China’s market regulator has ordered infant formula makers to test for cereulide, a toxin that has triggered precautionary recalls worldwide by some of the largest food companies.
Producers must strictly enforce controls on raw materials and product releases, the State Administration for Market Regulation said in a statement on Thursday. Local governments were instructed to strengthen oversight of safety and quality standards, though no poisoning cases linked to infant formula have been reported in China.
The urgency stems from Nestle SA’s discovery of cereulide in baby formula traced to ARA oil from a single company it didn’t name. People familiar with the matter have since identified the supplier as China’s Cabio Biotech Wuhan Co., sending its shares plunging 16% this year.
Cabio has grown into one of the world’s biggest producers of ARA, supplying Nestle, Danone SA, and local formula makers such as China Feihe Ltd. and Junlebao Dairy Group Co. Its rise has fragmented the global infant formula supply chain, breaking Dutch chemical maker DSM-Firmenich AG’s former monopoly on the ingredient.
China’s stricter oversight may work to keep investor and consumer confidence intact, given the critical role of a Chinese supplier in the global infant formula industry.
Authorities earlier pressed Nestle to recall specific batches sold in mainland China after detection of the toxin that can cause food‑borne illness, including vomiting. Nestle expanded its recall beyond Europe to parts of Asia and the Americas in January. while Danone and other producers also withdrew products in multiple countries.
The regulator’s order marks China’s latest step to tighten oversight by setting clearer requirements for cereulide testing. While manufacturers have said there are no confirmed illnesses linked to the recalls, regulators in several countries are investigating potential cases.
The recalls could weigh on Nestle and Danone’s reputations and accelerate stricter regulation across the global infant formula supply chain.
Markets, however, appear unfazed. Danone shares rose 4.72% on Thursday, while Nestle gained 1.39% after China confirmed no poisoning cases and announced no additional recalls.
“We believe the market has already priced in the impact of Nestlé’s global recalls, and we can hopefully now move on,” Barclays analyst Warren Ackerman said in a note.
Photograph: Danone infant formula at a home in Beijing; photo credit: Giulia Marchi/Bloomberg
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