Why the infant formula cereulide crisis matters: summary
- Cereulide contamination has triggered global recalls across leading infant formula brands
- Nestlé expects recall costs under CHF 200m with larger risks reputational
- Current infant exposure risk is assessed as low after widespread withdrawals
- China‑sourced ARA oil caused contamination though not chosen for lower cost
- Brands may pursue legal action and enhanced ARA oil testing is now mandatory
A contamination crisis is shaking the infant formula sector. Cereulide – a toxin capable of causing severe nausea, vomiting, and, in extreme cases, more serious illness – has been detected in products from major players including Nestlé and Danone. Global recalls are now underway, with parents and caregivers urged to avoid affected batches and check cupboards for any stockpiled products.
The source of the contamination has now been identified: a third‑party supplier of arachidonic acid (ARA) oil. But that revelation is already yesterday’s news. In the past 24 hours, a fresh wave of developments has emerged. Here are six of the most significant updates in the cereulide contamination crisis.
1. Manufacturers face financial hit, but fallout won’t show until next year
There has been much speculation over the financial loss manufacturers face amid this kind of global recall. Nestlé, for one, has said that the recalled products account for less than 0.5% of its annual sales.
Earlier today, when the Swiss multinational revealed its FY2025 results, CFO Anna Manz said she doesn’t expect costs – made up of the recall itself, and lost sales due to out-of-stock product – will exceed CHF 200m (€219m).
What remains unknown is the financial impact of any reputational damage faced by implicated manufacturers. In Nestlé’s case, some analysts believe the fallout could be significantly higher – potentially around the CHF 1bn mark.
Whatever the final figure, we won’t know it until this time next year, when Nestlé reports its FY2026 results. “The financial impact will show next year,” confirmed Manz, who added that potential impacts – thought to be a small hit of -0.2% – have already been factored into guidance, which is expected to sit at around 3-4% organic growth next year.
If reputational or consumer impacts turn out to be worse than expected, growth will likely end up at the lower end of that range.
2. Nestlé hasn’t been contacted by French authorities
In France, authorities have initiated investigations into how the infant formula withdrawals were handled. Brands implicated include Nestlé, Danone, Lactalis, Babymio and La Marque en Moins.
According to the Paris prosecutor’s office, the decision to investigate came from a “large number of complaints” filed nationwide, and the “technical nature of the investigations”. The prosecutor had also received a complaint filed by consumer watchdog Foodwatch, as well as complaints from individuals who reported their children had vomited after consuming infant formula. Local prosecutors in three French towns are also investigating the death of three infants.
But despite ongoing investigations, Nestlé has not been contacted by French authorities, said CEO Philipp Navratil during this morning’s media briefing. “There is an ongoing investigation. We will, of course, collaborate if contacted.”
As it stands, there is no link between infant illnesses or deaths and “any Nestlé formula product”, he confirmed.
3. Current contamination risk to babies is low
France isn’t the only country to report infants with stomach symptoms after drinking formula. Austria, Belgium, Denmark, France, Luxembourg, Spain, and the UK too, have reported similar cases. But while investigations into potential links between cereulide contamination and illnesses continue, new findings suggest the current contamination risk is low.
According to the European Food Safety Authority (EFSA) and the European Centre for Disease Prevention and Control (ECDC), that’s thanks to large-scale recalls already underway across multiple countries. But, officials warn that more cases could occur if recalled products remain in people’s homes.
4. Yes, the issue traces back to China. No, it wasn’t a cost-saving decision
A Chinese supplier of ARA oil, added to formula to support brain and eye development, has been identified as the source of the cereulide contamination. Today we learnt that, at least for Nestlé, the decision to go with this supplier was not made with cost-cutting in mind. “This was not about cost at all,” explained CEO Navratil. “It was about ensuring supply security for infant formula.”
What he’s referring to is the history of ARA oil production. For years, only a single supplier produced this key ingredient – a clear supply‑chain risk for any manufacturer. To reduce that risk and diversify its sourcing, Nestlé brought on a China‑based producer. “The supplier was audited and cleared by quality assurance,” said Navratil.
Nestlé has since expanded its supplier base further and now works with several ARA oil manufacturers. As soon as the contamination source was identified, the company stopped sourcing from the implicated supplier.
5. Brands could take legal action against ARA supplier
When it comes to global recalls like this, brand owners take the responsibility publicly. But it’s been made clear the source of the contamination was further up the supply chain. The implicated ARA oil supplier is also facing financial consequences, as it is expected to have breached its contract by failing to meet required safety standards. A fundamental breach like that can lead to a contract being terminated with no further payments.
But things could get much worse for a supplier, with brands within their rights to take legal action. Nestlé confirmed it’s within its rights to do so, but hasn’t so far. “Our focus has been on the recall and is now on rebuilding supply,” said Navratil.
6. New testing procedures for ARA oil underway
Manufacturers are now working hard to fill supply gaps. For Nestlé, that’s its primary focus, with CEO Navratil confirming the company has been shipping “safe and quality-controlled products” since the recall was completed.
What’s new is extra ARA oil testing procedures that weren’t previously in place because cereulide contamination in oil was an “unknown risk”. Now, all oil entering Nestlé’s factories is tested, and only once cleared does it enter production.
Nestlé is no longer sourcing from the implicated supplier, and its other ARA oil suppliers are also being tested. Once the infant formula is produced, it’s tested again prior to release.
“We are applying these learnings across all suppliers to ensure this cannot happen again,” said Navratil. “All product now coming off the line is fully tested and safe.”
