Fraud Vulnerability in the Supply Chain. Dan Kastor Sr. Director, Regulatory Affairs May 11, 2018

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2 Fraud Vulnerability in the Supply Chain Dan Kastor Sr. Director, Regulatory Affairs May 11, 2018

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4 The Canadian Food Inspection Agency (CFIA) has beefed up its inspection of spices sold in Canada to detect products that have been adulterated by other ingredients a study by Queen s University Belfast in the United Kingdom warns that fraud in the global food supply chain is becoming increasingly common due to the huge profits associated with this type of criminal activity. Several experts say the best way to reduce the risk of buying spiked ground spices (and get much better flavour) is to buy the spices in their whole form and then grind them at home By Levon Sevunts-Radio Canada International Thursday 12 April,

5 Queen s University-Belfast in UK (Prof. Chris Elliott) 3 year PhD funded by UK retailers and key Herbs and Spice industry companies Aimed at researching the adequacy of techniques (FTIR and NIR) to detect EMA in our product category as well as exploring the extent of EMA generally. The consortium project will likely run into 2019 Output so far (tons of press) has been the creation of validated chemometric models on which to reliably screen samples of herbs and spices for the presence of adulterants added for financial gain. OREGANO - Queens are now looking to move to get this method accredited. Queens continue to test many hundreds of samples of oregano globally via this screening technique. SAGE - The sage model shows a good fit, similar to the oregano results. This model was able to clearly identify different sage species. PAPRIKA more samples are needed to build this model, The NIR fit was better than the FTIR fit in the case of paprika. GARLIC The model is in its very early stages. 5

6 Today s Presentation Background and Landscape Protecting Against Food Fraud at McCormick Forward-Looking Strategy and Actions

7 McCormick: the Taste you Trust A 129-year commitment to leadership in food safety and quality 1889 Make the best, someone will buy it 2018 Willoughby McCormick We view food safety and superior quality as a key differentiator for McCormick Lawrence Kurzius 7

8 In 2018, McCormick Delivers the Taste You Trust on a Global Scale McCormick manufactures, markets and distributes flavor products including spices, seasoning mixes and condiments to the entire food industry retail outlets, food manufacturers and foodservice businesses $4.8 Billion in sales 66% Americas 21% EMEA 13% APZ 10,500 Employees Worldwide 50 Facilities in 26 Countries 60% Consumer 40% Industrial >150 brands in more than 150 COUNTRIES AND TERRITORIES Every day, no matter where or what you eat, you can enjoy food flavored by McCormick. 8

9 McCormick Quality & Regulatory Programs and Expertise Cover an Extensive Range of Competencies, Ingredients and Source Countries Wet, Dry, Frozen, Ready-to-eat etc. competencies ~ 2,800 suppliers 15,000+ raw materials/ingredients ~ 100 raw material/ingredient source countries (39 for spices and herbs) 9

10 Translating Food Safety Into Quality and Quality Into Premium Will be a Winning Proposition More than Ever Across the globe, today s educated consumer, especially millennials, is watching. Transparency rules! Consumers want to know what s in their food, where it came from and its journey to them. Premium packaging today is clean and clear as one response. 10

11 Those Savvy Canadian Millennials Millennial Preferences and Values Surrounding Food Projected Population by Generation (1000s) Canada Source: Millennial Marketing Eighty per cent of Millennials want to know more about how the food they buy was grown or processed. Millennials are interested in the story behind their food and are looking to learn more about what s in it and how it s made. Transparency in business operations is important to Millennials. In the food industry it is important that companies can trace the source of ingredients used in their products to ensure they are safe, produced sustainably, and with the highest quality standards. Source: Food PackagingLabels.net. How Are Millennials Changing the Food Scene? 11

12 Executive Summary Interest in Food Integrity continues to dominate global food safety, quality and regulatory forums, with herbs and spices together with meat, fish and alcohol being the most discussed. Food authenticity is a growing concern with increasing public awareness. Still no clear legal definitions of integrity, authenticity or food fraud. On the traceability and auditing side, schemes have been amended to include specific aspects of vulnerability assessment. We remain at the forefront, influencing these shaping events. 12

13 How does Authenticity Differ from Food Safety & Quality? 13

14 In Scope 14

15 Our 6 Principles of Food Integrity At McCormick we consistently address the 6 principles of Food Integrity via a number of well established overarching programs: 1. The food we produce is safe via GFSI 2. The food we produce is authentic via GFSI 3. The food we produce is nutritious via MSI 4. The systems we use to produce our food are sustainable via PLP (Purpose Led Performance) 5. Our food is produced to the highest ethical standards via PLP 6. We respect the environment and those who work in our food industry via PLP 15

16 GFSI Food Fraud Prevention Compliance Requirements GFSI clearly defines the scope of Food Fraud to include all types of fraud (e.g., not just adulterant-substances but also to include theft, tampering, counterfeiting, etc.) and all products (e.g., incoming goods such as raw materials and outgoing goods including finished products destined for retail shelves.) GSFI only requires that a Food Fraud Vulnerability Assessment be completed and documented and then that a Food Fraud Prevention Strategy be completed and documented. There are no further published requirements or guidance on the method, process, details, length, depth, etc. v.8 16

17 GFSI Food Fraud Prevention Audit Requirements 1. Conduct a Food Fraud Vulnerability Assessment (Y/N)? 2. Written (Y/N)? 3. Implement a Food Fraud Prevention Strategy (Y/N)? 4. Written (Y/N)? 5. Minimally conduct an annual Food Fraud Incident Review (Y/N)? 6. Confirm these meet the GFSI scope of all types of Food Fraud (Y/N)? 7. Confirm these meet the GFSI scope of all products from both incoming goods (e.g., ingredients) and outgoing goods (e.g., finished goods) through to the consumer. (Y/N)? MSU Food Fraud Initiative, Food Fraud Audit Guide MOOC (Massive Open Online Course), July 2017 (see 17

18 Highest Vulnerabilities Mislabelling fake credence certification, Natural Flavouring Substances synthetic vanilla sold as natural Dilution Oregano containing other foreign leaves Unapproved enhancements chilli powder containing illegal dyes 18

19 Where are we vulnerable?

20 Raw Material Focus Consider materials that are in low supply, have highest demand, and challenging to obtain 20

21 Supply Integrity Strategy Supply Chain Integrity Program Spice & Herb Integrity Assessment Vulnerability Assessment Tools VACCP/BRC 7 Supply Chain Intelligence RM Exposure List Industry Influence and Emerging Technology 21

22 Vulnerability Assessment Tools Numerous IT tools for vulnerability assessments emerging. Vulnerability assessments involve the review of controllable factors, uncontrollable factors and mitigating factors in a systematic way to establish the potential for fraud or adulteration to occur on the products within that group Extensive review undertaken of current vulnerability tools Procedure developed Vulnerability and Horizon Scanning directive Based upon USP methodology ( 22

23 Vulnerability Assessment Systems New Origin/New Vendor Program + TESTING PERFORMED Microscopy Volatile Oil and Geography Scan Chemical Screen Illegal Dye Screen Heavy Metals (Cd, Hg, As, Pb) Pulsed Photo- stimulated Luminescence (PSL) DNA Fingerprinting 23

24 Vulnerability Assessment Systems McCormick completes its assessment at a global level The assessment is based on supply chain knowledge, our internal verification processes, and the history of occurrence of food fraud by material category The final vulnerability assessment is documented in the Unapproved Additives tab of the Global Raw Material Exposure List (GRMEL) 24

25 GRMEL Unapproved Additives - example 25

26 Protection of the Brand and the Consumer is Our First Priority Consumers trust the McCormick Brand and food safety and quality are critical to that trust. Business Survival Our brands are most important assets. Industry Responsibility We are committed to food safety across the supply chain more than ever. We have top level commitment to invest in trade associations to raise the bar for all of the spice industry. Safe food starts with safe ingredients.

27 Supply Chain Controls, Long Term Alliances and Global Standards Drive Prevention Chain of Custody Controls to Prevent Adulteration Strategic Vendor Alliances Source Material Control Manufacturing Process Control Field McCormick 27

28 Supply Chain Control Principles A B C Strategic Vendor Alliances Value and respect the business partnership Understand and adhere to GAP s and GMP s They have relationships with local farmers and as such have the ability to influence quality back to the field McCormick provides ongoing QA direction to insure that we command the same rigorous quality programs as with our own operations Source Materials Control Our strategic suppliers procure spices and herbs only in the whole, unground form It makes the prior addition of an economic adulterant highly unlikely since its presence depends on a product being finely ground to prevent detection Since the source material has not been ground or processed, it can readily be identified as pure plant material This unique approach greatly minimizes the possibility of intentional economic adulteration Manufacturing Process Control Have state-of-the-art processing facilities Apply robust incoming inspection, testing and process controls Meet the same quality standards and expectations required by McCormick facilities worldwide Possess a rigorous Quality Assurance Program Undergo an audit by our Global Sourcing Group at least annually 28 28

29 Engagement at Source By having strong personal vendor relationships we develop an in-depth understanding of the situation in source countries and identify the best raw material origins. Relentless focus on improving our vendor s capabilities through a very sophisticated vendor certification management program which requires trust & understanding. 29

30 Import Export Traditional Complex Supply Chain (Indirect) Farm Collector Processor Shipper/Exporter Agent Importer/Dealer Broker McCormick Customer Many Touch Points High Risk of Contamination Complexity Hinders Ability to Ensure Quality and Safety Very Difficult to Work Directly to Impact Quality and Safety Upstream 30

31 Import Export A Global Sourcing Commitment to Quality (Most Direct) Farm Collector Processor Shipper/Exporter Agent Importer/Dealer Broker McCormick Customer Fewer Touch Points Reduced Risk of Contamination Facilitates Work That Directly Impacts Product Quality and Safety Enabled by Our Size and Critical Mass 31

32 32 Purpose -led Performance Approach

33 Our Purpose-led Performance Principle OUR STORY: Every day, McCormick proves that responsible business is smart business. At McCormick, we are equally dedicated to strengthening our business and improving the world around us an approach we call Purpose-led Performance (PLP). It s our commitment to deliver industry-leading financial performance while doing what s right, with an unwavering responsibility to the long-term vitality of our people, communities and the planet we share. 33

34 Our Purpose-led Performance Strategic Framework We bring Purpose-led Performance to life through the following key focus areas: People Working to improve the health and well-being of all people and helping our employees thrive. Communities Building vibrant communities where we live, work and source. Planet Making a positive impact on our planet. 34

35 Our Purpose-led Performance Work Source 100% of branded iconic ingredients sustainably by Champion equality for women and people of color in leadership, and empower women farmers across the company s supply chain. Increase the livelihoods of 90% of smallholder farmers who grow McCormick s iconic herbs and spices by Reduce the company s environmental impact by lowering its carbon footprint, decreasing water use, reducing solid waste and developing sustainable packaging innovations. 35

36 CSR/Sustainability Efforts take many forms Help Mada Program Monthly rice reward for school attendance Donation of medical clinic Reforestation program Cucumber farmers in Turkey JV with Kutas Seed development Sustainable farming practices Vanilla farmer education Food assistance for families Improved Farmer livelihoods Indonesia Disaster Recovery Earthquake recovery for community near key spice strategic supplier Donated 2 medical clinics in remote Cinnamon growing areas Indian Chili Backward Integration AVT McCormick Joint Venture Improved farm practices, controls and quality Enhanced traceability JV cinnamon facility used for logistics center for emergency supplies Improved Farmer well-being 36

37 Backward Integration of Indian Chillis Country Stats Approximately 45% of global production is from India 85% consumed in country McCormick purchases 25% of exported product Estimated area cultivated nearly 2 Million Acres by >300,000 farmers yielding >220 Million MT/Year 37

38 Chilli Supply Chain Traditional Food Manufacturers Sales Channel End Customer Spice Processors Cold Storages Traders/Commission market Village level trader /Aggregator Market Cold Storages Farmers 38

39 Tensions impacting the Indian Chilli grower Small farm holdings Competing crops with less hassles Disease attacks & inconsistent weather Improper Post Harvest handling Storage availability Labor Shortage Power Shortage Water shortage 8% - 12% of chilies exported, remainder are consumed in India

40 AVT McCormick Visits and Farmer Discussions 40

41 BI Farmers work with AVT McCormick to improve Chilli growing AVT McCormick identify growing areas based on climate, soil, water, competing crops and then request specific villages to join program based on selection screening 41

42 BI Farmers Realize Greater Yield, Improved Quality and Enhanced Food Safety 42

43 Simplification of the Supply Chain leads to Quality, Food Safety and Transparency Managed Farmer(s) Cold Storage Customer 43

44 Industry Adulteration History Sudan Red dyes leading now to 16 dyes being tested on all red or yellow products Oregano study in the UK 25% of 78 samples found to be adulterated some up to 70% Spent material being blended into high value product and not labeled Peanut in cumin Mahaleb in paprika Lead chromate in turmeric Various dyes in saffron Imitation vanilla extract sold as natural Micro risk - salmonella 44

45 The McCormick Forward-Looking Integrity Strategy Program led by new role Clare Menezes Director Global Food Integrity. 1. Evolve our existing vulnerability programs and initiatives Globally elevate authenticity within our QMS (Quality Management System) 2. Proactively influence regulators, trade, customers and consumers regarding differentiated benefits of high integrity McCormick S&H supply chain and perceptions of overall industry - Via Quality Story, Superiority Campaigns, Consortium representation and Trade association activities 3. Leverage Analytical Sciences to reinforce chain of custody approach. 3 year investment plan for emerging Science already identified, evolving to a controlled non targeted testing approach 4. Invest in tools to use early warning PESTLE indicators to act on data and intelligence in real time PESTLE = Political-Economic-Social-Technological-Legal-Environmental 45

46 Thank you! PURE TASTES BETTER 46