Food for Thought

2019 has witnessed a significant number of food alerts and recalls in the domestic Singapore food and beverage scene.

November – recall of curd products due to inaccurate allergen labelling.
October  – recall of flour products  due to potential presence of E. coli.
September  – recall of chocolates due to undeclared milk allergen.
July – recall of salmon fishes following detection of listeria monocytogenes bacteria.
June – recall of bottled water due to presence of bacteria.
April – recall of cheese products due to presence of listeria monocytogenes.

According to Stericycle Expert Solutions Recall Index, Q2, 2019, the top reasons for recalls, as reported to the USDA, were:

• Foreign Materials – 31.3%.
• No Inspection – 28.1%.
• Undeclared Allergen – 21.9%.

Significant costs and expenses can be incurred in the recalling, replacing, and even the safe disposal or destruction of contaminated products. Examples of food recall costs and expenses include:

• Removal of affected products from retail shelves and/or distribution channels.
• Media and advertising costs.
• Warehousing and transportation costs.
• Additional labour costs.
• Retail slotting fees. 
• Investigation costs.
• Third party recall costs·         
• Repacking and redistribution costs.
• Crisis and public relations management consultation.
• Possible litigation.

Besides the above costs and expenses incurred, organizations inevitably suffer business interruption and loss in sales from such food recall incidents.

In a world of social media, recall incidents for the food and beverage industry bear consequences beyond financial loss and can also result in adverse reputation risks, loss of consumer confidence, and even loss of confidence among key stakeholders and investors. Brand and reputation risks remain among the top concerns for any organization.

Your Risk Mitigation Strategy

Many food and beverage organizations have implemented local and international standards and requirements like ISO 22000 (a food safety management system that can be applied to any organization in the food chain, i.e. from farm to fork). Many such organizations have also arranged risk transfers through insurance programs like Product Contamination, Product Recall Expenses, and General Liability amongst others.

In an extremely competitive environment, having an effective and integrated risk management and resilience framework for your organization will enable you to respond and adapt during a crisis. Such a framework should also ensure appropriate risk control measures are implemented and reviewed regularly to remain relevant and effective.

Below is a basic self-assessment checklist provided which you can use to conduct a quick review of your organization’s risk management framework:

1.  How and to what extent does the outcome of the risk assessment enable your top management to better evaluate, decide, and prioritize (strategic and operational) risk mitigation treatment       measures and plans?
2. Does your organization have a defined and integrated risk management policy and framework? For example, how do you measure risk impacts across different risk assessment templates (like ISO 22000 business continuity, and supply chain management)? Do you have a common or aligned set of risk impact metrics?
3. How effective are the response, recovery, and resumption plans and procedures – to mitigate business interruption events that disrupt business value and supply chain? 
4. How do you evaluate the level of confidence, competency and capabilities of your organization and staff when executing the plans?
5. How do you evaluate and validate the level of readiness for each plan (e.g. emergency response plan, crisis management plan, product recall plan, business continuity plan etc.) and the overall organizational response?  How do you rate the effectiveness of your exercise and test programs?

Marsh is Singapore’s leading insurance broker and risk management advisor. Marsh provides a full range of services for every type of industry and business. Marsh has also delivered our clients with valuable services in the areas of risk management solutions, business continuity planning, property risk consulting, enterprise risk management amongst others.

Contact your risk advisor to learn how you can better manage your risks.