Tightening regulation has created growing BI exposures

04 September 2018

Product contamination sits right in the middle of the risk radar for the food and agri sector, but not enough attention is given to the business interruption losses that can flow from a contamination and recall event.

By failing to prioritise the business interruption exposure associated with a contamination and recall event, companies are often ill-equipped to respond appropriately and mitigate a loss that can escalate quickly into administration proceedings.

UNEXPECTED VISIT

On 12 January this year the Food Standards Agency (FSA) identified problems at the Birmingham factory of meat supplier Russell Hume. The random inspection uncovered failures relating to ‘use by’ dates, but these proved to be the thin end of the wedge and the regulator went on to expose what it described as ‘significant and systemic’ inadequate food safety management systems at the company’s six sites in England and Scotland.

The investigation resulted in several recalls and site closures. It affected customers including Wetherspoon, Jamie Oliver restaurants and Marston’s and Greene King pubs. Russell Hume, which had a multimillion-pound turnover and employed 270 staff, announced it was going into administration on 19 February.

The speed at which the problem escalated demonstrates the debilitating impact of a regulatory investigation. It highlights the need to have the right food safety and hygiene processes and procedures in place, and the importance of contingency planning should a problem arise.

In the wake of a regulatory shutdown, could your business continue production at alternative sites? Does it have contingency plans that it could enact quickly? Would it be able to fulfil its existing obligations and stay in business? Have you assessed the business interruption exposure that you face from such an event?

LONG TIME TO SECURE A CLEAN BILL OF HEALTH

One factor that is continually overlooked is the length of time required to satisfy regulators that a site has a clean bill of health and is compliant with food safety and hygiene standards.

Where, for example, regulators find evidence of a pathogen such as listeria, the clean-up required is extensive. The pathogen is notoriously difficult to eradicate and can survive in small pockets, in various environments and at a wide range of temperatures. It can re-colonise premises if even the smallest trace is not destroyed.

In recent months the scandal surrounding French dairy giant Lactalis has shown how difficult it is to deal with pathogens.

Last year the company had to recall tens of millions of baby milk products due to salmonella contamination. Earlier this year the company admitted that the same strain of salmonella was responsible for a product recall in 2005. The factory – owned by Lactalis since 2006 – was closed in December after it emerged that contamination had started in one of its drying towers.

Completing a deep-clean requires extensive mapping and testing activity to first isolate the outbreak and to then show it has been eradicated.

This includes:

  • Equipment used for handling/ processing, especially rotating blades and conveyor belts
  • Packaging equipment, especially vacuum packing machinery
  • Trolleys, forklifts and pallet lifters
  • Maintenance and cleaning equipment
  • Drains
  • Damaged floors, ceilings and walls, especially in cold or damp areas
  • Refrigeration units and chillers.

Completing cleaning programmes also requires dismantling machinery. For example, food residue often finds its way into inaccessible parts of slicing equipment, creating a breeding ground for pathogens.

Only once the regulator is satisfied that all the equipment and every part of the site is pathogen-free will it allow production to resume. Following discovery of something like listeria, the process could take 12 months.

DIRECTORS AND OFFICERS HAVE PERSONAL LIABILITIES

In addition to recognising the potential severity of a business interruption loss following a product contamination incident, there are also personal liabilities for company directors and officers to consider.

Not all recall events result in human injury or death, but unfortunately there are many that do.

Any director or officer of a food company that does not act properly could find themselves being held responsible for the problem.

Corporate manslaughter is a real issue and is something that executive boards must take seriously. If the mandatory safety standards are not in place and enforced appropriately, individuals could find themselves at the centre of a prosecution case.

It is also true that the food safety landscape is becoming more difficult to navigate safely. Regulators are continually tightening the standards that food and agri companies must meet. Advances in technology and science mean they also have more powerful detection capabilities.

Where issues arise, there is very little time to respond and digital communications mean problems can turn to global headlines in minutes. All these developments create a very difficult operating environment for companies and those that do not have detailed contingency plans will find it almost impossible to provide the appropriate response in the required timeframe.

ALL-CONSUMING CHALLENGE

The scale of the challenge facing businesses came to the fore again in recent weeks, following a major listeria outbreak in South Africa.

In May this year, South African authorities confirmed that at least 80 babies had died following an outbreak of listeria that had killed more than 200 people. The outbreak was traced to a food processing site owned by Tiger Brands, the second biggest food company in South Africa. The company now faces several class actions and an enormous amount of work to prove its facilities are fit to reopen.

CEO Lawrence MacDougall said, “Tiger Brands is working with a team comprising some of the world’s leading local and international scientific experts in listeria management. Our Polokwane, Germiston and Pretoria factories are undergoing an extensive deep clean of all the equipment, machinery and some structural upgrades of the facilities with the view of ensuring that our facilities exceed the highest, best practice standards for meat processing facilities.”

Many executive boards underestimate the business interruption losses that flow from a product contamination event when, in reality, they are the biggest exposure they face. It is time to make sure business interruption is the priority when managing and mitigating these risks.

For more information please contact Simon Lusher, Head of Food & Agri on +44 (0) 20 7459 5550