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Marler Blog Providing Commentary on Food Poisoning Outbreaks & Litigation

William D. Marler, Esquire – Speech Before the House of Lords dinner – How one Peanut Company caused $1.5 Billion in Losses

The recall of Salmonella-tainted peanuts and peanut products processed and produced by the Peanut Corporation of America has caused one of the largest food recalls in US history; almost 4000 products made by hundreds of companies have been withdrawn, and the number is still growing. The 700 culture-confirmed cases of Salmonella indicate a much higher number of unreported illnesses – the actual number is probably close to 25,000. At least nine lost their lives. Beyond this terrible human toll, the financial toll on businesses and the American food supply has been staggering.

How did it happen? How did a single peanut processor in rural Georgia cost the American economy over a billion dollars? The two factories run by PCA only processed 2.5% of the annual US peanut crop, but their actions had huge repercussions. The investigations into the actions of the Peanut Corporation of America have revealed that PCA repeatedly retested product until a clean sample was obtained, shipped product that they knew was contaminated, and did not act on recommendations from the FDA to clean up their act.

It’s too easy to point to the company as a “bad actor” – an isolated case. There was a similar widespread outbreak of Salmonella in peanut butter two years earlier, centered not 75 miles from the Georgia plant. Unbelievably, this did not appear to affect how PCA ran its business, or how they were inspected or regulated so it can – and may – happen again.

Let’s start with the human toll, which is what I know best. My firm represents over 100 people who were sickened by the Salmonella and two families who lost a family member to it. One of our clients, Clifford Tousignant, won three purple hearts in the Korean War, but lost his life to peanut butter. Another family’s three-year-old son got sicker and sicker as his pediatrician allowed him his favorite food during his illness – the peanut butter crackers that later turned out to be the source of his infection. Hundreds of families spent time and money in emergency rooms and Intensive care units as their family members struggled with their illnesses. Although no one can put a price tag on human suffering and loss, these claims will probably settle in the range of 30-35 million dollars. That’s serious money, but most of it will be covered by insurance. Those settlements will be, well, peanuts, compared to the other costs surrounding the nationwide recall.

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. 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 also 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. In 2006, E. coli-tainted spinach cost that industry over $175 million – even though the outbreak was linked to just one fifty-acre farm in California. Peanut sales already have plummeted by more than 25 percent. Demand is down and peanut fields are lying fallow. The peanut industry estimates the loss is over one billion dollars in lost production and sales.

Let’s 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?

Those in the chain of distribution are feeling the effects as well. 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. 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 Kelloggs and ConAgras and Jack-in-the-Boxes – 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 Parent Teacher Association and marching band fundraisers, and who now has to reimburse her customers for recalled products that contained peanut butter from PCA.

Is anyone keeping track of the math? Let’s call it $1.5 billion – just because of the actions of one small player in the peanut industry. The likely costs of compensating their sickened customers are a tiny part of that number; virtually none of the rest of that $1.5 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. And, it was preventable.

As I was preparing this speech, the Food and Drug Administration announced that President Obama’s 2010 proposed budget included an increase of almost 20% for the FDA, including almost $260 million for better food safety. That sounds like big money, but if it can prevent a single billion-dollar recall and prevent citizens from being sickened, it’s a step in the right direction. However, there are a few other things that I would suggest.

First, be honest with the American Public. With 76,000,000 foodborne illness cases yearly, 325,000 hospitalizations and 5,000 deaths, our food supply might be safer than some – but it is not safe enough.

Second, put food safety on the “front burner” and turn up the heat. It is time that we commit to the American Public to get animal feces out of our food. How to do it – Here are my “top ten” ideas to combat this recurring epidemic:

– Improve surveillance of bacterial and viral diseases. First responders – ER physicians and local doctors – need to be encouraged to test for pathogens and report findings directly to local and state health departments and the CDC promptly.
– These same governmental departments, whether local, state or federal, need to learn to “play well together.” Turf battles need to take a back seat to stopping an outbreak and tracking it to its source. That means resources need to be provided and coordination encouraged so illnesses can be promptly stopped and the offending producer – not an entire industry – are brought to heal.
– Require real training and certification of food handlers at restaurants and grocery stores. There also should be incentives for ill employees not to come to work when ill.
– Stiffen license requirements for large farm, retail and wholesale food outlets, so that nobody gets a license until they and their employees have shown they understand the hazards and how to avoid them.
– Increase food inspections. While domestic production has continued to be a problem, imports pose an increasing risk, especially if terrorists were to get into the act. Points of export and entry are a logical place to step up monitoring. We need more inspectors – domestically and abroad – and we need to require that they receive the training in how to identify and control hazards.
– We need to reform federal, state and local agencies to make them more proactive, and less reactive. This too requires financial resources and accountability. We also need to modernize food safety statutes by replacing the existing collection of often conflicting laws and regulation with one uniform food safety law of the highest standard.
– There are too few legal consequences for sickening or killing customers by selling contaminated food in the US. We don’t need to impose the death penalty, as China did recently. But, we should impose stiff fines, and even prison sentences, for violators, and even stiffer penalties for repeat violators.
– We need to use our technology to make food more traceable so that when an outbreak occurs authorities can quickly identify the source and limit the spread of the contamination and stop the disruption to the economy.
– We need to promote university research to develop better technologies to make food safe and for testing foods for contamination.
– We need to provide tax breaks for companies that push food safety research and employee training.
– And, we need to improve consumer understanding of the risks of foodborne illness.

Last year I testified before the US Congress and laid out the above 11 points. I told them the time has come to act and not continue simply to react. Consumers, Farmers, Suppliers, Manufacturers, Retailers, Regulators and Politicians need to work together to make our food supply safe, profitable and sustainable. When a quarter of our population is sickened yearly by contaminated food, when thousands die, we do not have the “safest food supply in the world.” We should, must, and can do better.

  • Hello Bill:
    You wrote, “Consumers, Farmers, Suppliers, Manufacturers, Retailers, Regulators and Politicians need to work together to make our food supply safe, profitable and sustainable”.
    This may be the most important recommendation you made in the paper from your speech before congress.
    To get a level of cooperation, improvements are needed translating and passing along information about the safety of products throughout the supply chain and then coordinating the effort so we can strengthen the supply chain. We do not know for sure all the risks in terms of probability and severity from each of these sectors you mentioned, but we want the food chain to be aware of the residual risk passed along to the next link in the chain. When we do this, we can bolster defenses and then assess how we are doing.
    Right now, you know communication of the risks has been a problem. We have not done a good job identifying and communicating the risks; it is a matter of cooperation, incorporation and communication. Much if the info is there about risks, but it is just not passed along and not accessible.
    Probably the best media we have now to communicate with consumers are cell phones and Internet; we have already seen how the Internet was a sentinel for an outbreak of Listeria monocytogenes. We have also seen the YouTube type of stuff and its impact. Think of how powerful it would be to harness these communication channels in a meaningful way for public health protection. We mainly see static types of environments on the web, where you just go and look something up. We can get way passed that. There are bar code scan systems for example that you can read with an I Phone. What if a bar code captured info about all links in the chain, and then safety data were available to the consumer?
    What if Pulse Net was more readily accessible and active and we cut an investigation from 3 weeks to three days before being able to force a recall in the supply chain?
    With existing technology, we can instantly communicate with all links in the food chain.
    Farmers, manufacturers, regulators, researchers and consumers already have a quick solution for working together. Merging technologies like this should be front burner items for consideration.

  • Margie

    Excellent explanation of how shortcuts in food safety cost more than they save, and cost lives as well. Well done and keep up the great work for your clients, and for consumers everywhere.