London, UK, 4th Feb 2022, Binary News Network, Never has the world been so interconnected as it is today. In a globalized economy, companies can source raw materials from just about anywhere in the world and sell their products to pretty much anyone.
In the increasingly complex supply chain that links together hundreds of thousands of different businesses, there are many chances for problems to arise, especially when dealing with products destined to be consumed by other human beings.
This growing complexity and the increasing need for companies to source from suppliers around the world have led to a rapid rise in food recalls over the last few years.
A food recall is an action taken by a manufacturer or government agency to remove potentially hazardous foods from the sale, usually because of adverse health effects.
The recall process begins when someone becomes aware that their product has caused sickness or injury to consumers. They then conduct tests on the product, using DNA barcoding techniques to determine if they are dealing with contaminated food. If contamination is confirmed, they issue a recall notice and begin destroying batches of the product.
One of the biggest shocks you’ll have as a stock investor is finding out that companies you’ve invested in have had to conduct food recalls on their products.
The effects of these recalls can be catastrophic because suddenly, customers are wary of buying anything from your company. Fear spreads quickly, and people start boycotting your product until you can ensure that the problem has been fixed.
At this point, BigBitMarket broker, Lucas Hill, says a company can either attempt to shift the blame onto their supplier, or they can face it head-on and initiate a recall of their product. Either way, the financial effects are significant and long-lasting. Therefore, investing in companies that have zero food recalls is such an attractive proposition because it means that your investment is less likely to be punished during times of negative publicity.
- Infant Formula Recall – Tier 1 Brands
On January 16th, 2013, Nutricia North America recalled all Enfamil Newborn Powder formula cans with the lot number ZP1K7G after discovering that some had been contaminated with Enterobacter sakazakii, a bacterium that can cause serious blood infections and meningitis in young infants.
Not only did this recall led to widespread panic throughout the United States, where many parents rely on ready-made formula when they’re in a hurry, it also caused widespread share price volatility for all infant formula producers.
The stocks that we will be looking at today are the Tier 1 infant formula producers: Abbott Laboratories (NYSE: ABT), Mead Johnson Nutrition Company (NYSE: MJN), and Nestle SA (OTCPK: NSRGY).
- Dog Food Recall – Nestle Purina PetCare Co.
In March 2014, Nestle Purina PetCare Co. voluntarily recalled several its popular Alpo Prime Cuts in Gravy wet dog food products after learning that they may contain low levels of beef thyroid hormone.
In the aftermath of this recall, Nestle Purina PetCare Co. saw its stock value decline by around 10% over the following weeks. Although this may not seem to be a significant amount, it’s important to remember that even the smallest food recalls can cause companies to lose millions of dollars.
- Peanut Butter Recall – J.M. Smucker (NYSE: SJM)
On January 23rd, 2009, peanut butter producers ConAgra Foods (NYSE: CAG) and the Peanut Corporation of America were forced to recall almost all their peanut butter products after discovering that some jars had been contaminated with them salmonella.
The subsequent recall was so large that it led to a temporary shortage of peanut butter in many countries, which caused sales of alternative spreads such as almond or sunflower seed butter to spike.
The salmonella scare resulted in a 10% drop in ConAgra Foods’ stock price, but since then, its share value has almost completely recovered. This shows us that, although all food recalls have the potential to be catastrophic for investors, it’s also important to remember that some companies are better able than others to recover from them.
- Chicken Noodle Soup Recall – Campbell’s Soup Company (NYSE: CPB)
In January 2009, The Campbell Soup Company was forced to recall several its Pre-Packaged Sandwiches after they were contaminated with listeria monocytogenes bacteria. Although nobody was killed in the aftermath of this recall, it did trigger a 2% drop in its stock price.
- Contaminated Cantaloupe Recall – Jensen Farms and Colorado Dept. of Health and Environment
In 2011, 168 people were diagnosed with listeriosis after eating cantaloupes contaminated with Listeria monocytogenes. The outbreak led to 33 reported deaths, with 147 people requiring hospitalization.
This is thought to be the deadliest foodborne illness outbreak in the United States – ever!
The company at fault was Jensen Farms of Holly, CO, which sold over 300 million pounds of cantaloupe that year alone and had a 65% market share of the cantaloupe grown in Colorado.
The outbreak was so huge that it led to several class-action lawsuits against ConAgra Foods (NYSE: CAG), who owned the Rocky Ford brand of cantaloupe, which had been recalled because of the contamination. Although Jensen Farms declared bankruptcy following this recall, its other brand – the ‘Bundle of Joy’ melon- has since experienced a massive surge in sales and is now the #1 melon sold in the United States.
Disclaimer: Our content is intended to be used for informational purposes only. It is very important to do your own research before making any investment based on your own personal circumstances. You should take independent financial advice from a professional in connection with, or independently research and verify, any information that you find on this article and wish to rely upon, whether for the purpose of making an investment decision or otherwise.