Sunday, July 11, 2010


India is "fortunate" in that they do not have to worry about the complications involved in returning products under any "recall" regime so common these days in some of the countries where there is over dependence of the citizens on processed foods from the industry. Imagine a situation where the industry has to recall 12 million glasses suspected to be containing toxic substances, 28 million boxes of breakfast cereals, 15 million pounds of spaghetti or a baby products company recalling 2 million cribs or an automaker recalling millions of cars suspected to be defective. The recent recall of 70000 boxes of Mozzarella cheese in Europe and millions of dollars worth of products ranging from chocolates, ground beef, peanut butter, spinach, tomato, egg etc can be devastating for the food industry tarring its image very seriously and raising strong doubts in the minds of consumers regarding the ability of the industry to ensure their safety.

Product recall is bedeviling the food industry, with increasing vigilance and monitoring of the quality and safety of foods put on the market shelves, under the watchful eyes of the authorities vested with the responsibility of food safety. It is to be expected that with HACCP system and various other quality management tools available to the industry, the incidences of costly product recalls would come down dramatically but the ground reality does not bear out this optimism. Last year's peanut contamination incidence in the US is estimated to have caused a loss of $ 70 million to Cadburys by way of recall of some of their products containing the contaminated peanut butter. Supply chain uncertainty and traceability logistics pose critical challenges for the food processing industry to have 100% certainty about the safety of the products they manufacture in their facilities however good they may be. This calls for evolving a method to insulate the industry from financially debilitating product recall episodes and prevent going bust in the process.

The food industry's product recall horror stories in some of the western countries are well documented. The estimated $350 million lost by spinach industry in 2006 and the recent recall of alfalfa sprouts in the US are considered serious business disruptions that can keep any industry on its toes. Imagine the condition of the managers of this industry who have to live a life of great uncertainties losing sleep worrying over the contingency of a recall and consequent financial implications to the company. Risk management is touted as a crucial tool to anticipate such contingencies and survive any product recall crisis. Many in the food industry are unaware of the true exposure their organizations face and the risk lurking at every point along the supply chain from field to fork, both before and after a claim occurs. The details of contract language and business relationships can also increase complications. In addition to a detailed contract analysis with growers, suppliers, packers, production and distribution partners to identify contingent responsibilities, a comprehensive insurance audit could, probably save the affected company substantially in the event of a product recall. But such insurance coverage is neither available or even if available the premium can be a debilitating financial burden on the industry

In countries where consumer rights are inalienable, legal fraternity seems to be finding opportunity for expanding their business by way of providing services to both the industry as well as to affected consumers. The gigantic insurance industry is also a gainer as it is becoming increasingly difficult for the industry to avoid litigation. The over dependence of the people on processed foods in countries like the US can be faulted for such a "no-win" situation and those nations indulging in "sloganeering" for value addition to foods may learn a lesson from the real life situation in many countries where processed foods, supposed to be with high value addition, have a strangle hold on the population. Though value addition does boost the GDP of a country and generates employment, it also contributes to cost escalation for many day to day foods, affecting those with limited buying power. A balance has to be struck between the two opposing extremes.


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