1. Economics of agro-food safety and international market for agro-food products and legislation
Antonio Stasi

2. INDEX Market mechanism overview Market mechanism issues in details
Consumers
Consumer policy
Firms
Firm policies
Market equilibrium and rents
Rent reduction policies
Market and role of the government
The social optimum
About market efficiency: market failures

3. Market mechanism overview
DEMAND SIDE
Market has incentives to provide some degree of food safety (reputation of firms for repeat purchase)
Consumers cannot determine how safe is food before buying it
Consumers usually discount food safety
Consumers cannot determine whether a specific food was the source of illness or whether it could have other consequences in the future

4. Market mechanisms overview
SUPPLY SIDE
Food safety actions increase costs to firms
Lack of information to consumers is an incentive to firms for keeping food safely low
Labeled information about food safety could be a differentiation strategy for firm, which may ask higher price to consumers

5. Market mechanism overview
SOCIETY
Consumers reaction to food borne illness is stopping consuming products from a specific firm, or stopping consuming that specific type of product
When consumers eat unsafe food and become ill, costs extend beyond consumers themselves but also to healthcare workers, employers, and family members
consumers do not usually take into account those “social costs” when consuming food

6. Market mechanism overview
GOVERNMENT
Intervenes by increasing the level of welfare:
Attempting to increase the level of food safety provided by the market
Specify how process could reach certain levels of FS
Specify the requirement products should meet before going on the market
Allow firms selecting the less expensive technology

7. Market mechanism issues in details
Regulations raise costs for firms
Consumers are willing to pay more for safer food
Firms could have difficult time communicating improved safety to consumers

8. Market mechanisms detail: consumers
WTP refers to points obtained through a process of compensative variation = points at same utility level P
WTP
WTP>0…perceived as positive
WTP<0…perceived as harmful
Safer Food Provision

9. Market mechanisms detail: consumer policy
WTP
Informative campaigns for increased FS awareness
Safer Food Provision
Food Scares/Scandals/Outbreaks

10. Market mechanism details: firmsP
Marginal
Costs
More innovative technology
Safer Food Provision

11. Market mechanism details: firms policies
Marginal Costs
Minimum Requirements
Production
Safer Food Provision

12. Market mechanism details: firms policies
Marginal Costs
Certifications and Labeling regulations
Safer Food Provision

13. Market mechanisms detail: Market equilibrium and rents
Perfect competition equilibrium P
WTP
Max Level of FS
Marginal Costs
Safer Food Provision

14. Market mechanisms detail: Market equilibrium and rents
Perceived Safety P
WTP
RENT
Actual Safety
Marginal Costs
Safer Food Provision

15. Market mechanisms detail: Rent reduction policies
Informative Campaigns
WTP
Certification and labeling regulations
RENT
Marginal Costs
Safer Food Provision

16. Market and role of the government
Main Questions:
In presence of food related risks…
Does food market operate efficiently?
Is the price paid by consumers “fair enough” in terms of level of risk?
Is the discount to consumers, w respect to full safety products price, “acceptable” in terms of the level of risk?
Is the social optimum reached or there is the need for government intervention?
Social optimum: point at which the net economic value of the good in question is maximized

17. It is true when perfect competition assumption are verified
The Social Optimum P
Supply =
marginal cost
Social
Optimum
Demand =
Marginal benefits Q
It is true when perfect competition assumption are verified

18. About market efficiency: Market failures
Externalities
(Neg) Impact on human health (measurable in terms of disease related costs) => market below social optimum
(Pos) Nutritional value
Supply information
Lack of info available to consumers. => consumers make sub-optimal decisions
Claims, labeling, brand and price => trust

19. About market efficiency: Market failures
Consumers’ decision making
Lack of information on costs and benefit related to health consequence of a certain food product
Consumers’ perception of the potential health effects on the food they choose (>risk perception <demand)
Costs not always proportional to the risk because of long term effect on individuals’ health, which are neglected by consumers, or could be paid back by going to court
Research, however, suggest consumers’ underestimate risks
So they over-demand food and food risks are oversupplied

20. About market efficiency: Market failures
Transaction costs
Costs related to searching alternative products and assessing the level of risk (e.g. GMOs)
Market competition
Presence of corporations that gain rents

21. Boosting Adult System Education In Agriculture – AGRI BASE
Financed by:
Partners: