Financial risks that genetically engineered foods pose to Kraft Foods Inc. and shareholders
(The full report is available at http://pirg.org/ge/GE.asp?id2=9677&id3=ge&)
Executive Summary
Genetically engineered foods have the potential for detrimental impacts on
public health and the environment, which in turn pose significant financial
risks to food companies and investors. Strong regulatory oversight of these
crops is essential to prevent health impacts for which food companies could be
liable. However, concerns about the adequacy of these regulations have been
raised from sources inside and outside of these agencies, including from food
companies themselves. In order to clearly illustrate the financial risks of
genetically engineered foods, this report will focus on the particular
financial risks that genetically engineered ingredients pose to Kraft Foods, the
largest food company in the country.
The StarLink contamination of the food supply demonstrated the financial
risk that genetically engineered foods can create and the inadequacies of
current regulations to protect food companies from liability. StarLink corn is a
variety of genetically engineered corn not approved for human consumption
because of risk of allergic reaction. In Fall 2000 StarLink was found in
Kraft’s Taco Bell taco shells and then in hundreds of other products in the food
supply, spurring recalls, lawsuits, lost sales, and consumer rejection that
is estimated to have cost the food industry a billion dollars.
StarLink is just one of many unapproved varieties of genetically engineered
crops with the potential to contaminate the food supply and lead to financial
risk to Kraft. Between 1987 and 2000, for instance, there have been nearly
30,000 reported open-air plantings of experimental genetically engineered
crops across the United States. Unfortunately, many other varieties are approved
for planting and consumption despite their potential for harming human health
or the environment. Contamination of Kraft products by approved or
unapproved crops could create significant financial liabilities for companies if they
did not act to prevent contamination.
This report details the financial risks that genetically engineered foods
pose to food companies, with Kraft Foods as the primary example. These risks
include:
– Product Liability
– Biopharm Contamination
– Consumer Rejection of Kraft Products
– Loss of Competitive Advantage
– Damage to Reputation
– Insurance Industry Concerns
– Shareholder and Analyst Concerns
– Risk of Sudden Regulatory Changes
In response to these financial risks and to the growing consumer demand for
non-genetically engineered foods, many food companies in Europe have stopped
using genetically engineered foods, including Kraft Foods in Europe. Many
U.S. food companies have also decided not to use genetically engineered
ingredients in their products, including Gerber, Heinz, McDonald’s, Frito-Lay, and
supermarket chains Whole Foods, Wild Oats, and Trader Joe’s. We found that
these companies did not report financial difficulties as a result of this shift,
and in most cases sales increased in the years following the switch.
In addition, genetically engineered foods offer no marketable benefit to
food companies. The potential for Kraft and other food companies to experience
future financial risk is great if they continue to use genetically engineered
ingredients, yet these foods offer no marketable benefits. Studies have even
documented that genetically engineered crops may cost more to produce than
their non-genetically engineered counterparts. Without clear benefits, the
financial risks that food companies bear by continuing to use genetically
engineered ingredients are difficult to rationalize.
Recommendations
Kraft faces unnecessary financial risk by continuing to use genetically
engineered ingredients. The potential for Kraft and other food companies to
experience future financial risk is great if they continue to use genetically
engineered ingredients. Oversight by government regulatory agencies is not
adequate to protect Kraft from these risks. To reduce financial risk from
genetically engineered ingredients, we recommend that Kraft take the following steps:
1. Phase out genetically engineered ingredients.
2. Disclose to shareholders all financial risks posed by genetically
engineered ingredients.