Resources > APICS Magazine > May 2004 > Spotlight on Food and Beverage > Challenges Abound

Challenges Abound

The food and beverage industry faces new considerations in the bioterrorism age

By Robert D. Boyle, CFPIM, CIRM, CPA, CMA

Food and beverage companies are facing unprecedented challenges, not the least of which is compliance with the Bioterrorism Preparedness Act. Some of these challenges, however, are driven by traditional issues—low growth, increasing pressure on margins, and an ever-more-crowded marketplace. The more vexing, less anticipated challenges are originating in three areas: the industry itself, consumers, and, of course, governments.

The industry. Major companies at the retail end of the chain are establishing new and stringent product identification standards that suppliers must meet in order to continue to sell to them. Perhaps the best example of this is Wal-Mart's North American Pallet, Carton, and Case Initiative (NAPCCI), a radio frequency identification (RFID) tracking program. This initiative seeks to supplant generic bar codes with supply chain identifiers that will put a unique number on each pallet, carton, or case.

The initiative has put some industry participants into a tail spin as they attempt to understand the requirements, the potential solutions, and the technologies that are largely new to their supply chains. Albertson's and Target have announced their own parallel programs in this area, thus putting even more pressure on the overall system. Examples such as these represent a new and powerful form of supplier standards that will exert significant influence on supply chains.

Consumers. Major retailers are not the only ones wielding influence on the industry; consumers are making their voices heard as well. Sustainable agriculture, humane animal agriculture practices, concerns about the use of antibiotics and pesticides, and social responsibility in less developed countries are top of mind with many consumers. Companies such as Starbucks and McDonald's have announced initiatives in response to growing consumer concerns.

Increased consumer nutrition and health-oriented activism has had a major impact. Who would have thought that companies selling hamburgers would need the federal government to pass legislation protecting them from consumer lawsuits? Consumer-driven mandates do not appear to be lessening in their intensity.

Governments. Governments are also exerting significant new influences on the industry as they exercise current and new regulatory powers, propose increasingly more frequent legislation to further safeguard public health and security, and develop trade policy. Following are some examples.

• The discovery of bovine spongiform encephalopathy (BSE)-infected cattle in the United States and Canada has caused major beef-importing countries like Japan and Korea to close their borders to beef products from infected countries. Canada's agricultural economy, which is largely export based, has been devastated. The United States has essentially dodged the "BSE bullet" so far as a much smaller proportion of U.S. beef is exported, but perhaps won't continue to do so if additional cases are discovered. The USDA has recently announced a significant increase in the number of cattle to be tested for BSE.
  
• The U.S. Country-of-Origin Labeling (COOL) law, which is part of the 2002 Farm Bill, requires producers and sellers of fresh meat and vegetable products in the United States to trace the lineage of those products throughout their life cycle. A new package label—to be displayed at retail—will list all national borders crossed. While COOL is the law of the land, there is currently some debate over if, when, and how it will be enforced. Wal-Mart has again jumped into the fray by indicating it will have its own voluntary COOL program.
• The U.S. Animal Identification Plan (USAIP) is likely to require those companies that produce meat products to identify individual animals or specific lots of animals and track their location and ownership throughout their lifecycle. USAIP is likely to take effect this fall. The emphasis on completing USAIP has increased since the discovery of BSE in the United States.
• The Public Health Security and Bioterrorism Preparedness and Response Act of 2002, parts of which are still being defined, could have more impact on the industry than the other initiatives. Briefly stated, the Bioterrorism Preparedness Act is going to require the tracking and tracing of most food and food ingredients throughout most of their lifecycle—"from farm to fork."

Managing bioterrorism law
The Bioterrorism Preparedness Act is one of the highest-impact and yet least talked-about challenges to those in the food and beverage industry. The purpose of the act is to enable the Food and Drug Administration (FDA) to prevent and respond to intentional and unintentional outbreaks of food-borne illnesses. It represents the most significant expansion of the FDA's enforcement authority since 1938. The FDA estimates that 420,000 facilities, half of which are foreign, will need to register with the agency.

The list of food subject to the FDA's jurisdiction under this act includes dietary supplements and dietary ingredients; infant formula; beverages; fruits and vegetables; fish and seafood; diary products and shell eggs; raw agricultural commodities for use as food; canned and frozen foods; live food animals; bakery goods, snack foods, candy, and chewing gum; and animal feeds and pet food. The four major sections of the act include the following.

• Facilities registration. The interim final rule in this area was published Oct. 10 and took effect Dec. 12. The purpose of this rule is to provide the FDA with the identity, ownership information, and key contact information of facilities within its jurisdiction under the act. Despite the Dec. 12 effective date, less than half of the 420,000 facilities within the FDA's jurisdiction under the act had registered as of mid-March.
• Prior notice of importation. The interim final rule related to prior notice of importation was also published on Oct. 10 and effective Dec. 12. The purpose of this rule is to enable the FDA to flag shipments of products that might pose a health risk prior to U.S. entry. The FDA shares authority with the Customs and Border Protection Agency related to this rule. There is an online tool available to help companies provide the required notice.
  
• Establishment and maintenance of records. The interim final rule in this area is expected to be published at the end of May. The purpose of this rule is to enable the FDA to conduct a trace back and trace forward investigation when it has a reasonable belief that an article of food is adulterated and poses a threat of serious adverse health consequences or death to humans or animals. Facilities subject to FDA authority will likely be required to produce detailed records, in good order, within four to eight hours of an FDA request. In order for the FDA to uphold the intent of the act, it is going to have to be able to trace suspect articles of food quickly through the entire supply chain, which will require an integrated, electronic traceability system.
  
• Administrative detention. The interim final rule related to administrative detention is also expected to be published at the end of May. This rule will likely allow the FDA to detain food while it brings a seizure lawsuit or injunction lawsuit in federal court.

When these four rules become final and come fully into effect, the food and beverage industry is most likely going to have a significant new record-keeping requirement that will necessitate changes in business processes and information systems. It appears that nearly 420,000 food and beverage handling facilities are going to be required to have four- to eight-hour trace back and trace forward capabilities related to a wide range of food products.

If the limited case study of BSE in the United States is any indication, this is going to pose a significant challenge to the industry. More than three months after the first incidence of BSE was discovered in this country, only 29 out of the 82 dairy cows in the herd of origin have been found. This is a far cry from a 100 percent trace back and trace forward capability in four to eight hours. The combination of the expanded regulatory powers of the FDA, applied across such a wide variety of food types, and a rapid trace back and trace forward requirement is going to result in significant changes for the industry.

Finding answers
A solution, or at least enabler, to successfully address the likely requirements of the Bioterrorism Preparedness Act is for companies to be able to track specific products at a much deeper granularity level, with greater accuracy and speed, than they do today.

This tracking will need to be within enterprises and across enterprises. If asked if they can track what goes in to products and to whom are those products sold, almost all companies in the industry would reply, "Yes, of course." If the answer were "No," risk managers, boards of directors, and shareholders would be aghast.

If the U.S. dairy industry were asked this question on Dec. 22, 2003, the day before the announcement that a BSE-infected animal was discovered in Washington State, the answer would also likely have been "Yes." After more than three months, only about one-third of these animals were found. Granted, this is only one data point. But it was a relatively controlled situation in a segment of the industry that currently has better-than-average tracking capabilities. It points to what is likely a significant gap between current capabilities and the ability to meet a four- to eight-hour trace back and trace forward requirement.

There is a saying, "May you live in interesting times." Well, we do. (It is worth noting that this phrase is thought to originally come from an ancient Chinese curse!) Food and beverage industry employees face a lot of change. They should examine what their true tracking and tracing capabilities are in light of the myriad compliance requirements. At the same time, they should consider how the new capabilities required can be applied to create new sources of value within companies, such as reduced costs, improved quality, and differentiated brands.

More innovative companies will recognize that a common infrastructure is needed to address challenges and that such an infrastructure can and should be designed to ensure not only compliance, but also creation.

Robert D. Boyle, CFPIM, CIRM, CPA, CMA, is chief operating officer of John Deere FoodOrigins, Inc., a wholly owned subsidiary of Deere & Company. Boyle's background includes significant experience in the management of early-stage businesses, strategic application of information technology, and management consulting. He can be reached at (770) 329-2868 or via e-mail at robertboyle@foodorigins.com.