Of course, as supply chains stretch around the world and into countries where food safety doesn't always get the same respect it does in the United States, the value of such agreements is wholly dependent on the strength of the counterparty. "If you want to make it work, you have to have not only indemnity agreements with parties that have sufficient assets or insurance to cover a loss, but, depending on what you're buying, you may also want to actually go out and do your own auditing," Marler says.
Ultimately, then, prevention is still the best medicine. "The key thing for food companies is to test, test, test," says Alan Schoem, senior vice president for the global product risk practice at Marsh Inc., a risk and insurance services firm, and a former director of compliance for the U.S. Consumer Product Safety Commission. "You have to know your suppliers, you have to know that what you intended to get from them you are getting, and you have to be particularly vigilant when sourcing from Asia."
Procter & Gamble, the $68.2 billion consumer-products company ensnared in the recent pet-food recalls, is no longer allowing suppliers to obtain raw ingredients from new sources unless P&G has first vetted them. ConAgra Foods has not only embarked on an upgrade to its Sylvester, Georgia, peanut butter plant, but also has filled a new vice president of global food safety position and is putting together a Food Safety Advisory Committee composed of leading third-party food-safety experts.
ConAgra executive vice president and CFO André Hawaux says that in the past, food safety was the responsibility of a ConAgra director reporting to a vice president. He said Paul Hall, the new vice president of global food safety, will report to a senior vice president. Hall, he says, "will be responsible for bringing additional focus and leadership to developing and implementing programs that continuously improve product safety and design." ConAgra said its Food Safety Advisory Committee will provide guidance to the company as part of its ongoing work with government agencies, research institutions, and scientists, and assist the company in its plans to fund basic research involving the detection, control, and elimination of food-borne pathogens.
Given the potential risk to their income statements, their reputations, and, ultimately, their customers' lives, food manufacturers have no other responsible choice.
Randy Myers is a contributing editor of CFO.
It's What's Inside that Counts
The flood of recent food-poisoning cases costs consumers and companies.
PET FOOD. In March, Menu Foods Corp., a Canadian manufacturer of pet foods sold by other companies under their own brand names, began recalling pet foods contaminated with melamine, later traced to wheat gluten imported from China. A mid-April poll of dog and cat owners by USA Today/Gallup found that 17 percent had changed what they were feeding their pets as a result of the recall.
PEANUT BUTTER. On February 14, the U.S. government announced there had been 290 cases of Salmonella poisoning in 39 states linked to consumption of Peter Pan and Great Value brand peanut butters made by ConAgra Foods, leading to a recall of those products. ConAgra, which promised to make significant changes to its manufacturing environment, estimated that the recall will cost approximately $50 million to $60 million.
SPINACH. An outbreak of E. coli poisoning last fall linked to bags of spinach sold by $5.9 billion Dole Food Co. resulted in 205 confirmed illnesses and three deaths. In its annual 10-K report for 2006, Dole said the E. coli matter did not have a "significant impact" on its 2006 financial results, but since the spinach recall, sales of its packaged salads have declined 10 percent.
LETTUCE. According to Yum Brands Inc.'s earnings release dated May 1, 2007, its U.S. operating profit declined 11 percent in 2006 due primarily to the performance of its Taco Bell restaurants. They were negatively affected by an E. coli outbreak that was ultimately traced to tainted lettuce, and by publicity around a rodent infestation at a Taco Bell in New York City. In its first-quarter earnings report, Yum said same-store sales at all of its U.S. restaurants, including Taco Bell, KFC, Pizza Hut, and Long John Silver's, fell 6 percent, with Taco Bell the chief culprit. Yum also said it is now requiring, among other things, that its suppliers test lettuce at the farm where it is grown. — R.M.
A Better Burger Industry
Scared Straight
Seattle attorney William Marler earns his living suing food producers and restaurants suspected of selling contaminated food. In 1995, he won a $15.6 million settlement on behalf of Brianne Kiner, who suffered severe E. coli–related health problems after eating an undercooked hamburger from a Jack in the Box restaurant. Lately, though, he's not earning much money on the back of the burger trade, and for that he credits the meat-packing industry for embracing end-product testing of its products for pathogens, partly in response to customer demand.
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