Introduction And Definition Of Issues

For both microbial and chemical hazards, the private marketplace does not automatically provide the optimal level of food safety for society because of information problems and transactions costs. Consequently, U.S. consumers delegated this oversight responsibility to the Federal government at the turn of the twentieth century. This chapter provides a brief discussion of categories of economic costs from foodborne illness borne by individuals, industry, and government. Separate sections focus on microbial and chemical hazards. The particular emphasis in the microbial section is the cost of illness method. Each year, five microbial foodborne hazards cost society an estimated $6.9 billion in medical costs, productivity losses and the value of premature death. The chemical section emphasizes the low human health risks and the limited consumer willingness to pay for food with pesticide residues reduced below current regulatory tolerance levels.

The concluding section focuses on topics for economic research that can help improve regulatory performance in this area. The relative benefits of regulation aimed at microbial and chemical hazards and the implications for government-wide food safety regulatory priority setting are assessed. Efforts underway to improve the economic valuation of foodborne risks are identified. A method to explicitly account for uncertainty in regulatory impact analyses for control of foodborne hazards is outlined. In addition, ways to harness economic incentives to improve the efficiency of public and private pathogen control strategies are discussed.

Economics of Foodborne Illness

Foodborne illness is a combination of what economists call an "experience good" and a "credence good." Consumers cannot tell the risk they run of incurring a foodborne illness at the time they purchase or consume a food item, because they cannot observe the extent of microbial contamination or the level of chemical residues present. As a result, they are unable to assess the health risk of buying and consuming that food item. Food is an experience good in that the consumer can determine whether it will cause illness only after it is consumed. Food is a credence good in that the consumer frequently cannot tell with certainty whether it actually caused an illness. For example, illnesses due to Campylobacter and E. coli 0157:H7 typically occur several days after ingestion, and Listeria monocytogenes can cause illness weeks or months after ingestion. The relationship between foodborne pesticides and any possible disease risk is even more difficult to establish. This lag between consumption of the food containing the pathogen/chemical and illness means that the cause is more difficult to identify with certainty.

As is common with experience and credence goods, fear of foodborne illness can create market dysfunction. Fearing foodborne illness, some consumers may cut purchases of certain food items or avoid consuming them altogether. Measures that ensure safer foods can benefit everyone in such situations. Consumers gain because they avoid some foodborne illness, their fears are reduced, and their food choices are wider. Producers gain because the market as a whole expands. Government regulation tends to be necessary in such cases, however, because private sector initiatives tend to be ineffective in providing adequate levels of safety because of inadequate information and high transaction costs. Product liability and warranties, often the most effective private sector measures in such contexts, tend to give producers insufficient incentive to improve food safety because of the difficulty of proving causality, the cost of bringing suit, and caps on liability because of bankruptcy (Menell, 1991: also see Buzby et al., 2001).

The central question facing regulators is how much safety to ensure, for example, which pathogens and chemicals to regulate, what levels of contamination to allow, and what foods to target first. In general, the appropriate level of regulation can be characterized as one that minimizes the total societal costs of foodborne illness. The societal costs of foodborne illnesses affect all three major sectors of the economy: individuals/households, industry, and government (Table 7.1). People who become ill bear costs such as medical expenses, productivity losses, and pain and suffering. They may also incur costs in seeking to avoid illness by changing their behavior (e.g., cooking beef more thoroughly takes time and can adversely change its flavor and texture). Industry costs include effects of pathogens on animal productivity, development and implementation of new control options throughout the farm-to-table food chain, and costs associated with foodborne disease outbreaks (e.g., recalls of food, cleaning up production facilities, and associated legal liability suits). Government budgets pay for disease surveillance, investigation of outbreaks, and research to identify new pathogen control options from farm to table.

TABLE 7.1. Societal Costs of Foodborne Illness

Costs to individuals/households1 Human illness costs: Medical costs: Physician visits Laboratory costs Hospitalization or nursing home Drugs and other medications Ambulance or other travel costs Income or productivity loss for: 111 person or dying person Caregiver for ill person Other illness costs: Travel costs to visit ill person Home modifications Vocational/physical rehabilitation Child care costs Special educational programs Institutional care Lost leisure time Psychological costs:

Pain and other psychological suffering Risk aversion Averting behavior costs:

Extra cleaning/cooking time costs Extra cost of refrigerator, freezer, etc.

Flavor changes from traditional recipes (especially meat, milk, egg dishes) Increased food cost when more expensive but safer foods are purchased Altruism (willingness to pay so that others will avoid illness)

Industry costs2

Costs of animal production:

Morbidity and mortality of animals on farms Reduced growth rate/feed efficiency and increased time to market Costs of disposal of contaminated animals on farm and at slaughterhouse Increased trimming or reworking at slaughterhouse and processing plant Illness among workers because of handling contaminated animals or products Increased meat product spoilage due to pathogen contamination Control costs for pathogens at all links in the food chain:

New farm practices (age-segregated housing, sterilized feed, etc.) Altered animal transport and marketing patterns (animal identification, feeding/ watering)

New slaughterhouse procedures (hide wash, knife sterilization, carcass sterilizing) New processing procedures (pathogen tests, contract purchasing requirements) Altered product transport (increased use of time/temperature indicators) New wholesale/retail practices (pathogen tests, employee training, procedures) Risk assessment modeling by industry for all links in the food chain Price incentives for pathogen-reduced product at each link in the food chain

TABLE 7.1. (Continued)

Outbreak costs:

Herd slaughtcr/product recall Plant closings and cleanup Regulatory fines

Product liability suits from consumers and other firms Reduced product demand because of outbreak: Generic animal product—all firms affected Reduction for specific firm at wholesale or retail level Increased advertising or consumer assurances after outbreak

Regulatory and public health sector costs for foodborne pathogens Disease surveillance costs to:

Monitor incidence/severity of human disease by foodborne pathogens Monitor pathogen incidence in the food chain

Develop integrated database from farm to table for foodborne pathogens Research to:

Identify new foodborne pathogens for acute and chronic human illnesses Establish high-risk products and production and consumption practices Identify which consumers are at high-risk for which pathogens Develop cheaper and faster pathogen tests Risk assessment modeling for all links in the food chain Outbreak costs:

Costs of investigating outbreak

Testing to contain an outbreak (e.g., serum testing and administration of immunoglobulin in persons exposed to Hepatitis A) Costs of clcanup

Legal suits to enforce regulations that may have been violated3 Other considerations:

Distributional effects in different regions, industries, etc. Equity considerations, such as special concern for children

1 Willingness-to-pay estimate for reducing risks of foodborne disease is a comprehensive estimate of all these categories (assuming that the individuals have included employer-funded sick leave and medical programs in their estimates). The estimate is comprehensive and covers reduced risks for everyone—those who will become ill as well as those who will not.

2 Some industry costs may fall with better pathogen control, such as reduced product spoilage, possible increases in product shelf life, and extended shelf life permitting shipment to more distant markets or lowering shipment costs to nearby markets.

3 In adding up costs, care must be taken to ensure that product liability costs to firms are not already counted in the estimated pain and suffering cost to individuals. However, the legal and court expenses incurred by all parties are societal costs.

Source: Reprinted from Buzby and Roberts (1997b) with permission from the World Health Organization.

Minimizing the total societal cost of foodborne illness requires equalizing the marginal costs of all affected parties, for example, the marginal cost of foodborne illness to consumers, the marginal cost to industry of increasing safety, and the marginal cost to government of enforcing regulations. In considering a single regulation, then, it is necessary to compare incremental costs. In general, economic principles suggest that a regulation should be adopted if it reduces the costs of foodborne illness to consumers more than enough to offset increases in industry compliance costs and government enforcement costs. And economic principles suggest that the regulation should not be adopted if it reduces the cost of illness but not enough to cover the increased costs of industry compliance and government enforcement.

This decision criterion can be framed equally well in terms of benefit-cost analysis, with the benefits of regulation being consumers' avoided costs of foodborne illness. The appropriate level of safety equalizes benefit and cost at the margin. Any regulation whose incremental benefit exceeds its incremental cost increases aggregate well-being.

The costs incurred (or avoided) by consumers are the most difficult to estimate. Methods for estimating these costs include both ex ante and ex post measures (before and after illness has occurred, respectively). Economists prefer to use ex ante measures of value, in which all the relevant costs are anticipated before a purchase takes place in the marketplace. A number of techniques are used to estimate consumers' "willingness to pay" (WTP) for greater safety in the foods being purchased. In theory, and maybe in practice, well-designed WTP studies can estimate ex ante values for all of the foodborne illness costs listed in Table 7.1 for individuals. In doing benefit-cost analysis, often the ex post measures of costs actually incurred are estimated using the cost of illness (COI) approach. Both WTP and COI measures are discussed in more detail in the sections on microbial and chemical hazards. [Golan et al. (2001) also discuss these measures more fully with particular attention paid to the evolution of the ERS COI methodology.]


Foodborne diseases are caused by ingesting bacteria, fungi, parasites, viruses or the toxins they produce in contaminated food or water or by person-to-person contact. Each year, microbial pathogens cause as many as 76 million cases of foodborne illness, including 5200 deaths in the United States according to the U.S. Centers for Disease Control and Prevention (CDC) (Mead et al., 1999). The Economic Research Service (ERS) in the U.S. Department of Agriculture (USDA) and the Center for Food Safety and Applied Nutrition (CFSAN) in the U.S. Food and Drug Administration (FDA) have estimated the annual human illness costs for a number of foodborne illnesses. ERS estimates that the total costs of five major bacterial pathogens are $6.9 billion annually (Table 7.2). CFSAN estimates a cost of $28.1 billion for nine major causes of food-

TABLE 7.2. Estimated Annual Costs Due to Selected Foodborne Pathogens, August 20001

Estimated annual foodborne illnesses2

Cases Hospitalizations Deaths Costs3'4


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