Food Safety, Government Regulations, and Brand Protection
Written By: Predrag Jakovljevic
Published On: November 2 2006
A 2005 survey of industry professionals by Food Processing Magazine ranked food safety as the number one plant-level concern (see figure). Of those surveyed, 85 percent stated they were taking additional steps to ensure food safety. The ranking of food safety as the primary concern is justified. Outcries against outbreaks of salmonella, Escherichia coli (E. coli), severe acute respiratory syndrome (SARS), bovine spongiform encephalopathy (also known as mad cow disease), hoof-and-mouth disease, and other food safety concerns (including issues surrounding genetically modified organisms [GMO]) are front-page news throughout the world.
Part Four of the series Food and Beverage "Delights."
The US Centers for Disease Control and Prevention (CDC) reports that as many as 76 million illnesses are caused by food contamination every year in the US. In addition to the public cost, the impact of food safety lapses can be devastating within the food industry. While many food industry executives think of regulatory penalties as a risk, the major risks are potential shutdowns or, even worse, permanent damage to brands and companies. The news media of today are attuned to food safety stories, as they know that such stories sell a lot of newspapers and generate a lot of TV viewer interest. Does the consumer care? A survey of UK consumers conducted by the UK's Food Standards Agency (FSA) revealed that 71 percent of consumers were concerned about food safety, while only 16 percent were not.
Many food companies are investing significant funds and effort in building awareness for their brands in the market, which can pay off amply in competitive, commodity markets. One highly publicized recall (and the negative image generated in the media), however, can turn an established brand asset into a liability.
Nervous consumers can cause distributors and brokers to quickly abandon such tainted products in the channel. Non-branded manufacturers, such as ingredient suppliers or private-label manufacturers, can become tainted in the eyes of customers. As for distributors, food service operators and grocery retailers will question their credibility and the ability to keep their names out of the media. For retailers and operators, negative press can keep the consumers from the door. It is important to note that major retailers are clearly concerned about food safety. For example, the mock recall requirements from Wal-Mart and Costco exceed the requirements stated in most regulations.
For other notes on the food and beverage industry, see Food and Beverage "Delights", Food and Beverage Industry Trends and Issues, and Margin Squeeze and Globalization in the Food and Beverage Industry.
A Global Issue
Food safety is a global issue, and the present-day threats and potential costs associated with food safety have never been higher. As companies seek to increase their control (and thus minimize risks), they discover that many varied activities, within and outside the organization, and up and down the supply chain, must be considered and addressed.
Most countries have governmental agencies, such as the US Food and Drug Administration (FDA) and US Department of Agriculture (USDA), that are responsible for regulating food products. These agencies help to ensure that foods are safe to eat, and that they do not contain any harmful additives. Correct labeling of food products is strictly enforced, and some countries now exercise strict guidelines relating to product advertising. Food control and safety will only increase with the closer linking of food supplies among countries and regions, especially in light of illnesses such as mad cow disease and avian (bird) flu, which can spread to humans through food consumption.
These rules typically cover all food products sold in the country, and therefore any product imported into the country is covered by the regulations. For all members of the food supply chain, the import, export and domestic impacts of the worldwide regulations must be considered. As concerns for food safety continue to rise, it's not surprising that industry regulations and enforcement are becoming more stringent. Many food producers regulated by the FDA and USDA have thus implemented hazard analysis and critical control points (HACCP) programs to standardize their practices in food quality and safety, thereby streamlining the business processes and reducing the risks of noncompliance, while keeping operational costs down as much as possible.
The two markets with the most impact worldwide are the US and the European Union (EU), given that they are among the largest, and are major importers and exporters of food. The US Public Health Security and Bioterrorism Preparedness and Response Act of 2002 (also known as The Bioterrorism Act of 2002) is also playing a major role in the worldwide food industry. This has created a new requirement for consumer goods manufacturers, as they must track the source of raw materials as well as the destination customer of the finished goods, and all participants in the supply chain must maintain inventory attributes such as lot number, revision codes, manufacturing date, expiration date, serial number, etc. In theory, all of these requirements will enable everyone to combat bioterrorism threats and manage product recalls should they be necessary.
Most of the bioterrorism security regulations require food manufacturers, distributors, and logistics companies to establish and maintain records that would allow inspectors to conduct a trace investigation to protect the food and animal feed supply. It requires having the means to provide reporting mechanisms required beyond traditional lot traceability. With the FDA having authority over about 80 percent of the US food supply, the Bioterrorism Act will have more impact on the worldwide food and beverage industry than all other regulations combined. While limited exemptions exist, the law is intended to be broadly applied to all companies that manufacture, process, pack, hold, transport, distribute, or receive regulated food products. It is estimated that the act covers over 400,000 US and foreign facilities.
The Bioterrorism Act is being replicated throughout the EU to ensure the safety of the food supply from a terrorist attack. On January 10, 2005, Markos Kyprianou, the EU commissioner for health and consumer protection, indicated that the guiding principle of the European Commission (EC) (primarily set out in its 2000 white paper on food safety [see http://europa.eu.int/comm/dgs/health_consumer/library/pub/pub06_en.pdf]) was to apply an integrated approach from farm to table, covering all sectors of the food chain, including feed production, primary production, food processing, storage, transport, and retail sale. This clearly indicates that food safety concerns impact all members of the food supply chain.
The European Food Safety Authority (EFSA) set forth the basic conditions for safeguarding food in EC Regulation EC/178/2002 (see http://europa.eu.int/eur-lex/pri/en/oj/dat/2002/l_031/l_03120020201en00010024.pdf). Article 18 of the regulation specifies that the traceability of food shall be established at all stages of production, processing, and distribution (or from farm to table, including growers, processors, manufacturers, and distributors, plus retail and food service). Indeed, the stricter EU regulations make food processors legally bound to have traceability systems, even if their customers do not necessarily require them. This is applicable to the entire supply chain (production, storage, purchasing, quality control, and so forth), and to everything that contributes to food safety (including packaging, closures, seals, bottles, jars, and the like). This is in contrast to the former requirement to identify only the source of a ingredient (see Is Intentia Truly Industry's First In Food Traceability?). There is also the need for backward traceability for multiple ingredients, as well as forward traceability, for recall purposes.
Another current example is the EC's General Food Law, Article 15, which mandates fast tracking capability for all food, food products, and animals used for food. Such regulations underscore the need for an automated distribution system that can provide prompt and accurate tracking and tracing. The 2005 UK food scare involving chili powder contaminated with the red dye Sudan1 was a major test of the traceability legislation, which had been introduced in January 2005. The dye had been banned from food products in the EU in 2003, but it surfaced in a batch of imported chili powder used to make Worcestershire sauce, which was in turn used as an ingredient in a wide range of products. The FSA ordered the withdrawal of hundreds of products from supermarket shelves, and the problems were eventually traced back to a contaminated shipment of chili powder that came to the UK in 2002 from India. Thus, as regulations become more stringent and global safety concerns grow, all aspects of the food and beverage product lifecycle management (PLM) must integrate internal best practices, customer requirements, and regulatory compliance.
About the Authors
Predrag Jakovljevic is a principal analyst with Technology Evaluation Centers (TEC), with a focus on the enterprise applications market. He has nearly twenty years of manufacturing industry experience, including several years as a power user of IT/ERP and related applications, as well as being a consultant/implementer and market analyst. He holds a bachelor's degree in mechanical engineering from the University of Belgrade (Serbia [the former Yugoslavia]), and has also been certified in production and inventory management (CPIM) and integrated resources management (CIRM) by APICS.
Olin Thompson is Lawson's vice-president of industry strategy. He has over twenty-five years of experience as an executive in the software industry, and has been called the "father of process ERP." Thompson is a frequent author and award-winning speaker on such topics as gaining value from ERP, supply chain planning (SCP), e-commerce, and the impact of technology on industry. He can be reached at firstname.lastname@example.org.