The announcement on Sept. 15, 2006 was unprecedented: The U.S. Food and Drug Administration warned consumers they should not eat fresh spinach. By then, three people were already dead after an outbreak of E. coli O157:H7 in bagged spinach.

All told, the contaminated greens sickened more than 205 people and killed three, including a toddler, who suffered from bloody, dehydrating diarrhea. Spinach sales were decimated. Although the load associated with the outbreak contained a mere 1,002 pounds of spinach – compared to the 680 million pounds of spinach Americans consumed the previous year – the FDA’s warning led to a $60.6 million dollar loss for the leafy greens industry, whose epicenter is the Salinas Valley. While the Centers for Disease Control, FDA and growers scrambled to identify the source of the deadly pathogen, there were no spinach sales for five days. Although on Sept. 29 the FDA assured consumers, “Spinach on the shelves is as safe as it was before this event,” bagged spinach sales were still down by 27 percent five months later.

With one death a week over a three-week period, the FDA and the industry agreed there had to be a more efficient way to trace the source of an outbreak. “If it takes time, more lives are at stake,” says Jamie Strachan, CEO of Salinas-based Grower’s Express, the 50,000-acre enterprise behind the Green Giant label.

The industry also believed pinpointing a specific source could protect millions of dollars worth of fresh produce.

The losses “lit a fire under the industry,” says Julia Stewart, spokesperson for the Delaware-based Produce Marketing Association (PMA), a trade and lobby organization.

By early 2007, PMA, United Fresh and Canadian PMA had launched a steering committee for what would evolve into what’s now called the Produce Traceability Initiative, or PTI, designed to establish a uniform tracking mechanism from farm to retailer.

Three years later, the voluntary initiative is nearly ready for implementation. Spurred in part by new regulations, growers, handlers and retailers are preparing to apply bar codes to the nondescript boxes that transport colorful berries, greens or tomatoes from farms to warehouses. And the Food Safety Modernization Act passed in January mandates that the FDA issue new rules governing traceability by 2013, and the industry expects them to look a lot like its voluntary initiative.

Anticipating big savings – by conducting “surgical recalls, rather than category-killers,” says PMA’s traceability point person Ed Treacy – the industry is gearing up to comply. And entrepreneurs offering the technology and marketing behind the regulations are eagerly awaiting the embrace of traceability.

Most players agree better traceability will be good for business. But some businesses say there needs to be a marketing component to keep small farms afloat. “In my opinion, the bill was intended to stop the local food movement,” says John Bailey, founder of Top 10 Produce LLC in Salinas.

The mechanics of the initiative boil down to “putting a bar code on a box,” says Tom Casas, vice president of information technology at Tanimura & Antle.

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Why is the fresh produce industry just now coming around to a 40-year-old technology widely used on products from t-shirts to canned foods? “There hasn’t been a reason for growers to evolve electronically and technologically. For the last hundreds of years, you plant something, watch it grow, harvest it and sell it,” says Treacy.

The produce industry has had at least rudimentary traceback capabilities since the Bioterrorism Act of 2002 imposed the “one up, one down” principle, requiring growers to know who they shipped a case to – but not where it went after that. “There is every level of sophistication, including paper records in a shoebox,” says Stewart.

In a high-velocity business that moves product from growing regions to grocery shelves nationwide in a matter of days, backpedaling after an outbreak is a challenge.

PMA anticipates the new FDA rules will lay down the law when it comes to electronic recordkeeping and will closely resemble its voluntary traceability initiative, forcing industry laggards to advance technologically. Yet, FDA spokesperson Doug Karas says nobody should assume that electronic recordkeeping will be required. The bill indicates records “may be in… nonelectronic format,” Karas says.

The produce traceability initiative would exchange that old “one up, one down” method for universally readable bar codes that follow a product all the way to a restaurant or retailer. The goal, says Treacy, is to ensure “everybody’s speaking the same language.”

That language is meant for the growers, shippers and handlers who bring produce to market, not individual consumer products, like a single peach or a clam shell of berries. But eyeing a growing interest in Know-Your-Farmer marketing initiatives, businesses are already offering up consumer marketing that apply identifying labels to individual items. Strachan says marketers have put the cart before the horse. “Having consumers connect with suppliers is a great idea,” Strachan says, but “there’s a compliance issue on one hand, and there’s a consumer marketing initiative on the other. I think it’s unfortunate that the lines have been blurred.”

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PMA won’t put a figure on the expected cost of transitioning from shoebox records to electronic systems. “It is going to be a very big investment across the industry,” Casas says.

Among the businesses positioned to cash in is Redwood City-based HarvestMark, whose clients include the supermarket chain Kroger and Driscoll’s, the Watsonville-based berry giant. Launched by parent company YottaMark in 2007 in response to the spinach outbreak, the fresh foods subsidiary is now YottaMark’s largest segment, providing more than 2 billion unique item codes for hundreds of brands. Customers can visit the company’s website, enter a product code, and learn about where their salad originated.

The traceability business “is a very busy, crowded space now,” says YottaMark founder Elliott Grant.

New to the crowd is Top 10 Produce, founded by Salinas land use attorney John Bailey. With a technology called quick-response codes, which look like a blur of pixels on a supermarket display card, customers can scan the code for free with an iPhone camera and instantly access photos, maps and information about the origins of the produce at hand.

While the scope of the produce traceability initiative is limited to behind-the-scenes tracking, Bailey says the real value is in marketing to consumers. “We’re PTI plus,” he says.

Top 10 and HarvestMark offer nuts and bolts (like labels and bar code registration), and also consumer-directed traceability. But Strachan is leery of start-ups eager to jump the gun on marketing. Some growers worry about partnering with companies that don’t really want to solve the fundamental problems. “They’re just looking to capitalize on this,” he says.

Strachan also chairs the Leafy Greens Marketing Agreement, a clunkily titled and strictly voluntary set of food safety guidelines launched in response to the 2006 outbreak. About 99 percent of growers in the state comply, and there is little to no marketing around the initiative – perhaps because features like working toilets in the fields and microbiological product testing have less appeal than pictures of smiling farm families.

Top 10 makes no demands of its growers for on-farm food safety, unlike the Leafy Greens agreement. “We’re a marketing organization that complies with food safety requirements,” Bailey says.

Stewart dismisses claims about exorbitant compliance costs as rumors. When PMA modeled implementation costs for a “very large” grower (with an estimated $100 million in revenue), the first year costs were $20,000, with a $999 annual renewal, she says.

Still, in a low-margin industry, those figures can be daunting. The financial benefit to large growers – protection in a recall by honing in on the affected product – doesn’t matter to small growers, Bailey says. If an outbreak were traced back to a two-acre field, the whole field would be tilled under.

With funding from a USDA small business innovation research grant, Bailey partnered with Old Creek Ranch in Cayucos to test the value of traceability. He set up identical bins of organic Valencia oranges, one labeled “100 percent traceable,” and the other bin unmarked, at Star Market in Salinas, Bi-Rite in San Francisco’s Mission district, and Oliver’s Market, a high-end grocer in Santa Rosa.

The findings, which Bailey presented to an audience of about 30 at the Eco-Farm conference in January, showed consumers were willing to pay $1.29 for traceable oranges, at a premium over the 99 cent oranges in the adjacent bin.

After Bailey’s Eco-Farm presentation, a few growers asked for his business card to follow up. Instead, Bailey distributed a handful of shelf signs for a cactus grower in Nipomo and a berry farm in Moss Landing. “I don’t carry cards; I promote my growers,” he says.

Bailey has fewer than 20 clients today. He is preparing to launch a new national label, Locale Salinas Valley, starting with strawberries.

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To entice growers to implement a costly system, technology providers insist there needs to be some value added. Grant says traceability will ensure the oldest produce is moved first, improving freshness and trimming an annual $10 billion worth of waste. “We can talk about a penny here, a half penny there, but I think what we should be talking about is the big prize, which is to reduce waste. You might be looking at billions of dollars.”

Strachan says some brokers and middle men – normally a lucrative business in produce – may be skipped over in exchange for more direct business. “Traceability will shine a bright light on the supply chain, and if there are participants that aren’t adding value, they will be removed. It’s going to become obvious that there are people in the middle who aren’t providing real value.”

Potential efficiencies aside, the initiative’s strongest selling point is its ability to exonerate growers from being wrongly implicated in an outbreak. “A recall can put you out of business, and that’s before the lawsuits start,” Stewart says. For Strachan, the ability to “force a recall on a company without taking down an entire industry” is a compelling enough reason.

The flipside of protection is increased exposure for the culpable party. After a 2009 salmonella outbreak killed nine people, the Peanut Corporation of America closed its doors after more than 30 years in business. Bill Marler, a personal injury attorney and expert on foodborne illness, says, “If something goes wrong, traceability is going to make sure someone catches you. On a fairly low level, that is always going to be a concern of a company.”

But Marler and Treacy agree keeping recalls simple and small is good for business. “You couldn’t give spinach away in 2006,” Treacy says.

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Earthbound Farm, headquartered in San Juan Bautista, has rebounded since the Dole bagged salad it co-packed was associated with the 2006 outbreak; private equity firm HM Capital Partners partnered with the organic salad company in 2009. Earthbound already had a “one up, one down” traceability system in place at the time of the outbreak.

Earthbound’s vice president of operations and organic integrity, Will Daniels, cautions, “Even with the PTI initiated, it may not get to the end goal that everyone expects it to.”

“The next phase should be item-level traceability. That’s where there’s going to be the biggest benefit,” Daniels says. Earthbound’s aspiration is to enable an eater to track an individual head of lettuce back to where it was grown.

But even then, three or five or seven days post-consumption when symptoms set in, a “bag or clamshell will most likely have been thrown away,” Daniels says.

Marler says it’s important to keep traceability in perspective. “The outbreak has already happened, so having traceability isn’t going to fix that one problem.”

More than serving as an instrument of food safety, traceability is a crisis management tool. “Traceability is not going to make your food safer, but when something goes wrong, it’s going reduce the impact,” says Treacy.

For the most part, the industry pulls the implicated product without much fuss. “A week doesn’t go by when there’s not some sort of a recall,” Casas says.

As far as the FDA and CDC investigation process goes, time is lost translating one company’s “one up, one down” system to another. The produce traceability initiative isn’t designed to help find the source of an outbreak. “It’s designed to help narrow the impact of an outbreak,” and could speed up the process for bulk items, Treacy says.

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At Grower’s Express, which has tripled its staff since the spinach outbreak, personnel has been the single biggest food safety cost. “When it’s a mom and pop, they don’t have a full-time staff,” Bailey says.

Earthbound Farm responded to the spinach outbreak with what many agree are the most rigorous microbiological testing standards in the industry, and now spends about a nickel per consumer item. Grower’s Express, which largely forgoes testing in favor of the statistical truth that results are often misleading, spends just under a nickel per case.

Small growers negotiate the costs and benefits of food safety, but “bacteria don’t differentiate between my farm and theirs,” says Daniels. Earthbound carries product from many small growers, and a handful have backed out of relationships because of testing requirements – the risk of finding contamination can mean losing an entire season’s crop.

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The Produce Marketing Association says the industry is on track to have bar codes live by year’s end. Growers say they are still waiting for retailers to invest in their portion of the initiative.

“I think everybody’s sort of sitting on the fence these days,” says Strachan.

Some major retailers, including Walmart, set drop-dead dates for their vendors to comply by year-end. Treacy says the industry is well poised to launch the initiative on schedule.

As of January, PMA reported 100 suppliers had registered with GS1 US, the tax-exempt business league that assigns bar codes to be used in the traceability initiative. And in Treacy’s vision, this is just the beginning. “I’d love every person who grows produce in this country to be part of it,” he says.