Number of Food Recalls and Their Costs Are Increasing: Swiss Re Report

“Food manufacturers operate in a vast, globalized supply chain, where one mislabeled product or contaminated ingredient can cause sickness, death, multi-million dollar losses and massive reputational damage for the affected companies,” says a new report – Swiss Re’s “Food Safety in a Globalized World.”

The study examines how the increasing number food recalls is impacting consumers public health services, governments and companies globally. It also “describes how risk mitigation and risk transfer through insurance can protect food manufacturers operating in a highly globalized, often fragmented, supply chain.”

Swiss Re said its “analysis of publically available food recall data in the U.S. shows that since 2002, the number of food recalls have nearly doubled. The increase has been influenced by regulatory changes and an increasingly globalized food supply chain.”

Jayne Plunkett, Swiss Re’s Head of Casualty Reinsurance, commented: “In a more globalized economy, ensuring the highest level of food safety is becoming an ever greater challenge for firms. Today ingredients and technologies are sourced worldwide. This leads to greater complexity for food manufacturers and consumer and regulatory demands on companies are continually increasing.”

As an example the report cited that fact that a “single food recall can lead to severe financial loss and reputational damage for food producers. Fifty-two (52) percent of all food recalls cost the affected U.S. companies more than $10 million each and losses of more than $100 million are possible. This figure excludes the reputational damage that may take company years to recover from.

“The public sector is also heavily affected by contaminated food. According to the U.S. Department of Agriculture, costs for the U.S. public health system from hospitalized patients and lost wages in 2013 alone was $15.6 billion. In total 8.9 million people fell ill from the 15 pathogens tracked, with over 50,000 hospitalized and 2377 fatalities.”

Globally, the report finds that demographic change is also exposing more sensitive consumer groups to the dangers of contaminated food. Swiss Re cited the “ageing of societies, an increase in allergies in the overall population and the fact that malnourishment as a source of weak body defenses is still prevalent in many countries” as significant drivers for the increase in exposure.

Although food recalls are a serious problem, the situation isn’t hopeless, as “risk management tools to ensure safe food production to avoid this fate exist.” The study warns, however, that the tools “must be applied and adapted to ever more complex global markets and supply chains. Adaptation also means taking lessons learned to places where they are yet unknown and tailoring them to local conditions.” As a result, “the experience insurers gather through their claims experience is an important resource for knowledge sharing for client companies.”

Roland Friedli, Risk Engineer at Swiss and co-author of the report, explained that “food recalls can be caused by something as simple as a labelling error on the packaging, or as complex as a microbial contamination somewhere along a vast globalized supply chain. Yet even a simple mistake can cost a food manufacturer millions in losses and even more in terms of reputation. Insurance and sound risk management are essential for keeping affected businesses afloat.”

Alongside expertise in risk management, insurers can also offer products covering recall and product liability risks, which mitigate any loss incurred and ensure that companies remain in business.

The increasingly significant role of regulation in food safety is investigated in a partner publication from the Swiss Re Centre for Global Dialogue, Food safety: International regulatory dynamics and the impact on insurance. This publication examines the globally regulatory developments in the area of food legislation.

Source: Swiss Re