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Sudan1 fiasco,

Premier Foods knew about the concern 11 days before the public were told but, under the guidance of the FSA ( Food Standards Agency), alerted suppliers and customers, including the big supermarkets several days before it was made public on February 18 . The other FSA ( Financial Standards Authority) is looking at the possibility that people in the know may have dumped shares. There was a mini-surge in share trades in the days leading to up to 18 February. The total costs of this episode is estimated at tens of millions of pounds. The FSA (Food Standards Agency) is supposed to be independent of the food industry and represent the interests of consumers, not supermarkets or food processors.

Guardian article Feb 27 2005

Watchdogs divided by food scare

LONDON: Less than a fortnight after the worst food scare since BSE, it looks like Premier Foods won’t be punished by the FSA – the Food Standards Agency, that is. Britain’s other FSA might still have a thing or two to say about it.

The Financial Services Authority is understood to have written to Premier demanding an account of events leading up to the processed food giant’s warning that hundreds of popular products may have been contaminated.

After all, Premier’s announcement didn’t just prompt consumers everywhere to bin their Pot Noodles and ready meals. It also prompted a panic of sharedumping that wiped nearly 3 per cent off the £700 million company’s market value.

Of most concern to the City (London’s financial district) watchdog is the possibility that there was an undue delay in disclosing price-sensitive news to shareholders. Premier went public on 18 February, but it had reportedly alerted suppliers and customers, including the big supermarkets, a few days earlier; and it had first become aware of a potential problem a full 11 days earlier.

The FSA will want to make sure that nobody with prior knowledge of the crisis could have used it to gain advantage by selling or short-selling Premier’s shares. The regulator is understood to have begun examining a mini-surge in share trades in the days leading up to February 18.

It could all add to the embarrassment of Premier, which was floated successfully by private equity firm Hicks Muse just last year. However, the FSA’s inquiry is still at a preliminary stage, and it is thought that nothing untoward has yet been uncovered. Premier can also argue that it has acted scrupulously with regard to its regulatory obligations.

It alerted health officials as soon as it became aware that Sudan 1, a carcinogenic dye banned for use in food, had passed via some contaminated chilli powder into its Crosse and Blackwell Worcester Sauce – a key ingredient in many other products. Mindful of needless damage sustained by the wider food industry during earlier health scares, Premier held back from telling the public until it had established the extent of the contamination. In this, it acted under the guidance of the Food Standards Agency. And giving supermarkets an early warning was only sensible because it enabled them to clear their shelves as quickly as possible. Sources close to the company even question whether the February 18 announcement can be considered ‘price sensitive’, since it implied only a tiny dent in the company’s profitability. But whether any of this cuts ice with the Financial Services Authority remains to be seen.

The FSA’s brief is to protect shareholders, not the food industry’s public image, and this unusual controversy might yet put it on a collision course with its public health namesake. If so, it would add yet more confusion to an affair that is already mired in buckpassing.

Premier, chaired by Robert Schofield, has garnered the headlines because it reported the contamination, but sees itself as just one company among many to have handled the rogue chilli powder. It has sought to shift blame on to Unbar Rothon, the food seasonings firm that supplied it with the ingredient. Unbar Rothon in turn bought the chilli from East Anglian Ingredients, another British firm. The trail eventually leads back to India, where several food companies are also blaming each other.

So it is not at all clear who should be held liable. Add to this the fact that the suspect chilli appears to have been imported into Britain in 2002 – before testing products for Sudan 1 was obligatory – and it becomes clear why Premier Foods and others are unlikely to face serious sanctions from trading standards.

Now insurers must squabble among themselves as to who should therefore cover the cost of the fiasco. Premier will be indemnified by AIG and ACE for lost earnings, but the two American insurers are likely to seek redress from other suppliers. Consultants at Deloitte have said that the practical costs of the product recall could top £100 million, although other experts say this is an overestimate. But with more than 400 popular products involved, and some 300 large and small companies involved in Food Standards’ effort to trace the remaining toxic powder, the total costs occasioned by this episode must run into the tens of millions.

Nor has the impact on last week’s food sales up and down the country been fully quantified.

Further legal in-fighting is possible if any of the household brands affected by the contamination, including Heinz, Walkers Crisps and the supermarket own-brands, sustain lasting damage. – Guardian