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The Interplay of Regulation and Market Incentives in Providing Food Safety
By Michael Ollinger and Danna Moore
Economic Research Report No. (ERR-75) 52 pp, July 2009
The current level of food safety found in U.S. meat and poultry products is a result of both
Government regulations and management-determined actions motivated by market incentives.
For meat and poultry processing plants, the U.S. Government mandates both food safety process
regulations that require specific technologies or production practices and performance regulations
that promulgate acceptable levels of food product safety. Meat and poultry processing plants are
also influenced by market incentives, including legal liability, the value of their brand, and their
desire to sell more of their food product. Companies often negotiate contracts, which, in exchange
for higher prices or guaranteed purchases, specify food safety levels to be achieved or technologies
to be used.
What Is the Issue?
The Food Safety and Inspection Service (FSIS) recently made changes to its regulatory policies to
better align its program with current food safety needs. FSIS faces pressure, however, to do more
to protect the public in the area of food safety. The Economic Research Service (ERS) estimates
society’s costs (which includes medical costs, lost labor, etc.) of just Escherichia coli STEC and
Guillain-Barré syndrome at about $1.6 billion per year. The cost of foodborne illness from other
sources, such as Salmonella species (spp.), is much higher.
Current levels of food safety process control are achieved through a combination of Government
regulations (process and performance standards) and private management-determined actions,
but little is known about the relative contributions of each to food safety process control. This
report helps fill that knowledge void by examining the impact of food safety process regulations
and management-determined actions as measured by the share of samples testing positive for
Salmonella spp. in a testing program conducted by FSIS. The findings provide lessons for the
development of new regulatory approaches to food safety process control.
What Did the Study Find?
This study’s examination of the effects of mandatory process regulations and management-determined
actions on Salmonella spp. provides new information on the role of regulations and market
incentives in ensuring food safety process control. The study found that management-determined
actions accounted for about two-thirds of the reduction in the number of samples testing positive
for Salmonella spp. (Salmonella share)—a measure of food safety process control. By contrast,
process regulations accounted for about a third of the reduction of samples testing positive. The
importance of process regulation varied across plants, accounting for more than half of all food
safety process control for about a quarter of the plants and for the entire food safety process control system of some plants. These
results suggest that both process regulation
and management-determined
actions play vital roles in meat and
poultry food safety process control.
Mandatory process regulations include
cleaning and sanitation tasks and
tasks required to implement a Hazard
Analysis and Critical Control Point
(HACCP) plan for pathogen reduction
(PR). Management-determined actions
include investments in human and
physical capital, food safety technologies,
and organizational arrangements,
such as contractual relationships that
enhance food safety process control.
These management-determined actions
are driven by market forces and federally
mandated performance standards
that establish limits on pathogens, but
do not specify a way to reach those limits.
The study also found that nearly half of all Salmonella spp. reduction due to management-determined actions was
motivated by direct contractual relations in which a major customer of a meat or poultry plant or supplier to a meat
or poultry plant, fearing a loss of public confidence in the safety of its products, agreed to pay a price premium, make
minimum purchases, or offer other inducements to suppliers in exchange for greater attentiveness to food safety
process control. Management-determined actions were also motivated by indirect consumer pressure for food safety;
consumers link contaminated food products to a supplier through branded products and other sources and can, in turn,
cease purchases if products fail to meet their expectations for food safety.
The forces driving management-determined actions lead to the conclusion that USDA’s FSIS could increase incentives
by providing consumers and buyers with more information about the meat and poultry food safety control of
particular plants and firms. USDA’s FSIS records plant performance on Salmonella spp. tests and noncompliance
with process regulations. Making this information public should encourage greater food safety investments by meat
and poultry producers.
How Was the Study Conducted?
Food safety control is measured as the number of samples testing positive for Salmonella spp. as a percentage of all
samples taken by FSIS for each round (sample set) in a Salmonella spp. testing program for four major products:
broiler (young chicken) carcasses, cattle (cow/bull and steer/heifer) carcasses, market hog carcasses, and ground beef.
These pathogen test results are linked with other datasets from FSIS and from the Economic Research Service (ERS).
FSIS data provide measures of plant-level performance for mandated sanitation and HACCP tasks, and another
dataset offers plant characteristics, such as the value of sales, number of employees, etc. The ERS data include information
on plant-level food safety processing technologies, such as steam vacuum units, contractual arrangements with
buyers and sellers, and some plant characteristics. Since the ERS dataset covers only information from the year 2000,
the analysis was limited to that timeframe.
The analysis used a Tobit regression to evaluate the impact of process regulations and management-determined
actions on shares of samples testing positive for Salmonella spp. After finding the marginal effects, an estimate was
made of the change in Salmonella shares due to 20-percent changes in the variables representing process regulations
and management-determined actions. The share of changes attributed to process regulations and management-determined
actions were then computed.
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