7.1 HACCP Benefits Considerations
7.2 HACCP Cost Considerations

In addition to being recognized as an effective tool for achieving good production, sanitation, and manufacturing practices in food production, HACCP can also create economic benefits to firms, society and governments. At the society level the obvious issue is whether the benefits to society are greater that the costs to society of the programme. At the firm level, issues range from the cost of implementing a HACCP programme to how HACCP can be used as a process management tool. Finally, for government, the concern is the cost of implementing the programme and maintaining it as part of the cost to society of the programme. Some special considerations of seafood HACCP as it relates to society, industry and government are discussed in this section and then some estimates of the costs of implementing seafood HACCP programmes are summarized.

7.1 HACCP Benefits Considerations

7.1.1 Business Management Tool

From a business management perspective, HACCP is a process control technique that closely conforms to total quality management principles (Mazzocco 1996). Thus, HACCP should be examined for its usefulness in determining if the cost of developing processes which produce high quality products are less that the costs of poor quality. HACCP systems installed in suppliers' operations, manufacturing and processing plants should reduce costs of raw materials inspection, materials specification, raw materials inventory, and other costs associated with inputs (Mazzocco 1996). Awareness of suppliers' or processors' HACCP systems or knowing customers' needs for tolerances should reduce variability and costs of operations. Transmitting HACCP system requirements to customers or suppliers can also reduce marketing and sales costs. HACCP's preventive focus is seen as more cost effective than testing a product and then destroying it or reworking it (Unnevehr and Jensen 1996). From an economics viewpoint it is implied that the marginal benefits of using HACCP to reduce food-borne illnesses are large. Said another way, the costs of implementing HACCP at a given time or place in the processing process are much less than the benefits to be derived. However, in order to really measure the costs, Unnevehr and Jensen argue that marginal benefit-cost analysis must be conducted at the point of each CCP, to determine which are the most economically effective to achieve a specified standard of risk reduction. Thus, HACCP can be viewed as a business management tool, although limited analysis has been done to this date in most industrial food settings, and in particular seafood plants, to estimate its value in this context.

For HACCP to produce these kinds of benefits as a process control mechanism will require substantial training of employees. Organizations that adopt quality management programmes invest substantial sums in employee training. Surveys indicate that 92 percent of manufacturing firms and 75 percent of service firms implementing a quality management programme use employee training to effect change (Mazzocco 1996; Hackman and Wageman 1995). Thus, HACCP systems will require initial and continued investment in human resources and the development and delivery of training programmes for employees. This will be easier in highly concentrated industries and much more difficult for the disaggregated seafood processing systems that are characteristic of the seafood industry on a worldwide basis.

Quality and safety economics for the seafood industry is thus the subject of current interest in both developed and developing countries of the world (Zugarramurdi, Parin and Lupín 1995). Current FAO programmes incorporate economics in the training curriculum focused mostly at the processing plant level. The cited FAO document is a training manual which covers production engineering, capital investment costs, production costs, microeconomic analysis of production, resource allocation, profitability and quality and safety economics. The FAO document includes how to analyze production and quality costs at the plant level and presents a prevention-appraisal-failure (PAF) model of quality costs. It also presents case studies of economic quality costs in seafood processing plants and discusses the cost of applying HACCP in seafood plants.

7.1.2 Trade Benefits

HACCP is also accepted by various governing bodies as a benefit to enhance trading between countries through two examples. First, in 1987 the International Organization for Standards (ISO) promulgated its ISO 900012 series of trading standards to enhance trade between members of the European Community and those wishing to do business with them (Mazzocco 1996; Dean and Evans 1994). Second, the United States Government in its rule mandating HACCP for seafood processors in the United States, included as a benefit its requirement that foreign seafood processors who export seafood to the United States must meet United States HACCP standards (United States Food and Drug Administration 1995). Again, the European Union requires that third countries that desire to export fish to the European Union follow HACCP procedures in seafood processing. In other words, to trade you must follow HACCP, and thus having HACCP is a benefit, as compared to those countries that do not follow HACCP procedures. The same benefits are possible between trading firms within a country, i.e. between processors for further processing or between processors and wholesalers and/or retailers with whom they trade. The issue of HACCP in international trade is discussed in more detail in a later section of this document.

7.2 HACCP Cost Considerations

7.2.1 Market Structure

HACCP rules mandated across an industry will have different impacts on the industry, depending on the market structure of the industry. In general, HACCP rules will likely impose higher costs on small firms than on large firms. An example of this is provided by estimates of market structure change on the United States meat and poultry slaughter and processing industry predicted to result from HACCP. Industry leaders predict that the regulation will drive small producers out of business. The actual effects on small producers will depend on the cost disadvantage faced by small firms, and the degree to which small plants can raise prices in the event they face a cost disadvantage. It will also depend on the ability of small plants to occupy small market niches that allow them to pass along higher product costs. For the United States meat and poultry industry, economists predict that if small producers do exit the industry, the pattern will be an increase in the rate of exits and decrease in the rate of entries (MacDonald et al. 1996).

7.2.2 Policy Issues

Additional issues that must be considered for a complete evaluation of the benefits and costs of food safety risk reductions relate to information, public versus private intervention, accurateness of illness estimates, marginal benefit-cost analysis and efficiency in production. First, it will be necessary to evaluate the effectiveness of consumers in using information provided to them for use in making wise food purchase and consumption choices as a way to lower their food risks. Second, it will be necessary to determine whose responsibility it is to provide safer food. Industry argues for more consumer education while consumers argue for more regulation. The question of whom is responsible for the costs and who bears the risk is the real question. Third, the reliability of the benefits of increased food safety based on cost-of-illness estimates must be determined. Fourth, HACCP must be evaluated using marginal benefits and costs not only at the complete programme level, but also within the critical control points in order to make rational economic decisions regarding cost efficiency. Finally, it must be determined how HACCP will affect industry productivity, particularly in reference to changing industry structure, determining the most cost effective levels at which to apply HACCP, and how trade and international trade will be affected (Unnevehr 1996).