4.1
Consumer Perceptions of Seafood Safety and Quality
4.2 The Market
for Seafood Safety
4.3 Economic
Concepts of Valuation
4.4 Food Safety
Valuation
4.5 Estimation Methods
Safety and quality regarding seafood have very different meanings to the microbiologist and seafood technologist than they do to the consumer. Safety usually refers to the risk level associated with illness or death caused by the consumption of a seafood product that is contaminated with a microbiological or parasitic organism, a naturally occurring poison or a chemical contaminant. Quality is most often related to appearance, odor, flavor and texture. Consumers and media often mix the two concepts, when in fact low quality seafood can be quite safe to eat and seafood with low-risk safety factors, but high in quality, might not actually be considered high quality by a consumer. In addition, many sellers of seafood have limited understanding of consumers' preferences for seafood, even if they could be recognized. A more detailed discussion of these issues is available (Anderson and Anderson 1991).
Quality and safety become multi-dimensional and consumers have great difficulty in determining and observing actual seafood quality (Anderson and Anderson 1991). These authors list the following as some of the attributes that affect seafood quality: nutritional value, incidence of parasites, presence of micro-organisms and bacteria, shelf life, taste, level of additives, the use of certain treatments such as irradiation, the presence of pesticides or preservatives, discoloration, size, presence of bones, scars or cuts, odor and uniformity among others. A mixture of safety and quality factors can also affect the acceptance of seafood in international trade and ultimately affect the balance of trade of both developed and developing countries. Thus, in the context of this paper, both safety and quality will be considered the same when one or both affects consumer acceptance, consumer illness and/or trade in seafood products.
Consumers of seafood want to benefit from seafood safety, but seafood safety is a commodity that cannot be easily purchased in the marketplace. Safety is only one of many implicit characteristics of seafood that influences the purchasing behavior of the consumer at various prices and quantities. Because of this, producers cannot normally charge a higher price for "safer" seafood in order to cover higher production costs from producing safer seafood. Their competitors will make the same safety claim, even through the claim may be false. The absence of accountability and inability of consumers to observe safety then leads to market failure since unsafe/low quality products can bring premium prices in the short run for individual sellers and long-run negative impacts affect all sellers (Anderson and Anderson 1991).
In order to ensure safe seafood then requires government intervention or regulation. The basic market questions for food safety and nutrition are important to understand (Weiss 1995). What mechanisms will satisfy consumers to receive the food safety and quality level they want to purchase and what mechanisms will provide producers the incentives to furnish that level of quality? While the seafood industry may develop its own testing methods to enhance its product image, such techniques as inspection, certification, consumer and producer education, labeling, handling, and processing enhancements such as irradiation are often introduced to intervene in the imperfect market situation. In effect, consumers are relying on producers to provide safe food, but the producers cannot always verify or guarantee the safety of the food. The taxpayers are relying on the government to provide effective food monitoring systems, but they cannot directly determine if the systems are in place and effective.
If the market is not perfectly competitive and it becomes necessary for the government to intervene to regulate the safety and quality of food products, this can be achieved in three ways (Choi and Jensen 1991). The regulatory authority can provide information to consumers regarding the risk of various foods to various consumer populations and it can regulate industry output directly in order to reduce hazards to consumers. It can also regulate the level of seafood safety through various risk reducing programmes such as Hazard Analysis Critical Control Point (HACCP) programmes.
An adequate framework for estimating consumer benefits from food safety policies should allow the prediction of what actions consumers would take with complete knowledge. The framework should also predict what real consumers with limited knowledge would do under various policy scenarios with the make-up of the full range of policy scenarios known (van Ravenswaay and Hoehn 1995). They provide a theoretical model that allows the determination of consumer response to four ways that consumers respond to food hazards: product avoidance, brand-switching, averting and mitigating actions.
Seafood safety thus must be of concern to both the producers and consumers of seafood. Both producers and consumers need to change their actions in order to minimize the health risk from consuming seafood. This creates the need for both public (regulatory) action with the suppliers of seafood and private consumer (increased knowledge) action on the part of the purchasers of seafood. The obvious question then arises. Is the public benefit (or value) derived from regulatory programmes designed to minimize the health risks from consuming seafood greater than the costs of implementing the programmes? Costs all along the production chain must be considered, beginning with the private costs borne by the producers and suppliers and ending with the public costs of implementing and maintaining regulatory programmes. Are consumers willing to pay (and at what level of seafood price increases) the additional costs (reflected through higher seafood prices) resulting from seafood safety inspection programmes, and are they willing to pay higher public costs (through higher taxes) to support the programmes?
A concise discussion of valuation research (van Ravenswaay 1995) provides the basis for the following summary8. Benefit-cost analysis represents the first attempts by economists to conduct research designed to evaluate the effects of government regulations, policies and programmes. This technique was used to advise policy makers if public resources invested in public programmes (such as a seafood regulatory programme) were giving the greatest net benefits. It was relatively easy to determine which costs should be measured (but not always easy to measure them) and much more difficult to determine which benefits should be measured (and even harder to actually measure them).
Markets exist for most inputs into the regulatory process, and prices and quantities can be learned or approximated from actual market transactions (e.g. the cost for a seafood plant to comply with a regulation or the cost to government of hiring an additional inspector). No primary market exists for such items as improved seafood safety. Thus, it became necessary to develop techniques to estimate the demand for non-market goods such as improved food safety. Economists refer to this as non-market valuation research. The responsibility for developing these techniques has been primarily the public sector, since the private sector has had little incentive to determine the costs of improving public programmes (e.g. the effect of improved seafood safety).
A perfectly competitive market with no regulations and adequate income will cause food to be available. However, this is not the real situation and market failures cause public intervention in the way the food supply is produced, processed and distributed. Public intervention in developed countries may include such interventions as providing nutritional education so that consumers can make informed choices and thus maintain higher levels of health or creating regulatory programmes designed to create very low levels of health risk associated with consuming foods purchased in the marketplace. Public intervention in developing countries might range from guaranteeing that an adequate supply of food exists to helping producers solve sanitation problems so that seafood can be exported and used as a source of hard currency for the exporting country. Thus, it became necessary to develop both theoretical concepts and practical methods to place values on food safety and food safety programmes (van Ravenswaay 1995). The argument is made (van Ravenswaay 1995) that economics research on food safety and nutrition issues likely needs to include three types of research: non-market valuation research; programme evaluation research; and product marketing research9.
Most non-market valuation research originally focused on measuring the benefits from health, safety and environmental programmes that became prominent in the early 1960s. It has since expanded to a number of areas. Food safety research grew from this research, with a focus on estimating the value of preventing deaths or disease in a given population of consumers, and in measuring the value of reduced morbidity and illness days. In other words, was the cost of increased food safety resulting from new (or expanded) food safety programmes lower than the benefits derived by the consumers? The earliest attempts in this area of work measured cost savings as the value of saving lives by estimating the present value of foregone earnings net of consumption, plus medical costs associated with the illness. Later studies included more economic costs (e.g. value of lost leisure time, or lost household production) with the estimates made from actuarial data. Most of the early work by economists focused on estimating benefits. However, it is also important to understand costs, and how they can be applied in evaluating food safety (MacDonald and Crutchfield 1996).
Programme evaluation research attempts to measure the effectiveness levels of public programmes and the extent to which the public programme achieved its goals. An example would be to measure the effectiveness of a programme designed to educate consumers on the safety aspects of seafood or of nutritional attributes of seafood or the costs and benefits of a seafood HACCP programme.
Product marketing research is also similar to non-market evaluation research in that techniques used in both try to measure the effect on consumer behavior of goods that do not exist in the marketplace. An example would be to measure what consumers would pay for a new or different attribute in a food product such as "low fat" or certain nutritional attributes.
The first attempts by economists to value food safety used an estimate of cost savings as an estimate of the value of saving lives. The present value of forgone earnings less consumption plus medical expenses was used as the value of cost savings created by safer food. More recent estimates have included the value of lost leisure time, the opportunity costs of lost household production and other measures using a technique called the cost-of-illness (COI) method. This approach estimates the resources society will save by avoiding the food-borne illness. In most cases this technique uses actuarial data and data observations which reflect the actual actions of individuals on which to base the cost saving estimates. Social costs include costs to individuals, industry costs and public health surveillance costs. Costs to individuals can be measured through documenting medical costs, income or productivity loss, pain and suffering, leisure time costs, child care costs, risk aversion costs, travel costs, and vocational and physical rehabilitation costs, among others. Industry costs include product recalls, plant closings and cleanups, product liability costs, reduced product demand, and insurance administration. Public health surveillance costs include disease surveillance costs, costs of investigating outbreaks and costs of cleanup. Several authors (Roberts and Foegeding 1991; Busby et al. 1996) provide more detail and specific lists on the individual components of the costs to society of food-borne illnesses. One concern with this approach is that the cost-of-illness that is determined may not measure what the individual will actually pay to avoid the illness. COI can be interpreted as measuring the cost of an illness to a specified economy (e.g. a certain country) in the form of its effects on the current and future value of goods and services produced by the economy of that country.
The most theoretically correct measure to use is the willingness-to-pay technique (van Ravenswaay 1995). This actually measures peoples' willingness-to-pay for the reduced risk of death or illness from consuming food in a specified population of people. This technique uses actual market observations on which to base the estimates or through constructing market experiments and using a technique called contingent valuation (CV). Another method used to value food attributes is hedonic pricing. This technique is normally used to estimate the value that consumers place on various attributes of a food commodity. An example would be the value that consumers place on various fatty acids contained in fats and oils or on other nutritional aspects of a food item. This estimation method differs from CV in that the estimation function uses observed market price and consumption data. Hedonic pricing provides an objective valuation of food attributes such as nutrition and fat content while CV deals with subjective valuation of food attributes such as food safety (Kim and Chern 1995). Since food safety is the principal focus of this paper, see the Kim and Chern article for further discussion of hedonic pricing.
While the WTP method is the most theoretically correct based on economic theory, its use has been challenged. The United States Office of Management and Budget (OMB) has issued guidelines that establish a preference for using observational or behavioral data in benefit cost estimates that measure the impact of major rules such as the benefits and costs of seafood safety programmes or regulations (Belzer and Theroux 1995). OMB mandates that when benefits come from risk estimates and an agency chooses to estimate benefits with point estimates, then the expected values of the risk estimates must be used. The OMB guidelines acknowledge that it is difficult to estimate the WTP of an individual for commodities (e.g. food safety) not traded in the market because it is impossible to use observational data and methods. But, OMB also indicates that using CV methods warrants an additional burden of analytical rigor. The same is true regarding CV used to evaluate food safety regulations and benefits and costs (Belzer and Theroux 1995). CV critics argue that its problems are insurmountable and its use should be abandoned. OMB does not take this position, but it does impose an extra burden on deriving estimates not based on real world behavioral data.
