HACCP, cost/benefit analysis, Food Consumption/Nutrition/Food Safety,

Roberts, Tanya

Unnevehr, Laurian J.

English

Research Papers in Economics

PART FIVE:  Avenues for Improving
the Quality of Benefit/Cost Analysis
of Food Regulations
18.  Improving Cost/Benefit Analysis for
HACCP and Microbial Food Safety:
An Economist’s Overview
Laurian Unnevehr and Tanya Roberts
Strategy and Policy in the Food System:
Emerging Issues
EDITED BY
Julie A. Caswell and Ronald W. Cotterill
Proceedings of NE-165 Conference
June 20-21, 1996
Washington, D.C.
© 1997
Food Marketing Policy Center
Department of Agricultural and Resource Economics
University of Connecticut
and
Department of Resource Economics
University of Massachusetts, AmherstImproving Cost/Benefit Analysis for HACCP and
Microbial Food Safety:  An Economist’s Overview
Laurian Unnevehr  (laurian@uiuc.edu)
Tanya Roberts
Department of Agricultural and Consumer Economics
University of Illinois, 305 Mumford Hall
1301 West Gregory Drive
Urbana, IL  61801
Keywords: HACCP, cost/benefit analysis
Copyright © 1997 by Food Marketing Policy Center, University of Connecticut.  All rights
reserved.  Readers may make verbatim copies of this document for non-commercial purposes by
any means, provided that this copyright notice appears on all such copies.225
18
Improving Cost/Benefit Analysis for
HACCP and Microbial Food Safety:
An Economist’s Overview
Laurian Unnevehr and Tanya Roberts1
This is an exciting moment to be taking stock of the research agenda for microbial food safety.  Both
industry and policy makers need to know more about the costs and benefits of controlling microbial
foodborne pathogens.  As there are many simple things that we don’t know about the costs and benefits
of control strategies like HACCP, our job of defining a research agenda is fairly straightforward.
Carrying out that agenda will be more challenging.  We want to discuss the basic framework for cost/
benefit analysis of HACCP, and then turn to what we see as the research priorities.
First, what is the HACCP (Hazard Analysis Critical Control Point) system?  It’s a general approach
to hazard control in food processing that includes seven general steps (NACMCF 1992):
1. Assess the hazard,
2. Determine critical control points (CCPs),
3. Establish critical limits for each CCP,
4. Establish procedures to monitor each CCP,
5. Establish corrective actions,
6. Establish record keeping,
7. Establish verification procedures.
Note that:  (a) HACCP can be applied to any point in a food production chain (i.e. farm, packing/
processing, food service) and (b) the choice of a safety standard is implied by the choice of a critical
limit.
The U.S. Department of Agriculture’s Food Safety and Inspection System (FSIS) and the Food and
Drug Administration (FDA) claim the following advantages for HACCP over current U.S. food safety
regulatory programs:  prevents largely avoidable events to reduce contamination of food from farm to
retail; uses scientific risk assessment for pathogens likely to be associated with each food; places food
safety responsibility clearly on the food manufacturer or distributor; improves food safety practices by
setting public health-oriented targets; fosters scientific and technological innovation by removing
regulatory obstacles; permits more efficient and effective government oversight because the
recordkeeping on HACCP sanitation, pathogen testing, and other procedures allows inspectors to better
assess safety than spot checks or visual inspection; and helps food companies compete more effectively
in international markets where HACC requirements are becoming common.
To evaluate costs and benefits, we first need to understand how HACCP differs from our usual
model of production.  First, HACCP does not explicitly include marginal cost/benefit analysis of trade-
offs in setting any particular limit (Unnevehr and Jensen 1996).  As originally practiced in producing226
food for astronauts, the implicit risk standard was as close to zero as possible, but now the concept is
applied to raw meat products where zero microbial risk is infeasible.  The firm’s choice of a risk standard
is implicit in the process of setting up the HACCP system.  It will be challenging for economists to apply
the framework of marginal cost/benefit analysis to HACCP, but this is needed in order to set a risk
standard where benefits are greater than costs.
A recent innovation for beef carcasses illustrates this point.  Frigoscandia’s Steam Pasteurization
Process was developed after the 1993 E. coli O157:H7 outbreak to reduce pathogens on beef.  Before
sides of beef go into the chiller, they are treated with steam for 6-8 seconds to kill pathogens.  The capital
costs of this process range from about .02 cents per pound for large plants to .2 cents/pound for smaller
plants.  Phebus (1995) evaluated pathogen reduction under this process and found large reductions (3.5
log cycles) with carcasses inoculated with a high level of pathogens.  On real-life slaughter lines where
the bacteria are in smaller numbers, reductions were not as pronounced.  The economic issue here is
whether the costs of the unit will match the benefits in different real world situations.2
Another economic dimension to HACCP is process redesign.  HACCP is one kind of process control
or quality management system.  In implementing these kinds of systems, it is often more important to
redesign the production process to improve quality than it is to address specific causes of quality
variation in an existing process (Mazzocco 1996).  More problems arise from a poorly designed process
than from a poorly executed one.  Furthermore, rapid innovation in technologies for pathogen control
and testing create new possibilities for process redesign and verification.  This means that we need to
model the costs and benefits of changing the process rather than of specific interventions.
For example, rather than generically controlling sanitation using visual inspection, HACCP will
require redesigning the process to explicitly control specific pathogens.  The reduction in cases of
listeriosis by 40 percent in the last decade illustrates the contribution of process redesign, along with
regulatory and educational efforts (Tappero et al. 1996).  Changes in production made to control Listeria
monocytogenes include:  (1) reconfiguring conveyor belts on meat processing lines and reducing use of
high pressure water sprays which splashed Listeria out of drains and from floors onto the underside of
low conveyor belts, and (2) creating pressurized rooms for peeling hot dogs from their casing and putting
them into consumer packages to prevent aerosol contamination from rooms where raw product is handled
(Roberts and Pinner 1990).
So with that as background, let’s look at the benefits from HACCP.  Benefits flow from accom-
panying risk reduction.  These will be difficult to quantify in a public sense if HACCP is mandated
without an outcome standard, and difficult in a private sense if the outcome standard is implicit.  If we
do know how much risks are reduced, then the social benefits can be quantified along a continuum from
the cost of illness to the existence value of safe food (Roberts 1991).  The NE-165 researchers have done
a great deal of work to demonstrate these benefits using many different methodologies, as demonstrated
in the two books edited by Caswell.  This work has been crucial in influencing policy makers’ under-
standing that benefits are large.
In addition to consumer valuation of food safety, there are other benefits of HACCP that we know
less about.  Private benefits to firms may arise from longer product shelf-life; access to new, distant
markets, including international markets; greater reliability to customers; reduced product liability; or
possible x-efficiency gains in plant organization.  Public benefits in terms of implementation may arise
from ease of monitoring for the regulatory agency, since costs of testing are high.
What are the costs of HACCP?  These include the costs of designing and implementing controls that
achieve the standard for pathogen reduction.  The array of control options available will vary with type
of animal product and by the type of changes required to control a specific pathogen.  HACCP involves
a large fixed investment to develop the plan and to train staff.  It may also require new capital equipment.
These fixed costs mean that there are economies of scale in HACCP.  The variable costs are often minor
in terms of labor or materials.  Thus costs will vary by scale of plant, with implications for industry
structure.  A full accounting of costs would recognize process redesign. However, these generalizations
may not hold for HACCP at the farm level, where variable costs could be more important.227
What are the net benefits of HACCP?  Ideally we would like to compare the costs and benefits of
different levels of risk reduction, but to do so requires knowing how interventions affect risk, how
different mixes of interventions affect risk, and how different intensities of intervention affect risk.  This
is a very tall order!
So, finally, what kind of research is needed to support cost/benefit analysis?  We would argue
strongly that this is a great area for multidisciplinary research to merge industrial engineering, micro-
biology, and economics.  There are many fascinating questions, but we believe that there are two big
questions that are crucial to answer.
What Are the Most Cost-Effective Points of Intervention?
Other disciplines only now are beginning to understand how much controls will reduce risk, how
pathogen levels in food translate into foodborne illness risk, how changes in production practices
influence risk, and other basic models of risk (e.g., Roberts et al. 1995a).  Economists need to work with
risk modelers to do the following:
a. Rank pathogens in economic importance—now that a wide variety of methodologies and cases
have been used to demonstrate that food safety has value to consumers, there is a need to focus
benefits work on ranking pathogens as a first step towards analysis of control points.
b. Measure costs and benefits of reducing pathogens at different points and to different levels.  For
example, Agricultural Research Service risk modelers have shown that the greatest risk often
arises from events in the tail of the distribution:  the few heavily contaminated pieces of food,
contamination with strains of pathogens which can survive treatments designed to kill most
pathogens, those strains that are able to grow the fastest, or those spores that germinate the
earliest (Whiting 1995).  Economists need to analyze whether addressing these risks would
provide the greatest net benefit.
c. Identify how much information we need in an integrated database to monitor food safety
(Roberts et al. 1995b).  Economists can help to identify where information has the greatest
value, needs to be collected continually, and made publicly available.
What Are the Most Efficient Mechanisms for Reducing Transactions Costs
in the Market for Food Safety?
Information costs are high for consumers.  Food safety is largely not an “experience good” because
of inability to link many syndromes to their foodborne cause.  This is especially true for sequelae or
complications following the initial acute infection.  Information costs are high for producers because
microbial testing is expensive, the outcomes are highly variable, and test results available after two days
or more are difficult to integrate into an on-line production system.  HACCP addresses hazard control
through prevention, but another approach would be to address the lack of information directly.  Other
public or private strategies to reduce risk could be more effective or complementary to HACCP.
Economists need to identify the most efficient mechanisms for reducing the transaction costs to
consumers wishing to purchase greater safety—e.g., private advertising on safety, government certifi-
cation of consumer labels, or government certification of production processes that can “significantly
reduce pathogens.”  FSIS started using the latter approach in 1995 with approval of Frigoscandia’s
steam pasteurization process for beef carcasses.  Such certification lowers the information cost to
purchasers about the safety performance of the process.228
Another approach would be legal reform.  In 1990 the United Kingdom increased the legal liability
of firms in food safety cases with the Food Safety Act that requires firms to use “due diligence” in
producing safe food.  Hobbs and Kerr (1992) conclude this act will encourage new forms of vertical
coordination among U.K. firms to minimize the probability of microbial contamination of food.
However, Viscusi (1989) theorizes that high information costs for tort liability will limit its usefulness
in redressing health and safety problems.  Basically, it is difficult to attribute illness to a specific food.
To evaluate different kinds of interventions like certification or liability reform, we need to know
how consumers and producers will respond to the incentives created by this new information.  Will
consumers demand greater food safety and will this encourage industry innovation in response?  Klepper
stresses the importance of demand factors “in shaping the rate and direction of technological change”
(Klepper 1996: 563).  Public outrage over the 1993 E. coli O157:H7 outbreak associated with ham-
burgers in Western fast food restaurants did motivate the beef industry to fund new research to control
this pathogen (Allen 1996).
As the market for meat products is very dynamic, it is difficult to predict how food safety demand
and regulation will interact with changes in industry structure, international trade, and new technologies
for hazard control.  How will relationships with input suppliers change, such as requiring HACCP
systems be in place or stipulating that product be tested for specific pathogens?  For example, HACCP
has changed the role of industry laboratories (Flickinger 1996).  When is vertical integration more
efficient in achieving pathogen control goals than contract specifications (Boon 1996)?  Is it possible
that increasing vertical integration could also decrease competition in providing safer products?  How
will industry structure change in response to regulation and/or greater demand for food safety?
In conclusion, we would like to reemphasize that there is much to learn about how the market for
safety attributes will evolve, and about where the marginal benefits of risk reduction are greatest.
Research is needed to inform both public policy and private strategy.  The available data and research
do not support such analysis.  We need to get to work!
Notes
Laurian Unnevehr is Associate Professor, Department of Agricultural and Consumer Economics, 1
University of Illinois and Tanya Roberts is a Senior Economist in the Food and Consumer Economics
Division of USDA’s Economic Research Service.
 Apparently many processors believe the benefits are greater than the costs, since Frigoscandia has 2
installed the new process in Excel/Cargill’s large plants and another 60 units have been ordered by U.S.
and international firms (personal communication with Frigoscandia’s Craig Wilson, June 1996).
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Costs of Monitoring Food Safety and Vertical Coordination in Agribusiness: What Can Be Learned From the British Food Safety Act of 1990? Agribusiness

Economic Impact of Disease Caused by Listeria monocytogenes.

Economics of Food Safety.

Entry, Exit, Growth and Innovation over the Production Life Cycle.

HACCP as a Business Management Tool.

HACCP as a Regulatory Innovation to Improve Food Safety in the Meat Industry.

National Advisory Committee on Microbiological Criteria for Foods (NACMCF).

Reduction in the Incidence of Human Listeriosis in the United States.

Remarks at Research Forum on Improving Benefit/Cost Analysis: The Case of HACCP and Microbial Food Safety. Strategy and Policy in the Food System: Emerging Issues.

Risk Assessment for Foodborne Microbial Hazards. Tracking Foodborne Pathogens from Farm to Table: Data Needs to Evaluate Control Options.

Speech at the Institute of Food Technologists,

Steam Pasteurization, Vacuum/Hot Water Spot Cleaning, and Lactic Acid in Combination with Trimming and Washing for Pathogen Removal from Beef Surfaces. Report summarizing results from January and February trials at

Summary and Critical Issues in Tracking Foodborne Pathogens. Tracking Foodborne Pathogens from Farm to Table: Data Needs to Evaluate Control Options, USDA/ERS, Miscellaneous Publication No.

The Technological Dimension of Competitive Strategy.

Toward a Diminished Role for Tort Liability: Social Insurance, Government Regulation, and Contemporary Risks to Health and Society.

Valuing Food Safety and Nutrition.

Vertical Coordination and Systemic Innovations in Agri- and Food Business: Theoretical Foundations and Case Illustrations.

IMPROVING COST/BENEFIT ANALYSIS FOR HACCP AND MICROBIAL FOOD SAFETY: AN ECONOMIST'S OVERVIEW

IMPROVING COST/BENEFIT ANALYSIS FOR HACCP AND MICROBIAL FOOD SAFETY: AN ECONOMIST'S OVERVIEW

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