From tainted milk to counterfeit jellyfish slices, recent food-safety crises have been creating doubts over the integrity of the agribusiness supply chain, as Lockton’s Peter Jackson tells StrategicRISK
Chinese consumers have grown used to reports of fake eggs, poisonous baby milk, exploding watermelons and glow-in-the-dark pork, which Lockton’s Asia head of multinational clients Peter Jackson says come as a result of rampant profit seeking and lax regulatory oversight in the country’s food industry.
“A gang in Zhejiang province was even prosecuted for passing off rat, mink and fox meat as mutton,” Jackson tellsSR with a grimace.
“That same month, authorities caught a company in Hunan province making counterfeit jellyfish slices out of calcium chloride and sodium benzoate.”
Other well known cases include the melamine-in-milk scandal, European horsemeat being added to beef products, and chalk being added to baby milk.
“E. coli and clostridium bacteria were discovered (and then undiscovered) in New Zealand dairy products,” Jackson says. “And analysis of some meatballs bought on the street in China found that they had cardboard as their main ingredient!”
Jackson argues that as a result of such malicious or careless activity, respectable food brands have suffered from consumer concerns about particular product categories. Consumer confidence in food products is being challenged like never before, and the cost of product recalls is increasing to brand-ending levels for agribusiness companies.
“A trend in the West that is now being exported to Asia comes in the form of sales volatility and brand damage due to consumer-powered rumour or media-lead health concerns,” he says. “The reputational cost of a food-safety recall goes far beyond product value.”
The role of pre-issue communication
How is a reputable food manufacturer, distributor, or retailer expected to deal with such volatility? They can try starting with social media, Jackson suggests.
“Many companies treat social media with caution, trying to control or combat negative commentary,” he says. “Some have sophisticated monitoring processes to identify negative commentary early.
“While this is prudent … it demonstrates that most companies have not fully got their head around how to best make use of this powerful tool.”
Companies need to get on the front foot to build reputation, Jackson argues, rather than waiting for negative stories to emerge.
“When a scandal erupts, it’s too late to try and get the positive story across,” he says. “I would wager that all agribusiness companies have crisis-management programs in place, but few have taken the initiative to engage on food-safety issues prior to an incident developing.”
Jackson insists that, from a risk-management point of view, transparency is vital.
“Make food-safety a virtue; the robust sourcing and quality control processes you have in place are selling points,” he says. “Promote this as part of your social media marketing. Reach out to those who have influence over public opinion and show them what you do.
“Don’t be afraid to discuss the issues that concern consumers.”
Where is the weakest link?
Disaster can strike a company at any point in production, and it only takes one weak or dishonest link in a supply chain to cause significant problems, says Jackson.
“For parent companies, there is no choice but to have an in-depth knowledge of the whole of the supply chain,” he advises. “Best practice includes setting rigorous quality standards, regular testing of products, site audits, and developing long-term supplier relationships.
“Is the soil that the lettuce is grown in contaminated? Are the foodstuffs being fed to livestock harmful? How pure is the water those farmed salmon are reared in? Is the packaging designed so it doesn’t contaminate the product before its sell-by date? Is the information on that packaging accurate and compliant?”
Even with checks and balances in place, things can still go wrong. And when they do, the question invariably arises of who will pay for it.
“Food brands are now insisting suppliers have the right product liability and product recall insurance in place,” Jackson says. “Some are starting their own supplier insurance programs to give smaller suppliers comprehensive insurance cover at competitive premiums.”
Jackson says it is clear that companies involved in the food supply chain need to understand what coverage is out there and how best to use insurance support.
“Ensure your own product liability and product recall insurance is sufficient,” he advises. “Update limits, particularly if your business is growing fast.
“Ensure you have business interruption cover to protect against loss of profits in the event there is prolonged inability to supply customers, and check that your critical suppliers have adequate product liability and product recall cover.”
Jackson says that major customers can insist on evidence of cover up to the limits they want as a terms of doing business, and can also ask for a copy of a supplier’s business continuity plan.
He also cautions that the risk from a supplier’s faulty product will not necessarily correlate to its size.
“A small supplier delivering a faulty product can result in just as big a claim as a large supplier,” he says. “It is best practice to see and audit all of suppliers’ insurance cover.”