An Economic Assessment of Food Safety Regulations

Keywords: Food safety, foodborne illness, microbial pathogens, meat and poultry

inspection, HACCP, cost of illness, consumer education, irradiation

1301 New York Ave NW.

Washington, DC 20005-4788

July 1997

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Economic Research Service/USDA

An Economic Assessment of Food Safety Regulations

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Contents

Summary ............................................................................................................. iii

Introduction and Overview .................................................................................... 1

The Economics of Food Safety ............................................................................. 1

The Scope and Extent of Pathogen-Related Foodborne Disease ............ 2

Options for Improving Meat and Poultry Safety ........................................ 5

Historical Background ........................................................................................... 5

U.S. Meat and Poultry Inspection Before 1996 ........................................ 5

The Hazard Analysis and Critical Control Points Regulatory System ....... 7

HACCP Plans .................................................................................... 7

Sanitation Standard Operating Procedures ....................................... 7

Testing for 

Salmonella ....................................................................... 7

Testing for 

E. coli .............................................................................. 7

Enforcement Strategies ..................................................................... 8

An Economic Assessment of HACCP Regulations ............................................... 8

Benefits of the HACCP Rule .................................................................... 8

Effectiveness of HACCP Rule in Reducing Pathogens ..................... 9

The Relationship Between Pathogen Reduction and the

Level of Foodborne Illness .......................................................... 9

The Discount Rate Used to Estimate the Present Value of

Benefits and the Timing of Benefits ............................................ 9

Methodology Used to Measure Benefits of Reduced

Foodborne Illness ....................................................................... 9

Baseline: Costs of Foodborne Illnesses .......................................... 10

Benefit Estimation ........................................................................... 11

Costs of HACCP Rule ............................................................................ 11

Comparison of Benefits and Costs ........................................................ 15

Alternatives to Regulation ................................................................................... 15

Education About and Promotion of Safe Food Handling by

     Consumers, Retailers, and Foodservice Workers ............................ 15

Irradiation of Meat and Poultry Products ................................................ 17

Market-Oriented Approaches to Food Safety: Economic Incentives ...... 18

Conclusions and Suggestions for Further Research ........................................... 19

References ......................................................................................................... 19

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Summary

This economic analysis of new meat and poultry inspection rules evaluates the ben-

efits and costs of reducing microbial pathogens and preventing foodborne illness.

USDA is now requiring all federally-inspected meat and poultry processing plants to

implement a new inspection system called Hazard Analysis and Critical Control Points

(HACCP). This system strives to reduce human exposure to meat- and poultry-borne

pathogens by requiring processing plants to scrutinize the critical control points in the

production process—points where food safety hazards can be prevented, reduced to

an acceptable level, or eliminated.

Efforts to improve the U.S. meat and poultry inspection system were spurred in part by

recent outbreaks of illness traced to 

E. coli bacteria in beef products. According to the

U.S. Centers for Disease Control and Prevention and the Food and Drug Administra-

tion, between 6 and 33 million people become ill each year from microbial pathogens

in food, including meat and poultry, resulting in as many as 9,000 deaths.

The key economic benefit of HACCP is the money saved by reducing foodborne

illnesses.  Society incurs medical costs and productivity losses when people need

medical care, miss work, or die prematurely from illnesses caused by microbial

pathogens in their food.  ERS research has estimated the annual medical and produc-

tivity costs of seven major pathogens in meat and poultry products to be between $6.5

and $34.9 billion annually.

The key costs of HACCP include spending by meat and poultry processing plants on

such things as sanitation, temperature control, planning and training, and pathogen

testing.   USDA’s Food Safety and Inspection Service estimates these costs to be from

$1.1 to $1.3 billion over 20 years.

The report finds that the benefits of HACCP will likely outweigh the costs.  Using

conservative assumptions that HACCP reduces both pathogen levels and foodborne

illnesses and deaths by 20 percent, the benefits of the new inspection system are at

least $1.9 billion over 20 years.  This exceeds the 20-year estimated cost of the

program, which FSIS puts at $1.1 to $1.3 billion.  If implementation of HACCP reduces

pathogen contamination by 90 percent, the expected reductions in medical costs and

productivity losses climb to as much as $170 billion. These estimates are conserva-

tive, because they encompass foodborne diseases from four pathogens for which

epidemiological and cost-of-illness data exist.  HACCP implementation could produce

additional economic benefits by controlling other pathogens.

HACCP will likely affect some groups more than others—in terms of both benefits and

costs. For instance, certain high-risk population groups—including the elderly, the very

young, pregnant women, and people with HIV/AIDS or cancer—will benefit more from

improved food safety than others because they are more likely to contract foodborne

illnesses. On the other hand, the costs of implementing HACCP may be proportionally

greater for small processing plants.

Strengthening the meat inspection system is one of several actions that can improve

the safety of the Nation’s meat and poultry supplies. Others include promoting the safe

handling of meat and poultry by consumers, retailers, and foodservice workers and

educating them how to do so; irradiating meat and poultry products; and strengthening

economic incentives to produce safer food by certifying production processes that

significantly reduce pathogens, or by increasing the legal options available to those

stricken with foodborne illnesses.

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An Economic Assessment of Food Safety Regulations

Economic Research Service/USDA

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Economic Research Service/USDA

An Economic Assessment of Food Safety Regulations

and parasites that can cause human illness if not killed

by thorough cooking.  Residues of agricultural chemicals

may remain on fruits and vegetables, and prolonged

dietary exposure to such chemicals may pose a risk of

cancer or other adverse health effects.   Chemical

residues from fertilizers and pesticides applied to crop-

land may end up in drinking water supplies, again

exposing consumers to potentially hazardous chemicals.

Finally, microbial pathogens may enter streams and

human water supplies through feedlot or pasture runoff.

Consumers make choices about the food products they

purchase based on a number of factors.  In addition to

the price of the product, factors such as appearance,

convenience, texture, smell, and perceived quality

influence choices made in the marketplace.  In an ideal

world, consumers would make consumption decisions

with full information about product attributes, and so

choose the foods that maximize their well-being.

In the real world, however, there are numerous food-

safety information problems, which complicate the

consumer’s decisionmaking.  All raw meat and poultry

products contain some level of microorganisms, some of

which may be pathogens (bacteria, parasites, viruses, or

fungi that can cause illness in humans). However,

consumers generally do not know the level of foodborne-

illness risk, since pathogens are not visible to the naked

eye.  Aside from some rather obvious indications (

e.g.,

unpleasant odor, or discoloration, both of which are more

likely to be caused by non-pathogenic spoilage microor-

ganisms), there are, in many cases, no clear-cut ways

for consumers to determine if there is a health risk from

pathogens or other causes (such as pesticide residues).

Firms may also be reluctant to link food safety issues

and their products in the minds of consumers.

Consumers do not have complete information about the

safety of the products they buy because  producers have

no direct incentive to provide this information.  Since it is

not clear whether consumers can distinguish different

safety levels in food products, firms may not wish to incur

the extra cost of providing more than the minimum