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Economics of Traceability for Mitigation of Food Recall Costs

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  • Resende Filho, Moises de Andrade
  • Buhr, Brian L.

Abstract

We develop conceptual and process simulation models to determine the probability of a recall and predict its size. We compare the costs of recalls with and without traceability for a ten year planning horizon by simulating the expected recalls caused by Escherichia coli O157:H7 contamination for ground beef produced at one plant. As the costs of implementing a traceability system are not available, we calculate only the direct costs savings by the use of traceability. Results suggest that for a ten year period the value of traceability is about $263 million, and that the cost saving increase with the shelf life of the product. Additionally, improved quality control measures at each stage of production appear to be substitutes for traceability, but under some circumstances may serve as complements. As improved cost parameters and uses of information systems become more standardized, our models can be adapted so to simulate alternative costs/values for traceability and, therefore, support firms and policy makers´ decisions.

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Bibliographic Info

Paper provided by International Association of Agricultural Economists in its series 2012 Conference, August 18-24, 2012, Foz do Iguacu, Brazil with number 126193.

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Date of creation: 25 Jun 2012
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Handle: RePEc:ags:iaae12:126193

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Keywords: Traceability; Food Recalls; Quality Controls; Risk Assessment and Modelling; Agribusiness; Livestock Production/Industries; Production Economics; Risk and Uncertainty; C15; D81; L15; L66; M11;

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References

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  1. Trienekens, Jacques & Zuurbier, Peter, 2008. "Quality and safety standards in the food industry, developments and challenges," International Journal of Production Economics, Elsevier, vol. 113(1), pages 107-122, May.
  2. Zijun Wang & Victoria Salin & Neal Hooker & David Leatham, 2002. "Stock market reaction to food recalls: a GARCH application," Applied Economics Letters, Taylor & Francis Journals, vol. 9(15), pages 979-987.
  3. Dickinson, David L. & Bailey, DeeVon, 2002. "Meat Traceability: Are U. S. Consumers Willing To Pay For It?," 2002 Annual meeting, July 28-31, Long Beach, CA 19670, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
  4. Hooker, Neal H. & Nayga, Rodolfo M., Jr. & Siebert, John W., 1999. "Assessing The Economics Of Food Safety Activities: Studies Of Beef Slaughter And Meat Processing," Faculty Paper Series 24003, Texas A&M University, Department of Agricultural Economics.
  5. Jensen, Helen H. & Unnevehr, Laurian J. & Gomez, Miguel I., 1998. "Costs of Improving Food Safety in the Meat Sector (The)," Staff General Research Papers 1156, Iowa State University, Department of Economics.
  6. Jarrell, Gregg & Peltzman, Sam, 1985. "The Impact of Product Recalls on the Wealth of Sellers," Journal of Political Economy, University of Chicago Press, vol. 93(3), pages 512-36, June.
  7. Moises A. Resende-Filho & Brian L. Buhr, 2008. "A Principal-Agent Model for Evaluating the Economic Value of a Traceability System: A Case Study with Injection-site Lesion Control in Fed Cattle," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 90(4), pages 1091-1102.
  8. Bulut, Harun & Lawrence, John D., 2007. "Meat Slaughter and Processing Plants’ Traceability Levels Evidence From Iowa," 2007 Conference, April 16-17, 2007, Chicago, Illinois 37576, NCCC-134 Conference on Applied Commodity Price Analysis, Forecasting, and Market Risk Management.
  9. Alfaro, Jos A. & Rbade, Luis A., 2009. "Traceability as a strategic tool to improve inventory management: A case study in the food industry," International Journal of Production Economics, Elsevier, vol. 118(1), pages 104-110, March.
  10. Fritz, Melanie & Schiefer, Gerhard, 2009. "Tracking, tracing, and business process interests in food commodities: A multi-level decision complexity," International Journal of Production Economics, Elsevier, vol. 117(2), pages 317-329, February.
  11. Ollinger, Michael & Moore, Danna L. & Chandran, Ram, 2004. "Meat And Poultry Plants' Food Safety Investments: Survey Findings," Technical Bulletins 33559, United States Department of Agriculture, Economic Research Service.
  12. Christophe Charlier & Egizio Valceschini, 2008. "Coordination for traceability in the food chain. A critical appraisal of European regulation," European Journal of Law and Economics, Springer, vol. 25(1), pages 1-15, February.
  13. John A. Fox & David A. Hennessy, 1999. "Cost-Effective Hazard Control in Food Handling," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 81(2), pages 359-372.
  14. Shiptsova, Rimma & Thomsen, Michael R. & Goodwin, Harold L., Jr., 2002. "Producer Welfare Changes From Meat And Poultry Recalls," Journal of Food Distribution Research, Food Distribution Research Society, vol. 33(02), July.
  15. Buhr, Brian L., 2003. "Traceability And Information Technology In The Meat Supply Chain: Implications For Firm Organization And Market Structure," Journal of Food Distribution Research, Food Distribution Research Society, vol. 34(03), November.
  16. Michael R. Thomsen & Andrew M. McKenzie, 2001. "Market Incentives for Safe Foods: An Examination of Shareholder Losses from Meat and Poultry Recalls," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 83(3), pages 526-538.
  17. Pouliot, Sebastien & Sumner, Daniel A., 2010. "Traceability, Liability, and Incentives for Food Safety and Quality," Staff General Research Papers 32126, Iowa State University, Department of Economics.
  18. Jensen, Helen H. & Unnevehr, Laurian J. & Gomez, Miguel I., 1998. "Costs Of Improving Food Safety In The Meat Sector," Journal of Agricultural and Applied Economics, Southern Agricultural Economics Association, vol. 30(01), July.
  19. Scott A. Malcolm & Clare A. Narrod & Tanya Roberts & Michael Ollinger, 2004. "Evaluating the economic effectiveness of pathogen reduction technologies in cattle slaughter plants," Agribusiness, John Wiley & Sons, Ltd., vol. 20(1), pages 109-123.
  20. Golan, Elise H. & Krissoff, Barry & Kuchler, Fred & Calvin, Linda & Nelson, Kenneth E. & Price, Gregory K., 2004. "Traceability In The U.S. Food Supply: Economic Theory And Industry Studies," Agricultural Economics Reports 33939, United States Department of Agriculture, Economic Research Service.
  21. Resende-Filho, Moises & Buhr, Brian, 2006. "A Principal-Agent Model for Evaluating the Economic Value of a Beef Traceability System: A Case Study with Injection-site Lesions Control in Fed Cattle," MPRA Paper 467, University Library of Munich, Germany.
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Cited by:
  1. Roth, Michael & Doluschitz, Reiner, 2007. "KOSTEN-NUTZEN-ANALYSE FUR QUALITATSSICHERUNGS UND RUCKVERFOLGBARKEITSSYSTEME IN WERTSCHOPFUNGSKETTEN TIERISCHER PRODUKTE (German)," 47th Annual Conference, Weihenstephan, Germany, September 26-28, 2007 7589, German Association of Agricultural Economists (GEWISOLA).

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