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The Cost of
Food Safety Controversies

The economic and financial consequences of safety controversies in the food industry can be profound and long lasting. How can investors gauge and manage the risks?


In 2017, Brazilian agents raided the country's meatpacking industry. Investigators would later allege that Brazil's meatpackers had been exporting infected meat with false health certificates from bribed officials. By the end of 2017, 20 countries had suspended Brazilian meat imports entirely, while others put in place partial bans. The Brazilian meat exporter BRF was among the hardest hit. In the five years since the scandal broke, its shares have lost more than 80% of their value.


Investors who want to exclude food companies that are exposed to safety issues from their portfolios can use controversies research to identify and monitor them. Morningstar Sustainalytics synthesizes its controversies research into a five-level hurricane scale. BRF gets assigned to category 3 (“significant”), with a neutral outlook. This rating is exceptional: Only 9% of the 17,000 companies researched by Sustainalytics have a rating at category 3 or higher.


Contamination is not uncommon in the food sector, notes Sustainalytics. But investigators have alleged that BRF bribed inspectors and hid infection. On the other hand, regulatory and legal risks have dissipated, and the company has improved its finances, as well as its internal controls. Sustainalytics would consider upgrading its outlook once the investigation is finished. A downgrade might be warranted if BRF faces large fines, or if new allegations surface.


Across the food packaging, food retailing, and restaurant subindustries, Sustainalytics gives five additional companies a controversy level of category 3 or higher for food-safety issues as of August 2022: Nestle (lead contamination in noodles), Tiger Brands (listeria in meat), Tesco (out-of-date food; meat in food labeled vegan), McDonald’s (E. coli contamination), and JBS (salmonella in meat).


The impact of Tesco's individual lapses has been small. But their frequency and variety, as well as the company's unwillingness to elevate food-safety management, suggest systemic weakness and a larger risk. Tiger Brands has the biggest exposure, with a category 4 controversy level (“high”). In 2018, South Africa's health ministry announced that it had traced the world's worst listeriosis outbreak, which left 200 dead and more than 1,000 sick, to a Tiger Brands processed-meat factory.


Data Source: Morningstar Sustainalytics

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