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The Coca-Cola Company ( KO - Analyst Report ) has alerted the U.S. Food and Drug Administration (FDA) that it has found some traces of fungicide carbendazim in its orange juice, made by the company itself and its competitors.
The beverage giant Coca-Cola also revealed that it imports some of its juice from Brazil, where the use of the fungicide carbendazim is legal to fight a type of mold that grows on orange trees. However, a high doze of this fungicide can cause cancer. Carbendazim is not approved by Enviromental Protection Agency for use in citrus in the U.S., whereas other countries allow it up to a certain level.
According to the U.S. Department of Agriculture, U.S. imports about 25% of all orange juice, while the remaining is obtained domestically. Further, out of that 25%, only 11% of all orange juice consumed in the United States is imported from Brazil.
Further, Coca-Cola, along with its peer PepsiCo Inc. ( PEP - Analyst Report ) captures almost 59% of the U.S. orange-juice market, according to the Beverage Digest. Coca-Cola's Simply Orange and Minute Maid, along with PepsiCo Inc.'s Tropicana and Dole are the major brands which currently use Brazilian orange juice. Coca-Cola has, however, not specified the brand which was infected.
FDA, therefore, has announced that it will examine and take sampling of all the containers of orange juice that had been imported from Brazil. Three shipments of orange juice have been tested by the FDA and the fungicide was found in traces of a few parts per billion, which is not harmful to humans.
In addition, the FDA is conducting tests on shipments of imported juice and will subsequently alert the consumers and remove the shipments that test positive for the fungicide. The testing will be complete in mid-January. Both Coca-Cola and Pepsi are co-operating with the FDA to help it grapple with the problem.
However, the discovery of the fungicide had spurred some harmful effects on the January orange juice future, which climbed nearly 10%, as traders began to speculate a slowdown in the imports of orange juice from Brazil owing to the contamination. Besides, the prolonged inflated prices could also slash the sales volume of Coca-Cola and Pepsi. However, until now, the FDA has assured that the fungicide found at that level does not raise safety concerns.
Coca-Cola, which fears the presence of fungicide, currently holds a Zacks #4 Rank, which translates into a short-term Sell rating. On a long-term basis, we maintain a Neutral rating on the stock.
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