Market-based approaches to food safety       (or what do we get from economics?)                                    Karl M...
Outline  • Motivation  • Review of impacts of animal diseases and zoonoses  • Mechanisms and tools for evaluating incentiv...
Motivation                                         What is economics?Norwegian Institute   Norsk   of International   Uten...
Motivation       • It might be best to explain first what economics is NOT:             –   It is NOT just about money…   ...
Motivation      • Economics highlights how and why people make choices        under conditions of scarcity and the results...
Where does economics fit into the animal health                           world?     • For starters, animal diseases are t...
Where does economics fit into the animal health                            world?     • Economics should provide a framewo...
The good, the bad, the ugly  • The good:       – Greater sophistication of economic impact analysis and (partial)         ...
Where are the gaps?  • But, you might ask: “well, our models capture what policymakers should    do, right?”  • Yes, but t...
A veterinarian’s perspective on disease Norwegian Institute   Norsk    of International   Utenrikspolitisk             Aff...
An economist’s                                         view: focus on                                         the people  ...
Where are the gaps?   • Context matters – we need better information on why     actors behave how they do, what their ince...
Where are the gaps?     • If we look at a more complicated case (LDCs), context is       even more critical:           –  ...
Impacts of animal diseases     • What are the potential economic impacts of an animal       disease?     • While many of t...
FMD              Overt disease                                                                                            ...
Impacts of animal diseases    • Dimensions of animal disease and food safety impacts:       – Costs       – Prices       –...
Toolkits to analyze food safety impacts  • Mix of quantitative and qualitative approaches needed.  • Qualitative approache...
Why value chains for animal disease analysis?     • Animal disease outbreaks take place in a systems context, with the    ...
Norwegian Institute Norsk            From Taylor et al. (2008)   of International Utenrikspolitisk            Affairs Inst...
Toolkits to analyze food safety impacts  Quantitative approachestease out specific aspects or subsets of chain-level  impa...
Mechanisms to mitigate food safety impacts  • Bottom line: how do we improve the governance of pro-poor    systems?       ...
Two examples  • Developed world: Label Rouge in France  • Developing world: Safe vegetables in Viet Nam  • Contrast: botto...
Example: Label Rouge in France      (Based on Westgren, 1999)      • Label Rouge: labeling program for various products   ...
Example: Label Rouge in France      • How does it work?            – First, an organization called a quality group compris...
Example: Label Rouge in France     • How does it work?           – The application also requires the designation of a thir...
Example: Label Rouge in France     • How does it work?           – If quality standards are not met at any stage of the va...
Lessons of Label Rouge      • Organization of the value-chain is key            – All participants play an active role    ...
Safe vegetables in Viet Nam      (source: VECO 2009)      • Similar to meat, food safety concerns high in vegetable       ...
Safe vegetables in Viet Nam      • Regulated production process         – Training requirement (certificate received), tho...
Safe vegetables in Viet Nam      • Production costs higher (20-30%): lower productivity, higher costs        for certifica...
General challenges  • Buy-in/ownership of process throughout chain  • Roles of public and private sectors  • Sustainabilit...
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Market-based approaches to food safety

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Presentation by Karl M. Rich of the Norwegian Institute of International Affairs and the International Livestock Research Institute at an international South-South symposium on managing risks in emerging pork markets, Hanoi, Vietnam, 23-25 April 2012.

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Market-based approaches to food safety

  1. 1. Market-based approaches to food safety (or what do we get from economics?) Karl M. Rich, Ph.D. Norwegian Institute of International Affairs International Livestock Research Institute 24 April 2012Norwegian Institute Norsk of International Utenrikspolitisk Affairs Institutt
  2. 2. Outline • Motivation • Review of impacts of animal diseases and zoonoses • Mechanisms and tools for evaluating incentives for food safety compliance: a bottom-up approachNorwegian Institute Norsk of International Utenrikspolitisk Affairs Institutt
  3. 3. Motivation What is economics?Norwegian Institute Norsk of International Utenrikspolitisk Affairs Institutt
  4. 4. Motivation • It might be best to explain first what economics is NOT: – It is NOT just about money… – It is NOT about accounting … – It is NOT just about costs … – It is NOT about getting the number for your grant application … – And … it doesn’t have to be boring …Norwegian Institute Norsk of International Utenrikspolitisk Affairs Institutt
  5. 5. Motivation • Economics highlights how and why people make choices under conditions of scarcity and the results of such choices on society. • It is about assessing tradeoffs: how do we reconcile unlimited wants with limited resources? • It is about behavior and incentives: faced with tradeoffs, why do people do what they do?Norwegian Institute Norsk of International Utenrikspolitisk Affairs Institutt
  6. 6. Where does economics fit into the animal health world? • For starters, animal diseases are taking increased prominence and awareness both in domestic markets and on the global stage – Rise in perceptions and fear: emergence of new diseases or virulent strains of old diseases with potentially dangerous impacts on human health (think avian flu) – Rise in globalization: more trade, more potential for the introduction of pathogens (particularly from LDCs) – Greater demands from policymakers, particularly in light of new diseases, budgetary pressures and priorities, etc.Norwegian Institute Norsk of International Utenrikspolitisk Affairs Institutt
  7. 7. Where does economics fit into the animal health world? • Economics should provide a framework for helping with improved decision-making – Increased cost-effectiveness: optimization of spending decisions and resource allocation – Understanding of drivers, incentives, and constraints of decision- makers – Insights into potential impacts of different policiesNorwegian Institute Norsk of International Utenrikspolitisk Affairs Institutt
  8. 8. The good, the bad, the ugly • The good: – Greater sophistication of economic impact analysis and (partial) integration of economics with epidemiology – Institutionalization of cost/benefit thinking – New institutional economics • The bad: – View of economics as a subordinate tool vs. economics as contextualizing food safety/animal health decisions • The ugly: “people” as decision makers missingNorwegian Institute Norsk of International Utenrikspolitisk Affairs Institutt
  9. 9. Where are the gaps? • But, you might ask: “well, our models capture what policymakers should do, right?” • Yes, but they also approach the world from a command-and-control perspective: if X then Y must happen • The problem is that there are always people behind those decisions, whether in policy, on the farm, or somewhere in between that influence how well those choices are implemented. • And, those people have their own incentives, their own tradeoffs they face. • Move from normative to positive approaches.Norwegian Institute Norsk of International Utenrikspolitisk Affairs Institutt
  10. 10. A veterinarian’s perspective on disease Norwegian Institute Norsk of International Utenrikspolitisk Affairs Institutt
  11. 11. An economist’s view: focus on the people behind the animals, their incentives, and constraintsNorwegian Institute Norsk of International Utenrikspolitisk Affairs Institutt
  12. 12. Where are the gaps? • Context matters – we need better information on why actors behave how they do, what their incentives are, and how they interact. • Economics matters to unpack these incentives, quantitatively and qualitatively.Norwegian Institute Norsk of International Utenrikspolitisk Affairs Institutt
  13. 13. Where are the gaps? • If we look at a more complicated case (LDCs), context is even more critical: – Actors are diverse – Governments and institutions have limited capacity – Sufficient regulations and compliance are lacking – No data • In addition, there is not a strong history of using animal health economics tools in decision makingNorwegian Institute Norsk of International Utenrikspolitisk Affairs Institutt
  14. 14. Impacts of animal diseases • What are the potential economic impacts of an animal disease? • While many of these are disease-specific, there are some commonalities • Example: FMD (based on Perry and Randolph, 2003)Norwegian Institute Norsk of International Utenrikspolitisk Affairs Institutt
  15. 15. FMD Overt disease Disease risk Household real Macro-economy income levels - Other sectors (inputs, -wage earnings trannsport), multiplier effects -meat expenditures - foreign exchangeNational - growth Containment Tourism - consumer meat prices and -slaughter & compensationSectoral - movement controls Livestock trade Risk management - production losses - preventive control (surveillance, Animal welfare - profit losses (idled fencing, zonation, movement capacity, timing of sales) controls) Environmental concerns - maintain DVS capacity Market Access To export markets To local markets Livestock production Risk management - production losses (mortality, Farm household - own control measuresFarm- weight, milk loss, lameness) (vaccination) - Treatment, containment costs real income levels - compulsory control measures level - other profit losses (idled capacity, timing of Household welfare (movement controls) sales, price effects) - traceability Other income activities Natural resources - crop production (manure, draught) - land use - fuel, transport - settlement & migration Livelihoods - ecosystem sustainability -loss of insurance, financial, social networking functions -increased vulnerability Norwegian Institute Norsk of International Utenrikspolitisk Affairs Institutt
  16. 16. Impacts of animal diseases • Dimensions of animal disease and food safety impacts: – Costs – Prices – Linkages – Trade – Welfare/livelihoods – Employment – Public health (DALYs) • Role of time/space • Role of context: how systems are organized/governed mattersNorwegian Institute Norsk of International Utenrikspolitisk Affairs Institutt
  17. 17. Toolkits to analyze food safety impacts • Mix of quantitative and qualitative approaches needed. • Qualitative approachescontextualize our systems – they identify the nature of relationships, trading mechanisms, organizing behavior – in other words the incentives for different actors to engage in production and trade – Role of value chainsNorwegian Institute Norsk of International Utenrikspolitisk Affairs Institutt
  18. 18. Why value chains for animal disease analysis? • Animal disease outbreaks take place in a systems context, with the risk and spread of disease contingent on measures taken throughout the chain. • “Weak links” in the chain may accentuate disease risk, but analysis is needed to understand who these stakeholders are, how they interact with others, and why they behave as they do (including their constraints). • Utilization in livestock systems and animal health applications increasing (see Kobayashi 2006 and unpublished FAO work in context of HPAI), though a lot of analysis is quite ad hoc • Value chain analysis can also help to inform critical control points in the chain that accentuate riskNorwegian Institute Norsk of International Utenrikspolitisk Affairs Institutt
  19. 19. Norwegian Institute Norsk From Taylor et al. (2008) of International Utenrikspolitisk Affairs Institutt
  20. 20. Toolkits to analyze food safety impacts Quantitative approachestease out specific aspects or subsets of chain-level impacts AND behavior • Damage functions: distill impact into single measure linking risk and expected damage from disease (DALY ++); • Econometric analysis: willingness-to-pay for food safety; • Conjoint analysis: identify/distill key food safety/quality attributes governing decisions along chain; • Experimental economics: trial innovative incentive mechanisms to observe behavioral change; • Systems dynamics/network models: model/simulate the chain as a unit and conduct ex-ante scenarios of new technologies to observe evolution of behaviorNorwegian Institute Norsk of International Utenrikspolitisk Affairs Institutt
  21. 21. Mechanisms to mitigate food safety impacts • Bottom line: how do we improve the governance of pro-poor systems? – Move from ad hoc to more integration (horizontal and vertical) • Market-based risk mitigating measures: – Contracts (formal or informal) – Certification and branding – Institutional development to support (associations, cooperatives) • Do costs of integration exceed the benefits – role of impact analysisNorwegian Institute Norsk of International Utenrikspolitisk Affairs Institutt
  22. 22. Two examples • Developed world: Label Rouge in France • Developing world: Safe vegetables in Viet Nam • Contrast: bottom-up vs. top-down approachesNorwegian Institute Norsk of International Utenrikspolitisk Affairs Institutt
  23. 23. Example: Label Rouge in France (Based on Westgren, 1999) • Label Rouge: labeling program for various products based on geographical origin (est. 1965 by producers) • High success of label in the poultry industry (30 percent of market): – Price premiums of 100 percent – High demand growth from consumers – Strong reputation for delivering reliable, high-quality productsNorwegian Institute Norsk of International Utenrikspolitisk Affairs Institutt
  24. 24. Example: Label Rouge in France • How does it work? – First, an organization called a quality group comprised of different value chain actors must be established that applies for the label from a government commission on labels (ag/commerce) – The application is extremely detailed and gives plans on how quality is to be ensured in the value chain • Full traceability and quality/food safety checkpoints at each stage of production are requiredNorwegian Institute Norsk of International Utenrikspolitisk Affairs Institutt
  25. 25. Example: Label Rouge in France • How does it work? – The application also requires the designation of a third-party in the private sector (certified by rigorous standards of the government) to audit the quality group. – Once approved, the quality group becomes a member of a larger organization of poultry labels that collects a small fee for market promotion activities and protection of label.Norwegian Institute Norsk of International Utenrikspolitisk Affairs Institutt
  26. 26. Example: Label Rouge in France • How does it work? – If quality standards are not met at any stage of the value-chain (production, distribution, processing), the label is immediately removed – Food safety is very high in the sector • 1-3 percent incidence of Salmonella in Label Rouge compared to 70 percent in industrial poutry – Label Rouge also allows for producers to brand according to different images, but signals to consumers a high-quality product.Norwegian Institute Norsk of International Utenrikspolitisk Affairs Institutt
  27. 27. Lessons of Label Rouge • Organization of the value-chain is key – All participants play an active role • Important certification and supervisory roles played by both the private and public sector – Government: credible certification, regulation – Private sector: auditing, marketing, lobbying • Financial sustainability: role of check-off feeNorwegian Institute Norsk of International Utenrikspolitisk Affairs Institutt
  28. 28. Safe vegetables in Viet Nam (source: VECO 2009) • Similar to meat, food safety concerns high in vegetable production – overuse of pesticides, high incidence of foodborne illnesses • Government push promoting safe vegetable production – MARD regulations on residue limits, etc. – Training in IPM techniques – Top-down mandates, but requires bottom-uporganization • Focus mainly on production side, not on chainNorwegian Institute Norsk of International Utenrikspolitisk Affairs Institutt
  29. 29. Safe vegetables in Viet Nam • Regulated production process – Training requirement (certificate received), though not fully standardized – Residue tests – Use of certain chemicals – Certification of production area as “safe” • Independent certification process, including NGOs • Self-certification allowed too (participatory guarantee systems)Norwegian Institute Norsk of International Utenrikspolitisk Affairs Institutt
  30. 30. Safe vegetables in Viet Nam • Production costs higher (20-30%): lower productivity, higher costs for certification and infrastructure • Prices higher too (20-30%) but only a subset of production can be sold at safe vegetable prices • Assurance of quality at retail mixed • Key role for farmer groups – need to strengthen certification, training, organization • Key role to improve consumer awarenessNorwegian Institute Norsk of International Utenrikspolitisk Affairs Institutt
  31. 31. General challenges • Buy-in/ownership of process throughout chain • Roles of public and private sectors • Sustainability • Enforceability • CredibilityNorwegian Institute Norsk of International Utenrikspolitisk Affairs Institutt

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