When horse DNA was found in frozen beefburgers and ready meals earlier this year, the meat industry was thrown into turmoil. suppliers and retailers withdrew millions of products, hundreds of SKUs were rushed into labs for DNA tests, and many meat categories - even those unfairly associated - continue to take a beating.
Since then, the meat industry has made considerable changes to the way it operates - most notably, speciation tests have become much more routine. But the legacy of the scandal is not limited to meat; it has put risk and supply chain management firmly on the agenda in all food sectors. Asda, for example, has introduced unannounced BRC audits for all suppliers while Tesco has made wide-ranging commitments to bring in stricter testing regimes and to work more closely with farmers.
“No one is saying, ‘if you pay £1 for four pints, what do you think you are getting?’ “
John Taylerson, Guiston
These changes affected dairy as much as any other food sector. But UK dairy suppliers, producers and retailers have perhaps more reason than other parts of the food industry to be alive to risk at the moment. They need only look to New Zealand, where Fonterra has been embroiled in a highly damaging contamination scare involving baby formula sold in China (a false alarm, as it turned out), to remind themselves that dairy isn’t immune from food scares. Then there’s managing the PR fallout from the badger cull now under way, growing interest in potentially risky raw milk products, and the removal of EU dairy quotas in 2015 - the dairy industry is not short of potentially damaging issues. And that’s before we start to consider the possibility of adulteration.
So, which of these risks should the industry be most concerned about? What steps are in place to prevent them? And what new strategies might the industry add to mitigate risk further?
At first glance, comparisons between the horsemeat scandal and dairy seem misplaced. The British dairy industry has little in common with the complicated web of cross-Continent traders and intermediaries in frozen meat. Chains in UK dairy are exceptionally short so “traceability is so much easier”, says Arthur Reeves, corporate affairs director at Dairy Crest.
Paul Flanagan, external relations director at First Milk, is also reassured by Red Tractor. “Red Tractor assurance makes it very tough to get around standards, and although there might be some people on the edges of that - in foodservice, for example, there tends to be less use of Red Tractor - the vast majority of volume is sold through the mults and therefore subject to very tough checks.”
These checks and balances were tested by the industry and its customers in the wake of the horsemeat scandal. “After the scandal broke, the Dairy UK board immediately undertook a top-down policy review, and the detail of all the industry’s practices and processes is being thoroughly evaluated by our scientific and technical committees,” says a spokesman for Dairy UK. “The dairy industry runs its own ‘due diligence’ external testing programme for contaminants. The range of contaminants tested for is kept constantly under review. Where areas of possible minor authenticity risks have been identified, a programme of activity to address these risks was already in place in each case.”
Individual dairy suppliers have also reviewed their practices. “The scandal did make a difference in that customers are looking at their supply chains in different ways,” says Flanagan. “It’s not that new standards have been introduced, but checks have been run and are being run to ensure those standards are up to scratch.”
Similarly, Dairy Crest stress-tested its risk procedures and traceability processes in the wake of the scandal to be absolutely certain they are 100% fit for purpose. “We did some extra checks just to really reassure ourselves - for instance, we’d pick a finished product at random and then perform a complete traceability check on it,” says Reeves.
There are other reasons to believe the dairy industry would be less vulnerable, experts claim. With Horsegate, financial gain and a low risk of detection were key factors: horsemeat was cheaper than beef, and exceedingly difficult to detect in the final product without DNA tests. Although some have suggested unscrupulous dairy operators might be tempted to substitute dairy fats with vegetable oils in spreads if there’s a financial gain, dairy just doesn’t offer incentives and opportunities for adulteration on the same scale, argues consultant Hamish Renton. “You can fiddle with the percentages to a degree, but you can’t fiddle too much without changing the nature of the product and making it obvious something is wrong,” he says.
Nonetheless, as the horsemeat scandal proved, price volatility and margin erosion are worth keeping an eye on, not only because squeezed margins can increase the risk of someone somewhere cutting corners, but - just as important - can lead to the UK dairy industry losing its edge over foreign competitors, argues Duncan Rawson, a partner at agrifood consultancy EFFP. “If margins are squeezed, innovation and NPD suffer, and you end up opening the doors to more imports.”
Greater exposure to dairy imports is already high on the list of the dairy industry’s list of potential risks - with EU dairy quotas to be removed in 2015 and countries such as Ireland already gearing up their dairy production, the UK is likely to face much greater competition from imports in the future.
That’s why provenance labelling is becoming increasingly important for dairy. In recent weeks, a coalition of Dairy UK, Dairy Crest, the NFU and others has argued the industry urgently needs better, more transparent standards of country-of-origin labelling to ensure consumers aren’t misled. “When I think about where the wheels might fall off for the dairy industry, I think the main risk is cheese that isn’t British ending up in packaging that suggests otherwise, or perhaps someone claiming on pack they’re using Somerset PDO Cheddar as an ingredient and then just using any Cheddar,” says Rob Newbery, chief dairy adviser at the NFU.
If consumers can’t be confident they’ll get what they think they’re buying, the ramifications for the industry could be significant, agrees Wyke Farms MD Rich Clothier. “Labelling is about trust. It’s absolutely key that we have clear UK labelling on dairy products.”
Nor should the dairy industry be blinded by the high standards and short supply chains that apply to British dairy products, experts believe. While fresh milk, in particular, appears whiter than white, the industry also mixes dairy products with other, non-dairy ingredients and additives to make composite processed products, so these can have a very different risk profile, says Philip Davey, a partner at law firm Burges salmon.
“A lot of flavourings and additives come in from the Far East, and those supply chains are very reliant on the paper trail,” says Davey. Big dairy companies know how to deal with this risk, but dairy SMEs could find themselves more exposed, he warns. “SMEs are almost wholly reliant on the assurances of their suppliers, and that’s very much a paper-based exercise. They don’t have the reserves of the dairy giants to do all the checks needed to be absolutely confident.”
Mention paper trails and alarm bells start to ring: it was blind faith in paperwork and a lack of physical testing and auditing that the government now believes allowed horsemeat to be snuck into beef products.
To mitigate that risk, dairy manufacturers, especially SMEs, need to pool resources and work together through industry associations to ensure they are dealing with reputable suppliers - and use common sense, says Davey. “Be wary of very cheap products and be wary of new entrants into a market.”
Rigorous supply chain mapping exercises can also help draw attention to new risk areas, suggests one supply chain expert. “Ask yourself, how well can you really describe your supply chain?” he says. “It’s easy to fool yourself, and it’s not until you dig deeper into the supply chain that you spot the issues. If products or ingredients are transported, do you know who the drivers are? Who owns the vehicles? Who washes them and what are they using to wash them?”
Collaboration is key
Crucially, managing risk must not remain an isolated exercise. Companies need to be prepared to share information with peers and regulators. The dairy industry has mechanisms and forums in place to work collaboratively on risk - such as key industry bodies like Dairy UK - but too often companies think about risk on a company-specific basis. “There is some cross-industry sharing through Dairy UK, but primarily we look at risk from a First Milk perspective,” admits Flanagan. “I think the industry is good at dealing with short-term risks but not so good when it comes to long-term risks,” he adds.
To approach risk in a more structured way, UK dairy companies might look to the US, where collaborate risk assessment tools such as the USDA’s Shock and Carver systems are being used successfully to identify and manage supply chain risk, says the supply chain expert. “It’s not used as consistently in the UK as in the US, and it would be beneficial if it were.”
But it’s not just about identifying new risks - dealing effectively with known, existing risk factors is just as important. With raw milk products increasingly trendy (see Steve Hook profile p44), some experts are concerned the industry could come a cropper over basic food safety - one nasty listeria outbreak at one raw milk producer might ruin the reputation of the entire industry. “The raw milk trend is not the greatest thing from a food safety perspective,” says Renton. “We pasteurise for a reason, not for fun.” He is particularly worried that consumers don’t always understand the different risks associated with unpasteurised lines. “Labelling needs to be very clear,” he says.
Newbery at the NFU disagrees. “I’m fairly comfortable that consumers know what they’re buying,” he says. “Raw herds are tested much more frequently. It’s not belt and braces in the sense of pasteurisation, but there are still a lot of controls.”
GM and cloning also offer plenty of scope for a scare. The UK dairy industry got a taste of that three years ago when a UK farmer made headlines for allegedly selling milk from a cow bred from a clone, prompting urgent investigations from the FSA and weeks of bad headlines. To date, such incidents have been reasonably self-contained, but a larger incident could prove more problematic, says William Neville, a partner at Burges Salmon. “If there was something wider, the consumer reaction could be interesting.”
Then there’s the badger cull, which has all the makings of a potential PR nightmare: it involves cute animals being shot, and has attracted a vociferous animal welfare lobby. “It’s a bit left-field, but you could get shoppers being lobbied directly to stop buying milk,” says Neville. “That could be difficult to deal with.”
However, others fear not so much reputational risk from the cull but the potential consequences of not dealing with bovine TB. Getting an effective solution to England’s bovine TB problem is key to maintaining dairy farmers’ confidence - and there are urgent reasons from a safety perspective too, they argue. “The real issue with TB is not about badgers; it’s the food safety risk of TB and the risk of TB becoming a problem in the food chain,” says one dairy industry executive. “We’re not there at the moment, but imagine you have a small dairy that has a problem with pasteurisation and then someone gets TB. That’s what I’m worried about.”
The super-sensitive baby formula market can also be highly vulnerable to scares. Though the recent Fonterra botulism scare turned out to be a false alarm, there were bacteria found in Fonterra whey products - believed to be the result of a dirty pipe - raising urgent questions about hygiene procedures, and reminding us once again that eventhe world’s biggest and most experienced operators aren’t immune to contamination risks.
However, as far as deliberate adulteration is concerned, experts believe the risk in the powder market is low. Soaring demand from China and the Middle East and high market prices might sound like there’s a perfect opportunity to make a quick buck, but the barriers to entry are too high for opportunistic fly-by-night operators, believes Taylerson.
Greater risk might come from the sports nutrition side, which is seeing lots of new market entrants and consumers buying through new retail channels. Go to EBay, for example, and you won’t have any trouble buying whey powder from small-scale sellers with unknown and potentially risky supply chains. “Sports nutrition and sports drinks is becoming a very crowded place,” says Taylerson. “That’s why brands play a role, and consumers need to understand the difference brands can offer.”
Then there are those risks that seem less immediately dramatic but can be just as damaging in the longer term. Clothier at Wyke Farms picks out the weather as one such risk. The volatile conditions seen over the past two years have put unprecedented stress on UK dairy farmers and milk production, he says. “I only have to look out of the window to see the biggest risk - it’s that we won’t have enough grass for the grazing season.”
Dairy’s exposure to sudden swings in weather is made worse by the fact that the industry no longer keeps stocks the way it used to, Clothier believes. If milk production drops and the price of key dairy commodities goes up, this could have long-lasting effects on consumption, he adds. “On the fats side, for example, there is a real risk of people switching over into veg-based spreads.”
Health labelling stands out as a further key risk area. The government’s new front-of-pack labelling scheme - which red-flags HFSS products - has the potential to unfairly demonise key dairy products such as milk and cheese, industry executives fear (see Dairy Health Check p20). “It’s a big concern,” says Reeves at Dairy Crest. “Currently, front-of-pack labelling will suggest that dairy products aren’t good for you. Everyone knows milk is better for you than a biscuit, and yet this scheme vilifies dairy.”
Crucially, the thresholds for red traffic lights don’t recognise that for some key dairy products - such as cheese - ingredients like salt are an integral part of the production process. The dairy has lobbied government hard, says Reeves, “but maybe we haven’t done enough to explain that.”
With its high standards, short supply chains and relatively few opportunities for foul play the British dairy industry appears to be in a strong position to avoid a horsemeat-type scandal. Yet the stakes are, if anything, even higher. “Dairy wouldn’t recover as much as meat has,” warns Clothier. “Consumers who bought cheap frozen burgers knew they were buying at the bottom end, but with dairy the perception is that it’s all clean, healthful products. A scandal would hit us much harder.”
As John Taylerson, a consultant and partner in Dairystix backer Guiston, says: “The issue is, we don’t have the diversity in terms of different quality tiers. No one is saying, if you pay £1 for four pints of milk, what do you think you’re getting?”