MAR. 01, 2021
- More than 1.6 million people are employed in food and beverage manufacturing, and there are more than 48,000 food and beverage manufacturing establishments across the United States
- Approximately 48 million people get sick each year due to preventable foodborne diseases
- Transparency is important or extremely important to 81% of shoppers — both online and in-store
According to the U.S. Bureau of Labor Statistics,1 more than 1.6 million people are employed in food and beverage2 manufacturing, and there are more than 48,000 food and beverage manufacturing establishments across the country.
Given the diversity and breadth of the food and beverage industry, many organizations (e.g., manufacturers and distributors) are significantly impacted by the latest trends, challenges and innovations affecting this space. This article will examine these trends in more detail, arming both insurance agents and their business owner clients with the knowledge they need to successfully navigate industry changes that could redefine how they operate and manage risks.
Ongoing compliance considerations
At any point in production, food can become contaminated with bacteria, viruses, parasites, chemicals, undeclared allergens or harmful materials such as glass or metal fragments. If an unsafe food product leaves the control of the manufacturer or is in violation of safety legislation, the product must be removed from the market in a recall.
These recalls can be expensive, with many leading to class-action lawsuits that easily cost six figures or more. Food safety issues and expensive recalls are increasingly common. According to one PwC report, hundreds of companies recalled products over a five-year period, with losses ranging from $10 million to $30 million.3 Further, approximately 48 million people get sick each year due to preventable foodborne illnesses.4 Despite these facts, many food manufacturers are unprepared to mobilize quickly following an incident.
To ensure food safety, prevent recalls and prepare for potential third-party audits, it’s crucial for businesses to understand various compliance requirements outlined by the Food and Drug Administration (FDA)5 :
Hazard Analysis and Critical Control Points (HACCP)
HACCP is widely utilized by food manufacturers around the world. HACCP is a management system in which food safety is addressed through the analysis and control of biological, chemical and physical hazards that may be introduced throughout the production process or via raw materials.
Per HACCP regulations, manufacturers are required to identify any hazards that might affect food and beverage safety and take steps to control those hazards. While HACCP is a crucial component of an overall food safety program, businesses must also take prerequisite programs (e.g., pest control, traceability and recall, hygiene and sanitation) into account. Additionally, firms must ensure that suppliers and distributors also have a food safety program in place and that it meets strict standards.6
The Food Safety Modernization Act (FSMA)
In 2011, the FSMA significantly enhanced the Federal Food, Drug and Cosmetic (FD&C) Act — legislation designed to prevent the adulteration or misbranding of food products in interstate commerce. When it passed, the FSMA represented some of the most sweeping reforms in food safety laws in more than 70 years, particularly impacting regulation around food recalls.
Prior to the FSMA, recalls were almost exclusively voluntary. However, the FSMA gave the FDA mandatory recall authority for the first time. This means that, should certain types of food products have the potential to cause serious adverse health consequences or death, the FDA could order the responsible party to perform a recall. This is important to note, as failing to conduct a recall when one is required can lead to warning letters, injunctions, criminal prosecution and fines of up to $500,000.7
The FSMA also requires businesses to implement a food defense plan that identifies actionable process steps, mitigation strategies, and procedures for food defense monitoring, corrective actions and verification.
Current Good Manufacturing Practices (CGMP)
The CGMPs guide companies in the safe production of food and feed products. The CGMPs cover topics such as the design and construction of a food plant, the maintenance of plant grounds and equipment, the sanitation of a facility, and production and process controls. Per the CGMPs, those that manufacture, process, pack or hold food for human consumption in the United States must establish a food safety system that:
- Analyzes known or reasonably foreseeable biological, chemical and physical hazards
- Implements preventive controls and a recall plan
- Manages preventive controls through monitoring, corrective actions and verification
- Updates and clarifies CGMPs for human food production
- Installs a qualified program overseer
For food and beverage manufacturers, the availability of labor is a significant, ongoing challenge. This trend isn’t simply limited to producers and distributors of food and beverage products either, as the manufacturing industry as a whole has struggled to attract and retain qualified candidates. One estimate found that as many as 4.6 million industrial jobs might go unfilled over the next decade. There are many reasons for this skills gap, but trends related to an aging workforce are prime contributors.8
In general, more employees are exiting the workforce. At the same time, organizations aren’t able to connect younger workers with open positions. While it’s true that the COVID-19 pandemic has, unfortunately, put many individuals out of work, recruiting is still challenging — especially when it comes to finding skilled technical workers (e.g., maintenance workers and technicians who run and maintain automated or specialized equipment).
To complicate matters, food and beverage manufacturing is, historically, a low-margin industry. Businesses are continually pressured to keep prices and production costs down, which can counteract upward pressure regarding employee wages.8
While businesses may have to scale back their hiring criteria to fill open positions, this should not be done at the cost of workplace safety. Less experienced workers will need thorough training, and employers should not overlook continued safety education when bringing on new talent.
Transparency is important or extremely important to 81% of shoppers — both online and in-store — according to a 2020 report from the Food Industry Association (FMI) and Label Insight. That’s up from 69% in 2018.9
Consumers want to know where their food comes from, a fact that makes food transparency and traceability increasingly important for manufacturers. Consumers want food manufacturers to provide a complete list of ingredients, in-depth nutritional information, details regarding product sourcing, and more.
People also expect food manufacturers to be open and honest about their environmental and social impact. One global survey from DNV-GL found that consumers want more transparency specifically around these categories10:
- Sustainable packaging (67.8%)
- Greenhouse gas emissions during production (50.6%)
- Water consumption (40.9%)
- Food waste (61.3%)
- Working conditions in fields and factories (56.3%)
In response, food and beverage manufacturers should listen to consumer preferences and evaluate the level of product information they provide. Additionally, it’s important to remember that sustainability extends all the way down the supply chain. To ensure sustainable practices, manufacturers are now measured by a number of metrics, including greenhouse gas emissions, product recyclability and waste generation (e.g., water contamination).
Food and beverage manufacturers have always been particularly susceptible to trade disruptions.8 These days, American tariffs on imported steel and aluminum have resulted in retaliatory tariffs on food exports. These tariffs have resulted in lower sales and profits for food and beverage manufacturers.
The tariffs have also affected imported food and beverage products, as many manufacturers depend on aluminum and steel for their packaging. In the face of tariffs on these materials, increased import costs are passed on to domestic businesses by manufacturers of aluminum cans and other packaging.11
Digitization of the food and beverage industry is primed to give businesses in the space the ability to capture critical data and optimize their operations.12 For proof, you need only look to Internet of Things (IoT) devices.
Through the use of IoT devices, manufacturers can install sensors on individual pieces of equipment, which in turn promotes interconnectivity and easy access to real-time data. Using this data, manufacturers can identify bottlenecks in their supply chain, giving them opportunities to find efficiencies and garner significant savings.
Additionally, IoT devices can be used to monitor individual pieces of equipment, ensuring they’re running properly. This is a considerable benefit, as, in many cases, production may be brought to a halt should a key piece of equipment break down.
Beyond the use of IoT devices, technology related to microbiological testing and high-pressure processing could improve food safety initiatives:
Microbiological testing provides a detailed method for tracking pathogens. Using this process, businesses can track a pathogen through the supply chain and determine where food or beverages were first contaminated.
High-pressure processing is a method of preserving and sterilizing food. Through this process, a product is processed under very high pressure, leading to the inactivation of certain microorganisms and enzymes in the food.
Responding to trends and managing risk
The food and beverage industry is both fast-paced and dynamic. If businesses are to effectively navigate challenges and manage risks, they need to stay abreast of trends impacting this space and respond accordingly. While no two operations are the same, and every organization has its own set of unique challenges, there are general risk management steps to consider.
For one, in order to respond to exposures related to the supply chain, food transparency and other issues, businesses need to be prepared. Firms should perform a risk assessment to determine what risks are most likely to threaten their operations. Then, with a general sense of potential losses, businesses should run practice drills to see how well they respond to common scenarios such as packaging issues, cyberattacks, logistical concerns or natural disasters. Organizations should also evaluate how specific business disruptions or events could potentially impact consumers and determine how they will ensure continuity following a loss.
Additionally, the importance of employee training can’t be overstated — particularly as labor trends continue to force businesses to bring on younger, less experienced workers. Above all, employees should understand any and all relevant safety procedures. This would require employers to provide training on food handling, food storage, emergency response, equipment usage, heavy machinery, safe lifting, housekeeping and similar topics that can lead to health and safety concerns.
Consider creating a general workplace safety policy that outlines hazards and required training. Training procedures should be reviewed and updated regularly. Refresher training is also important when employers introduce new equipment, technology or processes into their operations.
- Given the diversity and breadth of the food and beverage industry, many different organizations are significantly impacted by the latest trends, challenges and innovations affecting this space
- If businesses are to effectively navigate challenges and manage risks, they need to stay abreast of these trends and respond accordingly
- While no two operations are the same, and every organization has its own set of unique challenges, there are general risk management steps to consider