Session 4. Hoffmann - Discussant on Solving Market Failures in Safety
Comments onSolving MarketFailures inSafetyVivian HoffmannUniversity of Maryland /IFPRI
Market Failures in Food Safety1. Asymmetric information Unobservable attributes (e.g. food quality andsafety) are under-provided Possible solutions: Reputation effects Regulation Voluntary certification Accessibility to small producers? Impacts on profits of certified and non-certifiedproducers?
2. Low consumer demand for invisible traits Noisy signal, difficult to observe benefits High discount rate Liquidity constraints Lessons from demand for preventive health goods High price sensitivity around zero Importance of salience Role of habits Suggests model of limited attention(see Kremer & Glennerster, 2011 Handbook of Health Economics)
Different from other health inputs:already buying food Safety premium is marginal price increase:possibly lower price sensitivity Can bundle safety with other, valued,attributes: fat content (creaminess) of milk freshness of produce
Reducing Adulteration in Milkin India: Study Objectives1. Assess the awareness and valuation offood safety and nutrition attributesamong dairy consumers2. Identifying the sources of informationgaps, the study will conduct experimentswith information treatments to assesstheir impacts in terms of consumerchoices (in terms of both products aswell as practices)
Milk Information FieldExperiment: ideas Recruit regular customers of food retailers Already sell branded milk conforming to safetystandards (or willing to sell certified milk) Given brand no more expensive than at nearbycompetitors Customers purchase other goods regularly, notnecessarily milk (may purchase from informal sector) Randomize information interventions atcustomer or shop level (or both)
Milk Experiment:Information treatments1. Learning or salience? Collect data on beliefs before and afterinformation shock• Does shock affect behavior even when it doesn’tchange beliefs? What happens to demand for higher quality milkover time? Effect of reminders• text messages, fridge magnet (?)
Milk Experiment:Information treatments2. From whom is information trusted? Retailers Health experts Peers Role models (movie stars, near peers) Multiple sources vs. repetition from samesource: salience vs. credibility Randomize which household member(woman, husband, mother in law) receivesinformation
Milk Experiment:Choice treatments3. Binary certification vs. range of options Offer certified safe milk, vs. provide averagecontamination levels of each brand, vs. both Binary decision requires less thought More options allow consumers to get closer to utilitymaximizing risk-price combination
Milk Experiment:Choice treatments4. Bundling attributes Combine safety and nutrition information withinformation on attributes related to taste(also offer each separately)
Dual food standards in SouthAfrica Can dual standard developmentadvance market access for emergingfarmers while at the same time ensuringpublic health?
Fresh Produce Markets inSouth Africa Serve both formal and informal buyers• Formal sector has incentive to comply with public regulations• Small but growing share of sales Sell produce from both large scale and small scaleproducers• Many large scale producers already meet export standards. What food safety mechanisms are already in place?• Do formal sector buyers buy from preferred, high qualityvendors?• Relationship between price and food safety?
Consumer perceptions of food safetyin formal and informal sectors Consumer survey• Beliefs about likelihood and effects of contaminationAdd?• Perceptions of other food quality attributes• Consumer transaction costs: travel and time cost to market,wage rate Market survey• Prices, observable product attributesAnalyze: What factors drive consumers’ sector choice? Estimate consumers’ valuation of health benefits
New Voluntary Food Safety Standard Proposed by food industry group All major retailers have agreed to adopt Puts pressure on fresh producewholesalers to adopt as well Research opportunity
Producer adoption and impact Which producers are able to meet new standard? Strategies to promote inclusive market access• Tailor standards to capacity of small-scale farms?• Public support for small farmers to meet standards? Impact on farm profits?• Certified producers• Non-certified producers Spillover effects on practices of non-certifiedproducers?
Can voluntary local standardsachieve public health goals? Impact on overall food safety? Market segmentation effect? Given dietary patterns and food preparationpractices, what is likely health impact?• Distribution of health impacts? Compare effects at various levels of stringency• Producer cost and adoption• Consumer demand Characterize standards that maximize health gains
Possible research designSurveys before and afterimplementation of new standard Producers• Farm budget, compliance related costs Formal and informal retailers:• Sales of certified foods, contamination levels,prices Consumers across SES levels• Vendor and food choices, contamination levelsModel producer decision to adoptstandards, consumer food choices
Overlay an intervention?Randomize compliance assistance to smallfarmers Test impact of compliance on farm costs,profits, using assistance as instrumentVary whether farmers receive assistance toachieve GlobalGAP or local standard Test impact on producers of differentlevels of stringency