ppm. Several Indian states subsequently imposed bans on the sale of Maggi noodles despite Nestlé claiming that its noodles were well within the prescribed food safety limits based on its own tests on 125m packets. Public pressure finally forced Nestlé to voluntarily withdraw its products just before the FSSAI officially ordered the company to do so.

“In India Maggi is synonymous with noodles and completely dominates the market with 63% share in 2014,” said food analyst Lianne van den Bos of Euromonitor International according to swissinfo.ch. “This means that the brand has a lot to lose.”

According to Euromonitor, India is the second largest single market for Nestlé’s Maggi brand with retail sales worth $623m (CHF579m) in 2014 across noodles, table sauces and other products.

The Wall Street Journal says Indian safety regulators say Nestlé noodles contain two main components — noodles and flavor packets. They tested each separately and found that the flavour powder contained too much lead, as measured in parts perm.

Nestlé, in response, said the noodles and powder should have been tested in the form that they are typically consumed: mixed together with hot water. The safety agency dismissed Nestlé’s approach, saying the two components were to be checked “independently.”

The Bombay High Court asked food regulators to submit a written explanation within two weeks. The court is slated to hear the petition again on 30 June.

The Journal says analysts say Nestlé isn’t alone in its uncertainty about product approvals and testing. Earlier this week, the authority listed hundreds of products — many made by international brands — that it said were being sold in India without their approval. And Unilever PLC said Wednesday that it was pulling its own instant noodles from sale in India until further clarity on rules and approvals.

In a related development, The Washington Post reported on Friday that House Democrats dealt President Obama a humiliating defeat on his free-trade initiative Friday, derailing a key priority for the president and rebuffing his rare, personal pleas for their support.

The defeat at the hands of his own party placed Obama’s trade agenda in limbo and exposed deep party divisions on economic policy, leaving the pro-trade Democrats marginalized by the anti-corporate wing of the party, which has been on the rise since the 2008 financial collapse. It also exposed the weakening hand of House Minority Leader Nancy Pelosi, who had worked for days to avoid a Democratic takedown of the president’s agenda, only to throw her support in with the rank-and-file rebellion at the last minute.

China

The Wall Street Journal reported Sunday that the recent exodus from retail stores has disrupted retailers world-wide, with global e-commerce topping $1.3tn last year. But in China, the move online happened with greater force, partly because of the speed of smartphone penetration.

An estimated 461m Chinese consumers, a third of the population, are now shopping online, up from 46m in 2007, when e-commerce started gaining momentum. China’s e-commerce market grew 49% last year—after gains in the prior three years of 59%, 51%, and 70%, respectively. In 2013, China overtook the US as the world’s biggest e-commerce market, and last year the country rang up $453bn in sales online, 11% of all retail sales.

Nearly half of Chinese consumers are already buying groceries online, compared with just a quarter of global consumers, according to a Nielsen survey of 30,000 consumers. Last year, 42% of skin-care sales were online, the market-research firm said.

The Journal says consumer-goods sales from the top 100 retail chains accounted for 8% of total sales in 2014, down from 11.2% in 2009, according to the research arm of DTZ, a commercial real-estate-services firm.

For Unilever, which relies on emerging markets for around 60% of its revenue, the China falloff contributed to a 2.7% drop in global revenue last year.

Sales of nonfood items, which include shampoo and soap, fell 13% to 7.3bn yuan (around $1.18bn) in 2014, according to market-research firm Kantar Worldpanel China.

Many countries use regulations to protect local industry.

Pessimism about growth and profitability has forced European businesses to cut back significantly, particularly through headcount reduction: 39% are planning to cut costs—a large jump from just 24% in 2014—with most of them planning employee lay-offs. China remains a key market and thus European companies want the ‘new normal’, much like China wants to move its economy up the value chain. However, the regulatory framework has yet to come into place. In particular, a better implementation of the rule of law is seen as the top driver for China’s economic development going forward, according to the Business Confidence Survey 2015 released last week by the European Union Chamber of Commerce in China and Roland Berger Strategy Consultants.

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