3 August 2015
by Josephine Phan, Risk Assurance Services Senior Executive, PwC Malaysia
Here’s an alarming statistic which might make you lose your appetite. The World Health Organisation estimates that food and waterborne diseases have led to 2.2 million deaths annually. Every so often, we hear cases of food fraud, contamination and major food recalls in the news. It is alarming when consumers can’t even trust basic food items such as eggs or rice, because of the fact that these commodities can be artificially produced, distributed and sold for consumption. Just recently this month, there were news reports of “poisoned” or contaminated candy in the Philippines where nearly 2,000 school children fell ill after consuming a batch of durian candy.
In a separate case, ConAgra Grocery Products LLC in the US has reportedly been imposed a $11.2 million fine on allegations that the company shipped contaminated peanut butter under its Peter Pan brand and Wal-Mart Stores Inc.’s Great Value label. More than 700 people were sickened by the contaminated peanut butter in a 2006 – 2007 salmonella outbreak.
It’s not surprising then, why food-related regulations are now a major focus of governments in a bid to increase oversight and sanctions, fines and penalties to strengthen the food safety system. The most significant reform affecting the global food industry in decades is the US Food Safety Modernization Act 2011 (FSMA). The Act gives the US Food and Drug Administration (FDA) the authority to recall contaminated foods and hold everyone accountable at each step of the supply chain, including foreign food suppliers to the US. Whilst this Act is expected to lift food safety standards throughout supply chains across the world, is it enough?
In light of the increasing number of high-profile food safety and integrity scandals, it is clear that consumers want trust, assurance and transparency over what they consume. Legislation only sets minimum standards. So complying with regulatory change is a start but winning customers’ trust and confidence will take much more. Never has this issue been more pressing than in this digital age, where easy access to news and research particularly on social media makes for a more knowledgeable - but also a more sceptical consumer.
More than ever now, I feel there should be a greater emphasis on preventing food safety issues rather than reacting to problems after they occur. Food companies need to demonstrate greater transparency across their supply chains, reduce risks and position themselves positively in the marketplace to give customers confidence in their products.
So how do food companies deliver on this promise to their consumers beyond just meeting regulations? Here are some ways I feel those in the food business can start meeting their customers’ needs.
The theme of food safety and quality must be reflected in the corporate culture of the organisation. An organisation with a strong food safety culture demonstrates to its employees and customers that producing safe food is an important commitment. This commitment must be reinforced through all staff awareness and training programmes.
However, providing dedicated teams in the company with the competencies to deal with deficiencies and recalls is not enough. Companies need to instil a sense of responsibility in each and every employee for the quality and safety of the company’s products. ConAgra Foods now cultivates this sense of responsibility among its employees through a simple message: “Your family is also going to eat the food produced”.
To stay ahead of the game, business leaders must be fully informed and engaged with food trust issues. When business leaders actively participate in industry bodies and share their viewpoints in publications and industry events, this helps build their credibility as a thought leader. This sort of interaction also allows them to monitor current and emerging food issues, exchange best practices with peers, and take the knowledge gained back to their respective companies to develop a company culture that is relevant, agile and responsive to industry trends.
One way for companies to differentiate themselves in the market is by investing in new technologies which improve their processes, particularly in early detection of hazards and to manage supply chain risks. Today, as more businesses rely on suppliers and partners in different parts of the world, even those organisations who have mature supply chain management processes, don’t always have full view over their vendors.
Product traceability, which allows us to track products from where they originate up to the point they are sold to the consumer, is one such technology which is quickly gaining ground in this aspect. Companies which implement this sort of technology together with analysis over the whole supply chain, will have the advantage of promoting consumer confidence in their products because they have the data they need about their entire supply chain at their fingertips.
Providers of corporate software and IT infrastructure are integrating modules for traceability into their enterprise resource planning (ERP) systems. With traceability, consumers can scan the food code using a smart mobile device and retrieve information on the origins of their food items down to the type of farming or harvest date. Similarly, through the use of Quick Response (QR) codes, information on ingredients is easily available to consumers.
Proactively identifying and managing potential threats in food safety go a long way in promoting improved product integrity, reducing compliance costs and building greater consumer confidence. Active supplier management and regular evaluation of the quality of supplies is crucial.
For instance, a number of food retailers in Australia require their suppliers to meet their Quality Assurance Standards and have regular audits conducted by accredited organisations such as Telarc. For some of these companies, at the end of such audits, a certificate is issued to their suppliers to endorse that the supply meets their requirements, as well as all applicable laws and regulations. Another drinks manufacturer in Australia has a Quality Management System, which defines the specifications for their suppliers’ traceability systems and processes.
In this regard, do you or your supplier have the right systems and processes to check incoming products from suppliers? Could your system make up for instances where your suppliers might not be able to track their products? If you don’t, perhaps this might make a good business case for a more rigourous testing regime, and food safety and quality process to mitigate supplier risk.
In short, the nature of today’s supply chains demands a more strategic approach across the value chain. A strategic approach – what PwC calls food trust - will deliver on the brand promise, protect reputation, improve efficiency, reduce costs, limit disruptions and enable a more effective response to crises.
Nothing can be more disruptive for food companies than a food trust failure. It causes reputational damage and in the worst case scenario, even threatens a company’s existence. Clearly, companies that aspire to be market leaders must move beyond compliance to a higher bar of self-regulation for greater resilience and differentiation in the marketplace. There are no two ways about it. It’s a core component of competitiveness. So it isn’t quite true that you are what you eat. At a time where public trust is at an all-time low, you are after all, what your consumers eat.
Josephine Phan is a senior executive director with PwC Malaysia's risk assurance services practice. This article is the third of the four-part series Trust in Resilience. The next article explores the implications of hedging in a volatile financial climate.
This article was first published in The Edge Weekly.