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Nestle Faces ‘Moment of Truth’ in India Over Lead in Noodles

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If there is one product that can stake claim to being India’s most popular comfort food cherished by everyone from toddlers to grandparents, it has to be Nestle SA’s Maggi instant noodles. Now, they are not so sure.

A routine test on a pack from a small town supermarket produced a result that has unnerved many -- the noodles’ seasoning had too much lead, about 7 times permissible limits. The notion that a snack that mothers have been routinely feeding their kids for the last three decades could be tainted with a metal linked to learning difficulties and even death, has jolted the nation, with the story getting front page coverage in all major newspapers.

Nestle faces its biggest crisis in India to date and shares of its Indian unit have tumbled as officials in at least six states ordered independent testing of the products. Criminal complaints were filed against the company and its Bollywood star ambassadors, while India’s food minister said he would consider class action suits.

“This is Nestle’s moment of truth; events like this can be a make or break for a brand,” said Piyush Sinha, a marketing professor at the Indian Institute of Management in Ahmedabad, the nation’s top-ranked business school. “Not just the brand, but the company and its culture and ethos will be tested.”

Wal-Mart Halts

Future Group, one of India’s biggest supermarket chains, has stopped sales of the products in its almost 500 stores. Wal-Mart Stores Inc. said Wednesday it is also halting Maggi sales in its 20 wholesale stores. The controversy led Nestle India Ltd.’s stock to plunge 9.1 percent in Mumbai on Wednesday, its steepest fall in nine years.

Lead is present in small amounts in the soil, and this can be absorbed by plants grown for food. Not all of it can be removed by washing or processing, and so many food products contain trace amounts of lead, often in the range of parts per billion, according to an explainer on the U.S. Food & Drug Administration’s website. The agency prescribes maximum permissible limits for each food category.

Nestle India has tested 1,000 samples at an accredited laboratory and “all the results show that the lead levels are well within the limits specified by food regulations” in India, spokesman Himanshu Manglik said Wednesday in an e-mailed response to questions.

State Bans

The “current negative newsflow and accompanying bans by state governments” will lead to a drop in sales this quarter, Morgan Stanley said in a report Tuesday. Maggi noodles account for about 20 percent to 25 percent of Nestle India’s sales, the brokerage said. Taking sales figures for 2014, that would’ve amounted to about $390 million.

Nestle India’s prepared-dishes segment, which includes pasta and ketchup in addition to instant noodles, has been its fastest growing unit for the past few years, brokerage CLSA Asia-Pacific Markets said in a report Wednesday. The current probe may have implications on all of these products because they all sell under the Maggi brand name, CLSA said.

India’s top food regulator is now checking samples from all of India’s 28 states, and its results will guide the federal government’s next steps, Food and Consumer Affairs Minister Ram Vilas Paswan said.

States are not waiting though. Kerala in the south became the first to stop Maggi noodle sales from 1,700 stores, until tests done at its own laboratories come out in a week, said M. Muraleedharan, an official in the state’s food ministry. Delhi went a step further -- banning sales across the nation’s capital for 15 days starting Wednesday, state health minister Satyendar Jain said.

Tests done at laboratories in Delhi found that the seasoning had an average 3.5 parts per million of lead, Jain said. The maximum permissible limit according to government regulations is 2.5 ppm.

“We are not satisfied with the company’s explanation that the lead level is within maximum limits,” Jain said.

(A previous version of this story corrected the amount of excess lead in the second paragraph.)

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