PepsiCo International (PEP) followed Coca Cola Company (KO) in acknowledging that their fruit juice, Tropicana, contains a dangerous fungicide. However, the retail giant also assured that the level of fungicide present was lower than the safety level determined by the federal and the juice does not pose any health risk.
PepsiCo conducted tests on its fruit juice after the quality watchdog Food and Drug Administration (FDA) stalled the shipment of all fruit juices into U.S., after Coca Cola alerted FDA that the fruit juice imported by it and its competitor from Brazil contains traces of the fungicide, named carbendazim.
Carbendazim is a chemical fungicide used to combat black spot in the oranges. It is legal in most parts of the world, including Canada, Japan, Europe and Brazil. The black spots do not affect the taste or the nutritional quality, but makes the fruits visibly less appealing to customers.
In the U.S., the use of carbendazim is limited to non-food items like paints, textiles and ornamental trees.
Brazil is the largest contributor of oranges required for the fruit juice market. In 2010, the South American country shipped over 171 million gallons of orange juice to the United States. However, Florida is the principal exporter of orange juice to the U.S.
Only 11% of all orange juice consumed in the U.S. comes from Brazil, according to the United States Department of Agriculture (USDA). U.S. companies import orange juice from Brazil to avoid the frequent hurricanes and freezing temperatures in Florida, which can negatively impact that state’s orange crops.
The Environmental Protection Agency (EPA) in U.S. has conducted preliminary tests on the orange juice, Tropicana, in supermarket shelves and concluded that 80 parts per billion (ppb) in orange juice do not raise safety concerns.
In the tests conducted last week by Coca Cola, the beverage maker detected between 10 ppb and 35 ppb in orange juice products of its own and those of its competitors. Coca-Cola makes Minute Maid, Simply Orange and Odwalla, while Pepsi manufactures Tropicana. These retail giants together capture almost 59% of orange juice market in the U.S.
Meanwhile, FDA conducted tests on samples from 31 shipments. The watchdog gave clean certification to three samples of juice that arrived from Canada. However, the results for 28 import samples from Brazil, Mexico and Canada are still pending.
However, FDA has confirmed that “consumers can be confident that the orange juice in their refrigerators is safe,” and US regulators on Friday allowed the entry of first shipments of imported orange juice in the country since January 4, 2012. The regulators had started testing for the fungicide around January 4.
In another separate story, PepsiCo was accused of making false claim to its customers of providing “100% pure and natural” juice through its Tropicana. The plaintiff, who is a Californian woman, claims that “PepsiCo actually puts the juice through extensive processing, adding aromas and flavors that change its essential nature and give it a longer shelf life.”
Currently, we prefer to be Neutral on Pepsi’s stock. Furthermore, Pepsi holds a Zacks #3 Rank, which translates into a short-term ‘Hold’ rating.
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