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Industry defends itself against recalls

By Rod Addy , 07-Feb-2013

The food and drink industry is tackling risks associated with volatile supply chains, such as recalls, through innovation, according to a joint research paper from Campden BRI and JLT Specialty.

The study claims companies are developing new products or encouraging consumers to eat and therefore shop differently. They are also finding economies of scale through focused product strategies, merger and acquisition activity, international expansion and targeting new customers.

"Food and drink manufacturers have faced increasing pressure on their profit margins in recent years," said Bertrand Emond, head of membership at Campden BRI.

"Our research highlighted that volatility, and particularly the increase in the prices of raw material, which is often exaggerated by fluctuating exchange rates, is a key concern and challenge. This is clearly putting pressure on the sector as it is hard to pass these increases on through the supply chain."

Insurance

In addition, companies were demonstrating growing interest in recall and contamination insurance as well as property and liability covers, which would also help them weather unexpected supply chain risks, said JLT Speciality.

In 2011 recalls in the UK food and drink sector doubled from the previous year from 35 to 70, demonstrating the increased awareness and scrutiny of such issues, said Jon Miller, associate at JLT's food and agri practice.

High profile cases, including the recent horse meat issues, had also heightened concerns. As the industry exposure has grown, stipulations requiring product recall and contamination insurance have become more common in contracts between retailers, suppliers and manufacturers, added Miller.

Reputation management

"Manufacturers need to consider purchasing such cover not just for the first party recall expenses, but also for retailer/third party charges as well as pre and post loss advice, which addresses key issues such as reputation management through specialist crisis consultants that are written in to most policies."

Emond concluded: "The food and drink manufacturing industry is the largest manufacturing sector in the UK ...

"Whilst it has clearly shown resilience even in difficult economic times, this paper shows that sharing insight and experience as an industry and understanding both the opportunities and challenges we face are important for on-going success"

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