Food Safety Risk: An Unusual Recipe

When agriculture officials recently cleared Midwestern poultry farmers to restock after last spring’s Avian flu epidemic, it was a reminder of what the outbreak dramatically demonstrated: that food supply lines are vulnerable.

According to reports, close to 50 million birds were killed to prevent the spread of the virus, including lots of turkeys. Fortunately for those of us looking forward to few days off and a traditional feast over the Thanksgiving holiday, poultry farmers were not unprepared.

50 million birds were killed to prevent the spread of the Avian flu virus

Inventory management, flash freezing technology and business contingency planning allowed suppliers to set aside enough birds to mostly satisfy the demand curve that will rise as we approach the last Thursday in November. Prices may tick upward, and some grocery store loyalty programs offering free turkeys have been limited or cancelled this year, but the industry has proven its resilience.

It’s not really surprising. The basic supply chain and business interruption issues facing the food industry are as unchanging as turkey, stuffing and cranberry sauce. These issues include pandemics, contamination and the traditional Property and Casualty issues that can disrupt business as usual.

The methods for dealing with these threats are also familiar: disaster preparedness, improved procedures, vendor qualification, inventory management, business continuity and contingency plans – and increasingly, the use of technology in all of these areas.

Expectations and Enforcement Rising for Food Safety

The risk landscape, however, is changing, driven by cultural shifts in attitudes toward food and food safety on the part of consumers and the government agencies in charge of food safety oversight. Consumers are seeing headlines not just about bird flu outbreaks, but about food supply contaminations across many of the basic food groups.

Consumers are more aware and more concerned – for themselves and for their more vulnerable children and aging parents. Expectations are rising that the foodservice industry will find solutions for the contamination issues that can lead to dramatic recalls and withdrawals.

Alongside the rising scrutiny from consumers is the same from government regulators and inspectors. Inspections are on the rise, including unannounced random inspections.

Inspections are on the rise, including unannounced random inspections.

So expectations are up and enforcement is up. The result? Increased risk. This increased risk is seen up and down the supply chain: from the eggs that hatch the birds to the birds that grow to maturity, the warehousers, wholesalers, retailers, logistics companies moving the items, and the foodservice companies – or home cooks in their kitchens – who put food on people’s plates.

For many of the risks that arise in this intensifying environment insurance is available. But the insurance markets are of course seeing the trends, too, and an intriguing marketplace is emerging.

When Rising Risk Meets Falling Rates

Insurers are always leery of any upward pressure on loss frequency and severity. However, market conditions in general remain soft, which encourages competition for market share. That usually means even lower pricing, and indeed the arrival of several new entrants into this market space in the past year has applied steady downward pressure on prices.

It is in the area of policy wordings and coverage approaches where we are seeing insurers taking a variety of strategic approaches. Some are expanding coverage to further the competitive appeal of their offering. Some are maintaining coverage restrictions to manage their own exposures. The result is a varied and changeable marketplace that – like the food supply chain itself – demands scrutiny.

For government recall, insurers are increasingly offering 100% coverage.

Two key areas of focus are coverage for adverse publicity and for government recall. In both, carriers have seen losses increase over the past several renewal cycles and in response have reduced sublimits. That is changing. For government recall, insurers are increasingly offering 100% coverage. For adverse publicity, broader coverage is again being considered, although some carriers seem reluctant. Here is where we see greatest variability in the marketplace.

The common soft market strategy of seeking the best price may not produce the best result. Comparing offerings may require comparing apples to oranges, or at least apples of different varieties. For companies in the foodservice sector, this is a moment to carefully consider options.

A further word of caution: officials warn that the threat of avian flu this year is not entirely past. Due to a warm fall, the migration of wild birds has been delayed. As they migrate, they could bring with them the avian flu virus.

Officials warn that the threat of avian flu this year is not entirely past

Given the pressure on the turkey supply, some observers are suggesting that holiday ham providers might be able to win some new customers. On the other hand, we’re hearing that processed meats have been associated with increased incidence of cancer – but that’s a different story.

“Most commercial chicken and turkey farms affected by bird flu cleared to restock”

Food & Drink Risk

Food Safety Home Page: CDC

Food Recalls and Withdrawals

 

About Greg Benefield

Greg Benefield is Willis’ Food & Beverage Practice Leader for the Atlantic Region.…
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