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John C. Giraldez

CFIA

Regulatory and Parliamentary

(613) 225-2342

giraldezj@inspection.gc.ca

OTTAWA

March 22, 2005

McGill University

Montreal

DRAFT

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Presentation Outline The CFIA• http://www.inspection.gc.ca/english/corpaffr/busplan/2003-2008/indexe.shtml

Federal Regulatory Policy• http://www.pco-bcp.gc.ca/raoics-srdc/default.asp?

Language=E&Page=Publications&Sub=GovernmentofCanadaRegula Regulatory development process

• www.inspection.gc.ca/english/reg/rege.shtml Benefit-cost analysis

• www.whitehouse.gov/omb/inforeg/riaguide.html• http://yosemite.epa.gov/ee/epa/eerm.nsf/

efd9186ce4269b8d85256b4300527ad2/dec917daeb820a25852569c40078105b?OpenDocument

Case study HACCP• http://www.ers.usda.gov/publications/aer755/• http://www.inspection.gc.ca/english/anima/meavia/manobl/200407surve.shtml

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The CFIA Mission

The CFIA is a science-based federal regulator of food, animals and plants. We are committed to enhancing the safety of federally regulated food, contributing to the health and welfare of animals, and protecting the plant resource base

Employs approximately 5,400 people across Canada

The Government of Canada regulator for: food safety (along with Health Canada) Animal health Plant protection

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Food Safety Delivers all federal inspection services related to

food. This entails verifying that manufacturers, importers, distributors and producers regulated by the Government of Canada meet standards for safety, quality, quantity, composition, handling, identity, processing packaging and labelling

Certifies that exported food meets foreign country requirements

Works closely with Health Canada, the department responsible for setting food safety policy and standards

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Animal Health Prevent animal diseases from entering Canada and

to control the spread of animal diseases within Canada When disease outbreaks occur, the CFIA acts

quickly to control and eradicate them Regulates animal feeds and veterinary biologics Conducts regular animal disease surveillance

programs designed to head off serious threats to livestock

Certifies the health of Canada's animal exports, evaluates the safety of imports, and regulates the humane transportation of animals.

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Plant Protection Prevents foreign plant diseases and pests from

getting into Canada and to control the spread of plant diseases and pests of quarantine significance within Canada

Verifies that seeds and fertilizers, both domestically produced and imported, comply with federal standards for safety, composition and process

Certifies that plants, plant material and other related matter intended for export from Canada comply with the phytosanitary import regulations of foreign countries

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Acts Agriculture and Agri-Food Administrative Monetary Penalties Act Canadian Agricultural Products Acts Canadian Food Inspection Agency Act Consumer and Packaging and Labelling Act Feeds Act Fertilizers Act Fish Inspection Act Food and Drugs Act Health of Animals Act Meat Inspection Act Plant Breeders Act Plant Protection Act Seeds Act

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Government of Canada Reg.Policy Before regulating, departments and agencies must

demonstrate that: a problem exists and government intervention, by regulation

or other means, is justified Canadians have been consulted the benefits outweigh the costs adverse impacts on the economy are minimized intergovernmental agreements are respected regulatory resources are managed effectively and enforcement is

assured other directives from Cabinet are followed, such as

Environmental Assessments

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Problem Exists and Government Intervention is Justified

Problem Market Failure

Inadequate or Asymmetric Information Externality Natural Monopoly

A market can be served at lowest cost only if production is limited to a single producer

Market Power When Firms reduce output below what a competitive industry

would sell Improved Government Processes

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Alternatives to Federal Regulation Property right Voluntary standards Subsidies Fee or tax Market instruments (such as, marketable

emission permits, third party delivery) Commercialization Provincial or municipal regulations

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Alternative Regulatory Options More performance-oriented vs prescriptive or

design standards Different requirements for different

stakeholders (ex. large vs small) Alternative levels of enforcement Alternative compliance methods Data collection and information distribution

(inadequate & asymmmetric information) More economic approaches vs command

and control

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Benefit-Cost Analysis: Principles Level of analysis (Costs)

"Minor" Less than $100,000 or miscellaneous

"Significant" Between $100,000 and $50 million and high

acceptance "Major"

Greater than $50 million or between $100,000 and $50 million, but low acceptance

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Benefit-Cost Analysis: Principles Baseline

the way the world would look absent the regulation Scientific method Discounting

Net present value private & social discount rate, discount period

Risk and uncertainty probability distribution over a set of outcomes

Assumptions to be avoided or made explicit

International Trade Effects, agreements, B-C abroad

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Benefit-Cost Analysis: Principles Distributional Effects Benefits & costs

Valuation market prices, engineering approach, models... BIT survey, travel-cost studies, hedonic price models,

statistical studies of occupational-risk premiums in wage rates, contingent-valuation methods, "value of statistical life”...

Real Costs Versus Transfer Payments (distributional effects)

Net Benefits

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Hazard Analysis Critical Control Points (HACCP) Meat and Poultry

There are 7 HACCP Principles: Conduct a hazard analysis Determine the critical control points Establish critical limits Establish monitoring procedures Establish corrective actions Establish verification procedures Establish documentation and record-keeping

procedures

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Justification for Government Intervention

Lack of consumer food safety information Lack of incentives for producers to provide

food safety information Non-regulated market may yield greater

than optimal levels of pathogens Market failure requiring government

intervention (“asymmetric information” and inadequate information)

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Consumer Impacts of HACCP

Reduced pathogens and foodborne illness Fewer premature deaths Lower medical costs Lower productivity losses

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Other Impacts of HACCP Industry

Trade Sales and marketing Prevention is probably more cost-effective than

testing a product and then destroying it or reworking it Fewer recalls

Government Change in inspection costs Shift resources to higher risk areas Changes in Cost Recovery

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Annual Burden of Foodborne Illness in USA

Total Foodborne Foodborne FoodborneCases Cases Hospitalization Deaths

Known PathogensBacterial 5,204,934 4,174,565 36,466 1,297

Parasitic 2,541,316 357,190 3,219 383

Viral 30,883,391 9,282,170 21,167 129

Unknown PathogensAcutegastroenteritis

173,000,000 62,000,000 263,015 3,360

Grand Total 211,629,641 75,814,925 323,867 5,169

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Major Costs of Foodborne Illness

Medical Costs Premature Deaths

VSL $5.57 Million Productivity Losses $1.2 Billion in Canada

Other Cost: pain and suffering, costs taken to avoid the illness by individuals, lost leisure time and lost altruistic benefits.

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Major Pathogens

Salmonella E. coli Listeriosis Staphylococcus Campylobacter Clostridium

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Disease Case for E. coli~93,000 in USA

Medical

No physician visit 50%Visit physician andrecovered fully

32%

Hospitalized 18%Chronic kidneyfailure

0.1%

Productivityloss/prematuredeath

No physician visit 50%Visit physician andrecovered fully

32%

Hospitalized 18%Chronic kidneyfailure

0.1%

Death 3%

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Benefits of HACCP

% illnessdue to

meat andPoultry

HACCP %reduction

inpathogens

Domesticconsumption

from Fed.Plants &Imports

Pathogenreduction in illnessrelation

HACCP %reduction in

illness

Campylobacter 75% 39% 90% 100%-50% 27%-13%Clostridium 50% 39% 90% 100%-50% 18%-9%E. coli O157:H7 50% 39% 90% 100%-50% 18%-9%E. coli, non-O157STEC

75% 39% 90% 100%-50% 27%-13%

Listeria 50% 39% 90% 100%-50% 17%-9%Salmonella 63% 39% 90% 100%-50% 22%-11%Staphylococcus 50% 39% 90% 100%-50% 18%-9%Total $314-157

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Estimate Costs of HACCP Industry - Business Impact Test

Plan development Annual plan reassessment Initial and recurring training Recordkeeping (recording, reviewing and storing data) Testing (ex. E. coli, Salmonella)

Consumers Increase in unit price

Government HACCP implementation HACCP enforcement

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Industry HACCP Costs in Canada

Year 1 Year 2 Year 3 Year 4 Year 5

FIRM $ $ $ $ $Start-up Costs 53,039 0 0 0 0Ongoing Costs 16,058 49,067 61,206 65,522 64,532Net Costs 89,498 73,819 75,154 68,296 59,815

INDUSTRYN=767

$ million $ million $ million $ million $ million

Net Costs 69 57 59 52 46

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Net Present Value & Annualized Net present value of benefits and costs

NPV= V0+(Vi)/(1+r)t+…+(Vn)/(1+r)n

V = benefits - costs r=discount rate

r industry = 5.25% (bank prime rate + risk premium) r social = 2.35% treasury bills

n= 20 year final period in the future based on USDA

Annualized present value A(B or C)= PV(B or C)* [r*(1+r)n]/(1+r)n-1

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Value PV

$M

Annual

$M

Year 1

$M

Year 2 $M

... Year 20

$M

IndustryCosts

607 45.9 68.6 56.6 ... 45.9

PV of Industry Costs