The pet-food incident has put the entire food industry on notice. “Gluten is in a lot of different products and raw materials in the food industry,” notes Rick Puckett, executive vice president, CFO, and treasurer of $730 million snack-food manufacturer Lance Inc. The Charlotte, North Carolina, company acted quickly to verify that it hadn’t received any contaminated gluten.
So did McCormick & Co., in Sparks, Maryland. “Whenever an event like that happens,” says Roger Lawrence, vice president of corporate quality, assurance, and regulatory affairs for the $2.7 billion spice company, “even if it’s not really related to our business, we immediately take a look to see if even in the remotest sense we could be vulnerable, and what we could do right now proactively.” For example, when ConAgra recalled its Peter Pan peanut butter because of Salmonella contamination, and it appeared the problem might be environmental, McCormick went so far as to reevaluate its environmental monitoring program to verify that it wasn’t at risk.
Who Checks the Food?
The U.S. government is supposed to monitor the safety of the food supply. The USDA’s Food and Safety Inspection Service inspects and regulates meat, poultry, and eggs, and is responsible for issuing or overseeing recalls of those products. “We have full-time USDA inspectors in both our plants all the time,” notes Harold Boone, CFO of $180 million Odom’s Tennessee Pride Sausage Inc., in Nashville. Among other things, he says, they ensure the plants are adhering to their written safety procedures.
The Food and Drug Administration regulates all other foodstuffs, including feed for pets and farm animals. In response to the gluten scandal, the FDA is appointing a food-safety czar. But as a practical matter, the FDA can inspect only a small fraction of all food imports — about 1.3 percent of the total last year. In fact, a recent analysis by the Associated Press found that between 2003 and 2006, the number of food-safety inspections conducted by the FDA declined by 47 percent, which academics and other industry observers blame on underfunding.
That puts the bulk of the safety burden back on industry. In addition to adhering to best-practice safety procedures, attorney Marler recommends that food companies sign indemnity agreements with their vendors and make certain those vendors are well insured. “You may still get whacked in the media and in sales,” he says, “but ultimately you can push the cost of litigation and settlements and judgments off on someone else.”
Of course, as supply chains stretch around the world and into countries where food safety doesn’t always get the same respect it does in the United States, the value of such agreements is wholly dependent on the strength of the counterparty. “If you want to make it work, you have to have not only indemnity agreements with parties that have sufficient assets or insurance to cover a loss, but, depending on what you’re buying, you may also want to actually go out and do your own auditing,” Marler says.