Trygg Mat i Usikkert Framtid Food Safety Economics: What Have We Learned? What Else Do we Need to Know? Presentation September 10, 2008 at NILF, Oslo, Norway Laurian Unnevehr Director, Food Economics Division Economic Research Service U.S. Department of Agriculture
Overview Why has food safety has become more important in the last two decades? What do we know? What else do we need to know?
Why has food safety become more important over time? Developments in: Food Markets Science of food safety Lead to: Public intervention Economic research
Consumer Awareness Reaches Comic Proportions
Changes in Animal and Fish Production Towards Larger Units Increased scale of production can introduce new hazards or speed the spread of existing ones.
Controls Linked Throughout the Supply Chain Some foodborne hazards can enter the food supply chain at many points and can multiply once present. Mixing foods from different sources increases the potential to spread microbial contamination. Controls must address the entire system from farm to table.
World Trade in Perishables Has Increased Million metric tons 100000 90000 80000 70000 60000 50000 40000 30000 20000 10000 0 Meat Fish Veg Fruit 1990 2003 Source: FAOSTAT
Exports from Developing Countries are Growing Million metric tons 60000 50000 40000 30000 20000 1990 2003 10000 0 Meat Fish Veg Fruit Source: FAOSTAT
Exports from Developing Countries Must Meet Standards of High Income Consumers Fish in U.S. Supermarket Fish Market in India
As More Food is Purchased Away from Home Consumers have less control over food preparation Industry takes greater responsibility for final safety of food when consumed Deli Salads in a Supermarket
Science of Food Safety Identification of how pathogens evolve and pose new risks New testing methods that fingerprint pathogens allow better tracing of contamination sources More rapid, sensitive test results for use by producers New information technologies allow products to be tracked and traced
Higher Public and Private Standards for Food Safety Private Adoption of internationally recognized systems of quality control, e.g. ISO 22000 Use of new testing and tracking technologies Public Old standards made more stringent New standards for emerging hazards SPS agreement
Food Safety Regulatory Trends in OECD Countries (1) Forming one agency to focus on food safety. (2) Using risk analysis to design regulation. (3) Recognizing that a farm-to-table approach is often desirable for addressing food safety hazards. (4) Adopting the HACCP system as a basis for new regulation of microbial pathogens in food. (5) Adopting more stringent standards for many food safety hazards. (6) Adding new regulation to handle newly identified hazards. (7) Mandatory traceability.
Today in U.S. EU model debated as alternative Unified agency, farm to table Import controls Traceability New science nanotechnology, cloning Local is the new organic
What do we know? Market failure Value of risk reduction Costs of control Private incentives Role in international trade Public intervention best practices
Market Failure: Food Safety is a (Global) Public Good Consumers can t verify information asymmetry Producers can t control hazard without cooperation externality Third party enforcement and certification needed non-excludability Incentives gap No reward in market Jurisdictional gap Borders irrelevant to control Participation gap Small producers or new entrants don t set standards
Value of risk reduction ERS cost estimates for regulatory cost/benefit analysis Includes medical costs, lost productivity, and value of statistical life for premature deaths Based on estimates of number of cases and deaths Disability Adjusted Life Years (DALYs) used in international health work WHO effort to estimate global burden
ERS Foodborne Cost Estimates Pathogen 2000 $ (Billions) Salmonella 2.4 Listeria monocytogenes 2.3 Campylobacter spp. 1.2 E. coli O157:H7 0.7 E. coli, non-o157 STEC 0.3 Total $6.9 billion U.S. annual total: 76 million cases of foodborne illness; 5,200 deaths
Value of Risk Reduction WTP estimates suggest much higher value for risk reduction As large as $1.4 trillion total Difficult for consumers to evaluate risks Is food safety a right? Outrage is high for food safety Mixed results for preference of private vs public actions Protect others vs protect self?
Costs to industry Rising cost to achieve greater control Costs are not scale-neutral, because fixed costs are high
1.60 Listeria m. Reductions for Different Technologies in Beef Cost ($/carcass) 1.40 1.20 1.00 0.80 0.60 W= wash T= trim S= steam L= acid V= vacuum VW VWS WS VWLS TWS TW TWLS 0.40 W V 0.20 T S 0.00 1.00 1.50 2.00 2.50 3.00 3.50 4.00 4.50 5.00 5.50 Reduction in Pathogen Population (log CFU/cm2) Source: Jensen, Unnevehr, and Gomez, 1998
Danish Ban on Antibiotics as Growth Promotants in Pork Production Ban at finishing stage did not increase costs much Ban at weaning stage incurred large costs Increased therapeutic use and total use 80% of total benefits for 20% of total costs at finishing stage; with large additional costs and modest benefits for adding weaning stage Source: Hayes and Jensen, 2003
Cost of HACCP Implementation (Cents per Pound) 8 7 6 5 4 3 Small Plants Large Plants 2 1 0 Beef Pork Poultry Source: Ollinger
Private incentives Private incentives exist, but are incomplete Loss of sales, reputation, and equity for industries and firms implicated in outbreaks and recalls Many U.S. meat processors go beyond regulatory requirements in response to buyer specifications On farm contracts for livestock are beginning to reflect food safety requirements in U.S. Growing use of third party certification in F&V
Source: Buzby and Mitchell, 2003 BSE news in 1988, 1996, and 2000 Led to Swift Declines in Beef Demand in EU
Percent change in expenditures 0.30 0.20 0.10 0.00-0.10-0.20 Spinach sales drop after FDA announcement of E. coli O157 in 2006-0.30-0.40-0.50-0.60 Bagged spinach Salads wit hout spinach Ot her bulk let t uce Bulk spinach Bulk iceberg -0.70 1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35 37 39 41 43 45 47 49 51 53 55 57 59 61 63 65 67 69 Source: Kuchler and Calvin, 2008 Weeks
Source: Ollinger, 2004
Source: Ollinger, 2004
Farm Level Incentives Source: Ahearn, Roberts, and Helper, 2008
Private Third Party Certification Supermarkets in U.S. require third party certification that F&V growers use Good Agricultural Practices s Retailers in EU demand compliance with EUREPGAP standards In both cases, these standards apply to imports and thus are global
Private Markets Increasingly Use Govt Certification In 2007, CA leafy greens growers voluntarily agreed to more stringent safety measures after spinach recall Proposed federal regulation of marketing would make safety measures mandatory USDA certifies age of cattle (20 mos or less) for beef exports to E. Asia to address BSE concerns
International Trade Several studies have shown the importance of food safety in hampering exports from LDCs SPS agreement has supported transparency and dispute resolution, but LDCs still encounter difficulties Import refusals show persistent problems for seafood and horticultural products
U.S. Import Refusals 1998-2004 Product Category % of Refused Entries Major Violations Countries w/ Violations Seafood and Fish 21 Salmonella & other pathogens Thailand, Vietnam, China Vegetables 20 Unsafe pesticide residues, improper processing Mexico, China, Dom Rep Fruits 12 Filth, improper processing China, Mexico, India Source: Buzby, Unnevehr and Roberts, 2008
EU Rapid Alerts, 2004 Products Nuts Hazards Mycotoxins Countries Iran (nuts) Fish Meat & poultry Fruits & vegetables Chemical contaminants Microbiological contamination Veterinary drug residues Turkey (nuts, F&V) China (nuts, F&V) India (seafood) Brazil (poultry, meat, seafood) Source: Unnevehr, 2006
Improving LDC ability to participate in trade Investments in global public goods to help participation benefit importers too Harmonized standards or better means for establishing equivalence in food safety control Capacity building in LDCs for better sanitation, pesticide use, public monitoring, etc.
Public Interventions More theory than practice draws from environmental economics Risk assessment interventions should focus on the greatest risks Standards product standards should be more efficient than process standards Information providing information helps to overcome market failure
Report Cards for Los Angeles Restaurants Study by Jin and Leslie January 16, 1998, LA county inspectors start issuing hygiene grade cards A grade if score of 90 to 100 B grade if score of 80 to 89 C grade if score of 70 to 79 score below 70 actual score shown Grade cards are prominently displayed in restaurant windows
Report Cards for Los Angeles Restaurants Study by Jin and Leslie Major impacts after grade cards dramatic increase in hygiene quality decrease in the dispersion of hygiene quality revenue more responsive to hygiene grade foodborne illnesses drop 20% Is this a model for other kinds of disclosure to improve market performance?
What do we know? Risks persist and consumers place a high value on their reduction Private incentives exist and mechanisms to enforce are expanding Regulation can set minimum standard where incentives are incomplete Public role for information provision holds promise Persistent problems in LDC imports requires global public goods investments
What else do we need to know? What is the distribution of risks and costs among types of producers, eg., local, organic? What are the costs and trade-offs for traceability systems? What is the public role in third party certification or information provision?
Gratulerer med NILFs 60-arsjubileum! Thank you! For more information, see www.ers.usda.gov/briefing/foodsafety