+16COMMENT

FRIDAY, MAY 6, 2016

Food safety and food securityTRADE-OFF: A major concern foremerging economies is the financialimplications of maintaining food safety

+

~ Food safety issuesare also

becoming increasinglyimportant ininternational trade.

HE challenge of food security is toensure that all people have access toenough food to lead productivelives, but an integral part of foodsecurity is ensuring that the food issafe from a chemical, physical orbiological risk. Food safety is thusreceiving more attention as the links·between food and health are in-creasingly recognised; at the sametime, as food trade expandsthroughout the world, food safetyhas become a shared concernamong developed and developingeconomies ..Efforts to improve food safety in

emerging economies, however,must be evaluated in terms of theirimpact on additional costs and re-turns to farmers, risk reduction, de-mand by middle-class consumers,food security, poverty alleviation,export earnings, economic gains forthe domestic industry and positivespillovers for food safety in the do-mestic food system. This will requirepolicymakers to develop better ca-pacity for evaluating policy trade-off Supply and demand analysis is alsoas they seek to enhance food se- further complicated by the fact thatcurity or W expand food trade. safety attributes are not usually di-A major concern for the emerging rectly observable by consumers, and

economies, including Malaysia, is the often are either not observable tofinancial implications of maintaining producers or observable by them on-acceptable levels of food safety. The lyat a cost.negative effect of food safety, how- There are also potentially signlf-ever, can be substantial in terms of icant externalities associated withloss of export market, fall in domestic the impact on human health. Thesesales, changes in consumption, large health effects will be dependent onexpenditure and cost of changes in the safety of the product, on onefarm practices. Thus, there is a trade- hand, and any potential beneficialoff between safety and costs. How effects on health (for example, the-much safety can be expected? There - nutritional value of the food) on themust be an optimum level of safety, other. The key issue here is the ex-which is at the socially acceptable. tent to which the costs associated .level of optimality. with human disease, for example,It would be, however, impossible healthcare and loss of productivity,

to provide a risk-free food supply. are borne by society as a wholeSince there are costs associated with rather than the individual con-increasing food safety, society must sumer. To the extent that these costsdecide how much it is willing to are borne by society, it is unlikelyspend on food safety and where this that-the supply and demand func-expenditure will have the greatest tions will fully embody the econom-impact. The optimum level for food - ic consequences of the consumptionsafety would be where the marginal of the food.cost of creating one more unit of Currently, the market providesfood safety equals its marginal ben- few incentives for producers to pro-efit. The marginal costs would be the vide levels of food safety beyondcosts to food processing plants to those mandated by government reg- ,meet new food safety plans and the ulations, or to offer the public othercost of government programmes than the most rudimentary infor-aimed at educating consumers, re- mation about the safety of their foodtailers and food service workers product. The cost of having prod-about safe food handling. The ucts linked to outbreaks of food-marginal benefits are tIle reduced - borne illness, both to reputation andillness and mortality associated sales, provides some incentive forwith a safer food supply. producers to ensure the safety ofThere are several factors in which their products. However, the com-

a market economy can "fail" in pro- plexity of the process whereby foodviding the optimum - asymmetry travels from farm to table makesin knowledge of risks, aspects of warranting food safety risky busi-food safety which are public goods, ness for producers. The liability as-existence of externality, social costs seciared with claims of perfect safe-of food safety, and maybe the di- ty, if proven false, is a significantvergence between scientific evi- disincentive for producers to adver-dence and consumer perception. tise their food as "safe". Constrained

Customers at a supermarket in Jakarta. The demand/or highly valued products, such as meat, fish and hor-. ticultural products, will increase the returns to tmprovedfood safety for domestic producers and consumers.Reuters pic .

from advertising "safe" food andthus reaping market rewards, pro-ducers have no. vested interest inmaking information about the safe-ty of their food product more avail-able to consumers.Most government regulations will

have some type of economic effecton producers and consumers. Reg-ulations governing how food prod-ucts, for example, meat and poultry,are produced can raise cost of pro-duction. Regulations require re-source commitments which, in turn,may raise costs and product prices.On the other hand, the regulations,which improve the safety of the foodsupply, will generate benefits forconsumers by reducing the numberand severity of food-borne illnesses.Consumers would be more willing

to buy the food products since theyare now getting safer goods for theirmoney. This represents a shift out ofthe demand curve, with consumersnow willing to buy more of the saferfood and to pay a higher price. How-.ever, the individual consumer is notable to capture all of the benefits ofhaving the safer food; some of thesebenefits go to society. Therefore, insome cases, consumers may not bewilling to pay-as much as it.costs forthe product to meet the most so-cially beneficial safety standard. Insuch cases, the net effect would be adecrease in sales with a higher price,although this higher price betterrepresents the true cost of supplyingthe food product with the higher'level of food safety. Thus; from theeconomic perspective, with marketfailure, there is convergence to thesocial optimality with appropriategovernment interventions.Food safety issues are also becom-

ing increasingly important in inter-national trade. As countries begin to

lower agricultural tariffs and be-come increasingly integrated intoworld markets, they purchase morefood from abroad. With the im-provement in consumers' income,they also focus. more on the at-tributes of their. food, its safety, nu-trition and environmental friendli-ness. Increased income is translatedinto willingness to pay for such char-acteristics. With this trade develop-rnent; food safety presents a chal-lenge to food suppliers in develop-ing countries to have access toexport markets. The process ofadaptation by the developing coun-tries to standards and expectationsoriginally set for developed countryconsumers, however, could poten-tially bring benefits in emergingeconomies.Looking to the future, the growth

in demand within developing coun-tries for highly valued products,such as meat, fish and horticulturalproducts, will increase the returns to .improved food safety for both do- .mestic producers and consumers .The perishable high-value foodproducts that most often give rise tosafety concerns will become impor-tant building blocks of South-Southtrade. But, the benefits from foodsafety improvement will only be cap- .tured if policymakers in developingcountries understand both foodsafety risks and their impact on pub-lic health, and the synergies betweendevelopment of the domestic foodsystem and food export industries.In addition, developing countriesmust establish processes for foodsafety policy development that areinclusive, in that they take into ac-count the interests of many different'groups, and competent, in thatthey are based on the best available

.. Continued next page

Govt initiatives ensure higher levels offood safety.. From Page 16 safety standards that food produc-

ing firms have to meet before theycan sell their products. Basically,this is an attempt to increase theamount of food safety provided bythe market, as the market alone willusually not provide the socially de-sirable level of food safety. Regu-lations can specify particular pro-cesses that a firm must use to pro-duce, food, or they can simplyspecify a level of safety for the finalfood product. The latter is generallyconsidered more efficient, as it al-lows the firm to select the least ex-pensive method of arriving at thedesired product. As the food systemhas grown complex, however, safety

can no longer be managed solelythrough reliance on command andcontrol regulations. There is also adesire to rely more heavily on per-formance standards and other ap-proaches that allow firms flexibilityin how they achieve public health,economic and trade- objectives.Thus, increasingly, it is recognisedthat several stakeholders have a roleto play in the successful implemen-tation and operation of a food safetycontrol system. These include agri-cultural producers, food industry,importers and exporters, industryorganisations, academic and re-search institutions.Other measures that emerging

economies can initiate include ea-pacity building to participate in theinternational forum that allowsthem to engage in and influence reg-ulations governing .food safety andnegotiate market access. Invest-ments in infrastructure, which is apublic good, such as the develop-

. ment of rural sanitation and watersupply infrastructure that supportbetter hygiene at the beginning of 'the food supply cflain as well as mar-keting infrastructure can also im-prove food safety. These kinds ofpublic sector investments can alsoset the stage for better export marketperformance.In conclusion, the food safety ini-

tiatives, due to the externalities,seem to be a divergence from socialoptimality, implying that there is atrade-off between improvement insafety and costs. However, the ben-efits from food safety in terms ofpublic health; economic returns andtrade market access, with regulatedmarkets, there is a convergence be-tween food safety and costs, imply-ing that the food safety initiativesare socially optimal.

~ dvcai@upm.my

information about the magnitudeand distribution of benefits andlosses.Governments can take a number

of policy initiatives to induce pro-ducers to provide higher levels offood safety. Governments could, intheory, tax unsafe food, raising thefirm's costs of providing unsafefood, and therefore creating an in-centive to provide safer food. How-ever, this assumes that the amountof unsafe food that is sold can bemeasured, which would be difficult.Most governments, therefore, turnto regulations, setting minimum

The writer is a food safety expert ofDepartment of Agribusiness andBloresource Economics, Faculty ofAgriculture, Universiti Putra Malaysia

+16COMMENT

FRIDAY, MAY 6, 2016

Food safety and food securityTRADE-OFF: A major concern foremerging economies is the financialimplications of maintaining food safety

+

~ Food safety issuesare also

becoming increasinglyimportant ininternational trade.

HE challenge of food security is toensure that all people have access toenough food to lead productivelives, but an integral part of foodsecurity is ensuring that the food issafe from a chemical, physical orbiological risk. Food safety is thusreceiving more attention as the links·between food and health are in-creasingly recognised; at the sametime, as food trade expandsthroughout the world, food safetyhas become a shared concernamong developed and developingeconomies ..Efforts to improve food safety in

emerging economies, however,must be evaluated in terms of theirimpact on additional costs and re-turns to farmers, risk reduction, de-mand by middle-class consumers,food security, poverty alleviation,export earnings, economic gains forthe domestic industry and positivespillovers for food safety in the do-mestic food system. This will requirepolicymakers to develop better ca-pacity for evaluating policy trade-off Supply and demand analysis is alsoas they seek to enhance food se- further complicated by the fact thatcurity or W expand food trade. safety attributes are not usually di-A major concern for the emerging rectly observable by consumers, and

economies, including Malaysia, is the often are either not observable tofinancial implications of maintaining producers or observable by them on-acceptable levels of food safety. The lyat a cost.negative effect of food safety, how- There are also potentially signlf-ever, can be substantial in terms of icant externalities associated withloss of export market, fall in domestic the impact on human health. Thesesales, changes in consumption, large health effects will be dependent onexpenditure and cost of changes in the safety of the product, on onefarm practices. Thus, there is a trade- hand, and any potential beneficialoff between safety and costs. How effects on health (for example, the-much safety can be expected? There - nutritional value of the food) on themust be an optimum level of safety, other. The key issue here is the ex-which is at the socially acceptable. tent to which the costs associated .level of optimality. with human disease, for example,It would be, however, impossible healthcare and loss of productivity,

to provide a risk-free food supply. are borne by society as a wholeSince there are costs associated with rather than the individual con-increasing food safety, society must sumer. To the extent that these costsdecide how much it is willing to are borne by society, it is unlikelyspend on food safety and where this that-the supply and demand func-expenditure will have the greatest tions will fully embody the econom-impact. The optimum level for food - ic consequences of the consumptionsafety would be where the marginal of the food.cost of creating one more unit of Currently, the market providesfood safety equals its marginal ben- few incentives for producers to pro-efit. The marginal costs would be the vide levels of food safety beyondcosts to food processing plants to those mandated by government reg- ,meet new food safety plans and the ulations, or to offer the public othercost of government programmes than the most rudimentary infor-aimed at educating consumers, re- mation about the safety of their foodtailers and food service workers product. The cost of having prod-about safe food handling. The ucts linked to outbreaks of food-marginal benefits are tIle reduced - borne illness, both to reputation andillness and mortality associated sales, provides some incentive forwith a safer food supply. producers to ensure the safety ofThere are several factors in which their products. However, the com-

a market economy can "fail" in pro- plexity of the process whereby foodviding the optimum - asymmetry travels from farm to table makesin knowledge of risks, aspects of warranting food safety risky busi-food safety which are public goods, ness for producers. The liability as-existence of externality, social costs seciared with claims of perfect safe-of food safety, and maybe the di- ty, if proven false, is a significantvergence between scientific evi- disincentive for producers to adver-dence and consumer perception. tise their food as "safe". Constrained

Customers at a supermarket in Jakarta. The demand/or highly valued products, such as meat, fish and hor-. ticultural products, will increase the returns to tmprovedfood safety for domestic producers and consumers.Reuters pic .

from advertising "safe" food andthus reaping market rewards, pro-ducers have no. vested interest inmaking information about the safe-ty of their food product more avail-able to consumers.Most government regulations will

have some type of economic effecton producers and consumers. Reg-ulations governing how food prod-ucts, for example, meat and poultry,are produced can raise cost of pro-duction. Regulations require re-source commitments which, in turn,may raise costs and product prices.On the other hand, the regulations,which improve the safety of the foodsupply, will generate benefits forconsumers by reducing the numberand severity of food-borne illnesses.Consumers would be more willing

to buy the food products since theyare now getting safer goods for theirmoney. This represents a shift out ofthe demand curve, with consumersnow willing to buy more of the saferfood and to pay a higher price. How-.ever, the individual consumer is notable to capture all of the benefits ofhaving the safer food; some of thesebenefits go to society. Therefore, insome cases, consumers may not bewilling to pay-as much as it.costs forthe product to meet the most so-cially beneficial safety standard. Insuch cases, the net effect would be adecrease in sales with a higher price,although this higher price betterrepresents the true cost of supplyingthe food product with the higher'level of food safety. Thus; from theeconomic perspective, with marketfailure, there is convergence to thesocial optimality with appropriategovernment interventions.Food safety issues are also becom-

ing increasingly important in inter-national trade. As countries begin to

lower agricultural tariffs and be-come increasingly integrated intoworld markets, they purchase morefood from abroad. With the im-provement in consumers' income,they also focus. more on the at-tributes of their. food, its safety, nu-trition and environmental friendli-ness. Increased income is translatedinto willingness to pay for such char-acteristics. With this trade develop-rnent; food safety presents a chal-lenge to food suppliers in develop-ing countries to have access toexport markets. The process ofadaptation by the developing coun-tries to standards and expectationsoriginally set for developed countryconsumers, however, could poten-tially bring benefits in emergingeconomies.Looking to the future, the growth

in demand within developing coun-tries for highly valued products,such as meat, fish and horticulturalproducts, will increase the returns to .improved food safety for both do- .mestic producers and consumers .The perishable high-value foodproducts that most often give rise tosafety concerns will become impor-tant building blocks of South-Southtrade. But, the benefits from foodsafety improvement will only be cap- .tured if policymakers in developingcountries understand both foodsafety risks and their impact on pub-lic health, and the synergies betweendevelopment of the domestic foodsystem and food export industries.In addition, developing countriesmust establish processes for foodsafety policy development that areinclusive, in that they take into ac-count the interests of many different'groups, and competent, in thatthey are based on the best available

.. Continued next page

Govt initiatives ensure higher levels offood safety.. From Page 16 safety standards that food produc-

ing firms have to meet before theycan sell their products. Basically,this is an attempt to increase theamount of food safety provided bythe market, as the market alone willusually not provide the socially de-sirable level of food safety. Regu-lations can specify particular pro-cesses that a firm must use to pro-duce, food, or they can simplyspecify a level of safety for the finalfood product. The latter is generallyconsidered more efficient, as it al-lows the firm to select the least ex-pensive method of arriving at thedesired product. As the food systemhas grown complex, however, safety

can no longer be managed solelythrough reliance on command andcontrol regulations. There is also adesire to rely more heavily on per-formance standards and other ap-proaches that allow firms flexibilityin how they achieve public health,economic and trade- objectives.Thus, increasingly, it is recognisedthat several stakeholders have a roleto play in the successful implemen-tation and operation of a food safetycontrol system. These include agri-cultural producers, food industry,importers and exporters, industryorganisations, academic and re-search institutions.Other measures that emerging

economies can initiate include ea-pacity building to participate in theinternational forum that allowsthem to engage in and influence reg-ulations governing .food safety andnegotiate market access. Invest-ments in infrastructure, which is apublic good, such as the develop-

. ment of rural sanitation and watersupply infrastructure that supportbetter hygiene at the beginning of 'the food supply cflain as well as mar-keting infrastructure can also im-prove food safety. These kinds ofpublic sector investments can alsoset the stage for better export marketperformance.In conclusion, the food safety ini-

tiatives, due to the externalities,seem to be a divergence from socialoptimality, implying that there is atrade-off between improvement insafety and costs. However, the ben-efits from food safety in terms ofpublic health; economic returns andtrade market access, with regulatedmarkets, there is a convergence be-tween food safety and costs, imply-ing that the food safety initiativesare socially optimal.

~ dvcai@upm.my

information about the magnitudeand distribution of benefits andlosses.Governments can take a number

of policy initiatives to induce pro-ducers to provide higher levels offood safety. Governments could, intheory, tax unsafe food, raising thefirm's costs of providing unsafefood, and therefore creating an in-centive to provide safer food. How-ever, this assumes that the amountof unsafe food that is sold can bemeasured, which would be difficult.Most governments, therefore, turnto regulations, setting minimum

The writer is a food safety expert ofDepartment of Agribusiness andBloresource Economics, Faculty ofAgriculture, Universiti Putra Malaysia