The Economics of Food Recalls: What a Recall Can Cost Your Business Annette Dunlap, MBA Agribusiness Developer Marketing Division, NCDA&CS January 25, 2011

Three Things to Remember Treat recall prevention as a key business and customer retention strategy Don’t underestimate the true cost of a recall Use appropriate tools to reduce and manage your risk

Medical Costs of Foodborne Disease Outbreak The CDC estimates that the annual cost of E. coli O157, alone, was $405 M*: ◦$370 M for premature deaths ◦$30 M for medical care ◦$5 M for lost productivity (*in 2003 dollars)

Business Costs of Foodborne Disease Outbreak Peanut Butter Sales Still Stuck During the 4-week period ending February 21, 2009, Peanut butter sales were down 2.3 % - $87.2 M – over the same period the previous year

Consumer Costs of a Foodborne Disease Outbreak Wholesale Egg Prices Jump 38%

Costs to Corporations Kellogg’s, 1 st qtr 2009: $27 M ($13 M in customer returns and rebates; $13 M in returns, disposals and write-offs; $1 M in general administrative and sales) Hershey’s, 2006 recall: $14.5 M and temporary plant closure in Canada General Mills: FY 2009: voluntary recalls cost $24M

Your Hidden Financial Costs Business interruption (lost revenue) Employee turnover/retraining Higher insurance premiums Liability-related expenses (such as medical bills for the sick customer(s)) Reduced commodity supplies -> higher prices

Qualitative Business Costs Emotional costs: to you as the owner; to your employees; to the family Public relations: repairing a damaged reputation

What can you do? Treat recalls strategically ◦check reliable websites routinely ◦keep good records ◦know your suppliers ◦know your co-packer ◦have a plan in place Use available and sensible risk management tools such as product liability insurance and business interruption insurance Expect the unexpected