The indirect costs from a food recall take longer to recover from and can far outweigh the direct costs involved

Food recalls can cause massive financial and reputational damage for food processors, but the recall procedure itself helps to reduce the negative human health effects that can result from improper food handling and inspection.
Protecting consumer health is the number one priority when the decision to issue a recall is made. Unfortunately, the food processor often suffers under the weight of expenses incurred, highlighting the need for optimal food safety procedures.
337 food recalls were issued in the United States in 2019 alone. About 175 of these recalls were caused by the presence of undeclared allergens such as dairy or nuts, while Listeria, Salmonella and E. coli were the cause of 105, and approximately 50 more were issued due to foreign material contamination.

While recalls caused by foreign material contamination are fairly straightforward and easy to detect, bacterial contaminations can slip under the radar and remain unnoticed until consumers become ill.
Regardless of their cause, recalls are a considerable threat to food companies of all sizes, and appropriate steps need to be taken to ensure proper food safety and mitigate the risk of a recall.

The recall process

The recall process begins as soon as a human health and safety risk is identified in a consumer product and the risk is deemed serious enough to warrant a recall for that product. Most recalls are issued voluntarily by the offending company to minimize negative impacts, although government agencies may step in if necessary.
Recalls involving poultry, meat and some egg products are overseen by the U.S. Department of Agriculture (USDA), and all other recalls are handled by the Food and Drug Administration (FDA). Once the appropriate agency is notified, the recall is classified under Class 1, 2, or 3, depending on the severity of the recall.

A Class 1 recall indicates there’s a reasonable probability that consumption of the food will lead to health problems, while a Class 3 recall indicates there’s no probability of negative health effects, although the product violates labeling or manufacturing laws. A Class 2 recall falls in the middle; it indicates a remote probability of adverse health risks and is usually treated like a Class 1 recall.
Ideally, the contaminated product is identified and disposed of while still stored in the company’s warehouse. If, however, the product is already on store shelves, the public must be notified through press conferences or news releases. 
A recall is complete once the corrective actions have been reviewed by the FDA or FSIS and the contaminated food product has been recovered.
In order to avoid extensive reputational and financial damage, identifying health risks and issuing a recall as soon as possible is critical; if products make it on store shelves before a major health issue is identified, it may already be too late.

Direct and indirect costs of a recall

Direct costs from a recall include the cost of changes to production output, notifying the public and/or regulatory agencies, obtaining and destroying contaminated products and the examination process to determine the source of the recall, along with steps required to prevent further issues.
These costs vary greatly and are dependent on the size of the company and scale of the recall, although on average, shareholder wealth is reduced by 1.15 percent. Other studies have found that the average direct cost to a food company is $10 million
Large recalls and recalls involving consumer illnesses or deaths may also result in lawsuits and potentially bankrupt the affiliated companies, with the possibility of jailtime if negligence is involved.
The infamous 2008 Westland/Hallmark recall was issued after the meat processor was caught on camera knowingly slaughtering and processing sick cows, resulting in the company’s bankruptcy due to massive litigation costs. 
Another recall in 2010 involved eggs contaminated with Salmonella that were processed by the Wright County and Hillandale Farms companies, resulting in more than 1,900 illnesses and a recall of more than a half-billion eggs. The owners were charged millions of dollars in fines. 
Direct costs pale in comparison to the indirect costs and lasting financial effects of a recall, however. Due to today’s 24-hour news cycle and the prominence of social media, the news of a recall spreads fast, and consumers are slow to forget.
Perhaps the largest indirect cost of a recall is the resulting loss of consumer trust and damaged reputation that can take years to recover from. A 2014 Harris Poll found 55 percent of consumers will temporarily switch to another brand after a recall, and 16 percent said they wouldn’t purchase products under the affiliated brand again at all. 
This threat is amplified for vertically integrated food companies that produce and sell products directly to consumers under the same brand name. Although these companies can be more economically efficient, they bear the full brunt in the event of a recall.
A 2008 recall involving Maple Leaf Foods Inc., a Canadian consumer packaged meats company, resulted in direct costs of over $20 million in refund and sanitization expenses, but because the company also sold its products under the Maple Leaf name, the damage to the company’s brand image was estimated to cost far more.

Preventing recalls in the production chain

Preventing and avoiding food recalls should involve preventative measures along the entire production line to reduce risks as best possible and promote safer food. The greater the time period between the distribution of a product and the identification of a health concern, the greater the repercussions will likely be.
One of these measures, the 2015 Food Safety Modernization Act, emphasises a proactive approach to combatting foodborne illnesses and requires food facilities to have a food safety plan in place that includes a risk analysis and mitigation steps. 
“Food safety is a multilayer approach,” says Dr. Joshua Jendza, Technical Product Manager at BASF Animal Nutrition. “All sources of contamination must be considered to create a protection plan that mitigates the risks, but that has to be done in layers because no one intervention is going to work all the time. There's a probability of an intervention working, but there's also a probability of that intervention failing; therefore, you want to have multiple interventions overlapping to fill in the gaps.”
Thankfully, technology and testing methods have become more sophisticated in recent years, making it easier to identify these health risks before widespread distribution, but there is still more that can be done.
Livestock feed is a potential source of contamination that is often overlooked in preventative practices. This is because of the separate jurisdiction from FSIS and the FDA: the USDA-FSIS oversees food security in production plants, while the FDA oversees feed for livestock.
Although feed mills are not usually linked to animal health problems, implementing feed hygiene practices such as feed acidification or heat-treating feed can create a hostile environment for bacteria and reduce the risk of pathogens ending up in processed meat.

Everyone plays a role in food safety

A recall is an important safety procedure, especially for food companies, with the ultimate goal of keeping consumers safe through awareness, intervention and prevention.
Although a recall almost always negatively impacts business, the extent to which it does is dependent on the severity of the health issue, how early it’s detected and how the company handles the recall procedure.
Ultimately, everyone involved in food production plays a role in keeping food safe to prevent illnesses and keep consumers healthy. By implementing strong food safety measures to detect and stop contaminated food before it reaches the market, food safety is increased, and the chance of a recall is reduced.


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