Dive Brief:
- Western Growers and the United Fresh Produce Association recently launched Western Growers Shield to help manage client companies' exposure to the costs of a potential food recall, according to a news release.
- It is difficult to estimate how much a food recall might cost a company, particularly if it involves illnesses, or even deaths, and there may be downstream impacts on other firms that could drive up the final tally.
- Those who operate food and agribusiness companies are becoming more aware of why they need to reduce risk, according to the organizations, and are taking steps to reduce their exposure in the case of a recall.
Dive Insight:
Any food company official who has witnessed the impacts of a recall first-hand knows it can bankrupt a business and ruin a brand— sometimes for good.
According to a 2011 study from the Food Marketing Institute and the Grocery Manufacturers Association, the average cost of a recall for food companies was estimated to be $10 million in direct costs, plus brand damage and lost sales.
But that's only the beginning. A 2013 Bloomberg report about the most expensive product recalls noted that those numbers could drastically increase. One of the more extreme examples was the 2009 Salmonella outbreak linked to Peanut Corporation of America products, where estimates put a $1-billion price tag on lost production and sales for U.S. peanut producers.
In some cases, produce firms handle coverage themselves. In others, they may decide to gamble and go without. In the first instance, the coverage may prove insufficient; in the second, it could prove fatal to the business.
"It is strictly a business-by-business case; some do and some don’t. The bigger question is how do these produce companies manage their exposures," Jeff Gullickson, senior vice president of Western Growers Insurance Services, told Food Dive in an email.
Not surprisingly, manufacturers involved in pharmaceuticals, consumer products and children's goods are further along when it comes to recall insurance, given the exposure they have, Gullickson pointed out.
"Industry development over [the] past several years has brought exposure for food and ag companies into more focus. Owners are more concerned about it and are understanding and dealing with exposures that they face," he said. Gullickson expands on the various program steps in a posted video.
In the current Salmonella outbreak linked to Mexican papaya — actually four separate outbreaks involving four Salmonella serotypes — the ongoing recall is more complicated than usual because four brands and four different farms are involved.
According to the most recent update from the U.S. Centers for Disease Control and Prevention, 210 people from 24 states have been sickened in connection with this outbreak, 67 people have been hospitalized, and one person has died.
Food Dive asked Gullickson how the insurance program would handle a protracted recall situation like the ongoing Mexican papaya one.
"There are multiple parties involved in the papaya recall," he responded. "Our program is designed to help them in all three phases of a contamination event (pre-event planning, event response and post-event recovery) and then help them with their financial recovery.
"We’ve seen events that have lasted for one day, but we’ve also seen contamination events that have continued for an extended period of time. They are all over the board," he added.
Food companies are rolling the dice if they don't have recall insurance, or if they don't have enough coverage. It's a cost of doing business in today's litigious environment and in an industry where pathogen contamination can occur even if high-quality and consistent care is taken with food safety procedures.