Food Standards Agency
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Listen to this siteFriday 23 April 2004
This research project will conduct an extensive review of the literature on the economics of food safety and standards.
Study Duration : July 2003 to January 2004
Contractor : Imperial College London at Wye
There is currently no thorough review of the literature of the economics of food safety and standards in the UK. It is however important for the Agency to gain an overview of the work that has been done so far and of the gaps that will need to be addressed. The results of the review and of subsequent work addressing the identified gaps will give the Agency a better understanding of the economic rationale of its actions. It will also improve the Agency's understanding of the benefits and costs of its activities in the UK.
Economists have addressed a number of questions of interest to the Agency, but mostly in other contexts, such as environmental policy.
Researchers will conduct an extensive literature review on the economics of food safety and standards by drawing on the growing peer-reviewed literature. Contact will also be made with academic economists in the US and with economists at the US Department of Agriculture's Economic Research Service in Washington, who provide economic advice on food safety and standards.
This research provides an extensive background of the rationale for government intervention in the area of food safety and standards. In addition, it reviews the advantages and disadvantages of alternative policy instruments and discusses how costs and benefits of policies can be estimated in practice.
The case for intervention in food safety and food standards is strongest if consumers cannot easily observe the safety and quality attributes of food products. In this situation of imperfect information, economic theory suggests that the optimum level of intervention is determined by consumers' demand for food safety and by the cost of supplying it.
The cost of providing food safety is likely to rise, if the risk has already been considerably reduced. 'Early wins' can be cheap to introduce but further improvements often require complex technical solutions. On the benefit side, consumers will value a small reduction less if the overall risk has already been reduced to very low levels.
The literature review suggests that the cost of improving food safety and standards depend on the policy instrument chosen (e.g. traditional regulation, fiscal measures such as taxes and subsidies, co-regulation, codes of practice, tort liability). It is therefore important to choose the instrument which can deliver a level of food safety and standards at minimum cost. One point to emerge is that some instruments give firms more incentive to innovate and thereby to reduce their long term costs.
The research then analysed the compliance decision by industry. Published research has approached this topic in a number of ways, ranging from surveys of firms to game-theoretic modelling. The compliance decision is complicated by the fact that firms have a private incentive to improve food safety and standards because selling a product that is safe or reaches a certain standard can raise profitability. In addition, industry self-regulates in certain areas through assurance schemes and retailer standards. In fact, the interrelationship between public and private food safety and standards regulations is found to be an important determinant of compliance behaviour and compliance costs.
The research then moved on to a discussion about the available approaches for measuring the costs and benefits of regulations in food safety and standards. Both are important to measure as they give clues about the value of policy options. If the costs and benefits of different policy choices are known a proportionate decision can be made.
On the benefit side, both cost of illness and willingness to pay (WTP) approaches were discussed. The aim of both approaches is to provide a measure of the value that consumers attach to an improvement in food safety and standards. As the WTP approach is more appropriate, a range of methods for estimating WTP were critically evaluated: market trials, hedonic pricing, contingent valuation, conjoint analysis (choice experiments) and experimental markets. There is currently no consensus of the most appropriate methodology for estimating benefits.
On the cost side, three methodologies were reviewed: engineering analysis, cost survey and econometric estimation approaches. They all require different information to be collected, which affects their usefulness.
One major conclusion from this work is that economic analysis can make a real contribution to the work of the FSA by both developing and analysing policy options.
Final report is available from the FSA Library and Information centre.
To obtain a copy, please contact the Enquiry Desk, Dr. Elsie Widdowson Library and Information Services, Food Standards Agency (020 7276 8181/8182 or at
library&info@foodstandards.gsi.gov.uk
).
Contact
: For any enquiries concerning this research project, please contact the relevant Programme contact or email
science@foodstandards.gsi.gov.uk
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