Expert Column: How Proposed FSMA Regulations Could Affect Grocers' Supply Chain

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Expert Column: How Proposed FSMA Regulations Could Affect Grocers' Supply Chain

By Bill Tomasi and Lori Harner, IBS - 12/02/2014

Whether it's peanut butter, spinach or chicken, food recalls always make headlines. The Obama administration has made food safety a key priority, with the most significant policy updates in more than 70 years coming down the pike through the Food Safety Modernization Act (FSMA).

Several of the proposed regulations under the FSMA will have the greatest impact on smaller, local producers.

The food industry will see a pattern emerge, however: Large producers already practice a lot of what these proposed regulations preach. Each rule benefits consumers, but there will be added burdens for producers that could ripple through the entire supply chain, resulting in a number of foreseeable consequences for grocers further downstream.

By being proactive now, though, producers and distributors can minimize the impact later. For grocers especially, increased awareness of these adjustments will help maintain relationships with all stakeholders, supporting the steps required to stock shelves with goods customers want and expect.

Produce Safety

Two components of the proposed produce safety regulation could potentially have a significant impact on the supply chain: water quality testing and raw manure use. Under the water-testing component, farmers who don't meet microbial standards during initial testing will have more options for meeting the benchmark. The regulation would also allow for a tiered approach to testing based on contamination risk.

As for manure use, the FDA is reviewing the required time interval between when farmers apply raw manure to fields and when they can harvest the crops. The agency is conducting a risk assessment to determine an appropriate amount of time between application and harvest.

It's all about reassuring customers that there's a slim chance their fruits and veggies will become contaminated with bacteria. Especially among smaller producers, however, that will bring additional costs associated with implementing the new standards, increasing testing and augmenting recordkeeping. More complex testing and preventive measures could also lead to slowdowns in production.

All of that could have a trickle-down impact on distributors, which might experience thinner profit margins as producers pass along some of the extra costs. Distributors might incur their own additional costs if they have to adjust warehouse processes to keep in step with the regulations. The time producers devote to meeting the new standards could also result in interruptions in distribution, and decreased customer satisfaction. Grocers will need to adjust to these disruptions and potential delays, factoring in the time it may take to meet increased regulations. If properly communicated and planned for, grocers can ensure their inventory is well managed, despite changing time frames.

Preventive Controls for Human and Animal Foods

The proposed regulations regarding preventive controls for human and animal foods would require more extensive testing both of products and the facilities themselves, as well as supplier controls. Larger corporations have already implemented these types of controls in their larger feedlots. Organic and local farmers who feed their own animals will likely experience the greatest impact.

As with the produce safety regulations, the preventive controls are intended as customer reassurance. Each link within the supply chain will be expected to provide more complete track and traceability. Producers with feedlots on their grounds must conduct additional testing to make sure they're meeting increased nutritional requirements.

The additional requirements and testing could potentially impact productivity and slow down the supply chain. Producers might also have to pass down costs to distributors to accommodate the additional expenses. Additionally, the time it takes to meet the requirements could disrupt the distribution process.

For both of these proposals, the importance of relaying the ultimate benefit of these changes to the customer is key. Highlighting the value customers derive from clean, safe foods is one way grocers can support producers in this context.

Foreign Supplier Verification

This regulation would require importers to analyze potential hazards in every food they bring into the United States. Evaluation factors would include the nature of the hazards, which entity would apply hazard controls, and the foreign supplier's food safety procedures and how they relate to U.S. regulations.

Smaller producers have an opportunity to improve their competitive position by enacting more stringent verification of foreign suppliers. Addressing supplier vulnerabilities will lead to better customer service and reassurance. In the long term, it could even lower supplier costs if producers know they can reliably count on their suppliers to deliver top-quality food.

In the short term, however, the foreign supplier verification piece would have much the same impact on the supply chain as the other two regulations. Implementing new processes requires additional costs, which has a trickle-down effect on the supply chain. And if producers discover a supplier has issues, it will take time to mitigate the problem or find a substitute, which could disrupt production.

Reactive to Proactive

As noted above, most larger producers adhere to these regulations already. Smaller and even midmarket producers have historically been reactive on a lot of these fronts, but they'll benefit from shifting into a more proactive mindset.

They'll either have to pay now to get in line with regulations, or pay later in the form of hefty fines. Aside from potential fines, a company's reputation can suffer irreparable damage if its product causes an outbreak of foodborne illness, say from microbes in irrigation water.

It's better to get ahead of the regulations. Becoming educated about technology will be essential to adopting a more proactive stance. Technology can often help minimize the costs associated with adapting to new regulations.

Food producers can learn a lot from the pharmaceutical industry, which is also in the midst of beefing up track and trace requirements. Free information exchange among suppliers, shippers and receivers will be hugely important under the new rules. But cloud technology, for example, can make it easier to share, link and exchange data about temperatures throughout a product's journey.

While the rules themselves may still be a ways off, preparing now can save grocers a lot of grief in the long run. By being a knowledgeable partner to valued suppliers, grocers can keep operations running smoothly and customers happy regardless of the changes in store.