Nestle running 24 hours to avert formula shortages after recall

[ZURICH] Nestle is ramping up production of infant formula to avert a shortage, after a contamination crisis led the Swiss foodmaker and rival producers Danone and Groupe Lactalis to recall hundreds of batches.

Five Nestle factories in France, Spain, Germany, Switzerland and the Netherlands are running 24 hours a day to boost supply, particularly products for babies under the age of one, it said.

A filing seen by Bloomberg showed that Nestle asked Swiss authorities for permission to conduct night and holiday work at its Konolfingen plant on Jan 6, the day after the global recall began.

German manufacturer HiPP and Swiss company Holle – neither impacted by the recall issue – also stepped up production to meet the increased demand.

The moves come as the infant formula crisis drags into its third month, with products from at least five companies recalled in more than 60 countries.

It began when Nestle discovered bacteria that can cause cereulide – a toxin that can trigger sudden nausea and vomiting – at a factory, and that ballooned into the industry’s largest-ever recall.

Though only a handful of countries have definitively linked cases of babies falling sick to consuming the formula, the publicly listed formula producers have been pummelled by investors reacting to the probes. 

Reports that French authorities are investigating whether a third baby’s death in the country is linked to consuming Nestle’s infant formula sent shares of both the Swiss company and Danone down again on Wednesday (Feb 11).

The French company’s stock rebounded on Thursday after China said it had no poisoning cases in the global contamination crisis. That is particularly significant for Danone, which has a large presence in the country, Barclays said.

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The production boost, coupled with a broader supply chain in Europe, will likely mean the region will not face what happened in the US in 2022.

Back then, the temporary shutdown of an Abbott Laboratories factory led to empty shelves and panicked hoarding by parents.

Even a limited supply disruption can have a dramatic impact – given the reluctance of many parents to switch brands and especially the high dependence on a product with no alternative.

Infants under the age of one rely on breast milk or formula as their only complete sources of nutrition.

Paediatricians warn that cow’s milk, plant-based drinks or homemade alternatives can cause serious health risks, making formula shortages especially concerning for mothers who cannot breastfeed.

Dominant companies

“Global giants, or large local companies, dominate the infant milk market in every region,” Bloomberg Intelligence’s Duncan Fox and Diana Gomes said in a recent note.

They added that Nestle, Danone and Reckitt Benckiser Group’s Mead Johnson make up 35 per cent of the global market.

“That may make switching brands hard for parents if a company is slow to recall potentially dangerous product, and if babies are feeding well on their current brand,” they said.

That has not stopped some producers from ramping up production. While Holle does not publish specific output numbers, its production boost is a response to the current market situation, spokesperson Karin Henke said.

“In order to counteract potential bottlenecks at an early stage, we have increased our production volumes as much as possible within the limits of the available raw materials,” she said.

Other producers including Danone and Groupe Lactalis, as well as British company Nannycare and Dutch company FrieslandCampina, said they have not yet seen any signs of a shortage and are maintaining their existing output.

German producer DMK is also maintaining production levels, as is Swiss manufacturer Hochdorf, one of the companies affected by the cereulide contamination recalls.

UK brand Kendamil and Arla Foods, the Danish-Swedish dairy cooperative, did not respond to requests for comment on their production. BLOOMBERG