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4 Oct 2016

High Tea at The Langham Hotel gets Berry Berry Bad

If the events that stunned Patties Foods earlier in 2015 and last week’s salmonella outbreak at Melbourne’s Langham Hotel does not prompt every company within the food and beverage industry to seriously consider their exposure and response to risk, I am disposed to say nothing will.

The outbreak of Hepatitis A linked to the consumption of imported frozen berries and the Salmonella scare emanating from one of Melbourne’s most prestigious hotels has reverberated through Australian households, retailers and the food and beverage industry alike. Both instances have cast a shadow over the transparency of food safety practices and hygiene standards for all in the industry.

As we watch these situations unfold, it’s not hard to imagine the repercussions for both companies stemming from these contamination disasters. Shattered consumer confidence, loss of market, brand and reputational damage immediately come to mind.

Unfortunately, the financial ramifications of a food safety disaster are generally not realised until after the event and it’s easy to see why some organisations become complacent when it comes to food safety.

Australia has one of the most stringent food safety regimes in the world. It is a leader in this space and delivers a high level of control through the use of Hazard Analysis Critical Control Points (HACCP) compliance and food safety labelling regulations. Particularly in comparison to other countries.

However, when it comes to Australian Consumer Law, the legal framework does not extend to overseas producers or suppliers, hence any food safety issue that stems from an imported product including the resultant financial implications are the responsibility of the organisation.

When any organisation involved in food and beverage considers how they can protect themselves from a potentially fatal contamination disaster, there are two aspects that must be considered.

Risk Management

A comprehensive understanding of your organisation’s exposure to risk is essential to minimise impact or chance of a contamination occurrence. Preventative risk management measures include a diligent approach to product sampling and testing which incorporates quality management and reduces your exposure to risk.

Secondly, ensure your organisation has an effective and well tested crisis management plan in place. These documented plans including business continuity and recall plans form part of your entire crisis management strategy. They ensure your business objectives are front of mind during the recovery phase and that transparent communication to your market is maintained at all times.

Insurance

Once a risk profile has been established, an accurate determination of your insurance requirements can be made to ensure optimal risk transfer can occur.

McKenzie Ross believes there are four types of insurance cover that need to be considered to minimise the financial implications of a fortuitous contamination or other food safety scare:

  • Products Liability – The obvious cover that will respond to any bodily injury to a third party affected by consuming contaminated products
  • Product Recall / Contaminated Products – An additional cover that can insure both first and third party recall costs including loss of gross profit, rehabilitation costs including adverse publicity and consultancy advice following either accidental or malicious contamination (whether actual or threatened).
  • Third Party Financial Loss – This cover pertains to any losses suffered by the supplier of your goods. Depending on the contractual agreement in place, there is a chance you will be liable for your suppliers’ financial losses stemming from product recall.
  • Management Liability – Covers individual directors and the entity itself against any actual or alleged mismanagement of the organisation as a result including the cost of any imposed statutory penalties.

Many organisations are not aware of their responsibilities as distributors of food products. Ensuring you are adequately insured in case of a contamination outbreak, exactly like the ones we have seen this year is critical to minimise the financial impact on your business.

It is important to remember that the most suitable insurance program for your organisation can only be determined through a thorough analysis of your organisation’s processes and exposures to risk. If you would like to discuss in greater detail, please contact McKenzie Ross on 03 9691 2222.

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