On Peanut Butter, Salmonella, and Cheap Food

For almost a month, the major food headline is the peanut butter salmonella outbreak plaguing our country. Eight deaths, thousands of hospitalizations, over 1600 products recalles, and just one single company responsible for it all.

Peanut butter sales are down 25%. Big brands Jif and Peter Pan have taken out newspaper ads with coupons to assure the public their products are safe. From a PR perspective, having to boast that your product is not poisoned goes to show how distressed the entire peanut marketing industry is these days.

Calls for a unified Food Safety system are increasing. New head of USDA Tom Vilsack said on Friday that a single agency would be better equipped to prevent and manage outbreaks such as this. With respect to the USDA and FDA he said “No matter how you slice it, the systems are different. The coordination is not what it needs to be. Neither one of them is as modern as they need to be.” [NY Times]

Peanut Corporation of America, the family owned peanut processor responsible for the tainted products, is now being scrutinized for poor sanitation and hygiene at the plant, knowingly shipping products after discovering contamination, and perhaps a few other corners cut. The plant has been shut down.

When it was operational, PCA employees earned minimum wage and received almost no benefits. Many were temps with zero job security.

How does this affect food safety?

Why would any temp earning a few dollars an hour, without any prospects for advancement,  be interested in anything going on at the plant? Whether improving a process, reporting a sanitary problem, or any other issue that may cause friction with management, manual laborers know to keep their eyes, ears and mouths shut.

So why not pay better and get more from employees, including safety improvements?

To understand this, we need to take a look at the food industry value chain, and try to learn why manufacturing plants would be so cheap.

Supermarkets lure consumers with the promise of cheap food. The competition is cutthroat,  with average margins around 1%.  Big brands and manufacturers are asked by grocers to lower prices they pay for goods. These vendors then do the same to their suppliers. Note that there are many suppliers for each ingredient type. These suppliers, such as PCA, need to compete primarily on price, as there is no importance to brand in a commodity such as peanuts. In fact, most suppliers have to compete in tenders at least once a year in order to win major accounts, each time squeezed a bit more to provide better pricing.

And that’s where trouble starts to brew. Because on Monday, a manufacturer needs to choose between fixing a broken machine or a fixing a leaky roof. A broken machine means no sales, no revenue. A leaky roof means a tiny chance for a salmonella outbreak. Most, we’d like to believe, make the morally correct decision.

If you were the owner of a plant barely breaking even, what would you do?

Would higher prices for food necessarily improve food safety? Probably not. A lot of the extra money would evaporate before it ever reached the employees of a manufacturing plant. But maybe one day, a brave brand may decide to distinguish itself on the safety record of its products, charge a premium and make sure the extra cash is divided among the entire value chain in order to ensure strict safety measures.

On average, our food is the cheapest it has ever been in the history of mankind. But not for everyone. In the case of this salmonella outbreak, there’s a small number of consumers that ended up paying a very dear price, their life.

As with organic foods, there should be many consumers willing to pay a premium to know they are getting safer food. Perhaps this is an opportunity …

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  • http://www.jeffkoeze.com Jeff Koeze

    Excellent post. Correct diagnosis. Wrong solution. I think there are two reasons that companies won’t compete on the “safety” issue. The first is making such claims opens up a legal and regulatory nightmare. Smuckers is really sticking their neck out with their current newspaper ads — I’m sure the lawyers are losing major sleep. (I used to be a lawyer myself, by the way.) The second, putting on my marketing hat, is that this isn’t a long-term, compelling brand position that will provide meaningful differentiation of time. Short-term, maybe. But not long term.

    The correct solution is to recognize the relentless cost cutting pressure on the food supply chain and to appropriately fund inspections in light of our knowledge of those pressures. We can pay for food safety at the grocery check-out line or in our taxes. Food safety is a public good — a matter for governments, not markets.

    • http://fooducate.com staff

      Thanks for your comment.
      You are right. Food safety is a matter for governments, in this case the FDA.
      However, until the government gets its act together, there is a market opportunity to be seized by smart and safe brands. Proper disclaimers and legal what not can cover a manufacturer in case of catastrophe, but imagine the upside of a 5-10% premium where a mere 1-2% actually go to putting in place a more proactive safety protocol.