Nestle China coffee plant suspended due to flooding

SHANGHAI (Reuters) - Nestle, the world's largest food group, said on Tuesday that production at its only China coffee plant in southern Guangdong province was suspended due to flooding.

"Production will only be started after all the rigorous hygiene and production requirements are restored," the Swiss company said in an e-mailed statement. The company said it is still assessing losses at the plant.

Flooding this month in China's industrial hub Guangdong has killed more than 160 people across the region. Nestle said it had evacuated its staff at the coffee plant in Guangdong's Dongguan and no staff were hurt.

The Nestle factory, which started operation in 1992, was flooded last Friday morning, but water receded in the afternoon, National Business Daily, a Chinese-language newspaper, reported on Tuesday.

The factory had total investment of 470 million yuan ($68 million), while Nestle may incur more than 100 million yuan of losses, the newspaper said.

NEW CHALLENGE

Nestle has become a household brand in China since 1980s when it was introduced to Chinese consumers, making it one of the first foreign coffee brands in the vast nation.

Nestle is facing fast growing competition in China as Western coffee specialist chain-stores such as Starbucks Corp and Coffee Bean and Tea Leaves are setting up their chops in the country where they try to encourage consumers to shift to fresh coffee from Nestle's famous instant coffee.

"We've been informed of this incident but Nestle has also told us that we don't need to worry about the supply of products as there are adequate stockpile for the near term," said a senior executive at a major retailer in Shanghai.

A second source at a major retailer in Beijing also confirmed that her firm has been informed by Nestle of the suspension of production in its Dongguan factory.

Both the two retail sources said the retail price of Nestle coffee products in China is not expected to hike for the short term though it is hard to forecast for the long term as the situation in flood-hit Dongguan areas is not clear yet.

The retail sources declined to be identified as they were not authorized to speak to the media.

Nestle, which also sells milk power, chocolate, candies and ice cream in China, declined to comment on whether coffee supply in the country would be affected by the accident.

Nestle currently operates 21 factories in China, including three in the Guangdong province near Hong Kong.

Nestle posted 1.19 billion yuan in sales in China in 2006, according to its Web site.

(US1=6.89 Yuan)

(Additional reporting by George Chen; Editing by Louise Heavens)