The Economics of Food Safety

By Lisa Lupo

It’s been nine years since the signing of the Food Safety Modernization Act (FSMA), and nearly three years since the first of the seven foundational rules became final and larger businesses began their preventive controls. With at least some aspects of all seven rules in effect, how do we measure the efficacy of this landmark rule? Are the investments and activities of FSMA producing the desired results? What is the economic impact: from grower to consumer?

SMALL BUSINESS. John Bovay, assistant professor and extension economist for the University of Connecticut Department of Agricultural and Resource Economics, sees the greatest economic impact of FSMA as affecting small business. “The costs of complying with the FSMA Produce Safety Rule will be onerous for small farms because large farms will be able to achieve some economies of scale in compliance,” he said, adding, “The same phenomena will occur in the food manufacturing and processing industry, which is affected by the Preventive Controls rule.”

For example, multi-unit businesses can repeat practices across several dozen fields or facilities and complete a single set of paperwork to document compliance. In addition, large businesses may find it economical to hire a full-time food-safety supervisor or manager to ensure compliance with FSMA, whereas smaller businesses will likely elect to use existing managerial capacity to ensure compliance. There are, however, some FSMA compliance training programs provided by state departments of agriculture or cooperative extension services that farmers and producers can use to ensure they correctly understand the rules. These can then potentially reduce costs and/or limit the amount of external consultation needed.

“The other reason that small farms will be disadvantaged by the Produce Safety Rule is that large farms are relatively likely to have adopted private or collective standards for food safety at the behest of buyers,” Bovay said. “Again, this parallels what we will expect to see under the Preventive Controls rule. FDA’s own analysis of the cost of the Preventive Controls rule indicates that the vast majority of affected producers are already in compliance with elements of the rule, with smaller businesses being the entities most likely to incur new costs because of FSMA.”

“FSMA is tough for the small producer,” agreed Will Daniels, president of the Produce Division at IEH Laboratories and Consulting Group. Having managed the operations of a number of food and beverage companies, including startups, Daniels said, “I am concerned this segment of the industry will not be able to survive under these pressures, or they will shrink to a level that they do not have to comply — making the food more risky. These operators need the most help, yet we are allowing them to be exempt or come into compliance last.”

It is just such exemptions that could result in a shift in the produce industry, as growers shift production in favor of the commodities that are not covered by the Produce Safety Rule, Bovay said. Some fruit and vegetable commodities (such as sweet corn, asparagus, pumpkins, and sour cherries) are not regulated by the Produce Safety Rule. This is because they are considered to be rarely consumed raw, and cooking them reduces the risk of foodborne illness from bacterial contamination, he explained. “If a farmer who grows fresh-market tomatoes, pumpkins, and sweet corn wants to avoid complying with the FSMA Produce Safety Rule, her best course of action is to cease growing tomatoes and increase acreage of pumpkins and corn,” Bovay said.

He expects the effects of the Produce Safety Rule on consumer prices to be small, perhaps not even noticeable. “However,” he said, “I expect that some small farms will cease growing certain types of crops because their costs will increase substantially more than the prices they receive for the produce commodities covered by the Produce Safety Rule.” In fact, he said, “Some farmers are already changing their production mix.”

DOWNSTREAM IMPACTS. Further down the food chain, Daniels said, “There will be continued pressure on producers and processors to implement practices that add costs to their system while the buying side continues to ask for lower prices.”

This also becomes an issue because compliance with FSMA standards is expected to become a contractual requirement imposed by many buyers — even for farms and processors that qualify for exemptions under the letter of the law, Bovay said.

Thus, Daniels said, “Something has got to give at some point. I believe that the supply side has taken the biggest burden of FSMA implementation, and if we don’t start to understand the impact of this pressure, the consumer loses.”

While FSMA has added costs for virtually every business in the food chain which must comply, there are some economic positives. “In addition to the advantages created for large farms, our research shows that domestic producers and buyers of food produced domestically will be advantaged, relative to foreign producers and buyers of imported food,” Bovay said. “Producers already in compliance with GAPs and GMPs will have substantially lower costs than producers adopting standards for food-safety practices for the first time.”

Even with such advantages, food safety often is seen as a cost center rather than a value factor that could be marketed or charged for, so it can be difficult for food facility managers to substantiate the need for food safety funding. Thus, the food safety manager needs to develop an understanding of the cost of not doing things right with respect to food safety, and be able to explain that cost. “The impacts on brand and company performance are easy to assess; putting the price on a life should things go wrong should help to influence the remainder of the conversation,” Daniels explained. “No one should be in the food business if they are willing to make people sick. With that in mind, how can companies not afford to invest in food safety, knowing all we know?”

TAKING MEASURE. There has been some mention that FSMA should be overturned if it does not prove to have reduced foodborne illness outbreaks, hospitalizations, and deaths. Daniels disagrees. “This has been the most significant modernization to our food laws, ever,” he said. “FDA took a long time to develop what was implemented with a lot of input from industry. The science of food safety continues to evolve, and we still have much to learn.”

There also are so many variables and factors that influence the numbers besides the law (such as the aging population and their susceptibility), so a true measure may be difficult and take time, he said.

Even given the variables, only about one of every 1,000 foodborne illnesses is confirmed and linked to a particular pathogen. Thus, there is a great deal of uncertainty about the number of foodborne illnesses suffered by people in the U.S. every year, and also about the types of food responsible for these illnesses, Bovay said. “We know even less about the sources of food contamination. For example, did contamination occur at the farm or in transport or at the supermarket? Given all of these uncertainties, any attempt by researchers to estimate the causal effect of new regulation on incidence of foodborne illness is riddled with measurement errors of a type that don’t affect similar research questions.”

If a study were to show that foodborne illness has increased over time, it might, in fact, be showing that detection of foodborne illness has increased — for which a likely explanation would be that the efficacy of detection efforts has improved, he said. “Similarly, a study in 2025 investigating the effect of FSMA on foodborne illness will need to carefully control for changes in technology that may improve detection ability and also changes in spending on foodborne-illness detection. In short, it will be very hard for scientists to measure the effect of FSMA on foodborne-illness outcomes.”

Currently foodborne-outbreak data related to illnesses, hospitalizations, and deaths are tracked by CDC. But that tracking can include only those that are reported and linked to an outbreak, and it lags by a couple of years. So, this data also would not provide an applicable assessment. But, not only is it “all we have” to track this information, Daniels said, “The lag is appropriate to ensure the numbers are as accurate as possible. Also, I believe that if we take too close a look or too narrow a window, it is easy to develop theories that may not be factual. We need to look at this from a meta-data perspective and stay out of the minutiae.”

“We have a long way to go before we can truly say that FSMA investments are producing desired results,” Daniels said, adding, “However, if we look at the data 10 or 20 years out, I am hopeful we will see that FSMA has improved food safety.”

The author is Editor of QA magazine. She can be reached at llupo@gie.net.