Product recall risk a reality for SA?
01 October 2013 | Magazine Archives FAnews & FAnuus | Short Term | Eelco van Keimpema, AIG
Product recalls are products which are pulled from the market after it was determined that they did not meet industry standards. At a seminar hosted by insurer AIG South Africa, Deon Binneman, an independent reputation advisor warned, “Product recall is a business crisis and must be treated as such. It has the potential to affect your brand and its reputation with stakeholders. It can have a disastrous effect on the share price of listed companies as well.”
Fonterra, one of the world’s biggest exporters of dairy products was recently in the news for all the wrong reasons. Whey products, used in making infant formula, have been found to be contaminated with bacteria that could cause botulism. China, still sensitive after the contamination of infant formula by melamine in the recent past, was the first to impose a ban, and other countries have followed suit.
Early action is vitally important
As Fonterra’s experience shows, Binneman points out that what a company does right at the beginning of a product recall crisis is vital. "In the past, you may have had days to formulate your reaction, but in today’s connected world, it’s nanoseconds. You have to have a plan for a product recall in place right from when you begin manufacturing it,” he says. "That plan has to be thoroughly tested, and the necessary authorisation to act already obtained.”
Binnemann argues that 63% of a company’s market value is tied up in intangibles, such as its brand name and reputation. A high-profile product recall can have a significant effect on these intangibles and on a company’s value. It’s vital that a company has thought through how to regain control of what is invariably an intense situation.
Eelco van Keimpema, Profit Centre Manager: Liabilities for AIG South Africa, says that in contrast to overseas, product recalls are not a hot topic in South Africa yet.
"The Consumer Protection Act gives the legal framework for product recalls to become important,” he warns. "And many South African companies are already exporting to countries where product recall is a very real risk. That is why we are introducing a comprehensive solution to help companies mitigate the substantial risks associated with it.”
CPA acclimatization South Africa’s savior
South Africa is in a unique situation in that it does not experience many product recalls. This is possibly because legislation is not ready to accommodate it.
"One of the main reasons is probably that the legal framework for recalls is relatively new with the Customer Protection Act (CPA), only being in force for the last two years. The consumer market is thus still acclimatising to this change in the legislative framework. Having said that, there have been recall situations in South Africa and it can be reasonably expected to see a growth in the incidences of recalls once the full impact of the CPA becomes embedded,” says Van Keimpema.
The South African consumer must not think that the consumer market does not receive bad products. Van Keimpema adds that the underlying concern should not only be about frequency, but importantly, the impact that such an occurrence can have on both the supplier and the consumer. "Products being a threat to the general public, can be caused by many reasons. Anywhere in the supply chain something can go wrong, leading to the end product being compromised.”
Only the tip
Van Keimpema says that although product recalls can be expensive, they are only the tip of the iceberg. Senior managers must be assigned to the process with grave consequences for their normal work, and production lines are often halted until the product is given a clean bill of health by authorities.
Certain international markets face significant legal issues when it comes to product recalls. We saw the dangers of selling contaminated meat in Europe and when faced with a similar situation in South Africa, the products were merely recalled and new regulation was put in place.
