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India code pesticides Original Source Link: (May no longer be active)
http://www.forbes.com/markets/commodities/newswire/2003/08/14/rtr1057364.htmlhttp://www.forbes.com/markets/commodities/newswire/2003/08/14/rtr1057364.html
Coke, Pepsi in hot water over India health scare
Reuters, 08.14.03, 6:32 AM ET
By Arif Sharif and Paul Simao
NEW DELHI/ATLANTA, Aug 14 (Reuters) - Abul Faiz, who runs a tiny shop in central New Delhi, used to sell four crates of Coke and Pepsi a day. These days, he's lucky to average three.
Faiz, who also sells Indian chewing tobacco, snacks and personal care products, is not worried, but Coca-Cola (nyse: KO - news - people) and PepsiCo (nyse: KO - news - people) are. In fact, the soft drink companies are so concerned that they've gone to court to challenge the cause of the sales drop: allegations that their flagship fizzy drinks in India are contaminated by pesticides.
"A large number of my customers are taxi drivers and uneducated workers. They don't care too much, they just come and ask for a cold drink," Faiz said. "But there are times when people come here in a group and someone says: 'Haven't you heard about the controversy?' And then some of them switch to drinking flavoured milk or fruit juices."
The "controversy" was sparked by an August 5 report by an environmental lobby group that alleges India-made soft drinks contain concentrations of pesticides up to 40 times E U standards. The U. S. companies have vehemently denied the report, have filed lawsuits and are petitioning India's courts to order the government to test their products.
Coca-Cola and PepsiCo worry the spat could hurt their global brands even though India accounts for just a sliver of their worldwide sales and public health controversies tend to blow over quickly in the country of more than one billion people.
"An impact on the brand in India could affect the brand in neighbouring countries and even in the U. S.," said P M Sinha, a former chairman of Pepsi India.
Brands are crucial for both firms. BusinessWeek this month ranked Coca-Cola as the world's top brand with an estimated value of $70.5 billion. The magazine put an $11.8-billion price tag on PepsiCo's brand, putting it 23rd on the list.
Securities analysts tracking both companies are not yet worried, although a 1999 health scare in Belgium led to a recall of millions of Coca-Cola products.
"Will it haunt them elsewhere? No. Not very much, strangely enough," said David Kerans, a beverage analyst with Argus Research in New York. "India does not always translate into other countries very easily."
COKE, PEPSI FIGHT BACK
The controversy started after environmental group Centre for Science and Environment (CSE) released its findings -- available on Web site www.cseindia.org -- on testing India-made Coca Cola, Pepsi, Fanta, Sprite, 7-up, Mountain Dew and other soft drinks.
CSE said it found pesticides commonly used as insecticides in agriculture and concluded India's soft drink industry uses gobs of contaminated ground water. By contrast, CSE found no high pesticide levels in U.S.-made Coca-Cola and PepsiCo beverages.
Coca-Cola and PepsiCo, which dominate India's $1.5-billion soft drinks market, say their brands meet international standards.
Coca-Cola has filed a defamation lawsuit against CSE and its director, Sunita Narain, and demanded the testing of its products be done in a professional manner. PepsiCo on Monday convinced an Indian court to order the federal government to carry out tests on samples of its drinks and present the results in three weeks.
INDIA SALES DEPRESSED
Since the CSE report, shops and restaurants across India have reported a drop in sales of soft drinks.
"There are over one million Indian companies and individuals who sell our products and, sadly, they are now reporting an impact on sales as a result of these allegations," Coca-Cola said in a statement on Wednesday.
Coca-Cola and PepsiCo, which declined to give specific sales and volume figures for India, dominate the country's estimated soft drink market, estimated to run into 350 million cases a year. One case comprises 24 eight U.S.-fluid ounce bottles.
India is a fast-growing market but consumption is very low: Indians drink an estimated 8 bottles per head each year, compared with 25 bottles in China and about 800 in the United Sates.
So the immediate impact to both companies is limited. Coca-Cola's estimated 60 percent India market share made up just one percent of worldwide sales of 18.7 billion cases last year.
But the firms see India as a growth market. PepsiCo has invested nearly $1.5 billion since arriving in 1989 and Coca-Cola nearly $1 billion since it reentered the market in 1993.
CRISES BLOW OVER
Coca-Cola is especially weary of allegations of product deficiencies after a 1999 contamination scare in Belgium and France. Millions of Coca-Cola products were removed from European shelves after 200 people, mostly children, complained they became sick after drinking the beverages.
The problem was traced to a bad batch of carbon dioxide in Belgium and a foul odour from a chemical substance used on storage pallets at a cannery in France. Coca-Cola was criticized for lethargic handling of the crisis and its then-chief, Douglas Ivester, resigned several months later.
"I am sure that Coke has learned its lesson from how it handled Belgium, and Pepsi would have watched that as well," said Caroline Levy, a New York-based UBS Warburg analyst. "They are going to take it seriously instantly."
Indian analysts were sanguine, noting previous public health scares quickly blew over.
CSE published a similar report in February after finding traces of pesticides in bottled water produced in India with little impact. A spat over nickel in chocolates that hurt sales of UK confectionery maker Cadbury Schweppes in India fizzled out quickly in the 1990s.
"Look at the bottled water controversy that happened in February, it died a very natural death," said Nikhil Vora, senior vice president at ASK Raymond James. "In this case the lobbying seems harder because it involves two of the biggest brands."
Copyright 2003, Reuters News Service
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