Nestle India Has Cancelled Their 12 Year Contract With Maggi Manufacturer

We’re excited that our favourite instant noodles, Maggi, is making a return, but recent events have led Nestle to make a huge decision about the manufacturing process of Maggi noodles. Nestle has been outsourcing the production of Maggi’s instant noodles to a third party, but that won’t be happening anymore as Nestle decides to focus more on improving their quality of noodles. SAJ Food Products, the lone third-party producer of Maggi noodles, will not be manufacturing the products anymore. Following the most controversial event with Maggi, by being banned by the country’s food regulator for “containing higher levels of lead and presence of monosodium glutamate (MSG)”, the company finally decided to call off the 12 year contract with SAJ Food Products in an effort to work towards delivering better quality of noodles.

“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,” The Economic Times quoted a Nestle India spokeswoman as saying. “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,  a research analyst from Societe Generale, who believes Maggi is working towards protecting it’s food quality. 

Maggi’s ban was lifted earlier in August by the Bombay High Court who had asked the Food Safety & Standards Authority of India (FSSAI) to “justify its ban” and ordered for fresh tests of the noodles at a lab. Since the ban, Nestle India has witnessed its first quarterly loss in 17 years with Maggi noodles. It posted a loss of Rs 64.4 crore in the June 2015 quarter compared to a profit of Rs 288 crore in the same period last year. The company’s sales fell by over 19% to Rs 1,957 crore in the April-June quarter as against Rs 2,432 crore in the corresponding quarter a year ago. The company also saw a one-time loss of Rs 452 crore during the quarter.