Food Recalls: 8 Ways to Contain the Staggering Costs

Food Recalls: 8 Ways to Contain the Staggering Costs

Food recalls are increasing in frequency. In this article, you’ll read eight suggestions for food brands and manufacturers to reduce the likelihood of their products being recalled.

You’ll also read about current trends for food recalls in the United States and Canada, with an estimate of the typical costs of a single food recall.

This post opens by  the continuing toll of a 2017 food recall in the United States and Canada. The cause was E. coli contamination in soy nut butter. The product sickened 32 people in 12 states.

The article ends with a list of suggested resources and further reading.

Imagine the most stressful time of your career.

If you work for a food company, it may well be a product recall.

And if you stay in the industry long enough, you’ll almost certainly experience one.

This is the second in a three-part series about food recalls in the United States and Canada.

The first article tells the story of a devastating Class One food recall in 2017.

The third and final article in the series suggests ways to prepare for a recall. It also shares tips for managing and recovering from a recall. 

Physical and mental tolls continue

The 2017 case of contaminated soy nut butter has become a slow-moving tragedy on many levels.

The consequences were worst for the 32 people who were sickened in 12 states. About 28 of the victims were children, and their illnesses devastated many of their families.

Victims and their families incurred out-of-pocket costs for medical care. They may never receive adequate compensation for all their expenses. Some parents will never again see their children lead normal lives.

Canada also enacted a recall, but no Canadians reported illnesses.

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Legal gears grind on

To date, the soy nut butter contamination has generated 24 lawsuits. By the time those suits have inched through the courts, both plaintiffs and defendants will have spent endless time, money, and energy in a limbo of uncertainty. 

The next shoe has yet to drop for a few retailers. The ones that sold soy nut butter to the victims are likely to face about $63 million in lawsuits. Those suits may take years to be decided.

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Many parties face other losses

Even for the retailers that won’t be sued, the roughly 1,500 organizations that sold the product incurred costs. They had to remove the recalled products from inventory, communicate the risks to customers, and pay to have the products returned or safely destroyed.

None of these costs were reimbursed because the food brand folded within 60 days of posting the first recall notice.

More than a year after the recall, the cost of damage is still climbing.

The FDA stopped the brand’s contract manufacturer from shipping any of the many products it makes for other customers.

The tally? One company destroyed and another seriously hobbled. Employees out of work. Owners’ equity up in smoke. Livelihoods disappeared. Customers left hanging.

The owners of the companies have limited personal liability under U.S. and Canadian commercial law.

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Limitations of liability don’t fully protect owners and executives

The leaders of several companies may find themselves in the middle of litigation that could go on for years.

Even without being sued directly, they may be subpoenaed to testify in other cases. If so, they’ll have legal fees to pay. And gnawing worries about possible outcomes. 

Consider three former executives at Peanut Corporation of America, a company involved in a 2008 case of Salmonella contamination. They were sentenced to federal prison for a total of 53 years. Ten years after the outbreak, they were still appealing their cases in court.

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Typical costs of recalls

A study by the Grocery Manufacturers Association (GMA) found in 2011 that the average direct cost for a recall was about $10 million. Damage to brand reputation and lost sales are in addition.

About half (48%) of participants in the study reported that their total costs – including direct cost and lost sales – were less than $9 million. Twenty-nine percent estimated their cost at $10 million to $29 million, and 14% more than $50 million.

Even a small recall can devastate a small company

A recall costing as little as $500,000 could put a small company out of business.

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Undeclared allergens and mislabeling are the number 1 reason for U.S. recalls

The SoyNut Butter recall is just one of hundreds that occur every year in the United States. Hundreds more occur in Canada.

Stericycle, a service provider that helps manage recalls, publishes a quarterly index of food recalls in the United States. Their most recent index reports that both the number of recalls and the number of recalled units declined somewhat in 2017. It continued to decline in the first quarter of 2018.

U.S. FDA food recall trends 2016-2018, by Stericycle.

Source: Stericycle

But 2017 was not typical of longer-term trends.

The Food Allergy Research and Resource Program (FAARP) at the University of Nebraska offers this picture of recalls for food allergens alone:

 

Graph of FSIS food allergen recalls, 1999-2018.

Source: FAARP website

The Food Industry Council reports that undeclared pathogens and misbranded products were the cause of most food recalls in 2017.

Food Industry News and Food Safety Magazine each provide thorough summaries of trends for 2017 and prior years.

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Foodborne pathogens are second leading cause

The second leading cause of food recalls in 2017 was the presence of foodborne pathogens.

The most common sources of foodborne illness include:

  • Norovirus
  • Salmonella
  • Clostridium perfringens
  • Campylobacter
  • Staphylococcus aureus (Staph).

But the most dangerous sources, and the ones most often requiring hospitalization, are:

  • Clostridium botulinum (botulism)
  • Listeria
  • Shiga toxin-producing Escherichia coli (E. coli) O157
  • Vibrio

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Food recall trends in Canada

The Canadian Food Inspection Agency (CFIA) publishes a list of all recalls and allergy alerts. The agency provides a summary of trends between 2006 and 2013. But more recent trends are hard to see because CFIA offers no summary by year.

Coming up with an accurate count can be hard, because an expanded recall of one product is listed as a separate incident.

An infographic from Osler, Hoskin & Harcourt law firm shows 268 food recall incidents in 2013.

Graphs of complaints, investigations, and food recall incidents in Canada, 2013

Source: Osler law firm

As in the U.S., the top causes were undeclared allergens followed by “microbiological issues.”

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Your company is not immune

You may think your company has your production and supply chain processes all buttoned up. Your warehouse and plant – or your supplier’s – are so clean you could eat off the floor.

They pass every inspection with flying colors.

But keep in mind that recalls occur for many reasons, not just food defects caused by manufacturing processes.

Your products may be recalled even if your company isn’t at fault.

You can be exposed to risk by a supplier, by a supply chain partner. It could be a disgruntled employee, a vandal, a terrorist – any party who is careless or malicious.

You could face a recall because your product is mislabeled or because someone added something to it after you shipped it.



 

For participants in the GMA study of recall costs, 62% had been involved in five or more health- and safety-related recalls in the prior five years.

Most respondents said they believe food recalls will increase in frequency and severity.

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Common sense and experience don’t trump good legal counsel

Before we share the lessons we draw from these stories, a caveat.

For legal and regulatory counsel, always consult an attorney or appropriate regulatory agencies. 

The ideas here and in the next blog post are common sense. We intend them mainly for small and mid-sized food brands and manufacturers.

Bigger food companies and brands are more likely to have sophisticated systems and processes in place. They have more resources.

They are more likely to have insurance. They may be more likely to keep a careful watch on their suppliers. They are also more likely to survive a product recall.

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Invest in prevention

Prevention is often hard to justify.

The justification for prevention can be especially hard for smaller, more entrepreneurial businesses.

That’s why these blog posts have tried to help you see the potential risks of recalls.

Prevention can be a tough sell. Someone’s always going to say you’re too cautious.

With prevention, you invest time and money now for an uncertain return.

You don’t know when an identified risk will threaten your business. You don’t know how badly it may affect your customers and your company.

To the degree that your prevention is successful, critics will always say your caution was wasted. They say that because the risks never materialized.

But with food safety, investment in prevention is well worth it. Here are eight suggestions for preventing recalls:

1. Understand regulatory roles and requirements.

Where do you go when questions arise about the need for a product recall or the process for executing one? You find yourself working with regulatory agencies.

In Canada, you have the CFIA at the federal level and various provincial agencies.

In the United States, the picture is more confusing.

The Food Safety and Inspection Service (FSIS) operates under the U.S. Department of Agriculture (USDA).

FSIS is responsible for monitoring and ensuring the safety of meat, poultry, and egg products.

The U.S. Food and Drug Administration (FDA) regulates other kinds of foods.

The Centers for Disease Control and Prevention (CDC) protects against threats to the health of the United States and its citizens.

Various state and local agencies also have local responsibilities for food safety and health protection.

Each agency has its own responsibilities, priorities and regulations.

The FDA, FSIS and CDC often work together closely, and their roles may seem to blur at times.

The University of Florida has published an excellent overview of U.S. law, regulatory agencies and responsibilities relating to food safety. You can download the Food Recall Manual (Version 2) at no charge.

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2. Get to know your regulators.

Bill Marler, an attorney whose firm represents plaintiffs in food-safety cases, offered this advice for food brands and manufacturers:

“Have a pre-existing relationship with the folks that regulate you.”

Regulators hold the fate of your business in the palm of their hand, Marler says. They can determine when a recall is necessary. They can also decide what products to recall, how much to recall, and how broad the recall should be.

Build trust before you need it.

If pays for them to know in advance that you run a reliable, well-controlled operation.

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3. Understand your legal and regulatory responsibilities.

This is so obvious it hardly belongs on the list.

If you don’t already know the requirements and your responsibilities, you’re on thin ice.

But if we didn’t list this item here, you’d question our thoroughness.

Don’t forget to check the requirements of with state or provincial authorities and relevant local bodies.

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4. Create a preventive plan.

Be familiar with the preventive controls of all relevant agencies.

In Canada, the CFIA requires domestic food producers to prepare a Preventive Control Plan (or PCP).

The requirement to prepare a PCP also applies to Canadian companies that import foods. The makes the PCP relevant for U.S. companies that export to Canada.

The CFIA lists seven elements of a preventive control plan :

  • Process and product control
  • Sanitation, biosecurity, biocontainment, pest control and chemicals
  • Hygiene, biosecurity and employee training
  • Equipment Design and Maintenance
  • Physical structure, surroundings and maintenance
  • Transportation and storage
  • Traceability, controls and complaints

It’s a good list. With all these factors under control, your company is much less likely to be involved in a recall that poses a public health threat.

Canada and the U.S. both require preventive control plans.

Under the U.S. Food Safety Modernization Act (FSMA) of 2011, the FDA now also requires preventive controls for food facilities. 

FSMA also requires other measures that are still being phased in, with deadlines for compliance through 2024.

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5. Be careful in labeling your products.

About half of food recalls in the U.S. were caused by mislabeled products in 2017.

Often a product’s label doesn’t list all allergens as ingredients. This may occur because the label is incomplete or because a batch has been contaminated unknowingly. Either way, it’s a process-control issue you can almost eliminate with better procedures and systems.

In 2017, a single recall of major food brands took more than a million pounds of product off the market. The recall covered both the United States and Canada.

The cause? An unidentified supplier didn’t declare milk as an ingredient in bread crumbs. 

Your product may also be recalled if its label contains inaccurate or misleading information. Such information may include false or unfounded product claims.

This is a marketing and legal issue. It has nothing to do with uncontrolled supply chain or manufacturing processes..

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6. Have systems in place to control your supply chain and manufacturing processes.

Companies of all sizes participate in food recalls. Smaller companies are less likely to survive them.

The food industry today is awash with new products from small, entrepreneurial companies.

Startups often lack repeatable processes and procedures. Many operate on paper-based systems.

Replace paper-based systems as soon as you can.

Paper-based, manual systems are prone to error, inconsistency, and inaccuracy.

As soon as your company can afford proper information systems, make the investment.

When regulators see that your systems and processes are buttoned up, they may be willing to postpone a recall or narrow its scope.

You’ll not only reduce your risk of recalls, you’ll also improve efficiency.

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7. Carefully vet your suppliers.

The soy nut butter recall of 2017 occurred because a contract manufacturer ran a filthy plant. This happened although the food brand, I.M. Health Soy Nut Butter, positioned itself as a health food.

The company also claimed to perform rigorous inspections of its production plant.

A single careless supplier can take your company down.

Don’t trust brands simply because they appear to be healthful or organic foods. Organics were involved in a growing number of recalls through 2015, according to the New York Times and other sources.

Whether or not you market your products as health foods, check your suppliers’ facilities often. Insist that they have effective process-control systems in place.

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8. Monitor your inbound and outbound supply chains.

The same advice applies to checking your supply chain service providers.

A 2017 study by Rutgers University found serious food-safety risks in the outbound supply chains of meal-kit services.

Risks mishandling or contamination arise in both inbound and outbound supply chains.

Several vendors offer various technologies for monitoring the condition of products or ingredients throughout the cold chain.

Invest in good traceability systems.

Track-and-trace systems can help identify and diagnose the causes or sources of contamination.

The more effective systems can track and trace each ingredient back to its sources by batch and lot number. They are granular and fast.

In a few minutes, you can retrace all the paths a product or an ingredient took and all the hands it passed through.

Manufacturing execution systems can record the precise formulation of each batch, including the supply chain of each ingredient used.

On the outbound side, they can also record where each batch or lot was sold and shipped.

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How Generix Group can help

Generix Group has been serving U.S. and Canadian food companies for about 20 years.

We work with more than 200 food companies around the world. They range in size from global brands to small specialty labels.

We offer systems for warehouse management, manufacturing execution, and product traceability. These systems can not only help prevent recalls, they can also help manage recalls more efficiently.

Of the seven items on the list for CFIA’s Preventive Control Plan, Generix Group can help with three:

  • Process and product control
  • Transportation and storage
  • Traceability, controls and complaints.

Our strong traceability capability provides fast, actionable, and granular reporting. By seeing the sources of your food-quality problems, you can take fast action to limit possible damages.

Part 3 of this three-part series addresses these topics:

  • Execution. How to manage a recall.
  • Protection. How to control and mitigate risks
  • Recovery. How to bring your brand back from a recall.

For parts 1 and 3, click here and here.

Generix Group is preparing a pair of annotated guides to essential resources for food recalls and food safety. To receive your copy when the guides are ready, please share your name and email address. You can request a guide to recall resources in Canada or in the United States.

Updated June 15, 2018

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Dig deeper: Resources and suggested reading

Food Industry Counsel LLC. FDA Inspection Checklist: What to Expect When They're Inspecting.

Food Industry Counsel LLC. FDA's War on Pathogens: Criminal Charges for Food Company Executives and Quality Assurance Managers.

Food Industry Counsel LLC. FSMA Final Rules: Key Dates.

Grocery Manufacturers Association (GMA). Covington & Burling. Ernst & Young. “Capturing Recall Costs: Measuring and Recovering the Losses.” White paper. 2011.

Heneghan, Carolyn. “More Than Money: What a Recall Truly Costs.” FoodDive. September 26, 2016.

Schneider, Keith R. Goodrich Schneider, Renée. Archer, Douglas L. Danyluck, Michelle D. Baker, George L. Thomas, Chris. The  Food Recall Manual (Version 2). IFAS Extension, University of Florida. February 2018. 

Siegner, Cathy. “CDC Attempts to Assess Outbreak Risk from Organic Food.” Food Safety News. November 3, 2016.

Stericycle. “Calculating the Cost of a Recall.”  June 18, 2014.

Stericycle. “Q4 2017 Recall Index.” The document covers FDA and USDA recalls.

Food Allergy Research & Resource Program (FARRP). Components of an Effective Allergen Control Plan: A Framework for Food Processors

 

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