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Facing Food Recalls Pt 1: Impacts

05 Jun
Tomato

BY: Stacey Pisani

Food Safety

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This is the first in a series of articles on food product recalls.

Salmonella outbreak in eggs; E. coli breakout in romaine lettuce. Both are getting a lot of attention right now. Unfortunately, no food company is immune to encountering situations like this that may lead to government warnings or a food product recall. Even plants with the best controls are at risk—human error, mechanical breakdowns, or sampling failures can happen at any time.

Growing Epidemic

The number and magnitude of product recalls has increased significantly in recent years. According to U.S. Department of Agriculture’s (USDA’s) Economic Research Service report entitled Trends in Food Recalls 2004-2013, the average number of food recalls between 2004 and 2008 was 304/year; the average number between 2009 and 2018 increased to 676/year.

Interestingly, the study does not cite riskier foods as the reason for this upward trend. Rather, the increase of food product recall events can be attributed to the following:

  • An increasingly complex and global food supply chain system,
  • Technology improvements in the detection of health risks, and
  • Passage of two major food policy laws—FALCPA and FSMA—particularly related to the dramatic increase in undeclared allergen recalls.

Product Contamination Consequences

A full-scale recall involving food products can be detrimental to a food manufacturer or retailer. According to a survey conducted by the Grocery Manufacturers Association, 29% of companies that faced a recall within the prior five years estimated that the direct cost of the recall was between $10 million and $29 million—and that cost can be even greater when accounting for indirect costs.

There are three primary consequences of a major product contamination/recall event:

  • Product recall expenses – product replacement costs, recall and redistribution expenses, product destruction costs, related crisis management consultation fees
  • Business interruption – financial loss due to product unavailability, decontamination downtime, government action, brand damage, and loss of contracts
  • Third-party liability – financial loss due to third-party property damage and bodily injury

In many cases, a recall event will result in decreased profits over the short run of 6-18 months. The long-term brand damage, however, can impact earnings over an even longer period. Given these trends and the potential associated impacts, every food business should be concerned with potential contamination risks.

Read part 2.

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