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Lessons Learned From Recent Recalls
How the food industry can safeguard against future contaminations and recalls
by Sarah A. Sunday, Esq.
The recent massive recall of food products containing peanuts and other peanut ingredients distributed by the Peanut Corporation of America (PCA) offers several insights into steps the food industry can take to avoid future contaminations and recalls. The recall also highlights the fact that the industry must take responsibility for safeguarding our nation’s food supply, because the U.S. Food and Drug Administration (FDA) currently lacks the resources to do so.
The PCA recall, which began in the fall of 2008 with the recall of millions of dollars worth of peanuts and peanut ingredients contaminated with Salmonella, is the largest food recall in American history. The resulting outbreak of illness due to Salmonella contamination sickened more than 700 people in 46 states and killed at least nine people. The recall led to federal investigations and several Congressional hearings, and resulted in PCA filing for bankruptcy protection while being charged with knowingly introducing contaminated peanut products into U.S. interstate commerce.
Aside from the human toll, PCA’s distribution of contaminated product into the U.S. food supply chain has had an undetermined effect on the hundreds of food processing facilities that incorporated PCA’s ingredients into finished products that were then distributed widely throughout the United States. As discussed below, testimony given at Congressional oversight hearings, as well as federal investigations into the recall, have helped to determine what caused the contamination and what can be done to prevent a recall of this magnitude from occurring again.
Know Your Suppliers
While it may seem that food processors should be able to identify the sources of the food ingredients coming into their facilities, federal investigators found that they cannot. Earlier this year, the Office of Inspector General (OIG) at the Department of Health and Human Services conducted an investigation into traceability in the food supply chain to gauge compliance with the FDA’s records maintenance requirements, enacted pursuant to the Bioterrorism Act. The records maintenance rule requires food manufacturers to maintain records that identify the immediate previous source, immediate subsequent recipient, and transporter(s) of their products.
Though the records maintenance requirements have been in effect for more than three years, the OIG found that most food manufacturers and distributors that were investigated could not identify the suppliers (or recipients) of their products. In particular, the investigation found that 59% of facilities in the study did not comply with the FDA’s records maintenance requirements. (See “Traceability in the Food Supply Chain,” Department of Health and Human Services, Office of Inspector General, March 2009, available at www.oig.hhs.gov/oei/reports/oei-02-06-00210.pdf.) In addition, one quarter of the food facilities involved in the study were not even aware that they were supposed to be able to trace product from their suppliers.
The investigation also revealed that of the 40 selected food products traced through the supply chain, only five could be traced all the way through the supply chain at each stage, although the facilities that likely handled the products could be identified for about 31 out of the 40 products. The findings of the OIG investigation help to explain why some food firms, particularly smaller firms not aware of compliance obligations under the FDA’s rules, continued to conduct recalls associated with PCA product well into the spring of 2009.
As the OIG investigation and the PCA recall demonstrated, a food processor’s ability to identify the ingredient source quickly is essential to identifying potentially contaminated product. This is especially true in situations in which firms source bulk ingredients from several suppliers—ingredients that are then commingled into a common bin. In fact, the investigation found that one key factor that hindered the ability to trace product through the supply chain was the mixing of product from several suppliers. The FDA’s records maintenance requirements clearly state that the source of each shipment that enters a common bin must be recorded.
Audit Your Suppliers
After a food firm is able to identify all of its suppliers fully, the next step is to audit the suppliers. There are several ways to complete supplier audits. One common practice is to hire a third party auditor to conduct periodic investigations and audits of the supplier’s facility and operations.
Another way to ensure product quality and safety is to sample and test incoming shipments. Ideally, the sampling and testing should occur before the product is introduced into the manufacturing facility so that if testing reveals a tainted sample, the defective product can be segregated and prevented from contaminating the production lines and finding its way into finished product. If all food processors observed these practices, much of the contaminated PCA product could likely have been prevented from entering the processed food supply chain.
Audit Your Auditors
As mentioned above, hiring a third party auditor to conduct periodic investigations and audits of the supplier’s facility and operations is one option. Even this practice should not be the sole method for ensuring the safety of supplied product, however.
During a March hearing of the House Energy and Commerce Committee’s Subcommittee on Oversight and Investigations, officials from major food processors that had bought product from PCA indicated that they had relied on third party audits, rather than conducting their own independent inspections. In particular, David Mackay, Kellogg’s chief executive officer, told the subcommittee that his company had relied on audits performed by the American Institute of Baking International (AIB), the country’s largest food inspection firm, to confirm the safety of PCA-sourced product. AIB conducted several scheduled inspections of PCA’s facilities and never identified any serious problems; in fact, AIB issued a “certificate of achievement” and gave PCA a “superior” rating last August, at the same time PCA was receiving internal laboratory results indicating the presence of Salmonella in its Blakely, Ga., plant.
By contrast, Nestlé USA, when considering whether to source ingredients from PCA, twice dispatched its own inspectors to inspect the company. On both occasions, Nestlé’s inspectors rejected PCA after identifying sanitary problems at the Georgia and Texas facilities, noting the presence of rodent droppings and insects and the potential for microbial contamination. While both Kellogg and Nestlé took additional steps to ensure the safety of their suppliers’ operations and ingredients, this example demonstrates that inspections conducted by third party auditors may not be sufficient to ensure the safety of supplier facilities.
Test Finished Product
The practices outlined above, if followed, should help to safeguard a food processor from receiving defective product. Implementation of these practices will not protect against the introduction of contaminants during processing, however. In addition to following good manufacturing practices (GMPs) as required by FDA regulations, one of the best ways a food processor can ensure that it will not ship any unsafe product to downstream customers is to randomly sample and test finished product before it leaves the facility. Identifying a potential food safety issue before a product leaves the facility will allow processors greater control in dealing with the issue before compromising the downstream supply chain and creating conditions that could lead to a recall.
Consider Recall Insurance
Many food firms rely on general liability insurance policies and supply agreements in which their suppliers agree to indemnify the firm and cover all costs in the event that they supply defective product or a recall is necessary. Unfortunately, a general liability policy will cover very few, if any, of the costs associated with a food recall, and indemnification clauses in supply agreements are unlikely to be enforceable if the supplier declares bankruptcy, as PCA did.
Given that most food companies operate with a net profit margin of approximately two to five percent, a recall costing hundreds of thousands of dollars could easily force a firm out of business. Accordingly, food processors should investigate whether food recall insurance is a viable option. In many cases, this analysis should not focus on whether a firm can afford to obtain the additional coverage, but rather, whether it can afford not to obtain the coverage.
When considering whether to obtain recall insurance, firms should keep in mind that insurance must be comprehensive and tailored to fit the specific needs and distribution of the particular firm. The insurance should cover not only the lost value of the defective product received from the supplier, along with the cost of replacing that product, but also all costs associated with the following:
- the lost value of downstream product;
- costs incurred in connection with consumer complaints or illness, including medical bills;
- expenses associated with lost productivity and loss of profits in the event of a plant shutdown;
- costs associated with storage, transportation, destruction, and disposal of defective product;
- media and public relations costs; and,
- attorneys’ fees.
Massive food recalls are likely to continue occurring until the FDA can devote more resources to conducting compliance investigations and other enforcement activities that will ensure that food processors are complying with GMPs and measures such as the records maintenance regulations. Even with additional government resources allocated toward addressing food safety issues, the food industry must take responsibility for ensuring the safety of the food supply. While implementing the recommendations outlined in this article will not prevent food contaminations and related recalls from occurring, they may help to safeguard against these occurrences—or at least help to contain them before they spread through the entire food supply chain.
Sunday is a senior counsel in Foley and Lardner LLP’s Washington, D.C., office. Reach her at (202) 295-4720 or email@example.com.