Monetizing the Impact of Food Safety Recalls on the Low-Moisture Food Industry.

New Food Safety and Modernization Act (FSMA) rules require that food producers implement and validate processes that sufficiently reduce the risk of known hazards, such as microbial pathogens. Investments in food safety technology choices are ultimately business decisions, and current decision-making methods make it difficult to quantify financial value associated with food safety risk reduction. Predicted financial loss is a tangible way to quantify how a recall might affect the manufacturer. The hypothesis of this study was that Class I recalls of low-moisture foods, due to microbial pathogens, cause significant negative economic impact on the affected manufacturers, which can be quantified in terms of loss in market capitalization. Financial impacts of the recalls were analyzed by computing the Cumulative Abnormal Return (CAR) in stock values over a recall event period for 22 low-moisture food recalls impacting publicly-held companies over a 10-year period. Abnormal returns were aggregated over an event window (0-20 days) to compute the CAR, which was multiplied by pre-recall market capitalization to compute monetary losses due to the recall event. The CARs for a 20-day post-recall period ranged from -26.5 to 8.4%, with a mean value of -5.1%. This translated to a median loss in corporate value, due to a recall, of $243,000,000 for the recall events analyzed in this study. If implementation of a food safety technology could, as an illustration, reduce risk of a recall by five-fold, that would translate into a mean annual economic benefit of $2,138,400 in reduced risk for companies like those included in the study. Such analyses have potential to positively impact business decisions to invest in food safety technologies.