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Losses from recalls and profits from food safety

Thoughts were triggered by recent stories about a report from the US based Wipro Council for Industry Research.

The report kicks off with the statement that food recalls cost the US food industry $20 billion every year. The costs to the companies directly involved and the costs to the product sectors that suffer from the fall-out of consumers avoiding all similar products were included.

The report quotes research that 58% of the food companies questioned had admitted to a major recall in the previous five years. Furthermore as many as 78% admitted to managing the risks through insurance.

So 11% to 12% of US food companies were involved in recalls each year and nearly a quarter of them experienced losses of more than $30 million per recall.

With costs like that the insurance premiums must be huge. Assuming a company survives a major recall with the help of the insurance company then what would be the premium the following year?

The report points to the attitude within US food companies that food safety management is a drain on profits with no apparent benefit. ”Experts equate investments in food safety initiatives to investments in life cover—high premium with low returns.” So it would seem that some US food companies are not giving their food processing management enough money for food safety. Surely they have some form of supplier accreditation and supplier approval?

Am I being too simplistic to think that perhaps if the US food industry invested ‘only’ $5 billion a year in proven food safety systems and halved the cost of recalls then there would be some benefit to the profitability of food companies?

Don’t forget to add the extra profits gained from unexpected consequences. Ask the 3000 plus companies in the USA that have already achieved food safety certification to GFSI recognised systems. Has quality consistency improved? Have process errors reduced so that re-work or scrapping occurs less frequently?

Have the standards of ingredient supplies improved? Are there fewer rejected deliveries and returns? Has the level of consumer complaints and customer complaints reduced?

….and have their recalls reduced?

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