Economics of Traceability for Mitigation of Food Recall Costs

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.