A major retail food item has been recalled and there is much publicity. Stores shelves empty, consumers rush to clean out their pantry and remember if they have consumed the item recently. Government agencies rush to track and trace, and the supplier faces major backlash—the result – a threat to public safety, loss of trust, and a huge financial loss.
What are the real costs of a major food recall? Let’s consider some of the most high-profile cases in the past five years to understand the long-term effects. Unraveling the consequences of food recalls – a domino effect that impacts brand reputation, human health, consumer confidence, and safety. Apart from the financial setback, the long-term impacts can be significant, eroding consumer trust and loyalty.
“A food may be recalled because of contamination with disease-causing microorganisms, such as bacteria, viruses, or parasites; the presence of foreign objects such as broken glass or fragments of metal or plastic; or failure to list a major allergen in the food, such as peanuts or shellfish, on the product label. Food recalls are usually voluntarily initiated by the manufacturer or distributor of the food.”
– U.S. Food and Drug Administration.
Current Data on the Economic Impact:
In Canada, the Canadian Food Inspection Agency (CFIA) recalls significant volumes of food products yearly. According to the most recent data available, food recalls in Canada have a major financial impact. CFIA reports that 84 recalls involving a variety of food industry products occurred in 2023 alone with fruits, mushrooms, and processed food leading the list. The extent of the recall, the number of products impacted, and the related costs such as product retrieval, disposal, inquiries, and potential legal liabilities influence how much food recalls cost. The size of the corporation and the total number of units recalled might quickly increase the projected $10 million direct cost of a food recall. Indirect costs, such as lost sales damage to brand reputation, and dent in consumer confidence further exacerbate the economic exposure for businesses.
Customers’ Trust in the Digital Era:
The proliferation of social media and internet platforms facilitates the quick dissemination of information regarding food recalls. The degree of economic damage is largely determined by the responses of consumers in real-time. Food recalls have the potential to seriously harm a company’s reputation and undermine consumer trust.
How to Mitigate the Damage in Real Time:
- Understand regulations and guidelines: By and large, most governments have made it mandatory to ensure food safety and quality. To make sure that your current systems, processes, and procedures comply with food safety standards, it is crucial to be knowledgeable of current rules and regulations, both domestically and internationally. Food safety laws are intricate and can address everything from guidelines for recordkeeping and documentation to different kinds of recalls. For example, the newly implemented Food Safety Modernization Act (FSMA) Rule 204 by the U.S. FDA mandates all parties involved in the production and distribution of food products to maintain complete records of the chain of custody and activities from farm to fork, and in case of any outbreak, companies need to produce this information within 24 hours notice.
2. Application of Integrated, Closed-Loop Supply Chain System: An integrated Closed-Loop supply chain refers to the seamless coordination and collaboration between various stages of the production and distribution process within a company and among a group of companies in its supply chain where multiple companies are involved and where the chain of custody tends to be complex. It involves integrating technology, secured data exchange, and seamless communication systems to enable real-time visibility, transparency, and decision-making across the entire supply chain network. By adopting an integrated, closed-loop supply chain system, companies can significantly reduce the economic impact of product recalls by being able to trace affected products accurately to their source within a very short time.
Collaborative Technology Platforms: Adoption of modern technology platforms that facilitate a faster exchange of information between impacted parties, supply chain entities, and regulatory organizations can lessen the economic impact of food recalls to a great extent. This helps in the communication of crucial information during a recall and guarantees a better-coordinated response. It also helps speed up the recall and limit the food safety and reputation damage.
Continuous Investment in Technology: Consistent investment in state-of-the-art technologies can improve real-time risk detection and response capabilities. Examples of these technologies include artificial intelligence and blockchain for maintaining immutable records.
Food recalls can do your business irreversible harm in terms of monetary losses as well as harm to the reputation of your brand. This can be avoided by taking proactive measures to ensure food safety in an increasingly intricate and global food supply chain. Hence, it is imperative that producers, manufacturers, processors, and distributors of food products act together to prevent this huge economic and reputational exposure of food recalls. Technological platforms offering integrated supply chain management, recall management solutions, and regulatory compliance mechanisms can go a long way to minimize these exposures and save organizations millions of dollars of losses.
If you are a business dealing with food products, you are not immune to the risk of food recalls and their consequences. Have a conversation with us to discover how you minimize your potential risks of losing consumer trust and lost business opportunities by adopting modern technological solutions.
Authors: Prazzal Talukdar & Tahmina Gazi