Demand Enhancement through Food-Safety Regulation: Benefit-Cost Analysis of Collective Action in the California Pistachio Industry

Food safety shocks can threaten the health of consumers, create havoc within an industry and result in severe losses to producers. Governments often attempt to enhance food safety by mandating standards and inspection of food products to supplement the voluntary efforts by private firms. This paper assesses a form of collective action that falls between typical government mandates and purely private action. The California pistachio industry recently established a U.S. federal marketing order. This order sets quality standards and requires inspection and certification, aiming to reduce the likelihood of dangerous or poor quality pistachios being sold to consumers and to provide some quality assurance to consumers. Simulation results indicate that, across the full range of parameters used in the analysis, the benefit-cost analysis was always favorable to the new policy. Continuing work is extending the analysis to account for some particular features of the pistachio industry, to consider alternative policies, and to draw inferences for the application of similar policies to other California specialty crops.