Food Product Recall Insurance – ONLINE EXCLUSIVE

In 2010, Hillandale Farms in Iowa had to recall half a billion eggs due to a Salmonella outbreak that may have originated from the cramped, unsafe, unsanitary conditions under which the egg-producing hens were housed. The result was over 2,500 illnesses from the infected eggs, and what ensued was one of the largest shell egg recalls in recent history, according to an FDA official.

According to a 2011 report  issued by the Grocery Manufacturers Association (GMA), the outbreak was the largest Salmonella outbreak in FDA history. While the total costs of the outbreak have yet to be calculated, the same report states that the negative media attention egg manufacturers received over the course of the outbreak cost them over $100 million in sales in September 2010 alone.

The preceding anecdote is a good example of why product recall insurance is so important: When something goes wrong, it goes wrong quickly and exponentially, and the results can be disastrous. The $100 million loss in sales does not include the costs of having to pull those products from the shelves, dispose, destroy or disinfect them, and replace them with safe-to-eat eggs that the grocery distributors were entitled to receive.

Food recall insurance is more relevant today than ever before; in this age of ever-increasing technological developments, it is becoming easier and easier for manufacturers to track and identify unsafe products, down to the plant they were processed in. In regards to the offending eggs in the above example, Hillandale Farms knew which egg-count packages were affected, what plants they were processed in, and which brands they were repackaged under.

Additionally, government oversight concerning tainted food is stronger now than ever before. In 2007, after the Taco Bell spinach scandal that affected several locations on the east coast, Congress mandated the FDA to create the Reportable Food Registry,  which, according to its website, serves the purpose of allowing manufacturers to report “when there is reasonable probability that an article of food will cause serious adverse health consequences.” Then, in 2011, President Obama signed the FDA Food Safety Modernization Act (FSMA) into law, thereby delivering the most sweeping change to U.S. food safety procedures in more than 70 years. For the first time, the new focus of the FDA when it comes to food safety will be the prevention of outbreaks, rather than just dealing with them as they come.

The GMA report, which is based on a survey conducted by the GMA of 34 of the biggest food and beverage manufacturing corporations in the U.S., indicates that 81 percent of those surveyed described the financial consequences of a recall as “significant” or “catastrophic.” As one survey participant explained, “business interruption is not only time to get production back up and running, but also time to get the customer to buy the product again.”

In addition to lost profits, recall execution, liability risk, and reputation damage, known as brand equity loss costs, also need to be considered. In fact, survey participants were more concerned about the reputation to their brand’s image in the aftermath of a food safety scandal than they were about lost profits. In the end, it’s harder to recover consumer confidence in a brand than it is to recover lost profits.

]The question then becomes, how can food manufacturers reduce their exposure to these highly damaging, incredibly costly, and, in all likelihood, ever more frequent scandals?

There are several answers.

• The first involves limiting liability through the implementation of rigorous food safety protocols at manufacturing and processing centers. Make your standards tougher than those of the FDA, so you are able to catch a flawed or unsafe product under your brand before it reaches the consumer.