The food industry is a sector that is the most susceptible to damages caused by pests. Cost of pest in food manufacturing reach far beyond equipment or stock damage, as brand reputation and health and safety regulations play a great role.
Pests tend to contaminate food products which more often than not results in consumers returning products for a refund or on other hand results in a more severe scenario whereby product recalls are enforced. We’ll explore the cost of pests in the food industry by looking at the cost of product recalls.
The cost of product recalls to food businesses
Food product recalls are a major threat to businesses. They result in disruption in operations while managing the recall. Additionally, there’s direct cost of recalling stock and the associated activities, and the indirect costs caused by the knock-on effects, mainly reputation damage. This effect on consumers can result in significant long term financial losses for a company due to loss of sales.
Food recalls cost companies an average of R136.7 million in direct costs alone, according to a study by the Food Marketing Institute and the Grocery Manufacturers Association (GMA) in the US. A separate GMA sponsored a survey found 5% of companies incurred over $100m in direct and indirect costs. Recently a listeria contamination in cold meat products costed one of South Africa’s biggest food producers R365 million.
The effect on consumers is possibly the most significant factor. A survey by Harris Interactive found that 15% of consumers would never buy that product again. Furthermore, 21% of people at a centre of a recall would not buy any product from the same manufacturer.
Product recalls are increasing
As seen with the previously mentioned listeria outbreak that happened in South Africa product recalls have been increasing lately. Furthermore, globally the numbers of products recalled have increased in the last few years. In a survey of companies, the GMA found that 58% of companies had been impacted by food recalls, with 6% having an impact from 11-20 recalls
The factors that are driving an increase in food product recalls include:
- Contamination caused by pests: Pests such as rats carry pathogens that are possibly life threatening, like listeria and salmonella. Outbreaks usually cause large food recalls. Stored Product Insects are also responsible for a number of recalls in grains, cereal and dried food products.
- Just-in-time global manufacturing: products are increasingly sourced through global supply chains. Contaminated products can rapidly spread worldwide before the problem is picked up
- Fewer suppliers and complex supply chains: supply is concentrated in fewer global suppliers who source through complex supply chains. This increases risks in food safety and when one supplier has a problem it can affect many more retailers and consumers than in the past
- Improved technology and practices for traceability and detection of pathogens
- Stricter regulations and enforcement: Since the listeria outbreak it seems more likely that stricter regulations will be enforced in line with WHO standards.
Causes of food product recalls
The most common cause of food product recalls is biological contamination (microorganisms and toxins), which mainly affects food supplied fresh or raw, such as nuts and vegetables. This type of contamination can have many causes, including use of contaminated water by a producer, personal hygiene and unsanitary food handling practices (such as the Listeria outbreak) along the supply chain and pest infestations in the supply chain.
Types of food product recalled
As mentioned above, raw foods are a major source of contamination leading to product recalls. As they do not go through the sterilising phase of cooking, consumers rely on safe practices along the supply chain to keep them safe to eat. Nuts, fruits, vegetables and dairy products are the major product types recalled, with spices and teas also significant.
Costs of a food recall
The direct costs of a food recall include:
- Assembling the crisis team
- Removal of the product from the market, which includes:
- Issuing notifications to: Regulatory bodies, Businesses affected in the supply chain, Consumers
- Collecting the product from warehouses, retailers and consumers
- Storage of the recalled product
- Destruction of the product
- Investigation of the root cause of the factor that caused the recall
- Managing the PR to inform customers and protect the business reputation
Real world examples of direct costs of a product recall
In 2016, a food manufacturing company recalled 10 million pounds of flour when it was linked to an outbreak of E. coli. (a disease spread by pests such as rats). The flour sold at approximately $0.50/lb, so using the easy calculator to estimate costs this amounted to R102.8 million for the direct cost of the recall.
Indirect costs of a food recall
Indirect costs have no finite period and are often difficult to measure directly. For example, there may be no certainty that all a reduction in sales or profits were caused by a recall. However, the lasting effects of reputation damage and brand avoidance by consumers can last for years.
In some cases a whole industry can be affected by a food recall by one supplier or manufacturer. As seen with scepticism from consumers towards purchasing cold meat since the listeria outbreak .
Indirect costs of a food recall include:
- Litigation costs, from claiming damages (from others or others from you) or prosecution by government agencies
- Fines from government agencies
- Lost sales
- Decline in value on the stock market
- The impact on brand reputation in the industry and with consumers
One of the major causes of food product recalls is contamination with pathogens such as Salmonella, Listeria and E.coli. This can occur at any stage in the food supply chain. The main way to prevent contamination is to implement hygienic practices to prevent cross contamination, such as:
- Ensure there are proper hygiene procedures to keep equipment and surfaces clean and personnel handling food maintain personal hygiene.
- Prevent the growth of microorganisms by temperature and moisture control through adequate ventilation
- Ensure processes prevent cross contamination between raw and cooked or fresh products, including measures such as separating employees working in each area
- Implement pest control measures to deny harbourage. Prevent entry to buildings and prevent access to food and water, including waste food
Rentokil has a range of solutions to help reduce food safety risks at all stages of the supply chain by preventing contamination through pest control and maintaining high levels of hygiene.
Written by: Harry Wood