N.I. Valeeva

Economics of food safety in chains: a review of general principles

The increased demand for safer food has resulted in the development and introduction of new food safety standards and regulations to reach a higher level of food safety. An integrated approach of controlling food safety throughout the entire food chain (‘farm to table’) has become an important issue in improving the food safety level, but little is known about its economic aspects. This paper reviews important issues in this field, namely the definition of safe food, the nature of food safety hazards, the establishment of acceptable hazard levels, the strategy of food safety improvement and the methods for valuing the improvement. Methods considered are risk-risk analysis, health-health analysis, cost-effectiveness analysis and conventional cost-benefit analysis. Food safety itself is complex and there is no single indicator to measure it. Also, acceptable levels of food safety hazards need further elaboration to clarify the process of food safety improvement for producers. It is furthermore important to gain more insight into cost-effective ways of food safety improvement throughout the entire chain. Valuation of producers’ benefits along the chain and their distribution are urgently needed.

The insurability of product recall in food supply chains

Insurers face growing difficulties with insuring food-related risks among others due to an increasing number of product recalls and an increasing amount of claims being pushed back into the chain. This paper focuses on the risk of product recall in dairy supply chains. The paper aims at providing insurers with useful tools for insurance design and claim handling. More specifically, the objectives of this paper are (1) to define product recall, aimed at recognizing recall perils and losses; (2) to identify important precautionary action points and related control measures, for underwriting and class-rating purposes; (3) to develop a risk assessment framework, as a tool for calculating premium levels; and (4) to evaluate third-party verifiability of due diligence, aimed at identifying eligibility for insurance payments. Precautionary action points are prioritized with adaptive conjoint analysis. In the risk assessment framework, case studies are used to quantify the size of losses. Additionally, throughout the paper, expert consultation has been an important source of information. Results show that perils and losses of product recall need to be strictly defined, preferably on a case-by-case basis. Also, case studies show that recall losses easily cumulate as losses are yet between Euro 210,000 and Euro 2,300,000 for only a limited number of recall expenses and contaminated products. Furthermore, in relation to the third-party verifiability of due diligence, difficulties are encountered at the farm level. We conclude that, if risks are properly defined and insurance schemes incorporate adequate due diligence and disclosure incentives for all chain participants, product recall remains an insurable type of risk, even if the number of recalls will further increase.