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The impact of Product Recall and Contaminated Products

Damage to Brand and Reputation and Product Recall remain two of the greatest risks facing a competitive Food & Beverage sector in Australia.

Supply chains are becoming more complex with growers, processors, packaging, distribution and retail all having exposure from a product tampering/extortion and contamination exposure. Crisis management and business continuity planning remain essential for all parties.

Comprehensive product recall policies, once triggered, can cover First Party and Third Party recall expenses, business interruption, replacement costs and rehabilitation expenses.

Significant losses were incurred in late 2018 when the $500m dollar Australian strawberry market suffered a series of tampering events (needles in strawberries) as a result of disgruntled employees and further copycat actions. As a result, the sector lost 14% of its value in 2018 and several producers went out of business (despite a multi-million dollar Government Assistance package).

The increasing complexity of supply chains and the rationalisation of components /raw ingredients supply to maximise efficiencies in product manufacturing has also led to a multiplying impact on product recall exposures. This can result in a ripple effect whereby an issue with one component can impact across a significant number of brands and products causing reputation damage and financial loss to many different parties.

The Peanut Corporation of America (PCA) recall in 2008 remains one of the largest ever Food & Beverage recall incidents globally. A salmonella outbreak in peanut product had widespread consequences and although PCA were only responsible for approximately 2% of the supply of peanuts into the US market, over 4,000 products from 200 different companies were affected, resulting in estimated losses of over $2bn to the industry and a reduction of 24% in peanut sales across the entire market. PCA filed for bankruptcy as a result of this incident, with numerous civil suits served against the company and owner.

In the current environment, manufacturers and wholesalers need to remain cognisant of the exposure arising the products they are producing and distributing. Large retailers impose Terms of trade that are heavily weighted in their favour with little room for negotiation. Australian Consumer law dictates that importers of overseas products are legally liable for loss or damage arising from said products, so care must be taken to ensure that overseas manufactures and suppliers have quality assurance procedures in place along with internationally recognised Food Safety accreditation.

Recall Expenses extensions available under Public Liability policy will only trigger in the event of Third Party Injury or Property Damage and the coverage is limit so case must be taken if Manufacturers are relaying on this cover to adequately protect them. The sector is seeing increasing incidence of Product Withdrawals by retailers due to quality issues (such as incorrect specification/package/colour etc.) in many cases, these do not trigger even comprehensive Contaminated Products Policy (although there are additional coverage options available in the market).