From the September 2007 issue of Entrepreneur

Last spring, pet food company Chomp was in the process of overhauling its product line with seven new products. Everything at the Weymouth, Massachusetts, company was on track--until the story broke about animals dying after eating pet foods containing melamine, a compound used to make fertilizers and plastics. The source of the problem was traced to manufacturers in China that had added melamine to the wheat gluten and rice protein found in the toxic foods.

 

What followed was an abrupt turnaround for 8-year-old Chomp, which employs nine people and has sales exceeding $1 million. "We were two weeks away from turning out 60,000 pounds of a new treat product that had rice protein as one of its ingredients," says Chomp CEO Ken Meyers, 49. "There was nothing wrong with the rice protein source we were using, but we could not afford the prospect of that ingredient being maligned by consumers who didn't know who to trust."

 

Chomp posted ingredient information on the company's website, switched to North American sources wherever it could, and at the last minute changed the formula on four of its new products to substitute chicken meal for rice protein. The company also changed its packaging labels to reflect the products' new ingredients--modifications that came with a $10,000 price tag.

 

Today it's pet food, paint and toothpaste, but tomorrow it could be your industry, and the U.S. government hasn't cracked down on imports. The FDA only inspects about 1 percent of incoming foreign food and materials shipments, and the percentage is even lower for raw materials, which often hail from countries with sketchy regulatory standards. China, India and Mexico are responsible for the most import safety violations.

 

Nonmeat imports are monitored by the FDA, which can turn back unsafe or rotten shipments on inspection. The U.S. system hasn't caught up with the crushing volume of imports, however, and testing for hidden chemicals requires additional work. "In many respects, the [FDA] has approached imports under a 1970s paradigm--pre-NAFTA, pre-transport of manufacturing jobs overseas," says attorney Benjamin England, who co-chaired the steering committee for The Import Strategic Plan, a pre-9/11 initiative to improve import oversight that has yet to be implemented.

 

Recent incidents of contaminated goods from China reveal how hard it can be to track imported materials back to their source. "When folks have tried to track the supply chain, they have found counterfeit documents," says William Hubbard, a former FDA official who is now a senior advisor to the Coalition for a Stronger FDA, a group that's sounding the alarm on the import issue. "The supply chain is not transparent."

 

One thing is clear, however: Food safety is now on U.S. consumers' radar. An April poll of just more than 2,500 U.S. adults by Harris Interactive found that 86 percent were at least somewhat concerned about the recent recalls, while 29 percent said the recalls are a serious concern for them. If a product they bought faced a recall or safety issue, 15 percent said they would permanently switch to another brand.

 

Many U.S. companies, meanwhile, are finding it difficult not to source materials from China, which now produces 80 percent of the world's ascorbic acid alone. "They've made a real aggressive effort over the past 10 years to corner the market on a lot of raw ingredients," says Meyers, some of whose ingredient suppliers have told him point-blank that China is the only source.

 

To mitigate dangers, you can shift the risk to the supplier by not making full payment or accepting the title until the shipment has cleared the FDA, customs or the Department of Agriculture. You might also make the supplier document the product's potential safety risks and how it controls them. Depending on your product, having an independent laboratory spot-check quality and safety is a good idea, too.

 

Where companies source their materials could become a huge competitive advantage if import safety stays on consumers' minds--and they're willing to pay more for it. Says Meyers, "The question is how consumers in this country who vote with their pocketbooks are going to respond."

 

Chris Penttila is a freelance journalist in the Chapel Hill, North Carolina, area.