Big Lettuce out N $bn
November 27, 2019 8:40 AM Subscribe
There has been another contamination of romaine with e.coli. I have questions regarding how / if costs for the disruption of production are recouped at different levels.
• The lettuce, I assume, has already been delivered to stores/restaurants, etc. They will need to dispose of their romaine and, potentially, find other suppliers (presumably at a higher cost?). Is the loss something restaurant and supermarket insurance covers, or is the loss just the cost of doing business? Is there supermarket insurance for disruptions to the supply chain?
• The romaine affected comes from Salinas valley. However, I suspect the consumers don’t examine the provenance of the produce, so presumably the (temporarily not-at-fault) Yuma-based growers are going to be suffering losses due to reduced demand. Do they have a recourse for the demand suddenly falling?
• As I understand, in the past, the contamination come from the runoff water from the nearby cow farms. Does Big Cow get sued by Big Lettuce for contaminating its crops? Again, is this something the Big Cow insurance would pay out, if they lose?
• Do the answers to the questions above change, if, hypothetically, the romaine was not grown by Big Lettuce, but rather came from Bob’s Lettuce Patch – a sole-proprietor growing a few hundred heads in his spare time for local farmers’ markets? How about if the contamination was not from Big Cow, but rather from Jane’s Eco-Friendly Goat Herd of 10 heads? Are Bob and Jane now out of business?
• Basically – who gets sued by whom and who gets insurance payouts, if anyone.
• The lettuce, I assume, has already been delivered to stores/restaurants, etc. They will need to dispose of their romaine and, potentially, find other suppliers (presumably at a higher cost?). Is the loss something restaurant and supermarket insurance covers, or is the loss just the cost of doing business? Is there supermarket insurance for disruptions to the supply chain?
• The romaine affected comes from Salinas valley. However, I suspect the consumers don’t examine the provenance of the produce, so presumably the (temporarily not-at-fault) Yuma-based growers are going to be suffering losses due to reduced demand. Do they have a recourse for the demand suddenly falling?
• As I understand, in the past, the contamination come from the runoff water from the nearby cow farms. Does Big Cow get sued by Big Lettuce for contaminating its crops? Again, is this something the Big Cow insurance would pay out, if they lose?
• Do the answers to the questions above change, if, hypothetically, the romaine was not grown by Big Lettuce, but rather came from Bob’s Lettuce Patch – a sole-proprietor growing a few hundred heads in his spare time for local farmers’ markets? How about if the contamination was not from Big Cow, but rather from Jane’s Eco-Friendly Goat Herd of 10 heads? Are Bob and Jane now out of business?
• Basically – who gets sued by whom and who gets insurance payouts, if anyone.
About your Yuma example - they may not see the drop you'd expect. My local salad bar has a sign on it saying they source their romaine from Mexico, so people are still eating and serving romaine from other places. They are just as likely to see a rise in demand or no change at all.
posted by soelo at 11:39 AM on November 27, 2019
posted by soelo at 11:39 AM on November 27, 2019
Best answer: If there’s still product in the chain of distribution when the recall is announced, or returns from customers, as yomimono says, it is gathered, the amount is noted, and it should be destroyed in a manner that makes it clear it should not be consumed. If there is still potentially affected product in the field, as there was in this case, it is disced under.
If one is a restauranteur or retailer, one then contacts one’s distributor with the amount. Distributors turn to suppliers with the recall amounts, and suppliers make the distributors whole, and distributors in turn make restauranteurs and retailers whole.
There are a variety of insurance policies for restaurants and retailers that cover aspects of a potential recall, but all the facets of it are not covered under a general liability policy. This article details the possible limitations of some standard policies and endorsements that can be added to broaden coverage to include recall risks.
Farming businesses carry product liability insurance as well, and they can also buy product recall coverage. This presentation, given by a staff member from Western Growers, a nonprofit and lobbying organization that supports the agricultural community in the southwestern U.S., details the different coverages available.
There are resources to help small-scale farmers mitigate risk as well, but if you don’t have coverage for issues around a recall, in the Bob’s Lettuce Patch scenario, yes, the associated costs and reduced demand can be devastating.
The interrupted supply of a product from one location can be a boon for growers and suppliers in another location, as soelo says, if such a supply is simultaneously available. Different geographic areas supply product at different times of the year based on where weather patterns are optimal for a given crop. So sometimes, when a whole growing region gets knocked out, as with the affected romaine in this case, it can cause a shortage, which can cause prices to rise at the wholesale level and supply interruptions. At the retail level you can expect to see both out-of-stocks from supply interruptions and depressed demand, because consumers generally gather limited information about recall announcements and simply avoid the affected product for a time. That effect, in my experience, is a risk that’s part of the enormous long-scale gamble that is farming.
As for your prospective case of Big Lettuce vs. Big Cow, the relative power in those two parts of the agricultural supply chain is not the same. While there are small growers who grow for large concerns in leafy greens, and small ranchers who raise cattle for large beef concerns, the total sales of the beef industry are several times larger than that of leafy greens, and the way cattle are finished and slaughtered contributes to there being players with greater financial resources in beef than leafy greens.
Taking the case of the Yuma recall from this past spring, in which the contamination was traced to a nearby cattle feedlot, possibly from blown dust, some of the affected growers were musing about banding together and buying the Five Rivers Cattle Feeding feedlot location. Five Rivers Cattle Feeding, comprised of eleven feedlots and almost a million head of cattle, was sold in 2018 from JBS to Pinnacle Asset Management for $200 million. So you see how possible that probably is.
To get an overview of who sues whom, you can find a gathering of food safety suits here. Looking through them, you’ll notice that most of the safety-related suits are filed by consumers, with relatively fewer between businesses that supplied a product and businesses that received it, though of course there are fewer food businesses than there are consumers.
If you are interested in watching how food safety lawsuits play out from the consumer level, the person you want to set a news alert for is Bill Marler. He started in food safety litigation with the 1993 Jack in the Box E. coli outbreak, and is involved in filing for consumer plaintiffs against companies in each new outbreak.
Lawsuits, by the way, are not the most common response to an outbreak.
A lot of recalls are smaller than a whole geographic region like this - eventually narrowed down to a lot or number of lots from a particular growing or packing location. There has been a great deal of work put into traceback mechanisms, so that affected product can be identified at the point of sale and problems can be traced back to the field. Thus more can be learned to prevent future outbreaks.
After the outbreak in 2007, growers in California formed the Leafy Greens Marketing Agreement in order to work together to eliminate outbreaks and be able to communicate more effectively if they occurred. It’s a voluntary group with more than 90% of California leafy greens producers belonging. They’ve worked collectively on standards on water testing, flooding and wind events, and imposing larger buffers from feedlots.
In recent years, you may have noticed growing location marked on packages. This has been a voluntary measure to make recalls more effective, but such “voluntary” measures are encouraged when there is a Big Problem that needs a solution faster than the years it will take to promulgate new regulations.
More stringent nationwide water regulations had been in the works during the Obama administration, but the implementation of them has been pushed back during the current administration.
But as we’ve seen, all the efforts so far have not been enough.
posted by jocelmeow at 8:59 AM on December 4, 2019 [3 favorites]
If one is a restauranteur or retailer, one then contacts one’s distributor with the amount. Distributors turn to suppliers with the recall amounts, and suppliers make the distributors whole, and distributors in turn make restauranteurs and retailers whole.
There are a variety of insurance policies for restaurants and retailers that cover aspects of a potential recall, but all the facets of it are not covered under a general liability policy. This article details the possible limitations of some standard policies and endorsements that can be added to broaden coverage to include recall risks.
Farming businesses carry product liability insurance as well, and they can also buy product recall coverage. This presentation, given by a staff member from Western Growers, a nonprofit and lobbying organization that supports the agricultural community in the southwestern U.S., details the different coverages available.
There are resources to help small-scale farmers mitigate risk as well, but if you don’t have coverage for issues around a recall, in the Bob’s Lettuce Patch scenario, yes, the associated costs and reduced demand can be devastating.
The interrupted supply of a product from one location can be a boon for growers and suppliers in another location, as soelo says, if such a supply is simultaneously available. Different geographic areas supply product at different times of the year based on where weather patterns are optimal for a given crop. So sometimes, when a whole growing region gets knocked out, as with the affected romaine in this case, it can cause a shortage, which can cause prices to rise at the wholesale level and supply interruptions. At the retail level you can expect to see both out-of-stocks from supply interruptions and depressed demand, because consumers generally gather limited information about recall announcements and simply avoid the affected product for a time. That effect, in my experience, is a risk that’s part of the enormous long-scale gamble that is farming.
As for your prospective case of Big Lettuce vs. Big Cow, the relative power in those two parts of the agricultural supply chain is not the same. While there are small growers who grow for large concerns in leafy greens, and small ranchers who raise cattle for large beef concerns, the total sales of the beef industry are several times larger than that of leafy greens, and the way cattle are finished and slaughtered contributes to there being players with greater financial resources in beef than leafy greens.
Taking the case of the Yuma recall from this past spring, in which the contamination was traced to a nearby cattle feedlot, possibly from blown dust, some of the affected growers were musing about banding together and buying the Five Rivers Cattle Feeding feedlot location. Five Rivers Cattle Feeding, comprised of eleven feedlots and almost a million head of cattle, was sold in 2018 from JBS to Pinnacle Asset Management for $200 million. So you see how possible that probably is.
To get an overview of who sues whom, you can find a gathering of food safety suits here. Looking through them, you’ll notice that most of the safety-related suits are filed by consumers, with relatively fewer between businesses that supplied a product and businesses that received it, though of course there are fewer food businesses than there are consumers.
If you are interested in watching how food safety lawsuits play out from the consumer level, the person you want to set a news alert for is Bill Marler. He started in food safety litigation with the 1993 Jack in the Box E. coli outbreak, and is involved in filing for consumer plaintiffs against companies in each new outbreak.
Lawsuits, by the way, are not the most common response to an outbreak.
A lot of recalls are smaller than a whole geographic region like this - eventually narrowed down to a lot or number of lots from a particular growing or packing location. There has been a great deal of work put into traceback mechanisms, so that affected product can be identified at the point of sale and problems can be traced back to the field. Thus more can be learned to prevent future outbreaks.
After the outbreak in 2007, growers in California formed the Leafy Greens Marketing Agreement in order to work together to eliminate outbreaks and be able to communicate more effectively if they occurred. It’s a voluntary group with more than 90% of California leafy greens producers belonging. They’ve worked collectively on standards on water testing, flooding and wind events, and imposing larger buffers from feedlots.
In recent years, you may have noticed growing location marked on packages. This has been a voluntary measure to make recalls more effective, but such “voluntary” measures are encouraged when there is a Big Problem that needs a solution faster than the years it will take to promulgate new regulations.
More stringent nationwide water regulations had been in the works during the Obama administration, but the implementation of them has been pushed back during the current administration.
But as we’ve seen, all the efforts so far have not been enough.
posted by jocelmeow at 8:59 AM on December 4, 2019 [3 favorites]
Response by poster: Thank you, jocelmeow for the amazing wealth of information and links!
posted by Dotty at 12:39 PM on December 6, 2019 [1 favorite]
posted by Dotty at 12:39 PM on December 6, 2019 [1 favorite]
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posted by yomimono at 8:47 AM on November 27, 2019 [1 favorite]