Amid growing concerns and incidents related to food safety, a new report indicates that progress has been made among many companies, but there are critical risks and opportunities as the industry undergoes a large-scale, rapid transformation.
The report, “Food Safety: In a State of Transformation” was conducted by Cornerstone Capital Group and commissioned by the Investor Responsibility Research Center Institute (IRRCi). It examines food safety of some 60 publicly traded U.S. companies, as well as 30 companies that offer food safety solutions.
From a corporate governance standpoint, the report shows there are significant food safety disclosure differences among the various companies. The research also indicates that executive compensation rarely is linked to food safety goals, and that there currently is little food safety expertise present on most food company boards.
“We commissioned this research because food safety-related recalls represent a risk for investors, as evidenced by recent high-profile contamination issues facing companies like Chipotle,” said Jon Lukomnik, IRRCi executive director. “There are increasingly complex and global supply chains and changing patterns of eating out and buying ready-made meals. As a result, companies are under pressure to evolve and meet these new demands. This report enables investors to gauge which companies are proactive and at the forefront of food safety best practices, testing and technology – and which are lagging.”
"This kind of systematic analysis of pivotal issues facing an entire sector of the global economy is a matter of understanding excellence, or lack thereof, in corporate governance. It's also a matter of extraordinary importance to gaining predictive insight into long-term investment results," said Erika Karp, Cornerstone founder and chief executive officer.
“Our research reveals that a company’s food safety performance cannot be defined by a single factor. Instead, investors must consider a complex series of elements and we provide a framework for them to do so,” said Michael Shavel, report co-author and global thematic analyst at Cornerstone.
The research highlights three areas of food safety innovation including 1) food testing and analysis; 2) supply chain technology; and 3) automation and robotics. Importantly, the analysis identifies five emerging trends that present food safety opportunities and challenges:
1. There is a growing preference for organic, antibiotic- and preservative-free, and locally sourced food in the developed world. As these products capture market share, they require food safety practices to adapt. For instance, Cargill says that it has been asked by some customers to remove additives to processed meat despite the fact that those additives inhibit Listeria growth. Also, the demand for raw/unpasteurized milk has grown, but raw milk products are 150 times more likely to cause health issues than their pasteurized counterparts.
2. The shift toward two-earner families and busier lifestyles in developed markets and some developing markets means that fewer meals are being cooked at home. Spending on pre-packaged and ready-to-eat foodstuffs is increasing. However, this category of food is most affected by recalls. Ready-to-eat meals require complex production processes with numerous ingredients from various suppliers coming together on a “just in time” basis. Consumers are also allocating a larger share of their food budget to “eating out” instead of at home.
3. Consumers are becoming increasingly aware of food safety issues, and are demanding increased transparency from companies. In both developed and developing markets, a number of high-profile food safety incidents have led to heightened consumer awareness. The proliferation of mobile devices and social media means that the ability of companies to control the information around a food safety incident is greatly diminished.
4. Rising incomes in developing markets is driving growth in demand for animal protein and dairy. These products are resource-intensive and will put additional pressure on local supply chains. One implication is that bacteria found in animals may potentially cause more foodborne illness. Moreover, increasing global demand for animal protein has led to the rise of certain farming practices, which may more easily allow the transmission of foodborne parasites.
5. As populations in developed markets continue to age, more people will be at risk for foodborne diseases. Due to weaker immune systems, infants and older adults are particularly vulnerable to illnesses, including those caused by foodborne pathogens. For many pathogens, incident rates and/or the probability of severe outcomes tend to increase with age.
Regulation is also changing the food safety landscape, at least in the U.S. The passage of the Food Safety Modernization Act in 2011 means that government can be more proactive in mandating recalls and that companies have reoriented their food safety measures to emphasize prevention, rather than monitoring and reaction.
Funded by IRRCi, the report is authored by Michael Shavel, Sebastian Vanderzeil and Dehao Zheng, all with Cornerstone Capital Group.