Two massive recalls of ground beef and turkey luncheon meats linked
to foodborne illnesses in the Midwest and Northeast in the fall
of 2002 put food safety concerns back in the headlines. These unusually
large recalls are part of an increasing number of meat and poultry
recalls over the past several years (see "Recalls
on the Rise").
Despite these troubling signs about the safety of meat and poultry
products, industry and government regulators have been taking steps
to improve food safety and, in fact, the increase in recalls signals
more diligence and better detection technology. Market mechanisms,
such as product branding and stricter food safety requirements imposed
on suppliers by large buyers, are bolstering the levels of food
safety in some cases above those required under regulation.
Recalls on
the Rise
The number and size of recalls have increased dramatically
over the last decade. During 1993-96, the number of
meat and poultry Class I recalls averaged about 24 per
year and amounted to 1.5 million pounds annually. During
1997-2000, Class I recalls averaged 41 per year and
reached 24 million pounds annually. Class I recalls
involve meat or poultry products that could, especially
without cooking to safe temperatures, cause serious
illness or death. Class II and III recalls have little
chance of being harmful.
Three regulatory changes help explain why recalls have
increased. First, in 1989, USDA's Food Safety and Inspection
Service (FSIS) declared Listeria monocytogenes
in ready-to-eat meat and poultry to be an adulterant,
adopted a zero tolerance policy (no detectable level
permitted), and began testing meat and poultry for this
pathogen. In 1994, FSIS took the same action for E.
coli O157:H7 in ground beef. These pathogens account
for most of the Class I recalls. Second, FSIS began
testing a larger sample of meat and poultry for pathogens
in 1997 and introduced a new, more sensitive testing
technology in 1999. Third, the Centers for Disease Control
and Prevention (CDC) is becoming more adept at identifying
foodborne illness outbreaks as it gains more experience
in tracking such diseases.
These regulatory changes are reflected in recent recall
trends. Class II recallsfor which there were minimal
regulatory changesdeclined both in number and
pounds of output during the same period that Class I
recalls skyrocketed.
Class I recalls rose dramatically in 1997-2000 but Class
II recalls declined...
And volume of recalls followed the same pattern.
Branding Encourages Food Safety
Consumers surely want safe food every bit as much as they want
food that looks appealing, tastes good, and is convenient to prepare.
However, unlike fat content, consumers cannot accurately measure
food safety. For example, many consumers who experience food-related
illnesses believe their illness is due to a virus or to some other
nonfood source. Even if consumers connect an illness with a particular
foodsuch as hamburgerthey may not know which company's
hamburger to avoid because many meat products bear only store labels.
Although consumers could stop purchasing meat or poultry (or all
their groceries) from a particular store, consumers know that this
action does not likely punish the producer.
Stores often have many suppliers of meat and poultry products,
so they cannot simply withdraw business from low-quality producers
because they cannot always identify them. Or, the store may be a
small customer of a large producer, making it difficult to elicit
change.
Food suppliers recognize that some consumers will pay premiums
for branded products because they are perceived to be of better
quality. Oscar Mayer in luncheon meats, Tyson Foods in poultry,
and Smithfield Farms in pork are companies that have developed branded
products connoting better quality.
The downside for these companies is that the brand may also be
used to more readily identify the company as the source of a foodborne
illness. Producers of branded products invest a lot of money into
promoting product quality and will see that investment evaporate
if a serious food safety breach occurs. Bil Mar foods, producer
of Ball Park hotdogs, for example, spent more than $100 million
during 1998-2000 to improve food safety and convince consumers of
its products' safety after USDA's Food Safety and Inspection Service
(FSIS) determined that it was producing products contaminated by
the pathogen Listeria monocytogenes. Researchers at the
University of Arkansas found that food recall announcements by publicly
traded companies cause stock prices of affected firms to decline.
As a consequence, producers of branded products must invest more
in food safety than producers of unbranded products, suggesting
that recent trends toward higher sales of branded fresh meat cuts,
such as pork roasts, should enhance food safety. Unfortunately,
lower cost ground meats have the highest likelihood of pathogen
contamination and, except for irradiated meats, these are less likely
to be branded.
As Do Customer Requirements
Food processors are not alone in the quest for safer food. Large
restaurant chains spend millions of dollars promoting an image of
tastiness, convenience, restaurant cleanliness, and product safety.
Losing this image can be very costly. Jack In The Box, McDonald's,
other major restaurant chains, and an increasing number of grocery
stores and wholesalers routinely set strict food safety controls
for their suppliers, and cease contractual arrangements with those
that do not comply. Burger King, for example, terminated a contract
with Hudson Meats, forcing that company to exit the industry, after
it underwent a huge recall of its meat products due to E. coli
O157:H7 contamination.
Export markets are another lucrative market for meat and poultry
companies. Like other major customers, many importing countries
impose strict standards and pathogen testing on sellers. For example,
South Korea rejected U.S. hot dogs in 1999 because they were contaminated
with Listeria monocytogenes, and Russia voiced persistent
concerns over the food safety of U.S. poultry throughout 2002.
ERS researchers recently completed a survey of almost 1,000 meat
and poultry slaughter and processing plants. The survey covered
numerous aspects of food safety controls and their costs. Among
other findings, it provides new evidence that contractual arrangements
covering food safety standards between meat and poultry plants and
their buyers result in higher levels of food safety in five categories:
equipment, testing, dehiding, sanitation, and operating procedures.
Legal Liability Provides Limited Incentives
The legal liability system forces producers to make food safety
investments up to the point at which the probability that the plant's
products would be identified as the cause of an illness would be
a very low. However, the incentives of the legal system limit food
safety investment. Litigation is costly and most foodborne illnesses
result in relatively minor gastrointestinal distress, such as diarrhea,
that is either not recognized as food-related or not thought to
be serious enough to pursue in court. Also, ERS
research has shown that plaintiffs are unlikely to receive awards
in foodborne illness trials, even in the case of a major illness,
because rarely can the plaintiff make a certain link between a particular
food and the sickness.
This is not to say that court actions are completely ineffective,
however. Besides the costs associated with a rare loss in court,
a highly publicized trial can severely harm a firm's image. To reduce
this threat, companies often make out-of-court settlements.
Evolving Regulations Buttress Economic Incentives
Food safety regulation in the United States dates to 1890 when
trichinae, tiny worms in hogs, emerged as a public and animal health
problem (see "Milestones in Food Safety
Regulation"). The Jungle, Upton Sinclair's 1906 exposé
of the brutal working conditions and unsanitary practices in Chicago
meatpacking plants, led to the passage of the Federal Meat Inspection
Act of 1906. Legislation in 1967 and 1968 addressed the use of inexpensive
nonmeat fillers in meat products and extended FSIS's regulatory
jurisdiction over a wider array of meat and poultry plants. Regulations
based on the legislation also established cooking times, temperature
minimums, and other processing standards.
Regulatory changes occurring after the 1968 legislation greatly
increased FSIS inspection requirements and forced FSIS to shift
inspection priorities. One key change was implementation of voluntary
process control programs that reduced some FSIS tasks. However,
industry did not widely adopt the programs, most likely because
companies calculated the added costs of the programs to be greater
than the expected market benefits.
By 1980, some of the earlier problems addressed by regulation had
receded from public view because regulatory, technological, and
industrial changes resolved them. Public attention turned to Salmonella
and other human pathogens, such as E. coli O157:H7, that
lived in an animal's gastrointestinal tract without causing noticeable
disease in the animal.
Food safety regulation entered a new era in 1989 when Listeria
monocytogenes was declared an adulterant with a zero tolerance.
Later, FSIS used the voluntary process control program framework
as a model for a system of preventive controls known as Hazard Analysis
and Critical Control Point (HACCP) program. Under a HACCP program,
plants monitor points in their processing system that engender potential
food safety hazards and take corrective actions when they suspect
that a critical level of one of these points has been breached.
The 1996 Pathogen
Reduction/HACCP rule mandated that meat and poultry plants develop
and implement a system of standard operating procedures for sanitation
and a HACCP program. Additionally, plants producing raw ground products
or slaughtering animals have to adhere to Salmonella performance
standards. Finally, slaughter plants have to also conduct E.
coli testing to verify the adequacy of their process controls.
PR/HACCP sanitation and process control requirements followed regulations
mandated after the enactment of the 1967 and 1968 legislation. These
regulations required plants to perform commonly accepted food safety
practices, such as preventing contact between raw and cooked products
and enforcing employee handwashing.
Meat and poultry plants
had less than 6% of HACCP tasks in noncompliance in
1999
Industry
Noncompliant tasks
Red meat slaughter
2.6
Meat processing
1.4
Poultry slaughter and processing
5.5
Frozen meals and other packaged products
containing some meat
1.5
Retailers and wholesalers
1.2
Plants Perform Required Tasks
A team of FSIS process control inspectors enforces regulations
by determining whether sanitation and process control systems are
working to prevent adulteration. Inspectors examine recorded information
and conduct scheduled and unscheduled spot checks of various plant
procedures. If an inspector together with a FSIS compliance officer
determine that a plant is not properly performing tasks critical
for safe food, they can decide that the task is out of compliance.
In 1999, noncompliant HACCP tasks ranged from a high of about 5.5
percent in poultry slaughter plants to less than 2 percent for frozen
meal/other food processors and for retailers and wholesalers.
These low noncompliance levels may lead one to believe that FSIS
secures compliance through the exercise of strong enforcement powers.
However, FSIS has used its enforcement powers infrequently. If a
plant has a chronic problem with sanitation or HACCP tasks, an inspector
can impose a maximum penalty of temporarily shutting down the contaminated
equipment or responsible department. Records for 1999-2001 indicate
that FSIS issued an average of one of these types of penalties per
75 plants. Although a stronger actionplant closure by removal
of inspection servicesis possible, protracted court proceedings
in the past have led FSIS to rarely use this enforcement tool. The
high performance of sanitation and HACCP tasks in relation to the
level of enforcement powers suggests that plants and their customers
believe that these tasks are important to business performance.
Added cost to consumers from food
safety measures is small
Product
Increase in retail price
Ground beef
0.8
Sirloin steak
0.3
Chuck roast
0.6
Center cut pork chops
0.4
Ham*
1.8
Pork sausage*
1.3
Chicken breast
0.3
Whole turkey
0.6
*Includes
costs from slaughter and processing operations
Food Safety Costly for Plants, But Barely Noticed by Consumers
Understanding food safety costs helps regulators to evaluate how
the industry may receive new regulations or amendments to existing
regulations, and to assess the pros and cons for industry and consumers
of regulatory changes.
In 2002, ERS extensively studied the costs of food safety regulation
by estimating the cost of sanitation and process controls and of
the PR/HACCP rule. ERS estimates that, before the PR/HACCP program
began, required sanitation and process control tasks increased total
production costs by a little more than 1 percent, or about $850
million, per year for the meat and poultry industry. This compares
to a gross margin of about 5 percent between value of shipments
(or output) and animal, labor, and capital costs in red meat packing
plants. For small plants, this margin is much smaller and may approach
the cost of sanitation and process control. To the average supermarket
shopper, the added cost is so small as to have an almost unobservable
impact on retail prices.
Interestingly, costs did not vary with plant size. Large plants
had no special economic advantage in food safety process control.
Costs were clearly lower for plants with poor sanitation and process
control performance and higher for those with better performance.
ERS then estimated that PR/HACCP required another 1 percent of
total costs on top of those incurred earlier for sanitation and
process control tasks, which were still required. Plants that had
advanced quality control programs before PR/HACCP paid significantly
less to implement the new requirements than plants with minimal
controls. The combined costs translate into about 4 percent of the
costs that plants can control-additional costs that are, once again,
insignificant for retail prices but significant from the point of
view of the plant's balance sheet.
The $850 million in costs to plants due to PR/HACCP is likely passed
on to consumers in the form of about a 1-percent increase in retail
prices. As a point of contrast, consumers can now purchase irradiated
meat products that supply near-perfect food safety. But irradiated
products are not acceptable to all consumers and are considerably
more expensive than their untreated counterparts. Lancaster Farming
reported that irradiated ground beef in October 2002 was priced
10-30 cents, or 5-10 percent, higher per pound than nonirradiated
ground beef at Wegmans Food Markets in Pennsylvania. Other stores
likely have similar price premiums.
Milestones
in Food Safety Regulation
Meat Inspection
Act of 1890 and various amendments during the 1890s
Ushered in microbiological testing and changes in animal
husbandry as a way to fight trichinae, a tiny worm, in pork
that is harmful to both animals and people. Also mandated
that USDA inspect animals and meat to prevent the sale of
sickened animals and rotten meat.
Federal Meat Inspection Act of 1906
Mandated that all plants engaged in interstate commerce be
subject to Federal inspection of live cattle, hogs, sheep,
and goats just before slaughter and the carcasses afterward.
Also required plants to use proper sanitation and labels on
domestically shipped products.
Poultry Products Act of 1957
Mandated that poultry plants be subject to inspection by
the Federal Government.
Wholesome Meat Act of 1967 and Wholesome Poultry Products
Act of 1968
Extended FSIS oversight over State inspection agencies because
of unsanitary conditions in some of those plants. Also extended
FSIS oversight to include formerly unregulated plants in order
to prevent the use of inexpensive fillers instead of meat
or poultry in frozen meals, soups, and other packaged products
that include meat or poultry as one component.
Voluntary Quality
Control Programs, 1980-85
Total Quality Control and Partial Quality Control programs
shift some mundane inspection tasks and more responsibility
for sanitation and process controls to industry. This frees
FSIS inspectors from carcass inspection to pursue process
control inspection.
E. coli O157:H7 and Listeria monocytogenes
declared adulterants, 1989-94
Because the two organisms can cause serious illness in humans,
FSIS declared E. coli O157:H7 in ground beef and
Listeria monocytogenes in ready-to-eat meat and poultry
to be adulterants and adopted a zero tolerance policy.
Flexible but mandatory quality control program intended to
focus plant food safety on preventing harmful pathogens from
contaminating meat and poultry products.
Poor Food Safety Performance Doesn't Pay in the Long Run
If food safety controls cost plants money, it might seem that plants
could do better economically with more lax sanitation and process
controls. To the contrary, our studies indicate that, especially
for certain types of plants, poor food safety performance does not
pay over the long haul. ERS researchers found that sausage makers
and other companies that further process raw bulk meat and poultry,
along with larger-than-average slaughter plants, with poor quality
control records had 3-8 percent higher rates of exit from the industry
than plants with better records. Only small slaughter plants appear
to have benefited from skimping on food safety efforts.
It's easy to explain these results. Firms that make further processed
meat and poultry products typically produce branded products that
allow buyers to more easily associate product quality with a particular
producer. Slaughter plants, on the other hand, generally produce
generic ground hamburger, pork chops, and other raw meat products,
making producer identification difficult. It is easier, however,
for the market to identify and implicate large slaughter plants
than small ones. Large plants are more likely to be exclusive suppliers
to buyers that require strict food safety standards such as quality-conscious
supermarkets, large-volume restaurant chains, and export markets.
Large plants are also more likely to be caught producing off-quality
products because more consumers eat their products, making the likelihood
of sickness greater.
Market mechanisms in the form of more widespread use of brands
and contracting for food safety, government oversight embodied in
the PR/HACCP rule, and more stringent enforcement indicate that
industry and FSIS are putting forth a great deal of effort to ensure
the safety of meat and poultry products. A way to enhance food safety
still further is to strengthen market forces by making information
about a plant's food safety performance as readily available to
consumers as the amount of fat and other commonly reported product
attributes. Market forces could be further extended through greater
product testing, the provision of test results to the public, and
improvements in scientific methods that link foodborne illnesses
to the producer.
Exit rates were higher for large and
medium-size plants with poor process control
Ollinger, Michael, and Stephanie Chin. "Product Recalls and
Plant Survival in the U.S. Meat and Poultry Industries," Unpublished
working paper, USDA/ERS, 2002.