Harvard Article on Food Safety Economics

Saw this piece on food safety economics released by Harvard Business Schools, and thought it might be worth the read.  In the end, meh..nothing we didn't know. 

To save you time - basically, there can be a huge economic cost of food safety lapses, such as that experienced by Chipotle.  There are a number of challenges - small producers and global sourcing where food safety systems may not be all they need to be, and news reports that highlight foodborne illness outbreaks which bring a lot of attention to these food safety lapses.  They also discuss how a company did their own testing when they could have saved money by outsourcing (my guess is that this was the focus of the research and the story was written around it). 

On the testing topic, there is more than just cost that has to be considered.

Harvard Business School
http://hbswk.hbs.edu/item/food-safety-economics-the-cost-of-a-sick-customer
Food Safety Economics: The Cost of a Sick Customer

Impact of Food Safety Issues on Chipotle Bigger than Expected

The impact of food safety issues on Chipotle have been much more than expected.  They estimate that 7% of customers may never return.  Then there are the "costs to address food safety, increased staffing needed to serve free food and the volume of fresh produce wasted due to lower traffic and testing were all higher than expected."  Chipotle shares are still off 28% from last year.

Wall Street Journal
http://blogs.wsj.com/cfo/2016/03/17/chipotle-food-safety-problems-may-cost-it-up-to-7-of-customers-cfo/
Chipotle Food-Safety Problems May Cost It Up To 7% of Customers: CFO
1:13 pm ET
Mar 17, 2016 
By Maxwell Murphy    

The Cost of Foodborne Outbreaks - And Blue Bell as an Example of Mishandling an Outbreak

Foodborne outbreaks can have a devastating effect on those who become ill, but also will huge financial impact on those companies in terms of lawsuits, recall, and loss in sales.  Mishandling an outbreak can magnify those costs.

Fortune Magazine published two articles on the topic (links and excerpts below).  One looked at how Blue Bell was slow to act after their product was linked to Listeria...both knowing they had an issue and not solving it, and then with the recall in terms of performing 'recall creep' - where a series of recalls are issued where each subsequent recall entails increasing scope of products.  Recall creep has occurred often because companies fail to understand the extent of the risk.  The downside is that it drags out the recall and gives a worse perception of the company.  Comes back to the old saying - 'the first loss is your best loss'.

The other Fortune article looks the total cost of a foodborne outbreaks, which they estimated at $55.5 billion.  Recalls can cost companies from $30 million to $99 million, and in 5% of the cases, greater than $100 million.

Fortune Magazine
http://fortune.com/2015/09/25/blue-bell-listeria-recall/
How ice cream maker Blue Bell blew it - Excerpts

by Peter Elkind @peterelkind September 25, 2015, 12:00 PM EDT

Blue Bell to Conduct Trial Production Run in AL Facility

After ceasing operations in April / May to clean up their operation in light of product being linked to cases of Listeriosis, Blue Bell Ice Cream will run a trial production run in their Alabama facility.

The costs of this contamination event will be tremendous.  First and foremost, are the people who contracted Listeria and their associated costs.  Then the legal fees.  The cost to the people who were laid off or furloughed (roughly 1,400 in each category).  The company also has the cost of the recall and the lost revenues for 4 months of product.  Then there will be costs associated with resuming production....costs of improvements to the operation, retraining of employees, conducting trial runs, etc.  Getting back into the market place will not be cheap....regaining freezer shelf-space (you don't think those retailers let that space go empty for 4 months), restarting a distribution system, etc.  And then regaining sales....the loyal will be back, but many other will be hesitant or leery, while others have moved on to other brands....the lost customer is very difficult, if not impossible to recover.

And what if they find it again....certainly this has been the case in a number of facility-related contamination events......


CBS DFW
http://dfw.cbslocal.com/2015/07/08/blue-bell-to-begin-trial-runs-in-july/
Blue Bell To Begin Trial Runs In July
July 8, 2015 1:34 PM 

FORT WORTH (KRLD/CBSDFW.COM) – After a nearly four month absence from store shelves, Blue Bell ice cream could make a comeback before summer’s end.

The company will begin trial runs at its Sylacauga, Alabama plant during the week of July 20, as part of its plan to get the ice cream back in grocer’s freezers.

The Cost of Foodborne Illness for Each of the Major Pathogens

 The USDA Economic Research Service issued a series of cost estimates for the various types of pathogens such as Listeria, Salmonella, and Norovirus.

According to these estimates, the cost of foodborne illness exceeds $15 billion, and this does not include industry associated costs of recalls, loss in brand equity, etc.


USDA - ERS
http://www.ers.usda.gov/data-products/cost-estimates-of-foodborne-illnesses.aspx#48498

Cost Estimates of Foodborne Illnesses


The Cost Estimates of Foodborne Illnesses data product provides detailed data about the costs of major foodborne illnesses in the United States, updating and extending previous ERS research. This data set includes:
Detailed identification of specific disease outcomes for foodborne infections caused by 15 major pathogens in the United States
Associated outpatient and inpatient expenditures on medical care
Associated lost wages
Estimates of individuals’ willingness to pay to reduce mortality resulting from these foodborne illnesses acquired in the United States.

Study: Cost of Foodborne Illness in US Estimated at $77 billion

This study gives us an idea of the costs related to foodborne illness, and is great to use in presentations, but as the author points out, the numbers are limited in their application to justify any particular action in reducing foodborne illness.

http://www.cidrap.umn.edu/cidrap/content/fs/food-disease/news/jan0312cost.html