IDEAS home Printed from https://ideas.repec.org/p/ags/aaea16/252861.html
   My bibliography  Save this paper

Cost Pass Through and Welfare Effects of the Food Safety Modernization Act

Author

Listed:
  • Ferrier, Peyton
  • Zhen, Chen
  • Bovay, John

Abstract

The Produce Rules of the Food Safety Modernization Act (FSMA) marked the first instance of the FDA directly regulating food safety activities at the farm-level. Since most fruits and vegetables were covered, the law’s comprehensive ‘across-the-board’ implementation potentially created offsetting cross-price effects on the demand side since most producers would be bearing the implementation costs simultaneously. However, the fixed costs nature of some other regulations costs, the different distribution of farm sizes across commodities and the potential for some commodities to be exempted suggest that the effects would vary across commodities. We present an Equilibrium Displacement Model (EDM) to consider the effect of FSMA costs on prices and consumer and producer welfare. To parameterize the model, we use National Agricultural Statistics Service (NASS) and Food and Drug Administration (FDA) data to calculate the cost of implementing FSMA rules for 18 fruits and 21 vegetables, IRI storescan data to estimate demand elasticities, Agricultural Marketing Service data to calculate data wholesale costs shares, and supply elasticities from extant sources While varying across commodities, the average cost of implementing FSMA is 2.79 percent of farm revenue for fruits and 1.52 percent of farm revenue for vegetables, that farm prices increase by 1.68 percent (fruit) and 0.44 percent (vegetables), and that consumer prices increase by 0.70 percent (fruit) and 0.12 percent (vegetables). If there is no corresponding demand effect or cost saving at the farm level associated with the implementation of these regulations, farm welfare, as a percentage of revenue, falls by 1.11 percent (fruit) and 0.96 percent (vegetables). Also, we found that weak substitution patterns between commodities at the retail level caused off-setting cross-price effects to be weak.

Suggested Citation

  • Ferrier, Peyton & Zhen, Chen & Bovay, John, 2016. "Cost Pass Through and Welfare Effects of the Food Safety Modernization Act," 2016 Annual Meeting, July 31-August 2, Boston, Massachusetts 252861, Agricultural and Applied Economics Association.
  • Handle: RePEc:ags:aaea16:252861
    DOI: 10.22004/ag.econ.252861
    as

    Download full text from publisher

    File URL: http://ageconsearch.umn.edu/record/252861/files/Ferrier%20Zhen%20Bovay.pdf
    Download Restriction: no

    References listed on IDEAS

    as
    1. Deaton, Angus, 1988. "Quality, Quantity, and Spatial Variation of Price," American Economic Review, American Economic Association, vol. 78(3), pages 418-430, June.
    2. Abigail M. Okrent & Julian M. Alston, 2012. "The Effects of Farm Commodity and Retail Food Policies on Obesity and Economic Welfare in the United States," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 94(3), pages 611-646.
    3. Chen Zhen & Michael K. Wohlgenant & Shawn Karns & Phillip Kaufman, 2010. "Habit Formation and Demand for Sugar-Sweetened Beverages," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 93(1), pages 175-193.
    4. James Banks & Richard Blundell & Arthur Lewbel, 1997. "Quadratic Engel Curves And Consumer Demand," The Review of Economics and Statistics, MIT Press, vol. 79(4), pages 527-539, November.
    5. Diewert, W. E., 1976. "Exact and superlative index numbers," Journal of Econometrics, Elsevier, vol. 4(2), pages 115-145, May.
    6. Sato, Ryuzo & Koizumi, Tetsunori, 1973. "On the Elasticities of Substitution and Complementarity," Oxford Economic Papers, Oxford University Press, vol. 25(1), pages 44-56, March.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Agricultural and Food Policy; Food Consumption/Nutrition/Food Safety; Production Economics;

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ags:aaea16:252861. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (AgEcon Search). General contact details of provider: http://edirc.repec.org/data/aaeaaea.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.