June 21, 2015 / 4:12 PM / 2 years ago

Global brands stretched by India's food safety record

5 Min Read

Security guards stand guard outside a corporate office of Nestle India Ltd. in New Delhi, India, June 8, 2015.Adnan Abidi

TALOJA, India/ MOGA, India (Reuters) - At a McDonald's (MCD.N) plant outside Mumbai, 200 workers walk through air dryers and disinfectant pools, then get to work making the day's 25,000 patties from chicken painstakingly sourced in a country with one of the world's worst food safety records.

To safeguard its multibillion-dollar brand, McDonald's says more than 100 checks it applies across its international operations are then carried out after that.

India's tainted water, patchy cold storage network and a retail sector made up of tiny local grocers present a major risk for international food brands, whose reputation can suffer globally from one local slip.

This can mean educating hundreds of small, often illiterate, farmers - critical in a fragmented farming sector that in some cases still uses "night soil", or human faeces, for composting.

"There are thousands of farmers you need to reach out to, each with maybe an acre, two acres of land," said Vikram Ogale, who looks after the supply chain and quality assurance for McDonald's India.

"Think of a situation where you have 1,000 farmers and ... you have to educate them, convince them."

But even that is sometimes not enough.

Swiss food group Nestle NESN.VX (NEST.NS) is currently battling India’s biggest food scare in a decade and an unprecedented branding crisis in the country, after regulators reported some packets of its noodles contained excess lead, a finding the company disputes.

Its woes have laid bare the risks of operating in a country where it is difficult to build a watertight supply chain, and where state food safety infrastructure is minimal, at best.

Nestle, like other major brands conscious of the damage a food scare can create, says it carries out extensive testing and manages parts of its procurement processes electronically so ingredients, milk for example, are tagged and traceable. It steam sterilizes spices and transports edible oil in stainless steel tankers to avoid metal contamination.

It uses external audit firms to check suppliers.

Wal-Mart (WMT.N), which operates as a wholesaler in India, says its checks mean rejecting 10-11 percent of produce daily.

Trace Elements

While all major international firms producing packaged food or fast food say they use trusted suppliers, most acknowledge their suppliers often rely on other providers, who then sub-contract to others and so on, making it a daily struggle to control the source of every last ingredient.

Nestle, for example, buys much of its spices from a supplier that itself sources spices from over 10,000 farmers. Spices like turmeric and chilli powder have in the past been connected to lead poisoning, though there is no evidence that is the source of Nestle's woes this time.

McDonald's imported its french fries from the United States until about seven years ago, while it sought out farmers and educated them on hygiene and best practice.

But not all ingredients can be easily imported, and the need to keep costs low inevitably pushes firms to source locally, forcing them to constantly educate and check standards of suppliers, and suppliers' suppliers.

McDonald's says it can trace all its ingredients, but for many, that is a challenge in a country where one in five food samples tested by the government is found to be contaminated, adulterated or mislabeled.

"International brands have standards, but what they can really control is from when they have access to the raw materials," said Umesh Kamble, a supplier in Mumbai, who sells his products to restaurants in the country.

Nestle is now pushing ahead with India's first ever national recall, pulling some 27,400 tonnes of its popular Maggi noodles off India's shelves, a process that will take at least 40 days.

But India's understaffed and under-resourced government infrastructure has left it in bureaucratic limbo.

It is still awaiting the full results of government tests and details on how they were carried out before it can fix any glitch or rebuild its brand.

At Nestle's plant in the north Indian town of Moga, food analysts at its best-equipped lab in the country are unable to explain the discrepancy between internal tests and those run by the government that found high quantities of lead.

Since the scare began in May, it has tested 833 Maggi noodle samples at independent accredited labs, and 1,857 samples at its own high-end facilities. The tests, representing 165 million packets, revealed nothing out of the ordinary.

"We are in the dark ... We are not privy to how they (the government tests) were done," Satish Srinivasan, the 49-year-old head of Nestle's Moga factory, told Reuters.

Additional reporting by Martinne Geller in LONDON and Clara Ferreira Marques in MUMBAI; Editing by Clara Ferreira Marques and Will Waterman

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