Two FSA's, one mad one happy with Premier Foods

Mar 1 2005

Two weeks after the worst food scare since BSE, it appears Premier Foods will not be penalized by the the Food Standards Agency (FSA). However Britain's other FSA might not agree.

The Financial Services Authority has written to Premier demanding an account of events leading up to the processed food giant's warning that hundreds of popular products had possibly been contaminated by a banned carcinogenic dye, Sudan 1, found in some of their products.

Premier's announcement prompted consumers to dump their Pot Noodles and ready meals, but it initiated a panic of share-dumping that swiped almost 3 per cent off the £700 million company's market value.

The City watchdog is concerned that there was an undue delay in disclosing the news to shareholders. Premier publicly announced the problem on 18 February, 11 days after it became aware there was a problem. but had already alerted suppliers and customers, including the big supermarkets, days earlier;

The FSA must ensure no-one with prior knowledge could have used the crisis to advantage by selling Premier's shares at a preliminary stage The regulator has begun examining a surge in share trades in the days leading up to 18 February.

Premier, which was floated successfully by private equity firm Hicks Muse just last year,could be embarrassed by any disclosures of illegality.

Premier might argue its actions in delaying the revelations were scrupulous regarding its obligations to alert health officials and that it tried to avoid needless damage to the food industry in general until the extent of the contamination was established.By giving supermarkets an early warning it enabled them to clear their shelves as quickly as possible.

The FSA's role is to protect shareholders, rather than the food industry's public image, and this controversy might well put it on a collision course with its namesake. If this happens expect even more confusion and muck slinging from both parties.

Premier, has been in the headlines because it reported the contamination, and has sought to shift blame on to Unbar Rothon, the food seasonings firm that supplied the suspect ingredient; but is just one of many companies to have used the rogue chilli powder. Unbar Rothon who bought the chilli from East Anglian Ingredients, is another British firm. The trail inevitably leads back to India, where food companies there are also blaming each other.

So who is liable? Who should cover the cost of this fiasco?

The suspect chilli appears to have been imported into Britain since 2002 - before testing products for Sudan 1 was obligatory - so Premier Foods and others will probably not face serious sanctions from trading standards.

With more than 400 popular products involved, and some 300 large and small companies involved in the Food Standards' attempts to trace the remaining toxic powder, costs of the product recall could top £100 million.

Legal in-fighting could be on-going if any of the household brands affected by the contamination, including Heinz, Walkers Crisps and the supermarket own-brands, sustain lasting damage.

Retailers and suppliers will be relieved at least from the knowledge that they are unlikely to face lawsuits from aggrieved consumers. Indeed, the food contamination poses only a minimal public health risk. Class Law, the litigator behind a number of group legal actions doubts, a credible case could be brought against Premier Foods or any other company that formed part of the supply chain. The case would be too hard to prove;

Linking cancer with a carcinogenic food is virtually impossible.