India: Pesticide Claims Shake Up Coke and Pepsi

After allegations of high levels of toxic chemicals in their subcontinental sodas, the U.S. franchises face bans amid a media-stoked uproar

Welcome to the India installment of the fabled cola wars. But this time around, global soft-drink heavies Coca-Cola (KO) and PepsiCo (PEP) are actually on the same side. Their adversaries: a feisty New Delhi-based environmental group, left-leaning politicians in Southern India, and nonstop press coverage that has raised angst levels over pesticide traces discovered in these companies' carbonated drinks. On Aug. 9, the dispute escalated when India's southwestern state of Kerala, home to about 30 million people, banned the Indian subsidiaries of both companies from making or selling their beverages.

Earlier in August, several other regions such as the Western coastal state of Gujarat and Madhya Pradesh in central India erected partial bans on the sale of Coke and Pepsi at schools and government offices. The Hindu nationalist Bharatiya Janata Party is calling for a national ban, and regional politicians with a populist streak have staged Coke and Pepsi bottle-smashing press events. Meanwhile, the Indian Supreme Court has jumped into the fray by ordering Coca-Cola to divulge its century-plus secret formula so government investigators can have more accurate readings of pesticide levels in its products.

In short, this is shaping up to be a public-relations calamity of the first order. True, this is a $2 billion market that both Coca-Cola and PepsiCo dominate with a combined share of roughly 80%-plus. Still, "as multinationals, the scrutiny is going to be a little higher, and the public is going to make a judgment," says Madan Bahal, managing director of AdFactors Public Relations, a Mumbai-based firm that represents international companies such as IBM India, Barclays Bank, and ABN Amro Banking Group. "And if the judgment is that there is something fishy going on, it will harm you."


  This probably won't be an easy judgment to make for most Indian consumers, given the complex technical issues involved. What touched off the controversy was allegations made by the New Delhi Center for Science and Environment (CSE) that pesticide residues found in Coca-Cola and PepsiCo brands were 24 times higher than new safety standards on soft drinks that have been developed by the Bureau of Indian Standards. (These new rules on soft-drink pesticide levels haven't taken effect yet.)

The results of the study, which sampled 57 finished drink products at 25 different Indian Coca-Cola and PepsiCo plants, are "clearly unacceptable as we know that pesticides are tiny toxins and impact our bodies over time," CSE Director Sunita Narain said when the group's findings were released on Aug. 2. Similar charges were made by the group several years back, which led the government to set pesticide standards on soft drinks that already exist for other food products.

PepsiCo and Coca-Cola have attacked the CSE's findings in advertorials published in Indian newspapers. And Coca-Cola has posted background information on its testing and quality procedures done at labs in Hyderabad, California, and London for its Indian drink lineup on the Web site of its Indian subsidiary. It has even offered to take Indian customers on guided tours of its processing plants as a goodwill measure.


  Both companies insist their beverage products present no health threats. "Our products are safe and we measure that against the most stringent standards, the European ones," says Coca-Cola Asia spokesman Kenth Kaerhoeg, who is based in Hong Kong.

PepsiCo noted in its printed ads that pesticide levels in Indian teas and milk are far higher. (Some levels of pesticides are common in many foods given the heavy reliance on chemicals in raising crops in India and other countries.) Prema Sagar, founder and principal of public-relations firm Genesis Burson-Marsteller, which represents PepsiCo, also questions the accuracy of CSE's data, given the work was done by its own labs without any outside peer review. "It is not valid," says Sagar. (Coca-Cola has also questioned the integrity of CSE's testing methods.)

She says that both PepsiCo's and Coca-Cola's economic contributions to India and environmental work done there aren't getting the attention they deserve in this dispute. Given the big corporate names involved, the scrutiny has been extremely intense in India. "Big American global brands are going to attract attention," she says. "The attack on the colas right now grabs space" in the media.


  That's certainly true, but other public-relation pros such as AdFactor's Bahal think both companies might be inviting trouble by primarily going into attack mode on CSE and merely making general assurances that their products are safe. A better approach, Bahal says, would be a more "substantive response" on precisely what levels of pesticides are in their drinks, why that isn't a health threat, and exactly what both companies do to keep it that way.

Admittedly that's tough advice when it basically involves mentioning a pesticide like Lindane, a known carcinogen, or a neurotoxin such as Chlorpyrifos in the same breath as your franchise product. Still, Bahal points out the contrasting approach that Cadbury India took three years ago when live worms started showing up in the company's chocolate products in Mumbai. When Indian government lab reports confirmed the problem, the company quickly investigated and overhauled its packaging procedures to calm consumer fears. That quick action and candor, plus recruiting Bollywood legend Amitabh Bachchan as a new pitchman, quickly restored the brand image. "They were specific on all counts," says Bahal.

Right now, though, the cola tussle in India is being driven more by primal emotion directed at big foreign companies and public fear. PepsiCo pitchman and Bollywood actor and heartthrob Shah Rukh Khan, who says if Pepsi is banned in India he will go overseas to swill the stuff, suggested a more sensible approach would be for everyone to calm down and wait until the government weighs in on the matter. Yet given the rancor unleashed by this controversy, it may be a while before cooler heads prevail.

    Before it's here, it's on the Bloomberg Terminal.