With each new outbreak of foodborne illness, my colleagues and I go to bat for a new round of sick people – mostly kids and senior citizens.
At the same time, we brace ourselves for the familiar rant: We are the blood-sucking ambulance chasers who impose crippling legal costs on honest companies that have made innocent mistakes trying to feed the nation. So be it. Limbaugh, Hannity, O’Reilly, Beck, Dobbs and friends can bash us all day and all night for our efforts to make companies pay the personal costs associated with their mistakes. If somebody knows a better way to get justice and compensation for injured people, I want to hear about it. But, for the record, trial lawyers like me are not the reason that screw-up companies like Peanut Corporation of America (PCA) go bankrupt. We are not the reason our Government has failed to protect its citizens.
The ongoing peanut recall is a case in point. In the end, PCA and various manufacturers will be stuck with a tab of, say, $30 to $35 million for the nine people who died and the hundreds who were sickened by peanuts tainted with salmonella. That’s serious money, but all or most of those costs will be covered by insurance.
More important, those settlements will be, well – peanuts – compared to the other costs surrounding the nationwide recall. And, it is those preventable recall costs that will drive businesses into bankruptcy.
As of this week, tainted peanuts have been blamed for well over 650 illnesses and nine deaths in 45 states and Canada, and we know that thousands more salmonella cases were never diagnosed nor reported.
In an attempt to end the outbreak, more than 200 companies have recalled some 2,850 products that may be contaminated – products ranging from candy bars and crackers to ice cream and pet food.
Who would disagree that recalling tainted food is the right thing to do – for legal and ethical reasons as well as basic public relations?
But recalls come with astounding costs. One of my good friends in the food-processing industry estimates that the peanut recall will cost well over $500 million – that’s half a billion bucks. It’s impossible to assign precise numbers, but you can start with the costs of tracking down, retrieving and transporting millions of items, most of which have already found their way onto retail shelves and kitchen cabinets.
Kellogg, just one of the companies that recalled products recently, has estimated those costs at $75 million – for just one company.
Then there are the lost sales – not just of the tainted products themselves, but most likely of related peanut products that may be completely safe. The tomato Salmonella recall last year resulted in $100 million in lost tomato sales – even though the real culprit proved to be peppers. E. coli-tainted spinach cost that industry over $175 million even though the outbreak was linked to one fifty acre farm. The peanut industry estimates that its sales already have plummeted by more than 25 percent, which breaks down to at least $500 million in losses on 2.6 million tons of raw peanut sales.
Also, do not forget the costs of advertising and public relations aimed at restoring consumer confidence. We have already seen expensive newspaper ads from peanut butter-makers, reassuring readers that their product is safe. What about the cost of restoring tainted brands?
Suppliers may or may not have to reimburse retail stores for lost sales. Large retailers like Wal-Mart include such reimbursement in their contracts; small businesses probably don’t do that, but suppliers may reimburse them anyway.
And, then there are the losses to stock prices. My friend reports that one major food processor lost $1 billion in stock value following an E. coli outbreak. Imagine what’s happening to peanut stocks these days.
The Big Guys – the Kellogg’s and Con Agra’s and Jack-in-the-Box’s – can sustain those losses. Not so the smaller retailers. My heart goes out to mom-and-pop businesses like Betsy Sanders, of Santa Clara, California whose small business supplies cookies for local PTA and marching band fundraisers, and who now has to reimburse her customers for recalled products that contained peanut butter from PCA.
So look for the costs of this recall to exceed $1 billion – many times more than the likely costs of compensating their sickened customers. And, virtually none of that $1 billion will be covered by insurance.
In an economy already battered by failing banks, lost jobs and scarce credit, people will be driven out of business – not by ambulance-chasing lawyers, but by greedy and careless food processors and by a Government that has walked away from its moral responsibility to protect the public.