Research Accomplishment Reports 2008

The Impact of Food Safety Scares on the Food Supply Chain in an Environment of Highly Integrated Monopolistically Competitive Agriculture

S.H. Saghaian
Department of Agricultural Economics

 

Non-Technical Summary

A key question regarding consumer and producer behavior is how they react when faced with unexpected food safety shocks. Recently, there have been E. coli outbreaks in the fresh spinach market closely followed by an outbreak in the processed beef market. Prior to this, concern was about Bovine Spongiform Encephalopathy (BSE) discovery that received worldwide reporting.

This project will explore producers and consumers' reactions to food safety shocks. The purpose of this project is to investigate 1) the market impact of food safety shocks on prices along the supply chain in an environment of highly integrated monopolistically competitive agriculture and food industries; 2) the economic impact of food safety events on consumers' perceptions and preferences and their purchasing habits and behavior; and 3) the economic impact of food safety on producers, supply-channel marketing managers, and retailers, and their strategic responses to food safety incidents.

Project Description

We designed and conducted two surveys of consumers in Kentucky to gage their responses to hypothetical food safety incidents in fresh produce and meat markets. These results suggest that different communication strategies are needed for different regions. When prompted with the statement: "chicken and/or beef is a safe food," almost 52% of respondents chose a level 7 (complete agreement) or a level 6. 40.6% reported that it would be extremely unlikely that they would purchase chicken and/or beef next week, if they had read an article in the newspaper that high rates of E. coli/salmonella in chicken and/or beef had been found in their area, resulting in several people being hospitalized. 50.5% of respondents stated their actions, would reduce food risk by a large extent and all values above 4 (neither) account for 93.8% of respondents.

The majority of respondents chose standard forms of information; television, newspaper, and internet, accounting for 64.3%, 67.8%, and 74.1% respectively. Interestingly, there were a relatively small number of respondents that chose radio as a source for further information.

Respondents were asked to report their level of trust with regards to 20 entities that had hypothetically provided information about potential risks associated with E. coli/salmonella in food. Political groups had the highest percentage of completely distrust at 17.4% of respondents. The next highest percentage of completely distrust was animal welfare organizations, 13.8%. Under the highest value, 7, corresponding to completely trust, doctors and health authority received the highest percentage at 47.8%. University scientists and the United States Department of Agriculture (USDA) also received a relatively high percentage in the same category with 33.0% and 35.7% respectively.

There were striking similarities in simple averages of the above categories between this study and the EU study. There were only 4 of the 20 categories (supermarkets, processors, doctors, and magazines) where Kentucky respondents indicated more trust than participants in the EU study (Lobb, Mazzocchi, and Traill 2006a). 75.9% reported they trusted university scientists over media and 74.1% reported they trusted university scientists over producers. 70.5% reported trusting public authorities more than producers.

Survey respondents were also given the prompt "Chicken and/or beef that is safe is:" and were asked to give their level of agreement to statements that finished that sentence. Under "Produced in the United States" the majority of the selections were "completely agree." Under "produced in Mexico and Canada," the majority of respondents choose neither. Only 14% of respondents indicated they had actively searched for food safety information in the past 2 weeks. These results have been presented in several conferences, published in scientific journals and shared with students in classroom settings.

Impact

Economic losses associated with such events are not limited to the immediate time period following an occurrence. Effective strategic responses by agribusiness firms facing a food safety event can be difficult because it is not clear whom consumers trust with information or if consumer response is the same across products and geographical regions. Sociological researchers argue that, generally, a food safety event receives prominent media coverage with consumers initially over-reacting by avoiding the identified food item. Media coverage of food safety events can also be confusing to consumers as more and more of the information is revealed to the public because of time lapses in coverage or conflicting information within or between different media sources.

Food safety risks differ from other risk for many reasons. First, absolute reduction in risk is not possible because food is essential for life (Frewer et al, 1998). Second, food choice is a personal decision that is often solidified by a person's past. Third, food safety aspects of agricultural products are credence goods. Credence goods result in consumers relying on aspects such as brands, labels and perceptions. Fourth, food risk outbreaks are not foreseen and often unclear. Lastly, consumers expect food safety. Further, research indicates that consumers consider all food safety concerns (i.e. genetic modification, pesticide residue, pathogens, etc.) in their purchasing decisions, highlighting the importance for agribusiness firms to understand how society perceives food safety risks.

Agribusiness firms should have a strategic response plan that can be enacted quickly to handle a food safety event to minimize economic losses. In general, no conclusive arguments can be made about generalizations across products. Agribusiness firms can incorporate these results into their strategic food safety response plans. These results suggest that agribusiness firms that include measures that relay the risk perception of a food safety event are likely to minimize the economic losses associated with such events.

The descriptive statistics obtained from these surveys offer interesting insights into the behavior of consumers with regards to hypothetical food safety events occurring in these markets. These results suggest that different communication strategies are needed for different regions. There is also evidence that illustrates who consumers trust with information concerning food safety events.

Further, these results uphold extensive literature concerning short run effects of food safety events while shedding light on long-run effects. Even though similarities and contradictions can be seen between the Kentucky and the EU study, confident statements can only be made after more research is put into this area and a model is used to determine if consumers across regions and countries perceive food safety risk in the same manner.

Publications

Maynard,S. Saghaian, and Nickoloff. (2008). Buyer and Seller Responses to an Adverse Food Safety Event. International Food and Agribusiness Management Review. 11(1): 77-96.

Nickoloff, M., L. Maynard, S. Saghaian, and M. Reed. (2008). The Effect of Conflicting Health Information on Frozen Salmon Consumption in Alberta, Canada. Journal of Food Distribution Research, 39 (1): 97-102.

Gupta, K., and S. Saghaian. (2008). Institutional Framework for Meeting International Food Safety Market Standards for Agricultural Products from a Developing Country Perspective. Journal of Food Distribution Research, 39 (1): 78-83.

Shepherd, J. and S. Saghaian. (2008). Consumer Response and Trust of Information to Food Safety Events in the Chicken and Beef Markets in Kentucky. Journal of Food Distribution Research, 39 (1): 123-129.

Maynard, L, S. Saghaian, and M. Nickoloff. (2007). Consumer Reaction to Health Messages about Fish Consumption. Consumer and Market Demand Agricultural Research Policy Network working paper CMD 07-05, Edmonton, Alberta, November.

Saghaian, S. (2007). Beef Safety Shocks and Dynamics of Vertical Price Adjustment: The Case of BSE Discovery in the U.S. Beef Sector. Agribusiness: An International Journal, 23(3): 333-348.

Saghaian, S. and M. Reed. (2007). Consumer Reaction to Beef Safety Scares. International Food and Agribusiness Management Review, 10(1): 18-35.

Saghaian, S., L. Maynard, and M. Reed. (2007). The Effect of E. Coli 0157:H7, FMD and BSE on Japanese Retail Beef Prices: A Historical Decomposition. Agribusiness: An International Journal, 23(1): 131-147.

Saghaian, S. (2007). Consumer Reaction to Food Safety Concerns: The Role of Supplier Behavior. Journal of Food Distribution Research, 38(1): 128-133.