Food Safety and Its Economic Impact on Segments of the Food System

NON-TECHNICAL SUMMARY: Food safety events can have a major impact on firms involved and on suppliers and customers in the supply chain. Participants in the food industry are placing more emphasis on the ability to trace and recover products through the food system. Traceability has become a more important policy issue both domestically and internationally. Its urgency is heightened by concerns over bioterrorism targeting the food supply and highly publicized incidents relating to cases of BSE in North America and foot and mouth disease abroad. Trace-back capability is one way in which agricultural and food industry firms can differentiate themselves in competing for downstream customers and traceability carries broader social benefits related to controlling outbreaks of foodborne illness or otherwise mitigating economic damage when crisis situations occur. The purposes of this project are to: (a) learn more about the economic impact of food safety events on food and agricultural businesses, (b) examine the feasibility of new data sources that could be used to measure readiness of food industry firms to respond to food safety problems, and (c) develop a better understanding of consumer rsponses to various types of food safety hazards.

<P>

APPROACH: For objective 1: Event studies, econometric time series analysis, and methods of demand estimation will be used to characterize impacts of food safety related events on affected firms, competing firms in the same or similar industries, and firms upstream or downstream in agricultural supply chains. An example of an event study would be to examine the impact of a food safety event linked to beef processors on downstream firms in the fast food industry. It is expected that such work would incorporate information from options markets as well as stock or futures markets to examine how events affect not only mean price expectations but also expectations of uncertainty in the value of the securities or commodities of interest. For objective 2: The primary work proposed under objective 2 relates to assessing the feasibility of data collection efforts to analyze industry readiness to respond to a crisis. 1.Identify organizations conducting certification and auditing programs that are likely collecting information about crisis management planning and summarize to the extent possible: a. The type and scope of information collected in the process of carrying out auditing and certification activities, b. The characteristics of participating food industry firms being served by the different organizations, and c. The proportion of firms in a given sector of the food industry that participates in such auditing and certification activities. 2.Identify and describe the role of supporting organizations involved in actual recall situations that may provide further background on developing an assessment of the recall capability of food industry firms 3.Summarize current federal policy towards food product recalls and characterize recent policy debates and emerging policy issues regarding food product recalls. 4.Identify and review extant literature on the incidence, effects, and theory of product recalls. This activity should encompass recalls of non food products as well as food products and should not be restricted only to contexts within the United States. For objective 3: Work carried out under objective 3 will consist primarily of developing theoretical models to explain how biased risk perceptions affect market outcomes. Development of such models will reflect findings from previous literature related to how risk characteristics affect consumer risk perceptions. To the extent possible hypothesis from the theoretical models will be tested empirically.