India court overturns noodles ban

India court overturns Nestlé Maggi noodles ban

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Nestlé has won a victory in its battle to return Maggi noodles to the shelves of shops in India, after the Bombay High Court decided that a nationwide ban on the snack was unjustified.

Ruling that the ban imposed on Maggi by the Food Safety and Standards Authority of India was arbitrary and “a violation of natural justice”, the court set it aside — but ordered a series of retests before the noodles can return to market.

Multiple Maggi samples will be tested in three national laboratories in the next six weeks. If the tests deem lead levels to be within legal limits, Nestlé India will be permitted to restart making and selling the noodles, one of Indians’ most popular snacks.

Thursday’s verdict is a boost for the Swiss consumer foods group, which has consistently denied Indian authorities’ claim that Maggi noodles had dangerously high lead levels.

In its half-year results later in the day, Nestlé — the world’s largest food producer by sales — said the noodle ban had led to “negative organic growth” at its business in India, which will continue into the second half of the year.

François-Xavier Roger, Nestlé’s chief financial officer, added that the company’s performance in the wider region was also “significantly impacted by the Maggi withdrawal”.

Overall, Nestlé reported a modest increase in sales in the first six months of the year, despite being held back by the food safety dispute and adverse currency movements.

Revenues were up 4.5 per cent year on year in the six months to June 30, to SFr42.8bn ($43.8bn), close to analysts’ estimates of SFr43bn. Nestlé attributed 2.8 per cent of this increase to higher pricing on some of its products, with 1.7 per cent from higher sales volumes.

For the Indian authorities, having the ban overturned represents an embarrassment and is likely to reinforce foreign investor concerns about multinational companies being treated arbitrarily by the country’s regulatory authorities.

Nestlé’s woes in India began in late May after a national laboratory in Kolkata — testing a Maggi sample for the additive monosodium glutamate — detected dangerously high levels of lead. Nestlé argued that the sample was seized a year earlier and had been opened, resulting in contamination.

India’s underfunded, understaffed state food safety laboratories subsequently tested Maggi samples, with some pronouncing them safe to eat while others allegedly detected high lead levels.

On June 5, the FSSAI banned the manufacture and sale of Maggi noodles nationwide, ordering the destruction of all existing stocks. Nestlé estimates some 29,000 tonnes of noodles were destroyed.

However, food safety regulators in the US, UK, Canada, Singapore, Australia and New Zealand all tested Indian-made Maggi noodles and pronounced them safe for consumption, without any dangerous lead levels — fuelling doubts about the credibility of India’s test results.

Nestlé India must now repair the financial and reputational damage caused by the episode. Its sales fell 20 per cent year on year during the April to June quarter — pushing the company into its first quarterly loss in 17 years.

Like its peers across the food industry, Nestlé has been battling slower growth in emerging markets and deflationary pressures in Europe, where consumers remain squeezed in the wake of the financial crisis. It is also having to deal with rising coffee prices.