Justice will not be instant for Maggi

The case will be handle by the Indian courts infamous for inordinate delays in delivery of justice

There is no denying that Nestle’s reputation has taken a beating in the past few days because of Maggi instant noodles. But the company has not been proactive in dousing the fire either. The company's management interacted with the press only today and decided to withdraw the noodles from the shelves after various states banned the sale of the product.

Initially, the markets ignored the controversy. But after large retail stores, such as Futures Retail and Walmart (Easy Day), decided to withdraw the product, the stock reacted sharply. The company's loss of Rs 10,000 crore in its market capitalisation due to the recent turn of events is almost equivalent to its annual sales.

Read more from our special coverage on "NESTLE MAGGI CONTOVERSY"

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• Up to Nestle now to do due diligence, come back to us: Yudhvir Singh Malik
• Now, Maharashtra govt bans Maggi
• Maggi row; Distributors fear loss of business
• T N Ninan: A noodle-bowl of issues

The controversy began in April when the food regulator of Uttar Pradesh ordered the recall of a batch of about 200,000 packs of Maggi instant noodles due to the presence of alarmingly high level of lead and food additives. Soon, other states followed up with similar tests. Many found identical results and banned its sale.

But more than the loss in share price, the company will be hurt by the damage of its brand image. Any erosion of consumer trust could be “significant” for Nestle, which gets about 15% to 20% of its revenues from instant noodles, says Nitin Mathur, a consumer research analyst at Societe Generale SA.

ICICI Direct, in a report on the company and recent happenings, has said the company will have to increase its advertisement budget to neutralise the impact of this controversy.

The only silver lining for Nestle India is that not all states have reached the same conclusion as that of Uttar Pradesh and Delhi. This is possible because the product is manufactured in different units, and each unit uses raw material available locally.

It is important to note that no company deliberately adds lead to a food product. The metal does not add any nutritional value nor any taste to the product. But lead is present in almost all the products we use because it is present in the ground water and soil which is transferred to the plants. As ground water contamination increases, lead content in food can increase. Smoke from chimneys, which have a high lead content, also settles on plants, leading to an increase the lead content.

Having said that, the onus of checking and reducing the lead content in the final product is on the company that produces it. Nestle has said that its test results are showing lead content to be within permissible limit, but the reports of many state governments suggest otherwise. 

Nestle global CEO Paul Bulcke reiterated that the quality check is the same all over the world, and insisted that Maggi noodles in India are safe for consumption. He refuted claims of Maggi containing additional level of MSG, saying MSG is not added while manufacturing Maggi.

The CEO said that 600 of over 1,000 batches have been tested internally by an accredited third party and no traces of lead were found. "We are trying to find the methodology used by Indian authorities to test the food product," he said.

Even Sunil Alagh, former managing director of Britannia, has raised the question on testing methodology of Indian labs. However, if the labs have been clearing the product for so long, the reason to not clear it suddenly cannot be a mistake.

Further, it is not one government laboratory that has found fault in the product, but many have reached the same conclusion. This does raise the question of coincidence among various laboratories.

But the Maggi case gives both the government and the corporate India a chance to test each other. Ashok Khemka, one of the most transferred IAS officers known for his honesty, has tweeted that if lead and MSG were detected in excess of label claim in the US or Europe, the company would have been required to close down its operations. Indian companies, especially pharmaceutical companies, can vouch for the strict norms prevalent in these countries. If Nestle is found guilty, it should also be penalised in the strongest possible terms.

But if it is not and it is found that government’s testing is faulty and its officials have made a mistake, then the respective department should be made to pay and compensate for the company's loss in revenue, if not market capitalisation. It is only after such penalties are imposed that government agencies would update their testing methodologies, both in terms of sampling as well as the scientific procedure followed.

Unfortunately, the case will be handle by the Indian courts. For an instant product like Maggi, justice will not be instant.