September 18, 2010
Keep on Cooking Your Eggs and Washing Your Pre-Washed Spinach Thoroughly
Fortunately for me, I don't like peanut butter. From NYT, on the Senate bill to expand FDA powers and increase funding:
The latest hope for the bill's advocates was that Senator Harry Reid of Nevada, the Democratic leader, would schedule a vote on the bill this week. But the Senate calendar is full of measures that need to be passed before members leave in October to campaign, so Mr. Reid sought a routine agreement to limit debate on the measure.
Senator Tom Coburn, Republican of Oklahoma, refused, saying that the powers granted to the F.D.A. in the bill would have financial costs, and that those costs needed to be offset by spending reductions.
Mr. Coburn also expressed doubts that expanding the authority of the F.D.A. would "result in improved food safety," said John Hart, his spokesman.
Entire article here, with explanation of the main impediments to the bill's passage.
It's not clear to me that we even have a problem with our food supply. Certainly, I don't feel at risk (sensationalized news coverage notwithstanding), and I'm not even as careful with my vegetables as you are. What is the outcome that you wish to regulate toward here?
So, I am happy to provide some data on costs of foodborne illnesses. (For scaling, annual US nominal GDP is about $14.6 trillion). From Gastroenterology 136(6), an article by Buzby and Roberts (p. 1860):
...Roberts48 [Amer. J. Agricultural Economics, 2007] estimated the annual cost of all foodborne diseases in the United States to be $1.4 trillion; this value might be too high because of factors such as protest bids, but there are also reasons why this study might have underestimated the total costs, such as the chronic sequelae that were not included. If instead, we consider the more modest cost estimate for 6 foodborne bacteria and 1 parasite in the United States of $6.5–$34.9 billion as a base from which to informally extrapolate to a global estimate of foodborne disease...
The article is gated, but you can see a powerpoint presentation that draws on some of the same material here.
Of course, as economists, we should ask, in addition to total costs, what is the marginal benefit of a dollar spent on regulation versus the marginal benefit. If anyone has some point estimates, send them along. Better to light a candle than curse the darkness.
Some history on the long delayed egg regulations, here.
Posted by Menzie Chinn at September 18, 2010 10:21 AMdigg this | reddit
We're obviously trying to get solid credentials for membership in the group of third world countries.
When democracy finally fails here, it won't be much missed.
Posted by: don at September 18, 2010 01:29 PM
Who needs the FDA when you've got Michelle Obama, Restaurant Menu Czar?
Posted by: W.C. Varones at September 18, 2010 06:13 PM
Menzie, what about "hot pot", don't you stick your veggies in the sesame seed sauce??? Come on dude!! Try some if you're ever in northeast China.
I think they have their version of FDA in China, but it didn't stop them from putting poison (melamine) in babies milk to kill some babies for a few RMB in profit.
I am a Democrat, but I am afraid on this issue I have to sound like a "conservative" in that I think you can have a big agnecy or many agencies for food safety, if people in the agencies or that society don't have morals, it doesn't do you much good. That doesn't mean I am against more funding for the FDA if it is used wisely---just making a point.
Posted by: Ted K at September 18, 2010 06:58 PM
Most people have no clue nor do they want to regarding what goes on in slaughterhouses.
Posted by: purple at September 18, 2010 07:35 PM
IMO we need to move from a government administered direct food safety regulatory system to one with government supporting a indirect third-party system with the proper incentives, including moral hazard, aligned for all the parties.
If the incentives for all the parties in the product path aren't present and aligned properly, Congress can't write enough legislation or throw enough taxpayer money at the problem to fix it through direct regulation, whether it is food safety, the drug war, or financial derivatives. As a consequence of improperly aligned incentives, we move from wreck to wreck to wreck.
Indirect regulation for our wealth works reasonably well (without infinite resources, perfection is impossible) through CPAs and accounting firms auditing public stock companies falling under the jurisdiction of the SEC. The USDA Organic and similar label claim processes with the USDA auditing the third party certifiers appear to work reasonably well in light of the taxpayer investment compared to what would be needed if it were direct.
Compared to our current direct regulation-based system, a properly constructed third-party system would be more flexible, cost less, and would move much more quickly to incorporate new technologies and to develop solutions to problems due to such things as producer scale and the emergence of new products, new forms of distribution. Such a system would likely reduce the constant battle between the opposing stakeholders who shower legislators with large sums of money to gain the upper hand, reduce the incentive for political tinkering and grandstanding, and reduce the problems due to regulatory capture that inevitably occurs with the present system.
The current system rewards continual ineffective actions on Congress’s part. During such a sausage making process organized, powerful stakeholders invest significant money or other resources to enhance incentives favorable to them, such as tax incentives, and eliminate those they view as unfavorable, such as enhancing marketplace competition or rewarding economic efficiency. It is no surprise that as a government agency benefiting from the additional funds to support additional regulatory authority, the FDA doesn't have any incentive to opt for a more efficient regulatory system. Similarly, without positive incentives it is no surprise that little formal cooperation occurs between Federal agencies down at the inspector level. In fact, doing so without a formal structure is more likely to get you fired than a pat on the back.
With a properly established third-party system the marketplace would quickly euthanize the bad actors because firms at the end of the chain wouldn't stand for this - Albertsons, Safeway Eggs Recalled (http://www.thedenverchannel.com/health/24658976/detail.html ). Then this type of wreck - http://www.emaxhealth.com/1272/fda-inspection-report-shows-nauseating-and-filthy-conditions-iowa-egg-farms - would happen infrequently if at all because it would be stopped before a wreck started. That facility would have failed a third party audit and the eggs never labeled with the standard that Albertson, Safeway, and others use.
Much like other food labeling, such as organic and others, this system has to be based on branding that has value to each stakeholder in the marketplace chain.
Posted by: Anon at September 18, 2010 08:46 PM
Ted K: I would hope that we could set up a better regulatory framework than the People's Republic of China.
Anon: While I'm all for aligning incentives so that agents restrict themselves from adulterating food, etc., I think the record of self-regulation (think about all those properly aligned incentives in the financial sector, in recent history; you don't even have to think AIG -- what about Enron?) bodes ill for such an approach being fully successful.
Posted by: Menzie Chinn at September 19, 2010 04:28 PM
I'm all for third party labeling, such as that for organic food. It should be officially encouraged and subsidized, if necessary. Case in point is the need to identify genetically engineered food. If that were labeled, this particularly insidious development would stop in its tracks.
But that's not necessarily in conflict with more robust government inspection. And enforcement of penalties.
Posted by: beezer at September 20, 2010 05:02 AM
Thank you for your response.
With regard to Enron, do you recall what happened to the third party "certifying" Enron, Arthur Anderson? It no longer exists!
I'm absolutely not advocating self-regulation.
My opinion is based on watching FDA food regulation more closely than most folks, including being involved in science and policy at the national level. IMO the FDA regulatory role must be amplified through accountable, bonded third party structures in the private sector with appropriate moral hazard for all.
Having watched the FDA and USDA do their regulatory work, being familiar with both the science and the particular regulatory codes (people ought to read that stuff!), watching Congress make sausage, and for several decades having an allied professional role in the regulated industry, I'm convinced that Congress cannot write enough regulations or spend enough taxpayer money to achieve the level and consistency of food safety that people desire and expect. I'm very familiar with the frustration of the regulatory officials on the front lines, having large but underfunded mandates, and that of their supervisors. I've watched the dance between the industry, the regulators and the politicians.
On the dairy side, the literature shows that producers and processors respond quickly to direct financial incentives. Agencies don't; sort of like changing curriculum. :-) To get a sense of the gap between appropriately aligned economic incentives and the direct regulatory approach, compare the current FDA PMO (pasteurized milk ordinance)to the standards of many fluid milk processors.
IMO spending more money on the current system of direct regulation will not improve it significantly relative to the investment. Instead, IMO it is time to design and implement a different system.
Posted by: Anon at September 20, 2010 07:02 AM
I wonder if regulating eggs and spinach production comes under what 15 percent of businesses surveyed consider employment stalling "government regulation and red tape" (see JDH's post).
Anon: "...what happened to the third party "certifying" Enron, Arthur Anderson? It no longer exists!"
Well, not quite. You're half right. Anderson did what every large company does that gets caught doing bad things...they changed their name to protect the guilty. It's true that the accounting side of Arthur Anderson no longer exists, but the very profitable consulting side quickly wrote up a divorce decree and changed its name to Accenture. New name, same cast of characters.
Posted by: 2slugbaits at September 20, 2010 04:56 PM
Senator Coburn's argument, truncated in the opening for ideological purposes, is that the legislation would add $1.4 billion to the deficit while adding to the already duplicate duties of the FDA and U.S. Department of Agriculture. Senator Coburn also questioned some of the proposed regulations stating that these regulations could prove burdensome without improving food safety.
Quite reasonable in my book: lets look at the impact of the legislation before passing it. This legislation, in it current state, is nothing more than political tomfoolery initiated to garner political points.
Why trust the current leadership? After all it was this administration that said the following about the health care bill: "But we have to pass the bill so that you can find out what is in it, away from the fog of the controversy".
Posted by: Babinich at September 23, 2010 02:51 AM
I gather from the title of your post that you're reacting to a couple of high-profile food safety recalls from the past few years. I'd like to know what you think is a reasonable rate of recall incidents. Once a year? Once a decade? Never under any circumstances ever? Once that's established, I'd ask, why do you think expanded FDA authority in general, and this bill in particular, would do a better job of meeting that standard than self-policing? What rate of food safety recalls could we expect under the regulations proposed by the bill?
It seems to me that you're applying a double standard here, the same one always applied by champions of more regulation. Any bad outcome from market processes or self-policing is seen as proof that those processes are inadequate. Contrariwise, bad outcomes from regulatory processes are excused as understandable human error, or they are cited as evidence that even more regulatory authority is needed.
I can see further evidence of this thinking in you invoking Enron in response to another commenter. There are thousands of publicly listed companies, and in all but a couple third-party auditing produced good behavior. But those outliers are, apparently, sufficient evidence that the system was broken. On the other hand, the SEC was presented with conclusive evidence of Bernie Madoff's fraudulent investment scheme long before it blew up, and it failed to act. But I'm guessing you excuse them for it, and perhaps think they need even more authority and funding. Am I right?
Finally, I'm wondering if you really think we have an unsafe food supply in this country? Be honest with me; when you open up a bag of spinach, do you seriously worry that it might be contaminated? Of all the things I worry about on a day-to-day basis, I have to say, contaminated food is way down the list. It sounds to me like this bill is a panic reaction to a flashy news story about something that in reality almost never happens.
Shouldn't we step back and ask ourselves if this bill will provide an effective solution to a problem that we actually have? And isn't that just what Senator Coburn is saying in the passage you quoted? Can you really argue that that is an unreasonable position?
Posted by: rpl at September 24, 2010 05:24 AM
2slugbaits, you really have no idea what you're talking about. Andersen Consulting completed its split from Arthur Andersen, LLP in August of 2000, after more than 10 years of trying to break away. The name change to Accenture took effect on New Year's Day 2001 (part of the terms of the settlement was that the consulting business could no longer use the Andersen name), and the Enron scandal didn't break until later that year. Arthur Andersen was disbanded as an auditing firm in August 2002, by which time Accenture had been on its own for two years.
Moreover, the partners and staff of Andersen did not go to Accenture after Andersen was disbanded. How could they? Accenture doesn't even do auditing work. In fact, many (most?) of the Andersen staff went to an auditing firm called Protiviti.
Posted by: rpl at September 24, 2010 05:38 AM
But the third-party certifying has to be done right with the proper incentives and moral hazards in place. Currently it is not and they are not.
Food safety auditors can suck: Salmonella-in-egg producer got A-OK from same auditor that OKed salmonella in peanut paste
These egg producers are apparently widely recognized bad actors with both a bad history and bad current practices that are likely well known to the industry "grape vines." I'm betting that McDonald's, Yum Brands and Whole Foods have proactive policies in place that for some time excluded purchasing eggs from these operations.
Posted by: Anon at September 24, 2010 08:14 AM
Babinich: Senator Coburn's fiscal hawk credentials shine only when it concerns spending, and never when it concerns tax cuts...
rpl: I teach at a public affairs school; benefit-cost analysis is in the core of the curriculum. I have no problem with applying benefit-cost analysis to the calculations. But you provide no evidence against the implementation of these particular regulations (which must be sensitive to your cost-of-life calculations -- I think I can guess your estimate...).
By the way, your logic has some interesting implications. It suggests that maybe it was a good thing to have the financial crisis of 2008 -- because it was associated with the deregulation and non-regulation of large swathes of the financial system that enabled tremendous financial innovation, and the occasional crises are the necessary cost of taking some risks. My estimate based on CBO projections of January 2010 imply a cumulative projected GDP loss of 3.53 trillion (Ch.2005$) by the time output returns to potential. Was it worth it? (and was it worth it to you, versus the average investment banker? -- this in turn brings up the averaging issue, as well as other assumptions necessary to be able to aggregate up marginal utilities.)
Posted by: Menzie Chinn at September 24, 2010 11:09 AM
rpl: I missed your direct questions before. Call me compulsive, but we wash our prewashed spinach. I ask for my hamburgers "well done". You know my answer for peanut butter.
Posted by: Menzie Chinn at September 24, 2010 11:14 AM
Cost-benefit analyses are nice, but I'm not asking for anything so detailed. I just want to know you how often you think food recalls should happen in a country with a "safe" food supply. It's not clear to me that we even have a problem with our food supply. Certainly, I don't feel at risk (sensationalized news coverage notwithstanding), and I'm not even as careful with my vegetables as you are. What is the outcome that you wish to regulate toward here?
But you provide no evidence against the implementation of these particular regulations (which must be sensitive to your cost-of-life calculations -- I think I can guess your estimate...).
Sure, whatever. Guess away, but I don't see how it's relevant. I'm just curious as to why you think that these regulations will result in fewer recall incidents and what sort of incident rate you think is realistically achievable. Are those unreasonable questions to ask?
My personal opinion is that whether you have regulations or not, these things happen sometimes (where "these things" could be food recalls, corporate malfeasance, fraudulent investment schemes, or whatever). Anybody who claims they can make them stop entirely is probably overly optimistic, to put it charitably. A corollary to that observation is that the occasional incident doesn't necessarily mean that the system is unsafe and needs to be changed. Do you disagree?
Posted by: rpl at September 24, 2010 01:37 PM
rpl: Ah, I see, "stuff happens", so might as well not bother trying to stop them from happening. Heck, stuff happens with new drugs, so why bother funding FDA -- a few NSAIDS won't hurt most of us.
It does seem to me we have repeated problems with our food supply, and what was acceptable in Upton Sinclair's day is not acceptable now (makes sense as imputed cost-of-life rises). I want to spend as much so that the marginal benefit from a dollar of expenditure equals the marginal costs from suffering from food borne illnesses -- not the number of episodes (there are a lot of people sickened in some of these episodes, and deaths as well, just in the egg episode). So, I'm willing to spend an extra billion a year to check my food supply, given we've spent nearly 800 billion FY2010$ in the Iraqi theater of operations (ex.-VA), through September 30, 2010. I'm guessing the benefit cost ratio for an additional $1.4 billion exceeds unity, but I agree, we don't have a benefit cost study yet.
Posted by: Menzie Chinn at September 24, 2010 02:23 PM
Oh my goodness this is going to be an interesting.
The organic / local food / small producer wing of the "progressive" food movement
is going to get run over and crushed by the
"if it moves regulate it and scared if their own shadows" wing of the "progressive" food movement.
All kidding aside the food safety bills have the small scale and organic producers fearing for their future.
They have serious concerns that as currently written these regulations are impossible for small producers to comply with in a cost effective manner.
Which will drive the small producers out of business.
Posted by: Duracomm at September 24, 2010 05:17 PM
Ah, I see, "stuff happens", so might as well not bother trying to stop them from happening. Heck, stuff happens with new drugs, so why bother funding FDA
Hardly. Some risks are too small to bother worrying about. I happen to think this is one of them. Some safety measures don't actually improve safety. I happen to think that these are among them. I am open to persuasion on both of these matters, but you haven't offered anything remotely persuasive about either. In fact, most of your responses haven't engaged with those topics at all, preferring instead to set up ridiculous false dichotomies. I doubt you would be convinced by such specious reasoning, so I'm puzzled that you think anyone else would.
Take the passage above. Did you really think as you typed it that I would read it and say to myself, "Gosh, Professor Chinn's right. If I'm opposed to this regulation, I really am opposed to the FDA and everything it does"? Would you, if our situations were reversed? I assume not, so I wonder why you bothered to post it at all.
Posted by: rpl at September 26, 2010 06:54 AM
rpl: I guess my priors are different than yours -- partly informed by having a gastroenterologist in the family. Well, from the journal Gastroenterology, 136(6) (2009):
Roberts48 estimated the annual cost of all foodborne diseases in the United States to be $1.4 trillion; this value might be too high because of factors such as protest bids, but there are also reasons why this study might have underestimated the total costs, such as the chronic sequelae that were not included. If instead, we consider the more modest cost estimate for 6 foodborne bacteria and 1 parasite in the United States of $6.5–$34.9 billion as a base from which to informally extrapolate to a global estimate of foodborne disease...
This is a total cost, and what we need to know is the marginal costs and benefits of a dollar's worth of spending along various dimensions of regulation. But if you think the problem is small and limited to a few episodes, I think I have a stronger case than you do (since you have provided no data at all.).
Nonetheless, I agree that this topic merits more discussion, and you can rest assured that I will highlight your concerns/assertions in a (near) future post.
Posted by: Menzie Chinn at September 26, 2010 11:09 AM
Here is an article / rant that categorizes the many ways existing regulations make it very difficult to run a small scale, locavore serving, organic operation.
The trick is designing regulations that improve food safety while not crushing the small / local / organic producers that everyone loves so much. Not and easy or trivial process.
Catch 22 makes a guest appearance in this guys article.
As if a highly bureaucratic regulatory system was not already in place, 9/11 fueled renewed acceleration to eliminate freedom from the countryside.Here is one example
And it doesn’t stop with agriculture bureaucrats.
It includes all sorts of government agencies, from zoning, to taxing, to food inspectors. These agencies are the ultimate extension of a disconnected, Greco-Roman, Western, egocentric, compartmentalized, reductionist, fragmented, linear thought process.
When I return home to sell these delectable packages, the county zoning ordinance says that this is a manufactured product because it exited the farm and was reimported as a value-added product, thereby throwing our farm into the Wal-Mart category, another prohibition in agricultural areas.
Just so you understand this, remember that an on-farm abattoir was illegal, so I took the animals to a legal abattoir, but now the selling of said products in an on-farm store is illegal.
Posted by: Duracomm at September 26, 2010 04:37 PM
Mead PS, Slutsker L, Dietz V, McCaig LF, Bresee JS, Shapiro C, Griffin PM, Tauxe RV (1999). Food-Related Illness and Death in the United States. Emerging Infectious Diseases 5(5):607-625.
Tauxe RV (2001). Food Safety and Irradiation: Protecting the Public from Foodborne Infections. Emerging Infectious Diseases 7(3) Supplement,
Roberts T (2007). WTP ESTIMATES OF THE SOCIETAL COSTS OF U.S. FOOD-BORNE ILLNESS Amer J Agr Econ 89(5):1183–1188
Scharff RL (2010). HEALTH-RELATED COSTS FROM FOODBORNE ILLNESS IN THE UNITED STATES
Returning to the regulatory issue, from the GristMill post "Revelations from the House egg-recall hearing"
A quote from an e-mail between the producers that was disclosed at the hearing:
"WE [sic] are not sure how we want to proceed in Iowa as we have been told by Costo [sic] and Wal Mart that they will not be doing any business if Jack and his people have any involvement in management or ownership."
This "euthanasia" of bad actors must happen in a properly functioning food safety system but well before any large outbreaks have to occur to trigger it. These egg production firms are apparently widely recognized bad actors with clear evidence of both a bad history and bad current practices, information that is likely widely spread through the industry "grape vines" and well known to the major players.
Now WalMart and Costco (and probably Safeway and others) "wake up" but too late for the Salmonella-infected consumers. I expect that McDonald's, Yum Brands and Whole Foods have proactive policies in place that for some time excluded purchasing eggs from these operations.
All the incentives, including moral risk, have to be aligned properly for all parties, including the third party certifiers, but they are clearly not here -
Food safety auditors can suck: Salmonella-in-egg producer got A-OK from same auditor that OKed salmonella in peanut paste
It seems to me that considerably more rigorous regulation the third-party certifiers must be a major role of government here. AFAIK, about all the government does now is provide lab procedure standards and certification processes for these that a certifier can elect to use or not. As part of ensuring that proper incentives are in place, is seems to me that jeopardy from harmed parties being legally entitled to compensation from these third party certifiers should be in place if it is not.
Further, it appears to me that the current federal direct regulatory system often ends up acting as a shield and impedes progress because it reduces the incentives for firms to compete on the basis of food safety and quality. Otherwise, they would make damn sure that being certified by a third party meant something far more than the equivalent to a Good Housekeeping or ADA Seal of Approval.
Posted by: Anon at September 26, 2010 04:58 PM