The Interplay of Regulation and Marketing 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
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
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