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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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Customers Will Pay More for Safer Food

The March 2011 Deloitte Consumer Food Safety Survey confirms that customers are aware of food safety issues, and they are willing to pay more for safer food products.  Food processors, distributors, and retailers may all benefit from this trend by developing and implementing food safety risk management plans.

Customers are Aware of Food Safety Issues

 According to the Deloitte survey, 73 percent of consumers are “more concerned than they were five years ago about the food [they] eat,” an increase of eight percentage points over 2010 figures.  The top five food safety concerns include ingredient safety, toxins and chemicals in packaging materials, and contracting a food-borne illness.  About 91 percent of consumers think the number of food recalls has stayed the same or increased since the prior year. 

Consumers Concerned about Safety of Fresh and Imported Foods

Consumers generally reported the greatest safety concerns about fresh foods, such as meat, fish and seafood, and fruits and vegetables.  Fresh food producers, distributors, and retailers may benefit from developing, implementing, and regularly updating their cold chain risk management and HACCP plans to maintain and improve food safety to minimize the risk of food-borne illness and food recalls (as well as the risks of litigation and lost brand value).

Consumers Hold Manufacturers and Retailers Accountable for Food Recalls

More than three-fourths of those surveyed told Deloitte that they hold manufacturers responsible for communicating food recall information.  A majority expect that retailers will also notify them about food recalls.  Critically, almost 20 percent of consumers reported they would buy “somewhat more expensive” products that included traceability information, compared to lower-priced products without it.  These data highlight the need for food growers and manufacturers, distributors, and retailers to adopt and implement food recall risk management plans before a problem arises to meet your customers’ rising food safety demands.  (You will be able to read more about food recall risk management plans in my upcoming July 2011 publication).

Food Recall Risk Management: Plan Ahead to Minimize Litigation Risks

February 3, 2011 3 comments

The latest reminder that restaurants and grocers can benefit from implementing food recall risk management plans: two customers of Safeway grocery stores filed a class-action lawsuit contending that store should have used Safeway Club Card contact information to notify consumers sooner about recalled food they purchased.

The lawsuit does not contend that the plaintiffs suffered any illness.  However, plaintiffs apparently request that Safeway implement a system to notify Club Card customers of food recalls sooner.  It also apparently requests that Safeway refund its customers the cost of the recalled food purchased.  (Note: plaintiffs did not need to sue Safeway to get their money backThe company’s website notes that customers may return recalled products to their local store for a full refund.)

Just two days ago, I noted that some stores were still selling contaminated food after a recall, and that they could lower their liability risks by signing up for free recall notifications.  (Here, apparently the plaintiffs purchased their food before it was recalled; at this time I am not aware of any allegation that Safeway sold recalled food.)  However, Costco took the next step, and at least two years ago, it started telephoning its members about food recalls for previously-purchased items.

Although no known authority (under California or federal law) requires a store to use loyalty card contact information to notify customers of recalls by phone or email, as the capability to warn customers about recalled food expands, so will customers’ expectations.  Why wait until your company is a defendant facing trial in a court of law (or the court of public opinion) to try and minimize the risk of litigation?

Thankfully, the lawsuit against Safeway does not claim that anyone suffered injury, but one in six Americans suffers food poisoning every year, and about 3,000 die from it.  The more your company can show it implemented best practices to minimize the risk of personal injury, the less likely a jury (or the public) will find it did something wrong.