Research Accomplishment Reports 2011

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.

2011 Project Description

Food safety has received more and more attention by industries, consumers, and policy makers in recent years. The most far-reaching food safety concern for pistachio consumption originated from the 1997 Iran aflatoxin contamination. The food safety incident in Iran caused significant market share loss for Iran and gains for the U.S. The U.S. experienced a steady growth in production share from 11.0% in the 1980s to 23.5% after 2000; U.S. export share increased from 6.8% in the 1980s to 14.9% after 2000.

Governments often attempt to aid food safety by mandating standards and inspection of food products to supplement the efforts by private firms and industries. In this research we investigated the factors, including aflatoxin safety concerns on U.S. pistachio exports. The main objective of this study was to evaluate the effective factors on pistachio exports and how food safety concerns affected export demand for pistachio nuts.

Since the topic of export demand function plays an important role in the field of international trade, several measures have emerged to quantify this concept. Some of these measures are export price (EP), competitor's export price (CEP), GDP, and exchange rate (ER). Besides, food safety shocks (FSS) can also threaten consumers' confidence especially in purchasing an infrequently consumed product; as a result, a dummy variable is created to investigate the effect of such concern.

In the model, all the variables are formatted as real values: all variables are divided by their corresponding values in a base-year. Using the real form not only helps to make each time series equivalent in magnitude, but also helps to incorporate in a parsimonious way and thus helps to minimize specification errors. We use panel data to empirically analyze the stability of the export demand function of pistachios for the period 1997-2006, using the nonstationary panel time series analysis.

We find that the use of panel data for export demand clearly supports a cointegrating relationship. The common difficulty in obtaining sufficient sample size pistachio importer countries is overcome by the use of cross-sectional and time series data panel analysis approach. This research was presented at the annual meetings of the Food Distribution Research Society (FDRS), and was later published in the March issue of 2010 Journal of Food Distribution Research.

2011 Impact

Food safety scares could affect the health of consumers. Governments regulate food production and marketing by imposing standards and inspection requirements. An aflatoxin-related food safety event could impose serious costs on the pistachio industry. Based on the initial results, exporting countries need to have a more certain and clearer planning in production, marketing, and more importantly observation of health principles in order to maintain export market shares in the world. Industries should undertake voluntary actions, which determine standards or similar measures for a product because the conditions and the market facts call for such a move.

Estimation results show that pistachio's own-price and the real exchange rate between foreign currencies and the U.S. dollar have a negative effect on the amount demanded by international markets. Foreign GDP and Iran's price are affecting the quantity demanded positively. The variable identifying Iranian food safety scares is negative, indicating the spillover effect of the 1997 food safety incident from Iran to the U.S. The food safety shock coefficient for the U.S. is positive, meaning food safety concerns benefit U.S. exports. It seems that the first scare from Iran, the largest pistachio producer and exporter, was the only incident that negatively affected U.S. pistachio exports.

Pistachios are more expensive than most tree nuts and they seem to be a luxury food item. The fact that EU countries consume more pistachios is in part due to their higher income levels, and as incomes grow throughout the world, there should be more pistachio consumption. This increased consumption of pistachios will likely drive growth in the U.S. industry, increasing labor demand and employment.

Proper packaging is important to improve food safety. Improperly packaged pistachios can be contaminated during processing, transportation or storage.

Finally, U.S. producers must continue to be vigilant about food safety. The traceability system "provides ex post information" that helps consumers and suppliers to specify allocation of liability and stimulates compliance with food safety regulations. Thus it is beneficial to consumers, marketers and farmers for policy makers to consider mandatory traceability. It is beneficial for firms and marketers because the system clarifies liability and stimulates firms to implement stricter food safety rules. It is beneficial for consumers because they can consume safer food and, in case of a food safety event, they will have much better chances of getting compensated, leading to improved consumer confidence.

2011 Publications

Zheng, Z. and S. Saghaian. (2011). Time Series Analysis of U.S. Pistachios Export Demand in North America. Journal of Food Distribution Research, 42 (1): 124-129.

Shahnoushi, N., S. Saghaian, and N. Ashktorab.(2011). An Analysis of Aflatoxin Food Safety Concerns and other Factors Affecting Iran Pistachio Exports to European Union and Japan. International Food and Agribusiness Management Association (IAMA), June 20-23, Frankfurt, Germany.

Li, Xiaoqian and S. Saghaian. (2011). US Seafood Exports and HACCP Regulatory System. Selected poster, AAEA and NAREA Joint Annual Meeting, July 24-26, Pittsburgh, PA.

Li, Xiaoqian and S. Saghaian. (2011). Impact of HACCP on US Seafood Exports. Selected paper, the 21th Annual World Forum and Symposium, International Food and Agribusiness Management Association (IAMA), June 20-23, Frankfurt, Germany.

Zheng, Z. and S. Saghaian. (2010). Analysis of the Factors That Affect the US Pistachios Export Demand in North America. Selected paper, the Annual Conference of the Food Distribution Research Society (FDRS), October 16-20, Sandestin, Florida.