Thinking About Food: The Price of Healthy Eating

On September 14, the Food and Drug Administration (FDA) issued a warning against spinach consumption in the United States as a result of more than 100 cases of E. coli being reported across 20 states and linked to uncooked spinach. This is the latest of the health-related blows that periodically rock the food industry and have an extensive financial impact.

Consider:

  • Two lawsuits have already been filed related to the current outbreak. The first was filed in District Court in Oregon and the second in the District Court of the Eastern District of Wisconsin. Both were filed against Dole.

  • Earlier this month, a lawsuit alleging food from the deli department of a Wal-Mart store had been implicated as the source of a Salmonella food poisoning outbreak was filed in Johnson Superior Court in Indiana. No estimate of damages was available at time of press.

  • In June, a recall of more than a million bars of chocolate by Cadbury Schweppes cost the company $36 million and that figure could rise if lawsuits are filed, according to Forbes.

  • The total cost of settling lawsuits filed against Sheetz in a July 2004 salmonella outbreak affecting nearly 400 people is not available under confidentiality agreements, however, Sheetz covered the $500,000 deductible by paying some customers. WVNS reports that Coronet Foods, the supplier of the tomatoes allegedly at the source of the Sheetz cases, has filed for bankruptcy.

While the food supply in the U.S. is one of the safest in the world, the Centers for Disease Control and Prevention (CDC) estimates that 76 million people get sick, more than 300,000 are hospitalized, and 5,000 Americans die each year from foodborne illness. Preventing foodborne illness and death remains a major public health challenge, as well as a challenge to the financial stability and growth of the food service and agriculture industries.

"We closed the bakery and deli Friday the 25th and had outside workers along with our associates in to deep clean everything. In addition, all prepared and open foods were discarded," Wal-Mart spokesman John Simley told IndyStar.com, adding that the deli and bakery have been reopened. "Our customers can feel totally confident that the food they purchase is safe."

Of course, customers probably felt that way before the outbreak as well, so the question remains, how do customers know the food they purchase at the deli, grocery store, convenience store, or restaurant is safe?

In an open letter to the International Dairy Deli Bakery Association, Robert Greene, General Manager of Magna Medical, a provider of drug testing and screening products, addressed the importance of empowering deli managers with the tools needed to conduct spot checks of food products and machinery in order to prevent cross contamination. According to Greene, a $3.25 test strip could have identified foods containing the bacteria, thus reducing the risk of public ingestion and illness.

Alex Avery of the Center for Global Food Issues disagrees.

“These tests still provide zero insurance against getting sick,” Avery told AccountingWEB. “The expense of the tests offers little practical assurance that all the food from a certain place is safe, only that the portion tested is. Irradiation, which will work on fresh greens, is a much surer method of reducing the risk of illnesses such as E. coli or Salmonella, however, consumer groups will never accept that it doesn't make food dangerous.”

In the present E.coli scare, the entire spinach industry is affected. Two major spinach producers, Natural Selection Foods LLC and River Ranch Fresh Foods, have recalled their spinach-containing products.

“There will be a considerable impact in the heart of the salad bowl [California],” Avery says.

The outbreak has been traced back to fresh spinach pre-packaged for salads from the Salinas Valley in California. Seventy-four percent of the country’s fresh spinach crop comes from California. The Salinas Valley accounts for almost 75 percent of that.

“It’s too early in the game to quantify losses,” Michael Briley, CPA and a Partner, Hayashi & Wayland Accounting and Consulting in Salinas, Calif., told AccountingWEB. “This is a small community. Many people work in or around the produce industry so it will have a significant impact and right now we’re waiting for the dust to settle.

“Most growers are diversified and so hopefully they will survive,” Briley continued. “Any company found to be directly responsible will be impacted significantly.”

The Los Angeles Times is not so sure, saying “a whirlwind of health warnings and media reports has tarnished the reputation of its growers and processors so severely that experts predict some farms with large spinach crops may fail.”

Spinach accounts for only a small fraction of sales among the nation’s grocers. Some observers, however, fear the outbreak may eat away at consumer confidence in the bagged salad market. Bagged salads represent a significant portion of a $2.8 billion-a-year industry founded on healthy eating and convenience.

“The FDA and the fresh produce industry have been working to resolve the issue of E. coli contamination for a number of years,” said William Marler, the attorney representing the complainant in both lawsuits against Dole. “It is unfortunate that outbreaks continue to happen and that consumers continue to be injured as a result.”

“Food safety is a significant issue for these folks.” Briley states.

As the most recent outbreak demonstrates “Food companies are being held to a perfect standard that isn't attainable,” Avery adds.

Failure to meet that standard affects not only the consumers who become ill but also food producers and food service providers of all sizes.

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