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Food Fraud – An Emerging Litigation Risk

April 24, 2012 2 comments

Food Fraud presents an emerging litigation risk in California and nationwide.

What is Food Fraud?

Food fraud occurs when someone sells a product that is not what it purports to be.  A few examples include short weighting (e.g., including the weight of excessive ice glazing) of frozen seafood, species substitution, dilution of premium olive oil with inferior oil, and misrepresenting a product’s country of origin.

How do Fraudsters Get Away with It?

Many times, only minor distinctions differentiate competing products, so it can be difficult even for trained professionals to detect fraud.  Almost two hundred years ago, British writer Cyrus Redding stated that consumers could avoid food fraud by becoming “perfect[ly] acquaint[ed] with that which is good.”  But how can one become “perfectly acquainted” with the differences between conventionally-produced and “free range” eggs, other than by the price paid?

Why is this an Emerging Litigation Risk?

Food fraud is economic fraud, because labels matter, and customers want to get what they pay for.  Some states have already seen food fraud class actions filed that allege honey laundering.  Food fraud also presents a risk of food allergy personal injury litigation for companies that substitute cheaper finfish products like surimi for shellfish like crab.   Food fraud also may result in criminal indictment and imprisonment.  There  are also the indirect costs of negative publicity arising from conviction in the court of public opinion.

What can be Done to Manage Food Fraud Risks?

Companies that implement food fraud risk management plans that include traceability systems like RFID and third-party verifiers may be able to reduce their food fraud risks and increase sales.

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“Pink Slime” and Lessons Learned Re: Labeling and Advertising

By now, the use of “lean, finely textured beef” (LFTB, known to its detractors as “pink slime”) in ground beef products is well-known.  And that’s the problem.  If its manufacturers had been proactive in disclosing (and even advertising) its use instead of waiting for others to define the debate, then they may have minimized their risk of huge financial losses.

The purpose of this posting is not to take sides in the “pink slime” vs. “boneless lean beef” debate or to argue that one side’s arguments are more palatable, no pun intended. 

Rather, it is to highlight the importance of labeling, advertising, and promotional practices as part of a proactive risk management program.  That’s why this blog addresses more than just food safety issues; regardless of the product’s purported safety or purity, the key issue appears to be the lack of disclosure to consumers.  Why did it take 20-plus years for consumers to be able to identify what products contain this ingredient?  How could BPI, the largest producer of this product, not have seen this PR train wreck coming?

The irony of industry complaints about how the media have “smeared” the product and its producers’ reputations is that the industry’s wounds are almost entirely self-inflicted.  The producers chose not to disclose the pervasive addition of the product to ground beef, so critics naturally focused on why it was concealed from the public.  Iowa Rep. Steve King called for congressional hearings about the product’s critics, stating “they’ll have an obligation then to explain themselves why they could not base their allegations on facts and what they’ve done to damage an industry.”  However, the congressman failed to address a key issue: if the producers had disclosed these “facts” proactively, there would probably have been no “damage” to the industry.  

Consumers for decades (if not longer) have expected their ground “100 percent beef” to appear this way, not this way.  Similarly, BPI does not have even one picture of its product anywhere on its website or in its YouTube video rebuttals to films like Food Inc.  Its published images portray children enjoying burgers and the high technology used to produce its product.  Its videos feature company officers, a scientist who can’t make eye contact with the camera, and a lobbyist.  The lack of disclosure begs the question of what else might be in food fed to children?

Now, imagine that the companies producing this product had focused proactively on its claimed merits: that it’s a safesustainable, low cost, way to enjoy beef.  Photos of production machinery that looks like an indoor oil refinery just might appeal to the market segment that enjoys products like toxic waste candy.  Perhaps a catchy brand name like “spin safe” ™ could have defined the debate about using centrifuges to separate fat from lean meat.  Most importantly, calls for mandatory labeling of the product would become irrelevant; half of consumers do not read labels anyway

Lesson learned: manage labeling, advertising, and promotional issues proactively.

Instant Soup Manufacturers: Does Your Product Package Increase the Risk of Burn Injury?

This story discusses the relatively high risk of serious burns young children may incur from tipping over cups of some brands of instant chicken noodle soup.

The purpose of this posting is not to critique any particular manufacturer’s product design, or to analyze the factual support for the National Institutes of Health study upon which the news story was based.  Rather, it is simply to call attention to a risk management issue — why sell a product in a relatively unsafe package when consumers will buy it in comparably-priced, safer packaging?

Some readers may ask whether this issue is just a redux of the purported McDonald’s hot coffee lawsuit impetus for tort reform.  It is not, for at least three reasons.

First, regardless of the disputed merits of the McDonald’s lawsuit that involved an adult who should know coffee is served hot, the chicken soup study addressed injuries children incurred.  Even if a jury finds that a child was comparatively negligent in causing his or her burn injuries, it may find that the child was less culpable than a similarly-situated adult.  Children are also often sympathetic plaintiffs; even more so if they have incurred an horrifically painful burn injury that resulted in permanent scarring.

Second, the cost of selling the soup in a more stable package (e.g., a foam bowl) is likely minimal.  Consumers will also likely buy just as much soup sold in a bowl (or another tip-resistant container) instead of a cup — a plaintiff’s attorney will almost certainly contend at trial that many manufacturers seem to have no trouble sourcing foam bowls and selling their products at competitive prices.

Finally, the cost of litigating just one serious burn injury case may approach the cost of switching to a more stable container.  A one-time investment in risk management may also pay dividends in the court of public opinion.

Customers are (Still) Willing to Pay More for Safer Food

Today’s top story on Marler Clark’s Food Safety News site discusses a study (re-)confirming that people are willing to pay more for safer food.  (The March 2011 Deloitte Consumer Food Safety Survey reached a similar conclusion.)  However, as with most risk management plans, this recent study confirms consumers consider a cost/benefit analysis and will not pay an unlimited amount for minor safety improvements.

The bottom line for manufacturers, grocers, and restauranteurs: your customers will pay more to avoid food-borne illness (although they will not pay unlimited sums for minor food safety improvements), and a comprehensive food safety risk management plan may also reduce the costs and risks of litigation and lost brand value.

Can Newly-Discovered Additive Reduce Food-Borne Illness?

Cargill recently initiated a Class I recall of almost 36 million pounds of ground turkey due to potential contamination from a multi-drug resistant strain of Salmonella Heidelberg that allegedly caused 76 illnesses and one death.  Consumer concern about antibiotic-resistant bacteria in meat was increasing even before this outbreak.

A recently-discovered additive may reduce the prevalence and risk of this contamination.  Scientists at the University of Minnesota have recently discovered a naturally-occurring lantibiotic that attacks E. coli, salmonella, and listeria.  It is reportedly “easily digestible, non-toxic, non-allergenic” and “difficult for bacteria to develop resistance against.”  They expect to commercialize the additive within the next three years.

Real-Time Temperature Traceability Helps Maintain the Cold Chain

 My new article, RFID Improves Food Safety Risk Management, discusses how RFID can help maintain the cold chain.

Food Poisoning: A Recurring Problem that Requires Investing in Prevention

June 7, 2011 Comments off

Recent news stories illustrate that bacterial food poisoning is a recurring, high cost, sickening (and in some cases, deadly) problem that requires investing in prevention.

Today’s Washington Post includes an online article about how salmonella infections have increased “by 10 percent in recent years.”   (The longitudinal data regarding the total number of U.S. cases from 1996 to 2009 can be found here.)

Additionally, according to the Centers for Disease Control and Prevention, the 2009 salmonella incidence rate was 15.19 cases per 100,000 population, which is more than twice the National Health Objective of 6.8 cases per 100,000.

Elizabeth Hagen, the Undersecretary for Food Safety at the U.S. Department of Agriculture, noted that the incidence of E. coli O157:H7 infections has decreased, demonstrating that more stringent regulation and efforts by meat processing companies in particular have lowered contamination at the slaughterhouse level.  However, as the recent outbreak in Germany of the world’s deadliest E. coli tragically illustrates, “new and ‘highly infectious and toxic‘” E. coli strains are emerging from a source(s) that is still unknown.

Compounding the human tragedy, some businesses that sell fresh produce have seen their sales fall 35 percent since the outbreak began.  EU farmers’ losses are estimated at $611 million per week.  Former FDA Commissioner David Acheson has opined that an outbreak like the current one could happen in the U.S.

Michael R. Taylor, the FDA’s Deputy Commissioner for Foods, provided sound advice for the food industry: “investing in prevention is, ultimately, the only way to provide the protection that consumers expect.”