Dear Reader,

Long-time shareholders of Nestle India must have skipped a heartbeat at last week’s developments. Its shares fell sharply after news of a Swiss NGO report which said the company’s baby food sold in India and other developing countries contained more sugar while similar products sold in European countries did not contain sugar.

The news spread through media outlets and social media, amplifying its impact on the stock price. The Indian government too has said it will ask the food safety authority to look into the matter and take appropriate action.

Nestle’s response was that it makes these products in accordance with the Codex prescribed by WHO and ‘local specifications (as required)’. It also said it has voluntarily reduced sugar by up to 30 percent, depending on the variant. Both statements indicate a level of discretion available to it. It then finally said it reviews and reformulates products, and implies it will continue to do so, without compromising on nutrition, quality, safety and taste.

Taste may come last in the list, but lowering sugar will lower taste, and as any parent of a food-spitting infant will tell you their palate grows an attitude at a very young age. Will this development have any lasting impact on Nestle? Unless Nestle has fallen foul of local laws, which is unlikely, it may suffer some short-term reputational damage, but not face any material legal risks.

But there are a few learnings for investors, that are worth reiterating. Consumer companies are here to cater to people’s tastes, tailor products to meet convenience needs and in some cases even try to change your tastes by bringing in products that are totally new to your palate. Convenience and more convenience is the main name of the game. Baby foods fall in that category.

The fact is that when consumers make these themselves at home, they do add sugar. Some parents may not, of course. Companies have simply adapted to it. While some of this may be habits handed down, but it’s also about how the government views it. Banning sugar in baby foods is one solution. Till what age is the question. And when there’s sugar or even salt in all kinds of packaged foods that children consume, how do you enforce this? Why, there’s ample sugar in syrups given to infants, too.

This can extend to virtually any category of products, including non-food categories as well. What’s there in your home cleaner or air freshener or even detergent matters equally for a baby. Licking floors or surfaces or sucking on clothes are all things babies do. What’s there in these products, do they also matter then?

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While this may seem like a too-big-to-handle existential question, the growing trend of premiumisation means that consumers will want better products. Not just in terms of performance — be it nutrition or cleanliness — but better in terms of safety as well. So, these issues are likely to continue to be invoked as companies make significant profits on selling these premium products.

But the problem is that the government cannot really specify that baby foods or even snacks sold to rich consumers need to follow certain rules, but others don’t. A common set of rules will cause chaos as many smaller companies may go out of business and consumers may feel the pinch.

Therefore, the government will make some noise, but largely keep quiet. The onus then falls on companies to voluntarily follow standards and attempt to market their product attributes as being unique. The standards will, therefore, vary between developed markets and India. But the government can play a bigger role in creating awareness of unhealthy food practices among consumers and it should. If a large mass of consumers begins to demand certain attributes, then companies will automatically create products to meet that need.

But there is no real substitute for laws that make it compulsory for consumer companies to ensure products are safe and ensure labelling is taken seriously and reveal more information.


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