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How can there be a market for safe food when safety cannot be observed? Food that is contaminated with disease-causing pathogens may look, smell, and taste like food that is free of pathogens.
- If consumers cannot observe differences until it is too late, will food suppliers have any incentive to produce safer foods? Will manufacturers and suppliers be compensated for their time and costs involved in producing safer foods?
- If consumers cannot discern safety differences, would they ever be willing to pay more for safety?
- If there is no market for safety—no way for consumers to decide how much safety to purchase—safety levels may be low. Consumers react to news about food safety by cutting back purchases. One means to assure public health safety is for local, State, and Federal governments to alert producers and consumers about contaminated food and help avert additional foodborne illnesses by mandating recalls and advising consumers about product brands.
Traceability
A search for the birthplace of the cows whose meat went into a particular pound of hamburger or for the farms that grew the wheat used in a box of cereal may seem like looking for a needle in a haystack. But U.S. ranchers, farmers, food manufacturers, and distributors have a number of incentives to keep accurate records tracking their food production and distribution. These records form a traceability system that provides information on the flow of food and food products throughout the U.S. food supply system and aids in tracking food to its source.
 Traceability systems are a tool to help firms manage the flow of inputs and products to improve efficiency, product differentiation, food safety, and product quality. Traceability is the necessary information flow to make food safety information credible. The traceability baseline in the United States reveals that private-sector food firms have developed a substantial capacity to trace. Firms balance the private costs and benefits of traceability to determine the efficient level of traceability.
ERS researchers have investigated the amount, type, and adequacy of traceability systems in the United States, focusing particularly on the fresh produce sector, the grains/oilseeds sector, and the cattle/beef sector.
An ERS report, Traceability in the U.S. Food Supply: Economic Theory and Industry Studies describes the results of an investigation into the amount, type, and adequacy of traceability systems in the United States, focusing particularly on the fresh produce, grains and oilseeds, and cattle/beef sectors. The results stem from research into the market studies literature, interviews with industry experts, and on-site interviews with owners, plant supervisors, and/or quality control managers in fruit and vegetable packing and processing plants; beef slaughter plants; grain elevators, mills, and food manufacturing plants; and food distribution centers.
Researchers found that traceability systems vary across industries as firms balance the private costs and benefits to determine the efficient level of traceability. The private sector has developed a number of mechanisms to address deficiencies in its own traceability systems, including contracting, third-party safety/quality audits, and industry-maintained standards. The best-targeted government policies for strengthening firms' incentives to invest in traceability are aimed at ensuring that unsafe or falsely advertised foods are quickly removed from the system, while allowing firms the flexibility to determine how to do so. Policy options include timed recall standards, increased penalties for distribution of unsafe foods, and increased foodborne-illness surveillance.
Labeling
Policymakers have a number of tools at their disposal to influence market outcomes, including taxes, subsidies, and production and marketing regulations. In recent years, policymakers have increasingly turned to the use of information to influence consumer and producer behavior. Information policy involves providing or requiring information about specific product attributes, the proper use of a product, or best production practices. This is often achieved through labeling and education programs.
ERS researchers studied whether consumers have enough information to make informed food choices. Clearly, different policies would be called for depending on whether consumers and food producers have enough information about the foods they are buying and whether more information might substantially increase the safety of the food supply. Researchers examined what can best be done in the private sector to provide informative food labels and what role can best be played by the public sector in providing information.
Labels for processed foods in the United States must convey standardized information about content and nutrition. In addition, some labels convey information about health attributes, safe-handling tips, production processes, and environmental concerns (for example: low-fat, cooking temperature, organic, and dolphin-safe tuna labels). Consumers, food processors, third-party entities, and governments all play a role in determining which of a food's many attributes are described on food labels. Consumers use their purchasing power (their consumption choices) and political activities to help determine which attributes are described on labels. Private firms seek out attributes that are attractive to consumers and voluntarily label information about these attributes when the benefits of so doing outweigh the costs.
Governments, responding to public-welfare concerns or other political considerations, may require that information on some attributes be included on food labels. The appropriate level of government intervention in labeling, whether establishing mandatory labeling laws, providing services to enhance voluntary labeling, or not intervening at all, depends on the type of information involved and the level and distribution of the costs and benefits of providing that information.
Mandatory labeling, like other information policy tools, is often portrayed as a low-cost policy tool. However, the costs of labeling policy may be far-reaching and the benefits may not be very large.
In recent years, lawmakers have faced a number of food-labeling decisions, including initiatives concerning nutritional content, dolphin-safe tuna, organic products, country-of-origin, and biotechnology issues. Labeling decisions are increasingly going beyond addressing consumers' information needs to include determining the appropriateness of labeling policy for achieving social objectives, such as improving human health and safety, mitigating environmental hazards, averting international trade disputes, or supporting domestic industries.
In response to interest in food labeling, including labeling to achieve wide social objectives, ERS completed the study, Economics of Food Labeling. This report examines the economic theory behind food labeling and presents five labeling case studies (nutritional labeling, dolphin-safe tuna labeling, organic products labeling, country-of-origin labeling, and biotech labeling). The ERS report shows that the appropriate role for government, whether establishing mandatory labeling laws, providing services to enhance voluntary labeling, or not intervening at all, depends on the type of information involved and the level and distribution of the costs and benefits of providing that information. Furthermore, mandatory food-labeling requirements are best suited to alleviating problems that arise when consumers do not have adequate product information and are rarely effective in redressing environmental or other "spillovers" associated with food production and consumption.
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