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HACCP Implementation and Economic Optimality

in Turkey Processing
William E. Nganje
Morrison School of Management and Agribusiness, Arizona State University-
Polytechnic Campus, Mesa, AZ 85212. E-mail: william.nganje@asu.edu
Simeon Kaitibie
International Livestock Research Institute, Nairobi, Kenya.
E-mail: skaitibie@cgiar.org
Alexander Sorin
Department of Agribusiness and Applied Economics, North Dakota State
University, Fargo, ND 58105. E-mail: Alexadre.sorin@caramail.org

ABSTRACT
Regulatory impact assessment suggests that Hazard Analysis and Critical Control Points ~HACCP!
is a cost-effective food safety regulation that is highly beneficial to society+ This study focuses on
firm-level costs and benefits from adoption of specific critical control points+ A stochastic optimi-
zation framework is used to determine optimal testing and sampling strategies for Salmonella reduc-
tion in turkey processing+ Results show that under The Food Safety Inspection Service ~FSIS!
mandated tolerance levels, processors need to designate no more than five critical control points,
three more than what is included in the generic HACCP plan+ Moves to tighten tolerances should be
considered carefully because additional implementation costs tend to increase exponentially+ @Econ-
Lit Citations: Q18, D81, C61# 2007 Wiley Periodicals, Inc+

1. INTRODUCTION
Consumers make choices about food products based on several factors such as product
price and quality+ In an efficient market, choices would be made with full information
about product attributes+ The real world market for poultry products is not necessarily
efficient, and food safety problems complicate consumer decision making+ Food safety is
a credence attribute, hence consumers cannot tell with certainty the level of microbial
pathogens that are present in meat and poultry products+ Producers may have this infor-
mation, but find no incentive to share with consumers because it is difficult to charge a
premium for an unobservable increase in food safety ~Buzby, Fox, Ready, & Crutchfield,
1998!+ Although Antle ~1998! makes a case for symmetry between producers and con-
sumers in the lack of information on product safety, this breakdown in market structure
due to unavailability of relevant information on food safety implies a need for govern-
ment intervention+ Regulations designed to reduce the level of microbial pathogens in
general may improve public welfare ~Starbird, 2000!+
Agribusiness, Vol. 23 (2) 211228 (2007) 2007 Wiley Periodicals, Inc.
Published online in Wiley InterScience (www.interscience.wiley.com). DOI: 10.1002/agr.20119

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212 NGANJE, KAITIBIE, AND SORIN

The Food Safety Inspection Service ~FSIS! introduced new mandatory food safety reg-
ulations following repeated discoveries of Escherichia coli and Salmonella in the U+S+
food supply in the 1980s and early 1990s+ The new regulatory approach, called Pathogen
Reduction0Hazard Analysis and Critical Control Points ~PR0HACCP!, is a continuous,
comprehensive food safety monitoring system designed to prevent hazards from devel-
oping along the production process, thus ensuring a high degree of food safety+ It man-
dated the establishment of critical control points ~CCPs! in food production and processing
operations and established testing routines for food products, while ensuring the safety of
meat and poultry products+ By 2000, turkey processors had adopted these regulations+
HACCP introduced an additional element of complexity in food production and pro-
cessing systems+ Preliminary analysis of the impact of HACCP regulations on food safety
has been undertaken by the USDA ~FSIS, 1996!, Crutchfield, Buzby, Roberts, Ollinger,
and Lin ~1997!, Antle ~2000!, Boland, Peterson-Hoffman, and Fox ~2001!, and Ollinger
and Mueller ~2003!+ The economic issue of concern is how best to achieve the goal of a
safer food supply+
Food safety regulation remains a controversial issue+ Plant managers argue that these
regulations raise production costs with higher costs on smaller plants, while consumers
argue that unregulated plants sell products that may be harmful to humans ~Ollinger &
Mueller, 2003!+ According to Brester and Antle ~1998!, improved food safety is benefi-
cial to society in terms of reductions in illness and mortality, although such improve-
ments come with high costs+ Research by Antle ~2000! suggests that HACCP costs are
size neutral, except for small plants, and that these costs are higher for beef plants than
for pork and poultry plants+
Until recently, economic efficiency and the possible distributional effects of regula-
tions played little role in the design of food safety regulations and the designation of
CCPs+ For example, the minimum regulation ~or a generic HACCP plan! for slaughtering
poultry requires the designation of CCPs at postevisceration ~or at presentation, repro-
cessing, chilling! and finished product storage ~U+S+ Department of Agriculture @USDA#,
1999!+ For the first CCP, the critical limits include zero visible fecal contamination and
risk management tools include an antimicrobial rinse on equipment and product using
chlorine at 2050 ppm+ For the second CCP, the critical temperature may not exceed 408F
for product chilling and finished product storage+ It is important to note that the generic
model was not intended to be used as is for plant specific HACCP plans ~USDA, 1999!+
Although the implementation of HACCP regulations followed required regulatory impact
assessment, the benefits of HACCP were evaluated mainly at the societal level ~FSIS,
1996!+ Thus, the cost effectiveness of HACCP at the plant level has yet to be investigated
fully+ Such an investigation would enable processors to make economically informed deci-
sions on HACCP plan development+ In addition, there is a need to provide economic
evaluation of the CCPs in the processing operations+ Hence, the testable hypothesis is to
ascertain whether the inclusion of firm-level costs and benefits in evaluating the effec-
tiveness of HACCP leads to the identification of more efficient optimal economic0risk
intervention strategies to improve food safety+ This is especially important because recently,
economists have recognized the important tasks of evaluating the efficacy of food safety
interventions and developing economic methodologies to measure the effectiveness of
alternative intervention strategies ~FSRC, 2004!+
This study provides empirical guidance on how firm-level benefits and costs should
be used to determine the number of additional CCPs in the processors augmented HACCP
plan, and how many product samples need to be taken at each added CCP+ Results
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HACCP IMPLEMENTATION AND ECONOMIC OPTIMALITY IN TURKEY PROCESSING 213

provide recommendations on ~a! whether the generic HACCP plan is sufficiently eco-
nomically effective in providing safe food products; and ~b! if not, then what additional
CCPs need to be included in the processors augmented HACCP plan and at what test-
ing intensity?
The important contributions of this study to existing economic literature on HACCP
implementation are twofold+ First, it provides a framework that incorporates firm-level
costs and benefits into the pathogen risk assessment process so that an economically opti-
mal intervention strategy is identified from the firms point of view+ Second, it develops
a stochastic optimization model that captures uncertainty in the production process while
evaluating the effectiveness of alternative intervention strategies+

2 CONCEPTUAL FRAMEWORK
The supporting regulatory analyses for PR0HACCP did not include certain elements of
risk assessment at the plant level ~FSIS, 1996!+ Consequently, there was no proper qual-
itative or quantitative estimation, including attendant uncertainties, of the probability of
occurrence and severity of known or potential adverse health effects+ Under such condi-
tions, regulatory impact assessment might underestimate system implementation and other
production costs+
Consider a typical turkey processing operation where plant-level risk assessment includes
efforts to characterize risk and appropriately estimate system and other production costs+
Figure 1 is a schematic representation of processes in firm-level HACCP assessment and
augmentation+ The first step in the conceptual framework is the identification of a target
pathogen, e+g+, Salmonella+ Actual contamination data from a turkey processing opera-
tion are used here to estimate probabilities of Salmonella contamination, such that the
points at which contamination is likely to exist are designated potential CCPs for pur-
poses of intervention+
To calculate Salmonella contamination probabilities, the concept of tolerance plays an
important role in lessening the risk of nonconformance+ Tolerance directly derives from

Figure 1 Schematic representation of processes in firm-level Hazard Analysis and Critical


Control Points ~HACCP! assessment and augmentation+
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214 NGANJE, KAITIBIE, AND SORIN

the notion that economic activity could lead to externalities+ With zero contamination
being economically unrealistic, a tolerance level below which plant operations remain
unaffected is essential in calculating contamination probabilities+ Hence, the tolerance
level defines the maximum amount of pathogens for which the product would still be
considered safe for human consumption, and no price discounts would apply+
The framework includes two main costs: quality loss, and testing and sampling costs+
Quality loss costs cover expenditures associated with ensuring that products conform to
specifications ~tolerance levels!+ The conformance costs include costs of prevention and
appraisal; the nonconformance costs include costs of internal and external failure+ In this
study, product quality at each potential CCP is measured as the level of Salmonella patho-
gens at that point, and quality loss is measured with the Taguchi loss function ~Taguchi,
1986!+ The loss function establishes a financial measure of user dissatisfaction with a
products performance as it deviates from a target safety value+ The other cost item is for
testing and sampling, which is expected to increase as the sampling intensity increases+
When Salmonella testing is done at a potential CCP where the probability of contam-
ination is greater than zero, benefits result from risk reduction+ The value of risk reduc-
tion measures the risk of shutting down, which could be greater than the total revenue
because recall costs include total value of production, loss in market value, and liability
payments+ The value of risk reduction is the additional benefit accruing to a firm that tests
for Salmonella and implements a specific intervention strategy+
To account for attendant uncontrollable risks such as variability in production and out-
put prices that could affect input and output supply, a stochastic simulation model is devel-
oped to define a system of costs and benefits in a characteristic turkey processing operation
and to determine the optimal strategy for Salmonella testing+

3. METHODOLOGY

Under HACCP, a plant with 10300 employees is characterized as a small plant+ A survey
by Nganje, Mazzocco, and McKeith ~1999! revealed that about 66% of processing plants
in the North Central area of the United States were small+ Therefore, the plant from which
Salmonella contamination data were obtained for this study can be classified as a char-
acteristic turkey processing operation because it employs approximately 300 employees+
We assume that the results may apply to small turkey processors with similar HACCP
plans+
The framework for risk analysis incorporates risk assessment, risk communication, and
risk management+ Traditionally, risk assessment is first completed before risk manage-
ment alternatives are evaluated, partly because of difficulties in modeling risk assessment
and risk management jointly+ The method developed in this study has the advantage of
incorporating risk assessment ~the probability of Salmonella outbreak! and risk manage-
ment ~with HACCP systems! in the evaluation+ This approach can be used in other frame-
works to eliminate time lags in policy formulation+ The model developed is a stochastic
optimization model that incorporates a net benefit function for HACCP intervention to
determine economic optimality in HACCP implementation+ The stochastic model accounts
for small variations in certain factors such as wholesale turkey price and Salmonella con-
tamination probabilities+ The net benefit function incorporates three major components
identified in the conceptual framework: quality loss, testing, and sampling costs, and the
value of risk reduction+
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HACCP IMPLEMENTATION AND ECONOMIC OPTIMALITY IN TURKEY PROCESSING 215

3.1 The Turkey Processing Plant


The selected turkey processing plant has operated since the 1930s+ In the beginning, the
plant produced whole birds, a more seasonal operation requiring seasonal workers+ In the
1970s, the plants processing capacity was extended, yet it remained a relatively small
plant despite the restructuring trends in the poultry sector such as vertical integration+
Today, the seasonal production has been replaced by year-round turkey production and a
full-bird processing plant+ The 1980s became economic boom years for the plant+ During
the late 1990s, the plant adopted HACCP plans+ The plant employs approximately 300
people in different categories such as management, supervision, line work, janitorial and
support services+ Since the implementation of the PR0HACCP regulation, the employees
maintain general plant cleanliness during processing as well as cleaning and sanitizing
the facility for the next day after daily operations cease+
This study uses a framework that incorporates firm-level costs and benefits into the
pathogen risk assessment process to determine an economically optimal food safety inter-
vention strategy for a processing firm+ This means that firm-level Salmonella measure-
ments were made on products at each potential CCP, together with measures of operating
costs+

3.2 Data and Assumptions


The study identified eight potential CCPs at the commercial Midwestern turkey process-
ing plant studied+ These are points at which setting up critical control points can be most
effective in preventing Salmonella contamination+ They include prescalding; postscald-
ing; preevisceration; prewash; postwash; postexamination for visible fecal contamina-
tion; postchill; and postremoval of the back frame+ The USDA HACCP employee at the
plant collects random microbial data at these points and the plant has determined that
these are points at or around which the use of CCPs could be most beneficial in Salmo-
nella reduction+ The Midwestern turkey plants generic HACCP plan shows that its min-
imum mandatory regulatory requirement consists of two CCPs, examination for visible
fecal contamination and product chilling, with attendant critical limits earlier stated+
The processing plant has a throughput of about 800 carcasses per hour, so that approx-
imately 6500 birds are processed per day+ From October 2002 through October 2003, five
visits were made to the processing plant+ During each visit, 20 product samples from 20
birds were collected at each of the eight potential CCPs+ Hence, there would be 100 sam-
ples per potential CCP over the length of the sampling period+ To test for the presence of
Salmonella, different tests were employed by food safety microbiologists+ Swabbing the
external surface of the bird was identified as the best sample collection procedure by
Duncans Multiple Range Test ~SAS Institute Inc+, 1999!+
The Salmonella occurrence data obtained from the product samples did not show any
particular pattern with respect to the potential CCPs or movement along the processing
chain+ Therefore, the potential CCPs were assumed to be independent of each other ~as in
event tree models!+ Therefore, an optimization routine was set up to select any combina-
tion of potential CCPs+
Total system costs consist mainly of the quality loss and the costs of testing for Sal-
monella in turkey products at each potential CCP+ Total system benefits include total rev-
enue and value of risk reduction+ The value of risk reduction is the benefit of improved
food safety when Salmonella testing is done and control measures are adopted+ When
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216 NGANJE, KAITIBIE, AND SORIN

there is no testing and intervention, the value of risk reduction is compensation ~or ben-
efits! forgone by the poultry processing firm+

3.3 Probability of Salmonella Contamination


Before calculating the quality loss component, the probability of contamination, given a
critical limit or tolerance level for Salmonella, was calculated to reflect the risk assess-
ment objectives and the actual risk of contamination+ Approximately 800 product sam-
ples ~100 samples from each potential CCP! were collected from the turkey processing
plant from all eight potential CCPs+ Because of the relatively small number of product
samples tested for Salmonella, contamination data collected from the turkey plant formed
the basis for 1000 simulated draws at each potential CCP, following a binomial distribu-
tion depicting presence or absence of Salmonella+ At three different tolerance levels ~29%,
15%, and 5%!, the probability of contamination was estimated as ui hi 01000, where h
is the number of positive Salmonella tests and i is the potential CCP+

3.4 Quality Loss


A quality loss function is used to estimate quality loss due to violations of Salmonella
performance standards+ Quality loss could occur at any point along the processing, mar-
keting, and consumption continuum+ A Taguchi Loss Function with smaller-is-better char-
acteristics is used to calculate quality loss+ In the case of an integrated firm, quality loss
only occurs at the final destination and is calculated based on deviations from a target
value of zero+ However, this study assumes that although total quality loss at the final
destination may be attributed to the CCPs along the processing chain ~as in event tree
models!, operations can be halted if the critical limit at any CCP is violated+ This approach
allows us to estimate the share of each CCP to the overall risk+
The Taguchi loss function establishes a financial measure of user dissatisfaction with a
products performance as that performance deviates from a target tolerance level+ The
loss function with smaller-is-better characteristics is defined as

A0
L s 2, ~1!
D20

where L is the quality loss, A 0 is defined as welfare loss to the firm when the tolerance
limit is violated, or the cost of operating over the tolerance limit, D 0 is the tolerance limit,
and s 2 measures the variance+ In the smaller-is-better models, variance is sometimes
measured as a deviation from the target+ Because we generated data based on a binomial
distribution ~Salmonella present or no Salmonella!, variance was calculated based on the
formula for binomial distributions+ The loss to society is composed of costs incurred by
the producer and the consumer+ The producer is exposed to rejection costs, loss of future
business, etc+, whereas the consumer is exposed to food safety risks+ Quality deviations
from the target value of zero represent an implicit cost to the system; thus, shipments
containing even minimal microbial pathogen content incur quality loss+
The welfare loss to the firm when the tolerance limit is violated is comprised of three
major components+ The first component is the loss imparted by decreasing demand when
an outbreak occurs+ Empirical evidence from Kay ~2003! showed that decreasing demand
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HACCP IMPLEMENTATION AND ECONOMIC OPTIMALITY IN TURKEY PROCESSING 217

is the most important component of the loss because it represents about 60% of the total
loss that a firm can incur+ Another component is the loss due to decrease in market turkey
price+ This price decrease represents about 4+2% ~Kay, 2003! of the total cost when there
is an outbreak+ The last component is the cost of recall+ When there is an outbreak, the
processing firm may recall all of that days production, estimated as the total revenue for
that day+
The loss, A 0 is an additive function of D, the recall impact on consumer demand, Pm ,
the impact on turkey market price, and TR, the total revenue+ The total revenue compo-
nents of total output 1 and price were modeled as stochastic variables+ In the model, it is
assumed that if a test is made with a sampling intensity of at least two samples ~the min-
imum number of samples required to be taken per CCP during the study!, the potential
quality loss is reduced by 50%+ This derives from an important model assumption that
when the probability of contamination exceeds zero, there is a 50% reduction in quality
loss if appropriate minimal testing and intervention are performed+ Thus HACCP is assumed
to be at least 50% effective+ Assumptions on the effectiveness of HACCP have been reported
by Knutson et al+ ~1995!, whose Delphi survey results suggested that HACCP is only 20%
effective; Antle ~2000! used the same estimate+ In addition, FSIS assumed 10% to 100%
effectiveness for HACCP as a basis for its regulatory impact assessment+

3.5 Value of Risk Reduction


The measure of risk reduction compensates the processor when the processor tests for
Salmonella at the CCPs and implements control measures if the tolerance level is vio-
lated+ It is a measure of the benefit derived from not shutting down due to an outbreak of
Salmonella+ Hence, the value of risk reduction is a function of the testing decision and the
sampling intensity, and it estimates the portion of the total revenue that is retained at each
CCP when an outbreak is prevented+ It is mathematically defined as

pi ui * ~TR! * bi , ~2!

where p is the value of risk reduction, and b $0,1% is a binary testing decision variable,
which is equal to 1 when the optimal decision is to test for Salmonella and 0 otherwise+
At each potential CCP, it is assumed that only one sample is taken per bird, but that at
minimum, at least two birds must be sampled+ One sample is analyzed in the plants facil-
ities, while the other is sent to the USDA for further analysis+ At maximum, all birds
could be sampled resulting in the number of product samples per potential CCP equaling
6500, the total number of turkeys processed per day+

3.6 Testing Costs


Testing for Salmonella occurs at various points or CCPs along the processing chain+ With
eight potential CCPs in the augmented HACCP plan, the primary objective of this study
is to determine an optimal testing strategy in developing an augmented HACCP plan+
Testing may be done at any one of the eight potential CCPs, at different intensity levels
~number of samples! and0or different tolerance levels ~number of pathogens at which the

1
In this study, total output is measured as the number of whole turkey birds produced per day+

Agribusiness DOI 10.1002/agr


218 NGANJE, KAITIBIE, AND SORIN

product is still considered safe for human consumption!+ These costs are measured at
those points along the processing chain where the food safety intervention strategies are
located+ Conventional wisdom is that higher sampling intensities and testing, especially
at the plant level, will decrease the probability of producing and selling contaminated
food products+
Testing costs include three major components: the utilities costs at each CCP, associ-
ated labor costs at each CCP, and the cost of Salmonella testing in laboratories outside the
processing plant+ These cost components were taken into consideration to arrive at a labor
cost for Salmonella testing per CCP at $16 per test+ However, labor costs can vary between
$8 and $20 per test+ Hence, labor costs have been represented as a stochastic variable in
the model, especially because USDA inspection agents may require more testing if food
safety problems persist+ The cost of Salmonella testing can vary with the type of test used,
ranging between $10 and $14 per test+ Like the labor cost, the cost of Salmonella testing
is also represented as a stochastic variable, to account for uncontrollable risk factors that
lead to the variability in cost figures+ Both variables were assumed to be normally dis-
tributed+ The cost of utilities at each CCP is assumed fixed at $36 per test+ Total testing
costs, C,D at each CCP are estimated following

CD i ~ LE i Ui TE i ! * ni * bi , ~3!

where L is the labor cost for preparing and collecting product samples, U is the utilities
cost, T is the cost of Salmonella testing, n is the number of product samples ~or sampling
intensity! and b is as previously defined+

3.7 Total Economic Costs


Total economic costs associated with the turkey processing operation are composed of
the value of risk reduction, testing and sampling costs and the quality loss+ The direct cost
component includes testing costs, utilities, and the labor costs+ The indirect cost compo-
nent accounts for quality loss incurred when there is a violation of the tolerance level+
Therefore, the total system cost, TC, less the cost of inputs and other fixed costs of HACCP,
is defined as
8
TC ( ~L i CD i pi !+ ~4!
i1

A net benefit function is developed around Equation 4, by subtracting Equation 4, as


well as the turkey input cost and the fixed production costs of HACCP, from the total
revenue, assuming the final product is a whole bird+ Hence, the net benefit function is

NB~ b, n! p * Y TC~ b, n!, ~5!

where P is the whole bird product price and Y is the total product, while TC, n and b are
as previously defined+

3.8 Stochastic Optimization Model and the Risk Premium


The risk premium evolves as a theoretical construct measuring the difference between the
expected value of the net benefit and its associated certainty equivalent+ Based on the
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HACCP IMPLEMENTATION AND ECONOMIC OPTIMALITY IN TURKEY PROCESSING 219

expected utility concept, risk averters would prefer a certain return to a risky action with
an uncertain, but equal expected return+
If we define the certainty equivalent as the amount of money for certain that makes the
risk averse decision maker indifferent between the certain cash and the gamble whose
expected monetary value is equal to the certain cash, then the risk premium is the addi-
tional income required to compensate the risk-averse decision maker for taking the gam-
ble+ In this study, the effect of the market risk premium is captured with an expected
utility model+ Following Pratt ~1964!, the risk premium ~j! is the difference between the
certainty equivalent ~CE! and the expected value of net benefit such that,

U~CE ! U @E~NB! j~NB!# E @U~NB!# + ~6!

The risk premium is a function of the level of risk aversion, measured by the curvature
of the utility function, and the level of risk+
A stochastic optimization model for poultry production operation using a HACCP sys-
tem was developed+ The utility maximization framework uses an expo-power utility func-
tion ~Saha, 1993! to quantify a risk premium+ The expo-power utility function is a flexible
form that does not impose any predetermined risk preference structure on risk attitudes,
and thus may be used to model absolute and relative risk aversion+
The model chooses the optimal testing strategy ~where to test, testing intensity! that
maximizes portfolio utility+ The model assumes a linear net benefit function that esti-
mates benefits above certain variable costs ~testing costs and quality loss!+ The objective
function can be expressed by the following equation:

Maximize E @U~NB!# E~l e aNB~ b, n! !,


d
d 0, a 0, da 0, ~7!
b, n

subject to:

2 n 6500,

at each potential CCP, and

b $0,1%,

where l is usually a positive parameter, whereas d and a are parameters that affect abso-
lute and relative risk aversion of the utility function+ The first constraint reflects the fact
that because there are 6500 birds processed per day the sampling intensity at each poten-
tial CCP must range between 2 and 6500; the second constraint is the binary testing deci-
sion variable ~1 to test, and 0 otherwise!+
The expo-power utility function is quasi-concave for all NB . 0+ Necessary and suf-
ficient conditions for concavity exist if d daNB d 1 0, and d 0, respectively+
This function exhibits decreasing absolute risk aversion if d , 1, constant absolute
risk aversion if d 1, and increasing absolute risk aversion if d . 1+ To ensure regu-
larity in the utility function, values for l, a, and d were initially set at 2, 0+00005, and
0+04, respectively, the last value to confer decreasing absolute risk aversion because many
processors are assumed more likely to change risk preferences as wealth levels increase+
Additional analyses were performed to determine optimal testing decisions and sampling
Agribusiness DOI 10.1002/agr
220 NGANJE, KAITIBIE, AND SORIN

intensities under constant absolute risk aversion because some processors are essentially
conservative, and therefore loathe changing risk preferences even as their wealth levels
increase over time+

4. RESULTS

Salmonella contamination data from the turkey processing plant were used to calculate
contamination probabilities at three tolerance levels ~29%, 15%, and 5%!+ Following USDA
recommendations, many processors have used the 29% tolerance level+ Yet given that
many turkeys at the farm-level test positive for Salmonella, this study was designed to
also investigate HACCP implementation at lower tolerance levels+
Salmonella contamination probabilities were then calculated assuming tolerance levels
of 29%, 15%, and 5%+ As expected, Table 1 shows that contamination probabilities were
highest at 5% tolerance, and lowest at 29% tolerance+ In addition, probabilities of Sal-
monella contamination were highest at potential CCPs for postback-frame removal, postch-
ill, preevisceration, and postscalding, in that order+ At the higher 29% tolerance level,
CCPs for prescalding, postwash, and postexamination for visible fecal contamination had
zero probabilities of contamination+ At 15% tolerance, only postwash showed zero prob-
ability of Salmonella contamination+ Higher tolerance levels lead to lower estimates of
probabilities of contamination; therefore, the designation of tolerance levels by govern-
ments must be scientifically determined to avoid high costs to the plant+

4.1 Quality Loss Estimates

Quality loss estimates are presented in Table 2+ At CCPs where the probability of con-
tamination was zero, quality loss estimates were zero+ Thus, at the 29% tolerance level,
the CCP for prescald, postwash, and postexamination for visible fecal contamination reg-
istered zero losses in quality+ The highest quality loss values were observed at the CCP
for postremoval of back frame ~$11,6310day!, postchill ~$8,6390day!, and preeviscera-
tion ~$7,6770day!, coinciding with the highest probabilities of Salmonella contamination+

TABLE 1+ Probability of Salmonella Contamination at Eight Potential Critical Control Points


at a Turkey Processing Plant
Probability of contamination
29% 15% 5%
Potential critical control point Tolerance Tolerance Tolerance
Prescalding 0+000 0+072 0+169
Postscalding 0+185 0+319 0+391
Preevisceration 0+296 0+412 0+474
Prewash 0+111 0+258 0+336
Postwash 0+000 0+000 0+053
Postexamination for visible
fecal contamination 0+000 0+072 0+169
Postchill 0+334 0+444 0+502
Postremoval of the back frame 0+482 0+567 0+613

Agribusiness DOI 10.1002/agr


TABLE 2+ Quality Loss Estimates in Turkey Processing, With and Without Contamination Reduction
Quality loss without Quality loss with 50%
contamination reduction contamination reduction
~$0day! ~$0day!
29% 15% 5% 29% 15% 5%
Potential critical control point Tolerance Tolerance Tolerance Tolerance Tolerance Tolerance
Prescalding 0+00 4,636+00 98,538+00 0+00 2,318+00 49,269+00
Postscalding 4,669+00 30,158+00 332,468+00 2,335+00 15,079+00 166,234+00
Preevisceration 7,677+00 39,947+00 413,587+00 3,838+00 19,974+00 206,794+00
Prewash 2,690+00 23,280+00 273,062+00 1,345+00 11,640+00 136,531+00
Postwash 0+00 0+00 16,544+00 0+00 0+00 8,272+00
Postexamination for visible
fecal contamination 0+00 4,636+00 98,538+00 0+00 2,318+00 49,269+00
Postchill 8,639+00 42,903+00 437,125+00 4,319+00 21,452+00 218,563+00
Postremoval of the back frame 11,631+00 51,179+00 497,627+00 5,815+00 25,589+00 248,813+00

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DOI 10.1002/agr
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222 NGANJE, KAITIBIE, AND SORIN

Quality loss estimates increased as the tolerance level tightened from 29% through 5%+
At the 15% tolerance level no quality loss occurs at the CCP for postwash+ As is the case
for the 29% tolerance level, quality loss at the 15% tolerance level was highest for pos-
tremoval of back frame ~$51,1790day!, postchill ~$42,9030day! and preevisceration
~$39,947!, again, coinciding with the highest probabilities of Salmonella contamination+
The substantial quality loss values at the lower tolerance levels, compared with the higher
tolerance, suggest that HACCP implementation costs could increase exponentially if tol-
erance limits for Salmonella contamination are further tightened+

4.2 Estimates of Value of Risk Reduction


The value of risk reduction places a monetary value on the amount of food safety risk
reduced each time product testing occurs at a CCP+ Within tolerance levels, risk reduction
values are highest at chilling, followed by visual inspection, preevisceration, postscald,
and prewash ~see Table 3!+ As expected, there is no risk reduction when the probability of
contamination is zero ~i+e+, very small!, yet the value of risk reduction increases, albeit
at a slower rate than quality loss, at lower tolerance levels+ For instance, at the CCP for
postremoval of back frame, the value of risk reduction is $33,0270day at 29% tolerance,
$38,8800day at 15% tolerance, and $42,0050day at 5% tolerance+
Figure 2 compares quality loss and value of risk reduction at 29% and 5% tolerance
levels+ At the higher tolerance level of 29%, quality loss is lower than the value of risk
reduction at each potential CCP where the probability of Salmonella contamination is
greater than zero+ At the lower tolerance level of 5%, quality loss is exponentially higher
than the value of risk reduction+

4.3 Optimal Strategies for HACCP Implementation


HACCP is a process control mechanism ~Antle, 2000; Golan et al+, 2004; Ollinger &
Mueller, 2003!, and food safety is a credence attribute, therefore turkey processing con-
tinues uninterrupted as long as critical limits are not violated+ Consequently, test
results on Salmonella contamination may arrive well after products have been shipped
to and purchased by consumers+ Therefore, HACCP implementation costs include

TABLE 3+ Value of Risk Reduction at Different Tolerance Levels


Value of risk reduction ~$0day!
29% 15% 5%
Potential critical control point Tolerance Tolerance Tolerance
Prescalding 0+00 4,921+00 11,620+00
Postscalding 12,651+00 21,860+00 26,776+00
Preevisceration 20,280+00 28,232+00 32,478+00
Prewash 7,629+00 17,665+00 23,023+00
Postwash 0+00 0+00 3,609+00
Postexamination for visible fecal
contamination 0+00 4,921+00 11,620+00
Postchill 22,887+00 30,410+00 34,427+00
Postremoval of the back frame 33,027+00 38,880+00 42,005+00

Agribusiness DOI 10.1002/agr


HACCP IMPLEMENTATION AND ECONOMIC OPTIMALITY IN TURKEY PROCESSING 223

Figure 2 Comparison of quality loss and risk reduction values at 29% and 5% tolerance levels+

supply and demand impacts ~as measured by quality loss! and testing costs, while HACCP
benefits include value of risk reduction and total revenue+ Optimal testing strategies
were determined at different tolerance levels by maximizing the utility of net benefits
due to HACCP implementation+ Table 4 shows optimal strategies for Salmonella testing
and HACCP implementation under decreasing absolute risk aversion and increasing rel-
ative risk aversion+ Instead of the eight points under consideration, Table 4 results show
that at the 29% tolerance level only five points may be designated as CCPs, with a min-
imum of two test samples per CCP+ These points at which critical control may be estab-
lished are postscalding, preevisceration, prewash, postchill, and postremoval of back frame+
Hence, it is not economically optimal to designate prescalding, postwash, and postexam-
ination for visible fecal contamination as CCPs+
At the 15% tolerance level, the number of CCPs increases to six, with prescalding as
the additional CCP, but the minimum two test samples per CCP remain economically
optimal+ As the tolerance level for Salmonella tightens to 5%, it becomes economi-
cally optimal to test for Salmonella at all eight potential CCPs, with two test samples per
CCP+ As tolerance levels decline from 29% to 5%, the net benefit of the implemented
HACCP plan declines from a benefit of $146,940 to a loss of $830,334 mainly because of
the high increase in quality loss+
Agribusiness DOI 10.1002/agr
224

Agribusiness
TABLE 4+ Optimal Strategies for Salmonella Testing and HACCP Implementation Under Decreasing Absolute Risk Aversion and Increasing Relative
Risk Aversion ~a 0+00005, d 0+04!

DOI 10.1002/agr
29% Tolerance 15% Tolerance 5% Tolerance
Potential critical Test # of Test # of Test # of
control point decision Samples Decision Samples decision Samples
NGANJE, KAITIBIE, AND SORIN

Prescalding Test 2 Test 2


Postscalding Test 2 Test 2 Test 2
Preevisceration Test 2 Test 2 Test 2
Prewash Test 2 Test 2 Test 2
Postwash Test 2
Postexamination for visible fecal contamination Test 2
Postchill Test 2 Test 2 Test 2
Postremoval of the back frame Test 2 Test 2 Test 2
Net benefit 146,940 109,311 ~830,334!
Note+ a and d are parameters that affect absolute risk aversion and relative risk aversion+
HACCP IMPLEMENTATION AND ECONOMIC OPTIMALITY IN TURKEY PROCESSING 225

Table 5 presents optimal strategies for Salmonella testing and HACCP implementation
under constant absolute risk aversion+ The results are nearly identical to those obtained
under decreasing absolute risk aversion and increasing relative risk aversion+ The only
difference is that under the latter, seven CCPs were designated for Salmonella testing,
instead of six in the former, when the tolerance level is 15%+ Testing strategies remain
identical at other tolerance levels+ The results in both Tables 4 and 5 did not change when
values of d and a were marginally perturbed+ Marginal perturbation was necessary to
maintain regularity and convergence+
Information supplied by the processing plant under consideration revealed that critical
control points were established to examine products for visual fecal contamination and
for chilling+ At the standard regulatory requirement of 29% tolerance, postexamination
for visible fecal contamination would not be a designated CCP, based on the results of
this study+ This result follows plant level data that showed the probability of Salmonella
contamination to be zero at this point+
The additional testing points in this model suggest that the generic HACCP plan is not
economically optimal+ Not surprisingly, the USDA maintains that the generic HACCP
plan is not intended to be used as is+ A national survey by Ollinger et al+ ~2004! shows
that processors spending on implementation of HACCP and other controls has increased
greatly because market forces have worked in conjunction with regulation to promote the
use of more sophisticated food safety technologies+ This implies that processors are under-
taking more than the regulatory requirements laid out in generic HACCP plans+

5. CONCLUSION AND RECOMMENDATIONS


The FSIS-mandated PR0HACCP regulation was designed to ensure that food products
are safe+ However, the government mandated assessments did not consider costs at the
firm level in designating CCPs for processing operations, nor did they consider how much
sampling would effectively test for the presence of Salmonella+ These costs are consid-
ered in this study+ Continuing outbreak and food recalls may partly be attributed to cost
limitations in plants+ Firms, in an effort to minimize production costs, may only adopt the
FSIS generic HACCP that has two CCPs, rather than adopt an economically optimal strat-
egy that considers food safety risks, costs of intervention, and the value of risk reduction
at the firm level+
From our analysis, probabilities of Salmonella in turkey processing were highest at
postback-frame removal, postchill, preevisceration, postscalding, and prewash, in decreas-
ing order+ At a 29% tolerance, prescald, postwash, and postexamination for visible fecal
contamination showed zero probability of Salmonella contamination+ At each testing point,
the probability of Salmonella contamination increases as the tolerance limit is reduced to
15% and then 5%+ The probability values suggest certain points that are more amenable
to being designated as CCPs+ At such points, food safety intervention strategies can be
more effective and efficient+
Quality loss and risk reduction values are higher at points with higher probabilities of
Salmonella contamination+ These values increase as the tolerance level decreases+ Impor-
tantly, results show that producers will incur very high costs in quality loss if there is no
contamination reduction+ At the same testing point and tolerance level, the corresponding
benefit of risk reduction is relatively smaller when testing and intervention occur+
Optimal testing strategies vary with tolerance level, and have largely followed a pat-
tern that relates to probabilities of Salmonella contamination at the various testing points+
Agribusiness DOI 10.1002/agr
226

Agribusiness
TABLE 5+ Optimal Strategies for Salmonella Testing and HACCP Implementation Under Constant Absolute Risk Aversion ~a 0+00005, d 1!
29% Tolerance 15% Tolerance 5% Tolerance a

DOI 10.1002/agr
Test # of Tes # of Test # of
Potential critical control point decision Samples t decision Samples decision Samples
Prescalding Test 2 Test 2
NGANJE, KAITIBIE, AND SORIN

Postscalding Test 2 Test 2 Test 2


Preevisceration Test 2 Test 2 Test 2
Prewash Test 2 Test 2 Test 2
Postwash Test 2
Postexamination for visible fecal contamination Test 2 Test 2
Postchill Test 2 Test 2 Test 2
Postremoval of the back frame Test 2 Test 2 Test 2
Net benefit 146,940 116,461 ~830,334!
Note+ a and d are parameters that affect absolute risk aversion and relative risk aversion+
a
At 5% tolerance under constant absolute risk aversion a was set at 0+000005 to ensure regularity in the utility function+ The problem of nonregularity in the utility function
would arise from the very high-quality loss values+
HACCP IMPLEMENTATION AND ECONOMIC OPTIMALITY IN TURKEY PROCESSING 227

For instance, at 29% tolerance, it is not economically optimal to test at points where the
probability of contamination is zero ~very small; i+e+, prescald, postwash, and post-
examination for visible fecal contamination!+ Yet the maximum number of samples at the
other five points is two+ This implies that minimal testing at designated testing points is
cost-effective+ These results remained virtually identical both under decreasing absolute
risk aversion and constant absolute risk aversion, indicating an aspect of robustness of the
results+
This study contributes to the existing literature a framework for analyzing the efficacy
of HACCP at the plant level+ One important finding is that an augmented HACCP plan ~in
this case with five CCPs and two product samples per CCP! is potentially more cost-
effective than the generic HACCP plan, as well as being more effective than the current
HACCP specifications used in the plant studied+ In addition, the results suggest that moves
to tighten the tolerance to less than 15% should be carefully considered because addi-
tional costs to the firm tend to increase exponentially above current values of risk reduction+

ACKNOWLEDGMENTS
Funding for this research was provided by the Great Plains Institute of Food Safety at
North Dakota State University under USDA0CSREES Special Research Grant #2003
3447513066 for Food Safety Risk Assessment+

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228 NGANJE, KAITIBIE, AND SORIN

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William Nganje is an Associate Professor in the Morrison School of Management and Agribusi-
ness at Arizona State University. He received his PhD in Agricultural Economics in 1999 from the
University of Illinois at UrbanaChampaign. His research interests include risk analysis with spe-
cific emphasis of financial management issues for Agribusiness firms and the Economics of Food
Safety and Food Protection.
Simeon Kaitibie is an agricultural economist with the International Livestock Research Institute in
Nairobi, Kenya. He received a PhD in agricultural economics from Oklahoma State University in
2002, and his research interests include SPS issues, vulnerability and market analyses.
Alexandre Sorin is a former graduate research assistant in the Department of Agribusiness and
Applied Economics at North Dakota State University.

Agribusiness DOI 10.1002/agr