Analysts feel that Nestle’s decision to end its 12-year contract with SAJ could be part of a move to increase focus on quality after the national food regulator FSSAI banned Maggi noodles because some tests showed that it contained unsafe levels of lead.
MUMBAI: Nestle India has ended its contract with the lone third party producer of its Maggi instant noodles, SAJ Food Products, which means the Swiss food giant will no longer outsource production of the popular snack brand that was recently recalled on safety concerns.
"As part of a standard process, where we review our overall capacity every two years on the basis of volume projections, we took the decision to bring the co-manufacturing with SAJ to an end," a Nestle India spokeswoman said.
Analysts feel that Nestle's decision to end its 12-year contract with SAJ could be part of a move to increase focus on quality after the national food regulator, the Food Safety and Standards Authority of India (FSSAI), banned Maggi noodles because some tests showed that it contained unsafe levels of lead.
"Generally, companies have their own production units for high gross margin product and contract manufacturing is given in the case of commoditised product. The move could be triggered by a need to bring higher quality focus within the company," said Nitin Mathur, research analyst who covers consumer companies in emerging markets for Societe Generale.
Nestle, however, pointed out that it had invested for capacity expansion at its own factories in 2012 to reduce dependence on contract manufacturers. "This (ending contract with SAJ) is because we have started utilising the production capacities and manufacturing facilities in our own factories post investments made in Nanjangud and Tahliwal," the company spokeswoman said.
Nestle had invested for capacity expansion at its own factories in 2012, she said. Kolkata-based SAJ Food Products, a FSSAI-certified company that also owns biscuit brand Bisk Farm, was making nearly 12,000 tonnes of Maggi noodles a year, or 6% of its overall volume of nearly 2.24 lakh tonnes.
"We have gained a lot of insights in terms of quality control and best practices from Nestle as their contract manufacturer and the relationship will continue now as their distributor," said KD Paul, chairman of SAJ Food Products whose group firm Aparna Agency has been distributing Nestle products in Kolkata for 25 years.
Maggi was ordered off the shelves in the country in the first week of June after food regulators said it contained monosodium glutamate, a flavour enhancer, and higherthan-permitted levels of lead. Nestle appealed the order in court, and the Bombay High Court last month lifted the recall order and said the popular snacks can go on sale again after fresh tests on its safety in a decision upheld by the Supreme Court.
Results of fresh tests at court-appointed laboratories are expected next month.
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