New Regulations? Food Industry Unlikely to Be Fazed

Jeff Cox

Tighter food regulations under consideration in the US likely would have little long-term effect on the companies they're geared toward -- and analysts and industry leaders even believe a further recall crisis wouldn't lead to long-term disruptions in consumer behavior.

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Lawmakers have been pondering a slew of bills aimed primarily at tightening the processes by which food is imported and inspected in the US.

Among the most groundbreaking proposals are those that would establish one agency to oversee the entire food supply, compress the number of ports where food can be brought in from other countries, and establish a product-tracing system that would identify the origins of tainted food.

Some industry groups, such as the Food Marketing Institute, oppose several of the proposals on the grounds that they would hike costs for consumers and hurt food producers' bottom lines.

By and large, though, analysts say major food producers won’t be raising much of a fuss over increased regulation.

"The food industry is very careful," said Beth Lowey, an analyst at Sturdivant. "Their goal is to have the safest food on the planet. If there’s more regulation, I don’t know if this would be an issue."

But some companies that have been hit by recalls have suffered.

Multiple analysts downgraded ConAgra Foods shares this month after the company had to recall Banquet brand pot pies linked to a salmonella outbreak. The company also recalled generic pot pies under the names of Aldi, Wal-Mart , Kroger and other brands.

Other companies recently hit by recalls include Campbell Soup, Kraft Foods and Supervalu, as well as privately held Cargill and Topps Meat, both of which recalled millions of pounds of ground beef.

It's all added up to a major corporate headache that could be cured by steps the government is contemplating to assuage public fears.

Analysts, though, credit the industry for its own food safety initiatives, even in the area of product tracking, arguably the most expensive of the Congressional proposals on the table. While earnings at many major food producers have been hit this year by higher grain costs, they're not expected to suffer because of more regulation.

"In our experience, the food industry is well aware of the importance of traceability, the risks in the supply chain, and the issues surrounding a contamination or recall, and is actively working on various solutions to these challenges," said Bill Harrison, managing director of Aon’s crisis management practice.

"Traceability is a hot topic with all of our large food industry clients. There is a clear need to identify the root of a problem, make a correction and prevent a repeat in a short period of time."

'We Cannot Simply Inspect Our Way to Safety'

Rep. Diana DeGette (D-Col.) has been among the most vocal members of Congress in advocating food reforms. Congress has been debating the umbrella Food and Drug Safety Import Act, while DeGette has introduced companion pieces that would give the Food and Drug Administration mandatory recall power that it lacks now and would establish the product-tracing system.

Despite industry group opposition, she considers the proposals business-friendly.

"I would think it would be in the best interests of companies to make sure that their food is safe," she said. "If consumers don't feel confident in their food supply, then they’re not going to buy those foods. I would think manufacturers would welcome a more streamlined system."

DeGette also wants more inspectors checking imports, a move she believes necessary as the US increases the amount of foreign food it consumes.

The plans have hit some opposition along the way. White House officials have criticized the inspection proposals as too cumbersome.

"We cannot simply inspect our way to safety," Health and Human Services Secretary Mike Leavitt recently told a meeting of federal agencies and trade groups. Attempting to do so, he said, "would bring international trade of this country to a standstill, and it would distract resources - limited resources - from those imported goods that pose the greatest threats."

But the American consumer has lost faith in the food system, DeGette says, and the government must take steps to restore that trust.

"I hear it from my constituents every day, every time there’s a new report about a newly contaminated product," DeGette said. "Americans are worried that their children will get sick and that is really causing a crisis in confidence."

Still, the idea that problems with food contamination will pose a long-lasting threat to companies affected by recalls is far from universal.

Rob Moskow, an analyst at CS First Boston who follows companies including Campbell’s and ConAgra, said consumers have usually looked past even the worst crises.

"History would suggest that even after some of the scariest food recalls, the industry has rebounded every single time," he said.