Contaminating your reputation Understanding the risks of product recall in the F&B sector

By Manzhi Zheng, Senior Underwriter Casualty, Asia Pacific, Swiss Re Corporate Solutions

In this two part series, we take a look at the issue of product recall in both the food and beverage and automotive industries. By analysing the inherent risks, we outline the concerns in these sectors, and what can be done to manage recalls. In part 1, we took a look at the food and beverage industry and in part 2 we investigate the automotive industry.

Too many businesses rely on the myth that product recall doesn’t happen very frequently. However, it happens every day, and when it does, the implications can be huge. Loss of revenue, investigation costs, customer claims and a large dent in an organisation’s reputation are just a few of the problems. So why do large companies ignore the issue? Why do they assume it won’t happen to them? The problem isn’t going away. It’s getting worse – the number and cost of claims are increasing.

This upward trend could be for several reasons. Competitiveness has affected quality due to cost cutting. The world’s population is growing, and we are producing more, with more scope to make mistakes. People are becoming more litigious. They are more aware of their consumer rights and this in itself pushes up cost. This is having a significant impact on the number and geographic spread of recalls.

Globalisation also plays a role. It is estimated that global agricultural production will have to increase as much as 60% by 2050 if it is to meet our growing need for food. There are risks associated with reaching out to emerging economies and outsourcing elements of the process. Often the infrastructure in these parts of the world is underdeveloped, and processes and procedures don’t follow the same guidelines as developed nations.

Part 1: Food and beverage

The way the world works is evolving. As countries develop, they move from agricultural and food production to manufacturing, and from manufacturing to service provision. This means that our food supply chain is getting longer and more complicated (see figure 1.), increasing the risks of contamination or other supply chain problems such as susceptibility to weather risks. A more interconnected world also means that we are eating cuisines from other countries, as well as spreading food aid to much needed parts of the globe.

According to statistics from the World Health Organisation (WHO), the effects of compromised food safety are staggering. The human suffering and the resulting cost and burden to the public health system alone make it clear that assuring safe food is a must in a globalised world. This was the picture in 2010:

  • There were an estimated 582 million cases of 22 different foodborne diseases and 351 000 associated deaths;
  • The disease agents responsible for most deaths were Salmonella typhi (52 000 deaths), E. coli (37 000) and norovirus (35 000);
  • The African region recorded the highest disease burden for foodborne illnesses, followed by Southeast Asia;
  • More than 40% of people suffering from diseases caused by contaminated food were children aged under five years.

The world trade volume in food and agricultural products reached close to USD 1.4 trillion in 2012, making it the third-largest category after nonpharmaceutical chemicals and fuels[1].

There are processes, procedures and checks to ensure food is safe to eat, but they need to be implemented for the results to be positive. Media scrutiny has highlighted issues with meat contamination, tainted baby food and mislabelling, which means there is growing pressure from the public to get it right – and a higher risk to your reputation, sales and profits if you don’t. Most product recalls are caused by microbiological contamination, caused by, for example, inadequate storage temperatures. Other causes include incomplete or incorrect labelling, processing defects, physical contamination, chemical contamination and unapproved ingredients. Additionally, the more processed the food, in the case of ready-meals, the more complex the production process, and therefore the greater the number of risks.

Most of our food is safe to eat, but that’s not the issue. The concern is about the raising topic of food recall in emerging and developing countries and the ability to manage a recall that potentially put lives at risk in a community that may be more vulnerable to fighting infection.

Food safety vs food security

These terms are often used interchangeably but are distinct concepts. Here are the definitions from Food and Agricultural Organisation (FAO) and International Standard Organisation (ISO):

Food security exists when all people, at all times, have physical, social and economic access to sufficient, safe and nutritious food, which meets their dietary needs and food preferences for an active and healthy life[2].

Food safety specifies requirements for a food safety management system where an organisation in the food chain needs to demonstrate its ability to control food safety hazards in order to ensure that food is safe at the time of human consumption[3].

Food contamination and associated recall is a significant risk. The estimated recall costs for the industry already exceeds USD 1 billion per year[4], putting a huge burden on the food and beverage industry’s profitability. The scope of liability exposure in relation to food production and distribution is broad, but the subject often receives insufficient attention, especially in emerging markets. Demand for insurance, however, is growing as consumerism rises, product liability is in the spotlight and quality control and regulations are more stringent.

In Germany in 2011, an E. coli outbreak traced to fenugreek sprouts
[5] infected 3 950 and left 53 dead. The same year in the USA, a listeria outbreak associated with cantaloupe consumption[6] caused 146 infections and 33 fatalities. And in China, more than 300 000 injuries and six infant deaths were recorded after milk was tainted with urea and melamine. In each case it took a long time to trace where the contamination had originated.

Product recall issues

Contamination doesn’t have to be malicious, although given the nature of the political conflicts today, this is a growing concern. Contamination can also occur due to ignorance or by accident. It can happen at any point in the supply chain, from production to labelling to storage and transportation. Common procedures and thorough testing in many cases would prevent a huge financial loss and a public relations disaster.

Let’s look at some examples from Asia:

  • In 2011, several Taiwanese companies were forced to recall around 900 different products after it was discovered that sports drinks, juices and jams had been contaminated with a chemical usually used in plastics. The chemical, Diethylhexyl phthalate (DEPH), can cause hormone malfunctions in children. It lead to China and South Korea banning imports along with the Philippines and Hong Kong limiting imports. Huge fines were levied by the Taiwanese government, and a company director was jailed for sanctioning the use of DEPH, rather than using palm oil, as a clouding agent. DEPH was a more cost effective choice, and it also preserved the drinks for longer periods.
  • In 2015, India banned Nestlé Maggi noodles after it was discovered they contained “unsafe and hazardous” amounts of lead. The company, which produces the noodles in India, appealed the ban in the courts, which was rejected. Although Nestlé recalled the noodles, it maintained that they were safe. The company carried out its own tests on more than 1,000 batches, as well as supplying independent laboratories with another 600 batches. The discrepancy in whether the product was safe or not stems from different methods of measuring lead levels in the noodles and seasoning sachet. Indian authorities found the levels of lead in the seasoning to exceed legal standards, whereas Nestlé measured the season sachet lead levels as a percentage of the product’s total content.
  • In 2016, the chocolate manufacturer Mars recalled its products from 55 countries after a small piece of plastic had been found in one bar. Acting swiftly, the company voluntarily implemented the recall as a precaution even though it believed it was an isolated incident. Although the financial cost will have run into millions of dollars, the damage to the balance sheet and reputation was limited due to the swift action taken by the company.

As figure 1 illustrated, supply chains are getting longer and more complicated, but there are stringent processes from the manufacturer to the consumer to help minimise food contamination and help traceability, should something go wrong (figure 2). These steps include:

  • Having the latest data on legal requirements (e.g. understanding unapproved ingredients);
  • Product quality control to prevent bacterial contamination;
  • Delivery quality control to ensure package integrity/ storage;
  • Instructions for temperature control packing;
  • Instructions for temperature control tracking (e.g. to ensure correct storage and transportation);
  • Quality control labels (e.g. instruction on correct consumer preparation);
  • Clear shelf labeling (e.g. “best before” date);
  • Clear instructions for packaging disposal (to prevent environmental damage/ contamination).

Companies can be protected by a variety of insurance products, which address each specific step. There is product recall/contaminated product insurance, to cover the costs of recalling accidentally or maliciously contaminated food from the market, and to recoup the loss of profit and compensate for expenses to regain former market share. Where compensation is needed, for legal liability to consumers for bodily injuries, there is product liability insurance.

In 2015, WHO’s World Health Day was dedicated to food safety. Awareness of the issue can’t just be driven by consumers, the media and pressure groups. The challenges will only get more pressing due to consumer interest, food sensitivities and the development of new ingredients. Suppliers at all points of the food chain need to understand the risks and standards required.

“Food production has been industrialised and its trade and distribution have been globalised. These changes introduce multiple new opportunities for food to become contaminated with harmful bacteria, viruses, parasites, or chemicals. A local food safety problem can rapidly become an international emergency. Investigation of an outbreak of foodborne disease is vastly more complicated when a single plate or package of food contains ingredients from multiple countries.”

WHO Director General Dr Margaret Chan

For more information on food safety in a globalised world, please click here.  

For more information on insurance and risk management solutions by Swiss Re Corporate Solutions, please contact Manzhi Zheng, Senior Underwriter Casualty, Asia Pacific, Swiss Re Corporate Solutions at

[4] “Food and Agribusiness”, Jardine Lloyd Thompson Asia, 2010, p.4


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