A material spill prevention system with feed location sensing system to reduce the possibility of material spillage relative to the film being utilized for bag formation. The material spill prevention system monitors whether there is a proper film feed situation and, if not, precludes the release of material from the dispenser as in by precluding a flow controller opening and the release of material to the bag intended to receive the release chemical (e.g., a foam packaging bag). The prevention system is applicable to a variety of film feed arrangements as in a C-fold film drawn by a nip roller arrangement from a roll source with the dispenser mechanism positioned intermediate the nip and film source relative to film travel. An embodiment of the spill prevention system also features an absolute position transducer for monitoring position of a flow controller which controls output of material from the dispenser.