In Europe today, you can learn the history of
some meat you’ve purchased by entering a number off a barcode into
a computer.
That will lead you to an online database of
information that can identify the animal or herd the meat came from,
what it was fed, its veterinary history, whether it was confined or
allowed to roam, and what happened to its meat as it went through
processing.
“They can trace Argentine beef sent to Romania
for processing and on to some supermarket in Europe,” says Jerry
Mithen, vice president of manufacturing service for RQA, Inc.,
Darien, Ill., a firm that specializes in food safety and management
of recalls.
Such capabilities are less widespread in the
U.S., but growing rapidly, especially as European food retailers
purchase American chains.
Also, American retailing giant Wal-Mart Stores,
Inc. has ordered suppliers to utilize “radio frequency
identification” tags to trace merchandise, including food bound
for Sam’s Club stores, from production to delivery. ( See
sidebar 
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In the meantime, there has been acceleration in
the development of new technologies for tracing the origin and
processing of food.
At press time, leading food service technology
firms are preparing for an international “Food Traceability”
conference, to be held in Dallas the first week in February.
Scheduled conference sessions will address
topics such as the use of DNA in tracing food products, biometric
identification of livestock, “automated whole-chain traceability,”
and others.
Experts foresee a day, not far off, when it will
be possible to document the “food chain” thoroughly, even for
bulk products, such as grain, that are commingled as they move to
markets, and ingredients of processed foods, such as frozen foods.
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The drive for comprehensive food traceability is enabled by developments in technology that are transforming all areas of life.
Until recently, the principal means for “tagging” food was the familiar barcode which, when scanned, can yield not only a price, but other information stored within the code that can be read by a scanner.
Today, some food distributors are replacing barcodes with “radio frequency identification” (RFID) tags that can also store information on a product’s history, but which do not have to be individually scanned with
a wand.
Among other things, RFID tags allow distributors to track the location of inventory while the inventory is in locations and vehicles with sensing equipment.
Wal-Mart Stores, Inc., the Arkansas-based retail giant, took a major step last year to promote the adoption of RFID tagging by requiring suppliers of its Dallas-Fort Worth area stores to utilize a prescribed system of RFID tracing on shipments, including food products shipped to Sam’s Club stores.
By themselves, barcodes and RFID tags can store only a limited amount of information for retrieval, often intelligible only to specialists.
But when connected to Web-based databases, the possibility is created for storing virtually unlimited amounts of information, complete with background explanations where needed to make the information intelligible to the average consumer.
The next frontier in food tracing technology involves using biological information, such as DNA and retinal scans, to establish identifying information that cannot be lost or altered.
Not all advances in food traceability are technology-driven, however.
Even without technology, new patterns of food processing and marketing are creating a stronger trail from the consumer back to the producer, with potential implications for farm liability insurers. These practices include:
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Recent campaigns by restaurants that promote the fact they only sell meat and produce grown by local farmers.
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“Vertical integration” of farms and food processors into combined “grower/packer/shipper” operations where a single entity would be liable for several stages of the food chain.
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Brand-specific marketing of food, particularly fresh produce, where growers increasingly opt to have individual pieces of produce identified as coming from a specified grower.
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Traceability is not entirely new.
Since at least the 1930s there have been U.S.
laws mandating record keeping in the food supply chain. Dairy
products, in particular, have been carefully monitored and inspected
from production to sale.
Until recently, however, it was difficult to
trace the cause of a food-borne ailment all the way back to a farm
or ranch. Modern traceability techniques promise to change that, and
farm insurers are ambivalent about it.
“By identifying products, I’m apt to believe
we are looking at more exposure,” says Dean Hosfelt, vice
president of American Reliable Ins. Co., Omaha, Neb., a writer of
farm and ranch coverage.
“Tracing could prevent serious injuries from
happening,” says Kelli Kukulka, a vice president and agriculture
specialist in the Chicago office of American Re-Insurance.
“However, if tracing doesn’t work to prevent
a loss, and you have a claim, there’s a trail,” she adds. “With
strict liability, this could benefit or create a problem for an
insured.”
“The ability to trace food-borne illnesses
back to the source will result in more claims being pushed further
downstream,” adds Tammi Griffin, director of Aon’s agribusiness
and food system group in Kansas City, Mo.
“Many of these farmers may not carry the
insurance that is necessary to respond to these claims,” Griffin
says. “We see contracts changing on the processing and
manufacturing side that may force farmers to carry more and possibly
specialized coverage.”
Alarmed that traceability might increase their
members’ products liability, state livestock associations have
been campaigning to preserve a traditional exemption for livestock
from implied warranty laws.
For example, a 2003 resolution of the Kansas
Livestock Association reads as follows:
“. . . Whereas animal trace-back
technology can increase the liability exposure for owners of
animals whose food and by-products threaten or cause damages to
consumers, and
“Whereas liability in these circumstances
can often be classified as ‘strict liability,’ even though
an animal owner may not be at fault . . .
“. . . the Kansas Livestock Association
supports state and federal legislation to limit animal owner’s
liability exposure that may arise under a private or public
animal identification program.”
While some insurers worry that traceability will
increase liability exposures, Mithen says others are enthusiastic
about it.
“I think there is tremendous benefit [from
traceability] to the insurance industry,” he says. “Every
[insurance] company we’ve talked to has said, ‘This is great.’”
According to Mithen, it is inevitable that all
food will one day be able to be traced back through the processing
chain to the original producer.
Given that, he says that insurers of any type of
food operation are well-advised to encourage use of tracing
techniques that thoroughly document the use of safe and prescribed
agricultural practices.
He predicts that such documentation will become
the best defense for insurers and insureds facing liability claims
from food.
“Traceability demonstrates that you have done
what was necessary and proper to prevent injury,” he says. A
demonstration of “due diligence,” required all along the food
chain in Europe, can help avoid or limit liability claims in the
U.S.
Traceability may also reduce exposure for
general liability insurers by classifying certain occurrences as
professional liability claims.
“Professional liability comes into play,
especially when you have farm managers,” says Chris Leliaert, a
vice president and agriculture expert in the Chicago office of
Towers Perrin, the international reinsurance firm.
According to Leliaert, even traditional farm
owner-operators are now required to get state licenses to apply
pesticides, herbicides, and fungicides. What was once considered a
part of farm operations is increasingly seen as a distinct
professional activity.
This increases the possibility that, with
sufficient documentation, a farm general liability insurer may not
be liable for a claim arising from misapplication of farm chemicals.
Mithen at RQA acknowledges, however, that
increased use of traceability will lead to more frequent recalls of
products. He believes insurers and agents need to do a better job
explaining recall coverage.
“Companies I have spoken to think that their
products liability insurance [automatically] covers recalls,” he
says. “Insurance companies and brokers don’t do a good job
explaining it to them.”
When an insured adds a standard product recall
endorsement, that usually covers only about 20% of the real cost of
a recall, says Dan Cahill, a colleague of Mithen’s in RQA’s
Phoenix office.
“Often the recall [itself] is the smallest
portion [of the cost],” Cahill says, adding that related costs for
loss of stock, loss of income, public relations, and logistical
changes usually far exceed the cost of pulling a product off the
shelves.
As an example of the growing cost of product
recalls, Cahill says public authorities are increasingly demanding
documentation that a recalled food item has been destroyed.
Traceability is also a critical component in the
recent growth of “contaminated product insurance,” a first-party
property coverage.
To support that line, tracing techniques are
used to document that certain foods meet criteria demanded by groups
of consumers. These criteria include, among others--
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That the food is truly “organic,”
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That the food is free of
genetically-engineered organisms;
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That environmentally sound agricultural
techniques have been used;
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That animals have been treated humanely; and
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That the food has been imported according to
principles of fair trade.
Food produced to such specifications carries a
premium price in certain markets. Therefore, it can lose value if a
premium attribute is lost along the way, even though the food is not
physically damaged.
According to Mithen, the reduced value food is
considered to be “contaminated,” and major carriers are writing
more contaminated products insurance to cover the loss in value.
Food traceability technology supplemented by
expert inspections is essential for loss control and reduction of
moral hazard in the line, Mithen says.
“[Insurance] companies don’t necessarily
have the trained eye for detecting traces [of impurities]” needed
to verify that a product has retained its premium attributes, he
says. “It’s not good enough that a facility look clean to an
untrained eye.”
Whether insurers are apprehensive or
enthusiastic about advances in traceability, they share one
observation: Food producers are subject to unprecedented scrutiny
from the public and plaintiff’s attorneys, and tracing techniques
can help them pick their targets.
“There are people out there looking for class
action lawsuits,” says Mithen. “That wasn’t the case 25 years
ago.”
It marks a profound shift in cultural attitudes
toward farming, says Leliaert.
“Farmers used to be considered the good guys
who took care of the land and produced our food,” Leliaert says.
“There was a day when you would never sue a farmer. Today, you
wouldn’t hesitate to do so.”
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From Farm to Fork
