A second area of change is in vertical pricing relations and coordination in food and agricultural markets. This was amply demonstrated in NE-165's June 1995 conference on Vertical Coordination in the Food System. Changing vertical coordination arrangements in such key sectors as hogs, beef, and identity-preserved grains indicate an on-going need for economic research that analyzes the performance impacts of such changes in vertical coordination.
A third area of change is the internationalization of the U.S. food system and the issue of global competitiveness. The international dimension has to be integrated into analysis of private strategies, public policies, and food system performance because of the increasing globalization of these markets. This focus is distinctly different from a specific focus on international trade or export development.
Current research related to the post farm gate marketing issues NE-165 will focus on shows much development but also that new areas are quickly emerging. For example, the development and adoption of new process and management technologies are important strategies in the age of what D'Aveni calls "hypercompetition." Innovations in production processes, quality management, logistics, and control processes can support strategic goals of cost leadership and/or differentiation. These innovations may occur within a given food sector firm, but increasingly, these innovations are inter-firm strategies between upstream and downstream transaction partners. Both intra- and inter-firm technology adoptions alter the strategy space in a given food industry, leading to changes in market share, competitiveness, and other performance measures. A corollary research question considers the extent to which competitive advantage based on technology can be protected from dissipation by rivals by privileged market position, scale, path dependency of process innovation, or other structural and behavioral variables. Recent advances in information technology and its use throughout the business world have been well documented. Numerous instances of technology adoption have occurred within the food and agribusiness sector, however, the potential far exceeds utilization to date. Although impressive anecdotal evidence is amply available, there is much less known that rigorously defines the effect of these technological advances on system and firm performance.
Research on economic analysis of private and public strategies that affect food safety and other quality attributes has gained a foothold over the last decade. It focuses on risk perception; risk assessment and benefit/cost analysis; the design of incentive-based regulation and information systems; and, increasingly, the operation of international food quality systems. In the area of risk perception and food demand, the major problem to overcome is that different studies have used different methods to measure risk perceptions, thus making comparison across studies extremely difficult. A comparison of studies of consumer perceptions of risks from residues of pesticides and animal drugs in food found large differences depending on how questions were asked (van Ravenswaay 1995b). Few studies have sought directly to assess the impact of foodborne risk information on risk perception (Eom 1994, 1995, Lin), despite the fact that such research is critical to developing reliable models of the effect of risk information on food demand.
Prior work in this area has concentrated on estimating the effects of changing nutritional and food safety information on food demand. The earliest studies sought to examine the effect of food scares on food demand (Foster and Just, Johnson, Smith et al., van Ravenswaay and Hoehn 1991a). One unsettled issue from these studies is how long such scares affect food demand. Another issue is how food scares differ across types of hazards such as pathogens versus pesticides. A variety of studies have attempted to estimate the impact changing nutritional information has had on consumption of eggs, fats and oils, dairy products, and beef (Brown and Schrader, Capps and Schmitz, Chang and Kinnucan, Kim and Chern, Jensen et al., Putler, Putler and Frazao, Wang and Chern, Zarkin and Anderson). Such studies need to continue in order to document industry trends. However, a problem still to be solved is how to best measure information change over time. Several studies sought to forecast the impact of safety concerns about new food production technologies such as BST in dairy (Douthitt, Kaiser et al., Preston et al.) and PST in pork (Florokowski et al., Halbrendt et al. 1989, 1990, 1991). New studies are needed to see how reality measures up to the forecasts, and to improve forecasting methodologies for the future.
Although there is a sizeable literature on the economic value of health risk reductions (Cropper and Freeman, Fisher et al., Viscusi 1993), little of it is directly applicable to the case of food safety. This is so because most studies have concentrated on hazards involving mortality risk reductions (e.g., occupational hazards), while food safety policies deal with hazards involving morbidity and mortality risks. Many studies are needed since there are many different types of risks involving different types of health problems of varying severity, reversibility, duration, timing, and mitigation cost.
The existing literature tends to be organized around type of foodborne hazard (e.g., by type of pathogen, chemical contaminant, or nutrient), which are sometimes associated with particular types of foods (e.g., seafood or poultry) (CAST). For example, there are studies of the economic value of reducing E. coli (Roberts and Marks), Salmonella (Roberts 1988, 1989, Fox et al., Hayes et al.), Listeria (Roberts and Pinner), Toxoplasmosis (Roberts and Frenkel), pesticide residues (Eom 1994, 1995, Buzby et al., Hammitt, van Ravenswaay and Hoehn 1991a, 1991b, van Ravenswaay and Wohl, Weaver et al.) and illness from shellfish products (Lin and Milon 1993, 1995). Most of these studies have involved first time-efforts to adapt methodologies used in valuing the reduction of other sorts of hazards including hedonics, contingent valuation, experimental design, and cost of illness. Refinements are needed in all of these methods since each has strengths and weaknesses. More applications are needed with respect to each type of hazard in order to generate a range of estimates and evaluate their robustness.
Two broad-based problems hinder the provision of food safety in the United States (Buzby et al.). First, the non-market characteristics of food safety create a gap between public and private incentives to collect food safety information, report such data, and provide socially desirable levels of safety (Eom 1995, van Ravenswaay 1995a, Viscusi 1989). The non-market nature of food safety also complicates understanding who is, or should be, responsible for food safety. Second, there is a lack of an integrated approach to food-safety data collection, analysis, and policy (Roberts et al.).
These two problems complicate analysis to determine what mix of private and public strategies to prevent versus treat acute or chronic food safety risks are most cost beneficial. Intervention strategies, furthermore, are possible at multiple points in the food chain and have different profiles for risk reduction, for impacts on product quality, and for private and public costs to implement. Optimal policies may also vary with "who" are the high-risk population groups. Increasing international marketing adds complexity because different scientific risk literatures exist in different languages, pathogens and pests vary geographically, cultural food production/ preparation/consumption practices alter exposure to risks, and ethical norms differ across cultures.
Federal regulations reducing risks attach very different price tags for saving a life (Breyer, Gillette and Hopkins, Tengs). Tolley et al. find "that gross misallocations of the medical dollar exist that could be reduced through systematic use of health values in decision making" (p. 390). Economic valuation methods continue to improve, especially in valuing premature death (Fisher et al., Viscusi 1993), but much needs to be done to standardize their application to evaluate private and public strategies to reduce foodborne disease risk.
Benefit/cost analysis is increasingly used to assess the efficiency and effectiveness of food safety policies. However, monetizing the benefits of food safety policy is extremely controversial, especially since there is no generally accepted theoretical framework for doing so. In 1994 Congress created a USDA Office of Risk Assessment and Cost-Benefit Analysis (P.L. 103-354) to ensure that major regulations are based on sound scientific and economic analysis and to coordinate risk analysis work across USDA. Both USDA and FDA have proposed Hazard Analysis at Critical Control Points (HACCP) system regulations to reduce exposure to foodborne pathogens and to place industry and regulatory practices on a stronger scientific footing. USDA used the cost of illness method to estimate medical costs and productivity losses totaling $5.6-9.4 billion annually for seven foodborne pathogens (Federal Register 2/3/95). FDA's HACCP analysis estimated a wider range of benefits, including the impact of HACCP on the demand for seafood (1994). NE-165 economists have contributed to improving valuation methodology by holding collaborative research conferences and publishing two books (Caswell 1991, 1995).
The other component of benefit/cost analysis is the estimate of intervention costs. Speakers at the NE-165 co-sponsored conference in January 1995, Tracking Foodborne Pathogens from Farm to Table: Data Needs for Control Options, and the June 1995 NE-165 conference on The Economics of Reducing Health Risk from Food, clearly pointed out the lack of a coordinated data base on the likely pathogen reduction to be achieved with various control options. Two thrusts are needed to improve economic research on control costs: 1) improved data on the extent of foodborne disease and the impact of control options at different locations in the food chain on reducing risks, and 2) estimates of the costs of alternative private and public control options. Similarly, costs for pesticide and other risk reduction programs need to be evaluated relative to their likely public health protection benefits.
Food safety and other food quality attributes cannot be easily observed by consumers. Markets for food products may fail to provide the appropriate incentives to producers for making these attributes easily identifiable to consumers. For example, without easily obtainable assurances that a food meets a known safety level, consumers would be unwilling to pay a price premium for that level of safety over another product which may not have that attribute. The government sometimes may mandate the provision of such assurance information in the marketplace, however, privately provided food safety and food quality information can also enhance the operation of markets. For example, Wessells and Anderson show that under some conditions, consumers have definitive preferences for alternative types of seafood safety assurances, including public and private, and may be willing to pay a premium for seafood with some of these assurances.
Food labeling is an important means of communicating product quality to consumers. As noted by Caswell and Padberg, food labels play an important role in the food marketing system through their impact on product design, advertising, consumer confidence in food quality, and consumer education about diet and health. There are some economic analyses of the impacts and value of such labels primarily focused on health-related issues (Caswell and Padberg, Kramer and Caswell, French and Neighbors, Ippolito and Mathios). However, much work still needs to be done. For example, analysis is needed to determine whether or not information disclosure of quality attributes is actually associated with changes in food quality. Additionally, it is important to understand how mandatory and voluntary programs compare, in terms of costs, benefits, and effectiveness. The same questions must be addressed for private versus public programs. In yet another aspect of food labeling which has not been analyzed, consumer responsiveness to eco-labeling and the benefits and costs associated with eco-labeling to consumers and producers must be determined.
A growth in concern over food product quality is leading nations to become more active in product standards regulation. Frequently it is the case that different nations develop different safety standards, perhaps due to differing scientific opinions. However, it is also the case that divergent national food safety standards have often resulted in barriers to trade and added costs for producers and consumers due to the uncertainty these differences impose on the market. Runge, Patterson, and Wessells and Wallstrom, among others, have identified national sanitary and phytosanitary regulations as nontariff trade barriers. These nontariff barriers have been increasingly used to block imports. Theoretically, the purpose of these types of regulations is to protect consumers and producers from unsafe or unreliable products whether produced domestically or imported. However, it is not difficult to draft such regulations in ways that not only accomplish the primary purpose, but also effectively protect domestic producers from foreign competition. Trade organizations such as the World Trade Organization (WTO) and the North American Free Trade Agreement (NAFTA) have explicitly recognized the difficulties caused for international trade by differing domestic food quality and safety regulations. Both attempt to minimize these nontariff trade barriers.
Several studies have identified the food quality and safety regulations which affect international trade in a variety of agricultural commodities. For example, Kotschwar et al. identify laws governing the use of standards as barriers to trade, specifically in the case of livestock products. Kramer discusses the implications of the hormone controversy between the U.S. and European Union (EU) for international food safety standards. Some studies focus on regional trade, for example, Worley et al. and Bagnara et al., who focused on food quality regulations on agricultural trade between North America and Europe. Forsythe and Lynch investigated the effects of NAFTA on U.S. and Mexican sanitary and phytosanitary regulations.
The above mentioned studies highlight that often the nontariff trade barriers that arise due to differing sanitary and phytosanitary regulations are quite case specific. In other words, the extent to which regulations become trade barriers is highly dependent on the individual commodity. Thus, in order to have a sense of the global effects of these trade barriers, and the effects of trade agreements on these trade barriers, analyses of several commodities must be completed. General conclusions may be drawn when researchers are able to evaluate several case studies together.
