Third Party Food Inspection Agency Outside Country Could Help Term Paper

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Canadian Food Safety: A Wider Look

Food Safety

Canadian Food Safety: A Wider Economic Look

Say there are only two grocery stores, your family is getting hungry and will eventually starve. In one store, everyone knows there is one product on the shelves that secretly is deadly poison and if all the food is purchased and consumed, whoever gets the poison will inevitably die a prolonged, agonizing death. The product can be on the front of the shelf or in back; could be an apple or an orange, a gallon of milk or a grain of rice; and it is definitely there somewhere. In the second store, there was a small but significant chance that anyone could possibly be killed at any time by any of the products. Where would you buy your family's dinner?

Then say I knew which product was the secret poison: How much would you pay for that knowledge? Then you could go to the first store and avoid the risk in both. What is the price of your or your family's life? You might pay say, two dollars, readily. On the other hand were the price two million dollars, the risk might seem more acceptable. Of course tomorrow is another day, a different secret poison product, and another two to two million. You all may also be killed on the way to the store, or if you simply do nothing. In fact the only certainty is that you will eventually starve to death without eating.

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There are more than two grocery stores in Canada but otherwise this story is only a mild exaggeration. Ottowa's Globe and Mail has framed the evaluation and cost of risk reduction in terms of food safety, in a series of articles that shed light on principles underlying decisions as fundamental as what we can eat or not. As shares of imports to total food increases but Federal inspection resources remain unchanged, the relative number of actual products inspected falls, firms complain regulation cuts into bottom lines, and consumers respond they should get safe food for prices they already pay. Meanwhile, people occasionally die from imported food.

Term Paper on Third Party Food Inspection Agency Outside Country Could Help Assignment

This paper will define the issue of food safety in more abstract economic terms, especially 'moral hazard' and 'adverse selection,' because these concepts underlie the decision processes the Globe and Mail frames in terms of food safety. These principles are described at length in a voluminous and expanding theoretical and applied literature, particularly regarding risk-based industries like finance and insurance, but which underly any market transaction where one party has more information than another. The questions of how much and which food should be inspected, who should oversee that and how much such inspection is worth, boil down to the simple questions of how much the consumer is willing to pay to reduce risk. This essay will outline these principles and argue the Globe and Mail story (series) both misrepresents certain aspects of this discussion, and entirely overlooks major costs and benefits that result from higher or lower levels of risk from imported food, regardless who inspects it.

Background and definition of concepts from the literature

Globe and Mail writer Steven Chase quotes food expert Rick Holley claiming "[f]ood safety in Canada, believe it or not, is an accident. It really is" (2010). In a literal sense, Holley's assertion refers to statistical sampling, whereby an attribute of a population, here food safety, is generalized from a partial sample for various reasons, usually the cost of testing all items of the population. With food, a different problem arises, in that testing destroys the food. The result would be nothing to eat, as writer Jessica Leeder (2010) points out in a companion article, quoting another expert from the Canadian Food Inspection Agency (CFIA). Therefore, if the sampling procedure is truly random, then safe food is literally "an accident" (Rick Holley, qtd. In Chase, 2010), because its safety is inferred from its proximity to food that actually was tested. Chase (2010) cites other expert opinion supporting this further on in the article.

But this is not the entire sense in which the quotation is employed. In a figurative sense, a government advisor disparaging food inspection for millions of potential consumers distorts the literal truth that the presence of a food on a grocer's shelf implies it has not been specifically inspected. Chase (2010) aggravates this sensationalism citing other past regulators but balances that by revealing incidence of food-borne illness is very low -- about four hundredths of a percent of meals eaten per year, at least for "acute gastroenteritis" (Chase, 2010), and that much of that incidence is caused by consumers after sale. Chase (2010) also reveals that reducing this incidence would take a vast increase in cost in order to achieve statistically measurable improvement. A critical reader must also look for bias in such quotations, because these inspectors have a stake in an expanding agency, i.e. their jobs. The result is a typical media balance of exaggeration between alarmism and the banal, except that the author makes one misstatement which is categorically inaccurate, and thus opens a window to discussion of the underlying theories of information asymmetry, adverse selection and moral hazard, via the question of who would bear the cost of inspections these experts claim are such an emergency.

Framing food safety as an "accident" (Chase, 2010) may be a distortion, but claiming that

"Ottawa's plan to require companies to provide information that traces primary food products back to their source will force new costs on companies, consumers and, inevitably, taxpayers" (Chase, 2010) is only partially true. Requiring increased information could cost distributors more, but they will pass this on to consumers, take less profits, or fold if either of those is impossible, true enough. Chase's error lies in using "inevitably" (2010). There are market-based options in which the taxpayer may not bear a cost increase at all, if the distributors or producers either comply voluntarily, or face inspection by independent third parties not funded by the Canadian taxpayer. The first option carries moral hazard because of information asymmetry. The second option would result in more of a 'user-fee' system wherein if the Canadian taxpayer did not want to pay for higher inspection cost for specific foods, she could choose an uninspected product or not eat high-risk foods, and thus would not bear the cost of regulation she did not incur. In such a case the Canadian might actually not see tax cost increases at all, and while this constructed example may carry other costs all consumers could bear, the direct cost of the inspection program would not "inevitably" devolve onto the taxpayer (Chase, 2010). Such a scheme may however induce tax costs Chase ignores, especially if price increases at the shelf exacerbate adverse selection in health care. This entails definition of these terms.

'Information asymmetry' is an academic way of saying that one person has more information than the other. In a market context this can move in two directions, usually where a seller knows that a good is worth less than the price or is known to malfunction at a certain rate, but consumers can also have superior information for example if a purchaser knew they were going to default on debt or had a potential health complication in the case of insurance. In the context of the Chase 2010 article, food producers and distributors hide the fact their products violate Canadian import standards, resulting in illness and recalls the CFIA would avoid through increased information about product origins. This sets up a market-based solution that encourages distributors and consumers to shun bad producers after violation, where distributors have a profit motive in making sure no violating product crosses the cash register. Harvard Economist Gregory Lewis (2007) points out information must be credible, which brings us to the problem with private-sector monitoring, the incentive to cheat, 'moral hazard.'

Nottingham University's Kevin Dowd explains that moral hazard arises when one agent has incentive to promote their own interest over the interest of others under their protection (2009). Moral hazard commonly arises when an actor does not bear the consequences of risk they decide to incur or not (gambling with others' money), assigns their own pay out of others' income, or gets paid the same regardless of productivity (Dowd, 2009). In our context producers have an incentive to pass on bad food to distributors if the retailer pays the consequences (Chase, 2010). In a fundamental sense Chase overlooks, if ingredient producers export substandard product in order to avoid taking a loss, the only way they directly bear the risk they generate is if they actually eat their own product. If a producer makes someone else sick without punishment, the financial incentive to keep cheating this way is called moral hazard. If the private sector's interest is contrary to or out of line with the public's, and the State represents the public interest against the private sector, then a dwindling share of State inspection may justify… [END OF PREVIEW] . . . READ MORE

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