The crisis over contaminated infant formula has escalated in recent weeks, with product recall after product recall. On Friday, Paris public prosecutors announced they had opened an investigation into five companies producing the formula. Parents and investors are nervous.
The investigation concerns potentially contaminated infant nutrition products sold by three of the world’s largest dairy groups. nestle, Danoneprivately held Lactalis, as well as smaller brands Babybio and La Marque en Moins.
The recall was due to possible contamination with cereulide, a heat-stable toxin that can cause nausea, vomiting, and diarrhea if ingested. Symptoms usually resolve within a day, but it can lead to more serious complications.
Paris prosecutors said they opened the investigation because of “deception regarding products posing a risk to human health,” a crime punishable by up to seven years in prison and a fine of up to 3.75 million euros (about 450 million yen), according to a translated statement. CNBC has reached out to the companies mentioned for comment.
Nestlé CEO Philippe Navratil said in January that he regretted the concern and confusion this incident had caused to parents and customers. “Please be assured that your safety and well-being is our top priority,” he said.
Prosecutors said they took up the case after numerous complaints were filed across the country.
In addition, the French Ministry of Health is investigating three cases of infant deaths reported to have been caused by ingestion of infant formula affected by the recall. On February 11, it was announced that no causal relationship had been established and a judicial investigation was underway.
worldwide recall
Nestlé announced a “sequence of events” on January 29, saying it had discovered traces of cereulide in some batches of finished product at a factory in the Netherlands in early December.
The company notified Dutch authorities, the European Commission and potentially affected countries of the potential risk on December 10, adding that it initiated a recall of the entire batch produced on the same day (25 products from 16 European countries).
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In January, the Swiss company announced its first major recall across Europe for its SMA, Beba and Little Steps brands, followed by French peers Danone, maker of the best-selling Aptamil and Cow & Gate, and Lactalis.
To date, recalls have occurred in more than 60 countries.
Nestlé said the source of the contamination was traced to a supplier of arachidonic acid (ARA) oil, which is often added to infant formula.
The impact grew over time as many different companies and multiple brands used this supplier. The supplier has not been formally named. The UK Food Standards Agency has announced that ARA oil suppliers are no longer used by Nestlé and Danone.
However, parents and carers are urged to check if any baby formula products they have at home are part of the recalled batch.
On February 2, the European Food Safety Authority set a threshold level for the toxin cereulide. Warren Ackerman, an analyst at Barclays, said that because of their rarity, no uniform standard existed until now.
Earlier this month, British authorities announced they had received at least 36 clinical reports of infants showing symptoms consistent with cereulide poisoning.
Nestlé and Danone announce financial results this week
Nestlé’s infant formula accounts for about 5% of its sales, and the company said the recalled products accounted for only about 0.5% of its sales. Bernstein analyst Callum Elliott said in January that “the larger number of 5% probably makes more sense given the potential for consumer confusion and brand equity risk.”
“For Danone, infant formula is more important, accounting for around 21% of group revenue in our estimation, and even more from a profitability perspective.”
Both Nestlé and Danone are scheduled to report financial results later this week, with investors hoping to get a better idea of the financial impact of the recalls.
Shares in Nestlé and Danone have underperformed European benchmark indexes since the beginning of the year due to recalls of their infant formula products.
Nestlé shares have risen 1.7% since the beginning of the year, while Danone shares have fallen 5.5% as investors worry about the financial impact and potential reputational damage. pan-european Stocks 600 The index rose 4.6% over the same period.
Shares in Nestlé and Danone plunged in late January at the height of the recall announcement, but have since recovered some of their losses.
– CNBC’s Charlotte Reid contributed to this report
