Nestle confronting food safety issues

by Josh Sosland
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VEVEY, SWITZERLAND — While its Toll House frozen cookie dough business appears to be bouncing back from a product recall earlier this year, Nestle continues to experience residual effects from a 2008 melamine scandal that did not directly involve its products, said Roddy Child-Villers, head of investor relations.

Mr. Child-Villers’ comments on melamine were made in response to a question from a securities analyst in an Oct. 22 conference call in connection with Nestle’s nine-month sales update.

Discussing its Zone Americas results, Mr. Child-Villers said sales growth was adversely affected in the third quarter by the recall of Toll House cookie dough. In June, the baking division of Nestle USA recalled all varieties of the Toll House dough after learning from the Food and Drug Administration that the product had been linked to foodborne illness from the pathogen E. coli O157:H7.

Manufacturing resumed in July, and the products returned to supermarket shelves in August.

"Toll House has now recovered to the same level of distribution as before the recall," Mr. Child-Villers said on the conference call.

Asked whether Nestle had recovered from the melamine scare, Mr. Child-Villers said progress has been slower.

In 2008, numerous Chinese dairy processors were implicated in the tainting of milk products with the industrial chemical melamine. The contamination was associated with a number of deaths.

"No Nestle products went out with melamine," Mr. Child-Villers said. "But following on from the melamine scandal, the overall milk market fell significantly, and in fact the overall milk market (in China) is still down about 30%. And of course the formula market also suffered. We do have significant manufacturing capacity in China for milk and for formula. And, as we do in many countries around the world, we believe having local sourcing is a competitive advantage."

Over the short term, though, the local capacity has proven somewhat disadvantageous, Mr. Child-Villers said. Consumers have been favoring imported dairy products, he said.

"And we have imported some products into China from Switzerland, but that was very small volumes relative to the overall market and our overall position," Mr. Child-Villers said.

The melamine experience has not shaken Nestle’s belief in the prospects for its business in China.

"We continue to be absolutely committed to the China dairy market and the formula market," he said. "We continue to believe that being local is the right thing to do for the long term. And the fact that our brands are perceived as local by consumers is a wonderful thing. It’s absolutely what you want as a manufacturer.

"So we continue to focus on the market. We continue to focus on building our business. However, when it comes to infant formula, we continue to be absolutely committed to rebuilding that business with the regulations and World Health Organization code, and there fore it is a longer recovery than in the stand milk business where we can be much more active in terms of consumer market."

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