The True Impact and Cost of Food Recalls
Food recalls are common in today’s marketplace, and they can devastate brands when they occur. In addition to the breach of consumer trust they represent, food recalls can be expensive and frustrating, exposing consumers to health risks that can be life-threatening in some cases and causing extreme amounts of food waste.
We all remember recent produce recalls of romaine lettuce, citrus fruits, and onions, as well as meat and dairy, recalls that have emptied store shelves over the past several years. Food contamination poses a major public health risk, causing negative outcomes like injury, disease, and sometimes even death.
Additionally, these incidents disrupt the food supply chain and can cause immeasurable brand damage as the public becomes less trusting of foods that are often recalled. Below, we’ll examine the costs and impacts of food recalls and explore how brands can avoid them.
How Much Do Recalls Cost a Company?
When calculating the costs associated with food recalls, there are direct and indirect costs to consider.
Direct Costs of Food Recalls
The direct costs associated with a food recall include the expenses associated with recalling and disposing contaminated food products. These may include:
Determining the source of the problem
Stopping production to decontaminate your facility
Alerting regulators, retailers, and other third parties
Logistics related to removing products from the food supply chain
Preventative measures to keep the problem from recurring
Staffing costs related to the recall tasks above
When you add all this up, most experts estimate that direct food recall costs average more than $10 million each.
Indirect Costs of Recalled Food
Beyond the direct costs, there are further expenses, both precisely calculable and more vaguely understood. These may include costs related to:
Governmental penalties related to compliance
Increased insurance premiums
Legal fees, judgments, and other expenses related to lawsuits
The innumerable costs related to lost consumer trust
Because some of these costs can’t be precisely quantified, it’s nearly impossible to estimate the fallout costs related to a food recall.
What Was the Most Expensive Recall?
Jif Peanut Butter
While it’s nearly impossible to rank food recall costs with absolute certainty, one of the biggest food-related recalls in recent history is 2022's Jif peanut butter recall. Beginning in May 2022, the brand issued a recall involving 49 SKUs from its Kentucky facility. These products were contaminated with salmonella, leading to illnesses and hospitalizations in at least 12 states. These products were sold across the US and Canada, and some were exported to international markets. The recall then spread to other brands that use Jif as an ingredient in their products, including candies, snack trays, fudge, and more.
It’s estimated that this recall may cost Jif’s parent company, J.M. Smucker, up to $125 million. This number factors in product recovery costs, downtime for the affected manufacturing plant, and consumer refunds. It doesn’t account for some indirect costs related to lost consumer trust and damage to the brand.
Sara Lee
Another significant recall dates back to December 1998. At that time, Sara Lee had to recall deli meat and hot dogs produced in their Michigan plant. The recall included about 15 million pounds of meat and was related to listeria contamination that caused illness in several states and led to 21 deaths. The brand spent about $25 million to renovate its plant and avoid future contamination and paid $4.4 million to settle legal charges related to the recall. All in all, this single recall cost the brand more than $100 million.
Formula Recalls
Internationally, the largest recall of all time was related to melamine found in milk products such as infant formula. In 2008, hundreds of thousands of infants formed kidney stones due to the contamination, and several died. 22 manufacturers were involved in the scandal, with the Sanlu Group being the largest.
No cost figures were released regarding the scandal, but several executives went on trial, resulting in two executions, three life sentences, and two 15-year prison sentences. Today, this is considered one of the largest food-related scandals in history since the contamination was traced back to cost-cutting procedures that placed profits over safety. Moreover, the scandal opened the eyes of the world to unsafe and unethical practices surrounding international food safety.
No known cost estimate could be found, but the fallout decimated the milk industry in China. In some parts of China, even today, as much as 80% of the baby formula supply is still sourced from foreign countries with stricter health protocols.
Who Pays for Recalled Products?
In most cases, the manufacturers or suppliers of the tainted products must pay all costs associated with food recalls. If they have adequate insurance coverage, they can shift some of these expenses to the insurer, but there will still be ongoing costs related to a damaged brand reputation.
Do Companies Have Insurance for Recalls?
In many cases, manufacturers have limited coverage through their general liability insurance. Product liability insurance in your general liability policy may cover any lawsuits or injuries caused by your products. Unfortunately, this is merely one of the many costs associated with a food recall.
To ensure you have better coverage in the event of a recall, consider shopping for product recall insurance. While this is generally not included in standard business insurance, it can be beneficial in covering recall-related costs. It’s an add-on rider to your policy that covers the costs to collect and dispose of recalled products. Sometimes, it may also cover the costs of consultants hired to help you navigate the recall process.
Think of it this way: If your company produces bagged salads for retail sale, and the lettuces in your salads are contaminated with e.coli, you’ll need to issue a recall. You may then find yourself the target of lawsuits from consumers who were made ill by your product. General liability will likely cover the lawsuits but won’t touch any costs associated with the recall itself. For that, you would need to have a product recall insurance rider.
What Do Companies Do With Recalled Products?
Is Recalled Food Destroyed?
The destination of recalled products often depends on the reason for the recall itself. In recalls like those mentioned above, companies must often destroy tainted food. The manufacturer may not even request that consumers return the contaminated food, instead instructing them to dispose of it. Food still on store shelves often ends up in landfills or incinerators. But not all recalled products must be destroyed.
Meat tainted with e.coli is an excellent example. In this case, there are ways to make the meat safe again by cooking it according to USDA-approved methods. It can then be repackaged and sold in your local supermarket. Sometimes, the product may be remanufactured into pet food or livestock feed. As long as the meat is cooked for a sufficient amount of time and reaches a high enough temperature, it should be completely safe for consumption. For those in the know, this is often seen as an excellent way of preventing food waste, which is certainly worthwhile during a global food shortage.
What Are the Causes of Food Recalls?
Several problems can cause food recalls. These include:
Poor handling and storage
Contamination from animals and humans
Allergen contamination from shared manufacturing space
Mislabeling
These problems may lead to contamination with dangerous pathogens such as e.coli and salmonella. They can lead to foods containing unlabeled allergens, or they can lead to contamination with non-organic compounds such as metal shavings, bits of plastic, or other foreign contaminants.
Does Traceability Help With Food Recalls?
While traceability can’t prevent food recalls from occurring in the first place, it can be exceptionally helpful in the food recall process. Before the FDA’s traceability rule, it was common for food recalls to be much broader and more far-reaching. This was necessary as it took time to determine the source of contamination and where the hazardous food may be sold.
Strategies for Minimizing Food Recall Costs
No brand wants to be hit with a food recall, but what can be done about it? While you can never be 100% certain that your brand will not be part of a recall, there are steps to prevent one from happening and severely limit your chances. You can also take measures after a recall to minimize costs and damage to your brand’s reputation.
Preventative Measures
It’s essential to control the environment around your food production and manufacturing as close as possible to prevent recalls on food. Everything should be kept at the highest standard of cleanliness possible.
Of course, when planting crops outdoors, this is nearly impossible. This is one of the reasons that some growers are leaning toward controlled environment agriculture (CEA). In CEA set-ups, the plants are grown indoors, where growers can control their surroundings, including temperature, lighting, humidity, and more.
When grown indoors, hydroponics food safety can often meet or exceed even the highest standards in cleanliness and care. One of the many benefits of hydroponics in a controlled environment is the ability to prevent nearly all potential food recalls.
Recall Management
Once a food recall happens, it’s vital that your brand takes responsibility and manages the logistics and messaging surrounding the food recall.
Start by determining who will take charge of the recall and establishing a clear chain of command. Choose a senior team member or bring in an outside consultant with experience handling recalls.
Your brand must quickly get the word out about the recall to prevent further negative outcomes for consumers. You want to be forthright about the issue, explaining the problem clearly and informing consumers of how they should dispose of or return the recalled product.
If you have direct sales records, contact these customers directly. You’ll also need to make a public announcement to ensure the messaging reaches consumers who have purchased the product through third parties. Finally, reach out to all distributors or wholesale customers and arrange reverse logistics or disposal for any stock they currently have.
It’s also essential to address whatever led to the recall in the first place. Put processes and procedures in place to prevent any further contamination or problems. Then, be frank about what caused the problem and your brand's steps to correct the issue. At this stage, you want to minimize the damage a recall will do to consumer trust in your product, so openness and honesty are vital.
How Eden Green Prioritizes Food Safety
The adage, “an ounce of prevention is worth a pound of cure,” comes to mind when we think about food recalls. Anything a brand can do to minimize risks is certainly a worthwhile investment. Not only will you save money, but you’ll also maintain a better brand reputation and establish your brand name as trustworthy.
Eden Green Technology grows leafy greens, fresh herbs, and other available hydroponic produce in a controlled environment. Our innovative and safe hydroponic system is designed to produce fresh, healthy food year-round, regardless of climate or weather. This is an excellent way to create your own ultra-premium store brand products at a very affordable price.
If you’d like to learn more about how hydroponic farming can fit into your brand, we’d love to discuss it with you. Contact our team today and see how Eden Green Technology can bring the hydroponic revolution to your neighborhood.