8.1 Industry Level
8.2 Firm Level

This paper documents all known studies worldwide focusing on the costs of implementing HACCP programmes in seafood plants and the willingness of consumers to pay for safer and higher quality seafood. All studies are referenced as well as personal communications references to document on-going work. An exhaustive literature review was conducted and an informal email and fax survey was sent in early 1998 to economists covering all areas of the world. The survey was sent to all members of the International Institute of Fisheries Economics and Trade, about 20 fisheries economists in eight European countries as members of the European Association of Fisheries Economists, the Commission of the European Union and the Australia and New Zealand Food Authority. Limited work in the economics of seafood safety and quality exists with all publications and projects found referenced in the appropriate places in this document.

A 1998 conference in the United States focused on the economics of HACCP across all food commodity sectors for which HACCP is a consideration (Unnevehr In Press). Topics of discussion included: (1) designing more cost effective food safety regulations; (2) measuring the costs/benefits of interventions at different points in the production process; (3) HACCP implementation in the United States and United Kingdom; (4) risks and costs of safety and quality improvement; (5) implications of HACCP for transactions costs and vertical coordination; (6) international comparisons of HACCP in food retailing (7) measuring the impact of regulation and user fees for food safety programmes in the United States. Five papers/posters in the conference focused on seafood HACCP as summarized in the following section on seafood costs at the firm level.

Several estimates of the costs and benefits of HACCP programmes at both the industry and firm level for seafood and for meat and poultry in the United States exist, and several studies are underway in the United Kingdom, Canada and Africa for seafood plants. The United States estimates were required due to the proposed adoption of HACCP regulations for seafood processors (United States Food and Drug Administration 1995) and the anticipated adoption of HACCP regulations for meat and poultry plants (United States Department of Agriculture 1996). Most benefits and cost estimates are at the society level or industry level, while some attempts are made to estimate costs at the plant or firm level.

8.1 Industry Level

8.1.1 United States Seafood

HACCP programmes for seafood processors in the United States were announced two years prior to becoming effective on 18 December 1997 (United States Food and Drug Administration 1995). The Food and Drug Administration (FDA) estimated benefits of implementing the HACCP programme for seafood range from US$1.435 to US$2.561 billion. This represents total discounted benefits beyond the fourth year after implementation using a discount rate of six percent. Benefits were estimated as cost savings resulting from reduction in illnesses from a variety of hazards contracted from eating various forms of seafood: Anisakis simplex, Campylobacter jejuni, Ciguatera, Clostridium botulinum, Clostridium perfringens, Diphyllobothrium latum, Giardia, Hepatitis A. Virus, Other Vibrios, Salmonella non-typhi, Scombrotoxin, Paralytic shellfish poisoning, Shigella and Vibrio vulnificus. Benefits included those derived from safety, nutrition, increased consumer confidence, rent seeking activities, expert advice and reduced enforcement costs. The cost of implementing the programme was estimated to range from US$677 million to US$1.488 billion. Cost estimates were based on several models of seafood processing plants and included such costs as training, HACCP plan refinement, sanitation audits, costs of implementing CCPs, equipment cleaning, record review, eliminating pests, and administration. Costs also were assigned to those activities that would be borne by domestic manufacturers and exporters, major plant repair and renovation, Sea Grant expertise, repackers and warehouses, rejected product at the harvesting level, shellfish vessels and foreign processors. Costs per plant for domestic manufacturers were estimated to be an average of US$23 000 the first year and US$13 000 per year in subsequent years. Prices for seafood were also estimated to increase by less than one percent in the first year and less that one-half of one percent in subsequent years with the larger increase expected to decrease consumption by less than one-half of one percent. It was recognized that small plants would suffer a greater impact than larger ones, but the entire reduction because of HACCP would be borne by the small plants that would exit the industry for other economic reasons.

8.1.2 United States Meat and Poultry

The United States Department of Agriculture, Food Safety and Inspection Service has issued guidelines for HACCP to be introduced for meat and poultry processing plants. Benefit estimates using the cost-of-illness method have been made for both the preliminary and final rules (Roberts, Busby and Ollinger 1996). Twenty-year benefits were calculated using two methods (value of a statistical life; combined human capital/willingness-to-pay), three levels of pathogen reduction targets (30 percent, 60 percent, and 90 percent), and two discount rates (3 percent, 7 percent). Twenty-year benefit estimates ranged from US$2.4 billion to US$213.9 billion based on this sensitivity analysis, showing how critical the assumptions are on which such estimates are made. The United States Department of Agriculture, Economic Research Service produced a final estimate ranging from US$7.13 to US$26.59 billion, using a 90 percent reduction rate in illness and death. Cost estimates were made by the Food Safety and Inspection Service and Texas A & M University, and include costs for implementing sanitation standard operating practices, HACCP planning and training, HACCP recording, temperature control, antimicrobial treatments, testing and process modification. Again, different assumptions led to widely ranging estimates. For example, HACCP training and planning costs ranged from US$61 million to US$136.4 million for the initial year across three alternative scenarios and from no cost to US$142.8 million yearly for subsequent years. Based on the final rule for this HACCP programme, final twenty-year costs were estimated between US$1.0 billion and US$1.2 billion or US$0.15 to US$0.18 per pound of meats processed. The Food Safety and Inspection Service in its final estimate of the benefits resulting from HACCP estimated that benefits exceeded costs for all but the lowest reduction level (10 percent) of illness and death. The implementation of HACCP was determined to be more costly for small plants than for large plants. Because of the high rate of turnover in small meat plants, it was difficult to predict and separate the impact on small plants because of the HACCP rule in contrast to natural turnover in the industry (Roberts, Busby and Ollinger 1996). A subsequent and expanded study estimated the benefits in the United States of the HACCP programme for meat and poultry of reducing medical costs and productivity losses from Salmonella, Campylobacter jejuni/coli, E. Coli O157:H7, Listeria monocytogenes, Staphylococcus aureus, and Clostridium perfringens (Crutchfield et al. 1997). Estimates of benefits ranged from US$1.9 billion to US$171.8 billion over 20 years, depending on the level of pathogen control. These benefits are estimated to exceed the costs of the HACCP programme, which are estimated at between US$1.1 and US$1.3 billion over 20 years.

8.1.3 Bangladesh Frozen Shrimp

During 1997 and early 1998 the Bangladesh frozen shrimp processing industry began upgrading plants to minimum sanitary and quality standards. HACCP plans are being implemented following these upgrades. An estimated US$17.6 million has been spent to upgrade plants and the total cost industry-wide to maintain a HACCP plan is estimated at US$2.2 million (Cato and Lima dos Santos In Press). The Government of Bangladesh has also spent US$202 thousand in 1997, will spend US$181 thousand in 1998, and predicts an annual expenditure of US$225 thousand each year after to maintain a HACCP monitoring programme. The Food and Agriculture Organization of the United Nations has spent US$72 thousand for HACCP training in Bangladesh. Total cost to upgrade plants and government facilities is US$18.0 million to date with US$2.4 million estimated each year after to maintain HACCP in the Bangladesh shrimp processing industry. The investment to date represents 9.4 percent of frozen shrimp export sales for one year and HACCP plan maintenance represents 1.3 percent of one-year export sales (Cato and Lima dos Santos In Press).

8.1.4 Other Estimation Techniques

Another technique can also be useful in estimating the economic impact on an industry of an imposed rule that affects sales, employment and value added in the industry. Input-output analysis can estimate the direct, indirect or induced effects of a change an industry has on the rest of the economy resulting from a change in that industry stimulated, for example, by a HACCP programme or a seafood regulation. However, the technique requires an input-output model be available for the economy with industry sector data at disaggregated levels that allows the seafood sector to be separated from the rest of the economy. This is difficult even in developed countries, and thus this technique has limited use. A model does exist for the United States, with the canned and cured seafood, and the prepared fresh or frozen fish or seafood sectors reported separately (Roberts, Dillon and Siebenmorgen 1996). Using this model, the result of an anticipated change in output from these two sectors could be measured in terms of direct, indirect and induced value added and employment on the United States economy.

8.2 Firm Level

Quality and safety economics at the firm or plant level is extremely important. This allows the plant manager to analyze the costs and returns from operating the plant at various levels of scale in order to maximize net returns. Seafood quality and safety, and thus HACCP, affects the costs and returns of each plant. A recent FAO technical paper included a chapter on quality and safety economics (Zugarramurdi, Parin and Lupín 1995). This chapter introduced the concept of seafood quality economic analysis at the plant level, discussed production and quality costs, and illustrated the Prevention-Appraisal-Failure (PAF) model of quality costs. The chapter also introduced several considerations in how the introduction of HACCP could change the production costs faced by the firm. Finally, some early estimates of the costs of applying HACCP in United States seafood firms were summarized, along with a discussion of data needed in order to estimate the benefits and costs of HACCP at the plant level. The PAF model has recently been applied in a number seafood processing plants (Lupín 1998). The PAF model performed well with hake freezing and salted ripened anchovy plants in Argentina. Variables such as the number of Critical Control Points in the HACCP plan, raw material yield, final product prices and investment, daily capacity, and labor productivity were examined to estimate the economic factors associated with achieving improved levels of fish quality. In both plants studied, failure costs comprised 95 percent of total quality costs when raw material and labor quality was poor and safety was compromised. When product quality achieved 90 percent of total theoretical achievable quality, failure costs were below 20 percent of total quality costs and safety was not compromised. The minimum quality cost per unit was found between 80 to 90 percent of total theoretical achievable quality. The argument is made that the economic advantage of HACCP can be a strong argument for use as a business management tool in developing countries. The PAF model has also been applied in fish processing plants in Cuba, and by using the technique, production costs declined a substantial 66 percent in 1966 over the prior year (Loaces et al. 1997). The same group of researchers has also estimated costs of sanitation in the plants (Marti et al. 1997).

A major United States seafood company that processes soft-shell crabs instituted a HACCP programme in 1993. The company found that more internal monitoring is required, but that processes have improved enough that the controlling authority inspector is visiting less often, and that actual costs are lower under the HACCP system than under the previous voluntary quality assurance system (Haltaman 1997). Other seafood industry views of early HACCP programmes in Canada, Thailand, Ireland, Iceland, Mexico, Japan, China and the European Union are available as reported by various industry representatives (Martin, Collette and Slavin 1997). However, most relate to the technical aspects of the process and do not contain cost information on in-plant implementation of seafood HACCP programmes.

8.2.1 United Kingdom, Canada and Africa

Methods are also available for estimating the cost of sanitation, quality control and HACCP in seafood plants (Dillon and Griffith 1996; Dillon and Hannah 1997a; Dillon and Hannah 1997b; Dillon and Griffith 1997; Dillon, Ryder and Garrett 1997). This set of documents provides a computer software assisted method to estimate the cost of implementing various sanitation techniques in processing plants and to predict the cost of various control measures that might be defined for a HACCP plan. These techniques are being taught in workshops on fish technology and quality assurance organized by FAO in developing countries, e.g. a two-week regional workshop in Namibia during February 1998, with more than 30 fish technologists and quality controllers from 16 English-speaking African counties (Kollavik-Jensen 1998). Various studies are underway in the United Kingdom to document sanitation costs in five factories. Similar studies are underway in Canada in seven plants on the costs of cleaning, in Africa on sanitary costs in five companies that produce fresh and frozen Nile perch fillets for the European market and on a limited basis in a United States shrimp plant. (Dillon et al. 1998).

8.2.2 United States Shrimp, Fish and Shellfish Plants

Seafood plants in the United States were surveyed to determine the principal cost factors associated with implementing HACCP in processing plants for surimi, clams, blue crabs, raw and breaded fish fillets, cooked ready-to-eat shrimp, catfish, trout, herring, salmon and raw breaded shrimp (Martin et al. 1993). Four major categories of HACCP implementation costs were: (1) management and quality control labor required to design and implement the HACCP plan, (2) ongoing labor required to perform monitoring and record keeping functions, (3) capital equipment required to automate record keeping functions especially if the labor requirement is minimized, and (4) consulting fees required to verify the plant process reaches the applicable critical limits.

One study covered the economic impacts of HACCP models for breaded, cooked and raw shrimp plants and raw fish processing plants (National Fisheries Education and Research Foundation, Inc. Undated). Four costs were identified for breaded, cooked and raw shrimp plants: (1) plant closures; (2) costs to the processors directly related to complying with the requirements of HACCP models; (3) consumer effects indirectly related to three compliance requirements and (4) further impacts on shrimp processors as a result of changes in consumption patterns. A total of 14 plants (of 249 comprising the industry) were predicted to close due to the anticipated seafood HACCP implementation. All were small, single-company plants which accounted for .2 percent of sales industry-wide. Employment at these plants totaled 70 jobs. HACCP compliance was estimated at US$6.2 million in annualized costs industry-wide, or US$26 thousand per plant. Large plants had average costs of US$22 thousand per plant and large plants averaged US$32 thousand per plant. The Investment level necessary to comply with HACCP for the average smaller plant was over eight times greater than investment costs for large plants. Over the entire shrimp processing industry, annualized costs per pound to comply with HACCP was estimated at US$0.009, or only .3 percent of current prices received by processors. Compliance costs passed to consumers amounted to price increases of US$0.025 per pound of product. Declines in purchases of product because of price increases amounted to the equivalent of the loss of ten jobs across the entire industry.

Three types of costs were determined for the raw fish processing industry to comply with HACCP requirements: (1) costs to processors directly related to complying with the requirements of HACCP models, (2) consumer effects indirectly associated with these compliance activities, and (3) further impacts on raw fish processors linked to a change in consumption patterns. No plant closures were predicted and specific estimates can be found in the source study (National Fisheries Education and Research Foundation, Inc. Undated).

8.2.3 United States Cooked Ready-to-Eat Blue Crab

The cost per pound to implement HACCP in the cooked ready-to-eat blue crab industry was determined to be minimal for some processors, while as high as three percent of current costs for others, with smaller plants experiencing the highest costs per pound. Costs to implement HACCP were also dependent on: (1) the complexity of the production process, (2) the plant managers' level of knowledge about HACCP procedures and their familiarity with planning and equipment, (3) the availability of assistance from trade associations, agencies and publicly funded training programmes, (4) the plant's access to sources of capital for up-front investment costs, (5) the ability of the plant's workers to be trained and the speed of employee turnover, and (6) the plant's ability to spread costs over a large volume of product or to find ways to limit the fixed cost of equipment (Martin et al. 1993).

8.2.4 United States Various Shellfish and Fish (MSSP)

Another study estimated the costs of implementing the Model Seafood Surveillance Program (MSSP) of the United States National Marine Fisheries Service for blue crab, breaded and specialty products, molluscan shellfish, smoked and cured crab, and West Coast crab (National Fisheries Education and Research Foundation, Inc. 1991). The MSSP was designed to improve the inspection of seafood consistent with the HACCP system. Three types of costs were identified for blue crab plants: (1) costs to the processors directly related to complying with the requirements of HACCP models, (2) consumer effects indirectly associated with these compliance activities and (3) further impacts on blue crab processors linked to a change in consumption patterns. Estimates for the 204 blue crab plants in the United States to comply with HACCP models for process and sanitation were US$0.64 million in annualized costs13 or US$3.1 thousand per plant and US$0.02 per pound which represented .33 percent of processor price. Initial investment costs were three times greater for small plants, but annualized compliance costs were slightly higher for small plants in comparison to large plants. No plant closures were predicted for blue crab plants due to compliance costs and increased prices were expected to cause a decline in sales of US$0.32 million per year across the industry. Cost estimates to comply with HACCP were also made for 59 breaded and specialty products processing plants producing breaded products (fish, scallops, oysters, mussels, clams, squid, and similar breaded products), specialty products (stuffed products and entrees with and without sauces, side dishes, stews, dinners and other similar products) and surimi analog products. Two types of cost were identified: (1) cost to the processors directly related to compliance activities and (2) consumer effects indirectly associated with compliance activities. Compliance costs were estimated at US$0.36 million on an annualized basis or US$6.1 thousand per plant. Investment costs averaged US$3.2 thousand for large plants and US$1.7 thousand for small plants. Added cost per pound of product for compliance was US$0.01 for small plants and US$0.0002 for large plants. Thus, the effect on consumer prices was determined to be negligible.

Plants included in molluscan shellfish were those that processed oysters, mussels, and clams. Four types of cost were identified: (1) plant closures, (2) cost to the processors directly related to complying with the requirements of HACCP models, (3) consumer effects indirectly associated with these compliance activities, and (4) further impacts on molluscan shellfish processors linked to a change in consumption patterns. Only 20 plants were sampled from the universe of 1 172 which may lead to small sample bias for these estimates. A total of 307 smaller volume plants were predicted to close as a result of non-compliance with anticipated regulations. This represented 18 percent of the plants and 15 percent of industry-wide sales. Employment to be lost was 1 700 jobs. However, it was anticipated that higher volume plants would claim some of the lost production and thus add to large plant employment. Annualized industry compliance costs were estimated at US$7.8 million or US$ 5.5 thousand per plant. Annualized compliance costs per pound of molluscan shellfish and other products produced were estimated at US$0.05 for small plants and US$0.003 for larger plants. Because of anticipated price increases to pass along the higher production costs, it was determined that consumer demand would decline by about 1.56 million pounds valued at US$3.9 million per year industry-wide.

8.2.5 United States Smoked and Cured Fish

A similar analysis was performed for smoked and cured fish plants (smoked fish; mild cured and salted fish; pickled and marinated fish; and salted salmon repackaging) and west cost crab plants (dungeness crab cooked whole, in sections and cleaned; king and snow crab cooked sections; crab shell-on specialty products; and crab shell-off specialty products). For smoked and cured fish plants, four costs were identified: (1) plant closures, (2) cost to processors directly related to complying with the requirements of HACCP models, (3) consumer effects indirectly associated with these compliance activities, and (4) further impacts on smoked and cured fish processors linked to a change in consumption patterns. For west coast crab plants, three costs were identified: (1) cost to processors directly related to complying with the requirements of HACCP, (2) consumer effects indirectly associated with these compliance activities and (3) impacts on West Coast crab processors linked to a change in consumption patterns. The interested reader is referred to the source document for detailed estimates (National Fisheries Education and Research Foundation, Inc. 1991). In addition to these estimates, the source document presents total compliance cost estimates separated into costs of such components as preventive measures, monitoring, and record keeping associated with defining critical control points for each industry sector analyzed.

8.2.6 Florida, United States Oyster Depuration

While not focused on HACCP, a recent study estimated the cost at the plant level of depurating raw oysters in Florida, United States. It is necessary to depurate oysters harvested from marginal areas before they can be sold for consumption. The lowest price that harvesters would accept for oysters harvested from marginal areas was determined plus the cost of depuration. This value was then compared to the higher price that harvesters received for oysters harvested from approved areas and not requiring depuration. It was determined that the price oyster harvesters would need to receive amounted to a 67 percent increase in the price currently received from processors, making depuration economically unattractive (Lin et al. 1995). Restaurant owners and consumers attitudes toward depurated raw oysters are reported elsewhere in this document.

8.2.7 Bangladesh Frozen Shrimp

Bangladesh frozen shrimp plants spent by early 1998 an average of US$239,630 per plant to upgrade to minimum technical and sanitary standards. An additional expenditure of US$37,525 is anticipated, for a total of US$277,155. The average plant expects to spend US$34,875 to maintain a HACCP plan. The cost to maintain a HACCP plan ranges from US$0.0327 to US$0.0899 per kilogram, or from 0.31 to 0.85 percent of 1997 price (Cato and Lima dos Santos In Press).

8.2.8 Massachusetts, United States, Breaded Fish

A study of eight companies processing breaded fish in Massachusetts estimated the cost of implementing a HACCP plan and the cost of complying with United States Food and Drug Administration Requirements (Colatore and Caswell In Press). The average first-year total cost of implementing HACCP was US$113 305, with large variation among firms. The average first-year cost to implement minimum Food and Drug Administration HACCP requirements was US$34 323.

8.2.9 Alabama, United States, Fish and Seafood Processors

A study currently in process has documented estimated costs of implementing HACCP in Alabama seafood processing plants. Cost estimates have been made for thirty small, medium and large plants producing raw and processed shrimp, raw and processed fish, cooked crab meat, crab meat based products, shell stock oysters and shucked oyster meats (Perkins, Hanson and Hatch In Press). The average cost of implementing HACCP was US$23 908 per plant, ranging from US$19 857 for small plants to US$26 773 for large plants.

8.2.10 Argentina Fish Processing

Quality costs for the Argentina export fishing industry for frozen blocks of hake fillets and salted anchovy were analyzed in this study (Zugarramurdi et al. In Press). Quality costs were divided into controllable (prevention and evaluation) and resulting costs (external and internal failures). It was observed that the more representative controllable costs to reach a good level of product quality are inspection of raw material, training of labor and production control. Some of these relate to HACCP Critical Control Points. Results show that due to the poor quality of inputs, failure costs descend below 20 percent of total quality cost. At the same time, total quality cost descends from 40 to 21 percent of total production cost when the level of product quality is increased from poor to very good. Also, different minimum points for total quality cost and total production cost and a maximum benefit point are observed, indicating an advisable working zone within the 80 to 90 percent of optimum quality level.

8.2.11 Louisiana, United States, Oyster Industry

This study did not provide cost estimates of implementing HACCP in oyster processing plants. However it does provide a discussion of the general costs and benefits of using a HACCP system in oyster processing (Whitley et al. 1998).