Lecture - 10 Food Safety and Health

Department of Food and Resource Economics
Food Safety and Health
Dagim Belay
University of Copenhagen
Outline
• Definitions and Global burden of Food borne diseases (FBD)
• The market for food safety & rationale for public intervention
• Policy responses
• Impact evaluation of food safety regulatory policies in Denmark

• Economic evaluation of interventions
• Cost-benefit analyses
• Cost-effectiveness analyses
• Experts versus the public

Learning goals
• Describe gloabl burden of food borne diseases
• Analyse the topic of food safety from economic point of view
• Describe policy instruments to address food safety
• Analyse impacts of regulations aimed at addressing one health
• Assess the cost/benefits and efficiency of preventive (healthy

eating/food safety) interventions;
• Understand how consumers perceived risk might differ from an

objective risk assessment and how this impacts welfare
assessments;
Food borne disease burden: World
WHO (2015): Report on global burden of foodborne diseases
• Foodborne diseases (FBD) are an important cause of morbidity and

mortality worldwide
• The full burden of unsafe food, and especially burden arising from chemical
and parasitic contaminants is still unknown.
• Detailed data on the economic costs of FBD in developing countries are
largely missing.
• In 2010, 31 global hazards caused:

• 600 (95% uncertainty interval [UI] 420–960) million foodborne
illnesses
• 420,000 (95% UI 310,000–600,000) deaths.
• The most frequent causes of foodborne illness were diarrhoeal
disease agents, particularly norovirus and Campylobacter.
Food borne disease burden: Denmark

Denmark: Burden of Disease of Foodborne Pathogens – (Pires et al.
2020)
• The true impact of foodborne illnesses is still unknown

• Major problem: underdiagnosis & underreporting
• Campylobacter caused the highest burden of disease, 1709 DALYs

(95% uncertainty interval [UI] 1665–1755).
• The second highest ranked pathogen (Salmonella: 492 DALYs; 95%

UI 481–504), followed by Listeria and Yersinia.
• The ranking of foodborne pathogens varied substantially when
based on reported cases, estimated incidence, and burden of
disease estimates
• The total estimated incidence was highest for norovirus but ranked
sixth when focusing on foodborne burden.
Source: Pires et al. (2020)

Source: Pires (2014)

Exercise (5 min)
• What are the main causes of food safety issues

worldwide?
• Use examples and contexts
Causes of Food Safety Issues
• Contamination
• Occurs at different stages, such as during (agricultural and food)

production, processing, transportation, or storage.
• Caused by
• microorganisms (e.g., bacteria, viruses, parasites, Novel Zoonotic
diseases such as Novel coronavirus (SARS-CoV-2),
• chemicals (e.g., pesticides, antibiotics, cleaning agents, food
additives, or environmental pollutants such as microplastics), or
• physical contaminants (e.g., glass, bone, metal or plastic
fragments).
• Cross-contamination
• occurs when harmful microorganisms are transferred from one
surface or food to another.
• direct contact, such as using the same cutting board or knife
for different foods without cleaning in between.
• indirectly, such as when hands, utensils, or equipment touch
contaminated surfaces and then come into contact with
ready-to-eat foods.
• Improper handling and Inadequate cooking
• Inadequate hygiene practices by food handlers, such as improper

handwashing, can introduce harmful microorganisms into the food.
• Not adequately cooking food to kill pathogens, bacteria can multiply

rapidly and cause foodborne illnesses.
• Poor storage conditions
• Inadequate food processing and preservation:

• Insufficient processing or preservation methods can allow
microorganisms to survive and multiply in food.
• Inadequate canning, drying, fermenting, or packaging techniques
• Improper storage and temperature control can lead to the growth of

harmful microorganisms or result in chemical changes in the food,
reducing its safety and quality.
• Lack of traceability and accountability
• Widespread asymmetric information between producers and

consumers
• Ineffective surveillance (tracking and tracing) systems and regulation
• difficulty to identify source of contamination.
• delays necessary actions and increase the risk to public health.
• Allergen mismanagement
• Failure to properly label and segregate allergenic ingredients in
food products can lead to allergic reactions in sensitive
individuals.
• Food fraud and adulteration

• Deliberate substitution or addition of inferior or harmful ingredients
can occur for economic gain.
• allergens, unapproved additives, or contaminants into the food
supply chain.
• Environmental factors:
• Climate change, Natural disasters, such as floods or wildfires, etc.
• can contaminate agricultural fields
• disrupt food production and distribution systems, increasing
likelihood of food safety issues.
• Inadequate regulations and enforcement

• Weak regulatory frameworks, insufficient inspections, and
inadequate enforcement of food safety standards can contribute
to a higher risk of foodborne illnesses.
• Globalization and complex supply chains
• Complexity of global food supply chains increases the potential for
contamination or safety breaches at different stages of
production, processing, and distribution.
• Consumer behavior
• Improper handling of food by consumers, including inadequate
storage, reheating, or extended storage beyond recommended
dates, can contribute to food safety issues.
• Political economy
• Role of interest groups, etc.
• Cultural and social norms
• E.g., Wet markets
• Significant one health issue
• Very common in Southeast Asia and parts of West Africa
• New technologies:
• GMO, Food Irradiation, Nanotechnology
Food Safety ”Terminology”

Risk versus Uncertainty
Risk:
• All activities involve risk, by which we mean the combination of the

likelihood (probability) and the harm (adverse outcome, e.g.
mortality, morbidity, ecological damage, or impaired quality of life)
resulting from exposure to an activity (hazard). (example: Salmonella
vs botulism)
Uncertainty:
• Uncertainty can be distinguished from probability.

• Some risks (both high and low probability) are well documented and
understood, while others (both high and low probability) are highly
uncertain.
Food Safety ”Philosophies”
• Precautionary principle (PP): provides norm for risk management

in situations where decision makers have reasonable grounds for
concern about risk to health or the environment, but there remains
substantial scientific uncertainty
• Relevant for example for GMO regulation
• EU: PP principle >mandatory GMO labeling

• As of 2010, the EU treats all genetically modified crops along with
irradiated food as "new food". They are subject to extensive, case-by-
case, science-based food evaluation by the European Food Safety
Authority (EFSA).
• US: No mandatory GMO labeling > waits for evidence of harm to

regulate
Food Safety from an Economic point of View

• Consumers make choices about food products based on the product’s
attributes (Lancaster model):
• price,
• appearance, convenience, texture, smell,
• perceived quality
• In an ideal world, consumers would make consumption decisions with

full information about product attributes, and so choose the foods that
maximize their well-being.
• In the real world, however, there are numerous food safety information
problems, which complicate the consumer’s decision making.
• Food safety is usually an experience or trust attribute.

Food Safety – Rationale for Intervention
Market Imperfections in the Context of Food Safety
• Imperfect information with respect to food safety (either asymmetries

in the supply of food safety information or symmetric imperfect
information);
• Consumer risk perceptions widely at odds with objective measures of

risk;
• Market prices do not reflect the full social costs and

benefits of changes in the level of food safety;
Food Safety from an Economic point of View
Source: Traill & Koenig (2010)

Policy responses to address food safety issues
Group work (5 minutes)
• Think of any food safety issue.

• Discuss and list policy instruments or interventions you could
introduce to address this food safety issue.
• Present your results .
Policy responses
• Supply side responses
• Labelling (Mandatory vs Voluntary)

• Information disclosure
• Taxes
• Quota
• Subsidies
• Auctions/tradeable permits
• Banning
• Education and Training
• Information campaigns
•
• Demand side responses
• Information campaigns
• Education and Training
Banning
• Popular when there is uncertainty in safety status of new food

or food technology.
• Targeted/partial vs Blanket
• A new input of uncertain safety standard could be allowed for

some specific use and banned for all other kinds of use
• Examples: GMOs could be allowed for cotton production but not for food
production
• Popular in settings with low safety surveillance and enforcement

capacity
• Example. GMO bans in Africa, Plastic ban in Kenya
Labelling
• Helps address asymmetric information problem between

producers and consumers
• Mandatory and voluntary
• Specific or blanket
• Examples: GMO label, Antibiotic free label, ecological label
• Labelling is one kind of information disclosure
• Could be controversial
Information disclosure
• Helps address asymmetric information problem between

producers and consumers
• Mandatory and voluntary
• Targeted vs Blanket
• Examples: naming and shaming of antibiotic use and

MRSA infection among pig farms, Hygiene grading of
restaurants, etc.
• Could be controversial and even counter-productive when it

involves food safety issues
Taxes/Subsidies/Quotas
• Aim to address the negative externality from unsafe food

production
• They could be imposed both on input or output side
• Examples: Tax/subsidy/quota on antibiotic use, pesticide use,

meat consumption or cow/pig production, etc.
• Tax/subsidy/quota could be distortionary if not optimal
• Challenging to set optimal rates/levels:

• Demand tremendous information on abatement costs and
total damage.
Auctions/tradeable permits
• Aim to address both the negative externality and

asymmetric information related to unsafe food
production
• Could be introduced for inputs of food production

• Examples: auction on antibiotic permits, pesticide
licenses
• Almost never used in practice for food safety
• Auctions have advantage of generating information on

abatement costs
Information campaigns
• Could enable increase public awareness about FBD and

preventive measures.
• Very powerful during outbreaks requiring immediate

intervention
• E.g., Ebola epidemic, COVID-19 pandemic
• Very important in developing country settings where

regulatory enforcement capacity is weak, and most firms are
small and informal.
Education and Training
• Expected to improve safe food handling behaviour among

producers and consumers.
• Relaxes constraints on skill and knowledge, esp. for new
technologies
• Could enable increase public awareness about FBD and
preventive measures.
• Very powerful during outbreaks requiring immediate

intervention
• E.g., Ebola epidemic, COVID-19 pandemic
• Very important in developing country settings where

regulatory enforcement capacity is weak, and most firms
are small and informal.
EMPIRICAL EVIDENCE
Impacts of farmers’ antibiotic use regulatory policies in
Denmark
• Antimicrobial resistance (AMR) as one of the most serious global public
health threats of 21st century
• Antimicrobial Resistance as One Health problem
• One health approach
• Animals, humans, plants and the environment share similar
ecology and microbial population.
• Microbial induced disease or resistance from one sector could
easily pass around.
• Solution should be multisectoral
• HOW big is the burden?
EU: 25,000 hospital deaths annually
US: 2 million AMR infections annually, costing at least 23,000 deaths
and $26 billion
China, AMR costs $10 billion and 80,000 deaths per annum
AMR prevalence is growing…!

Economic perspective
• AMR is mainly a result of a market failure in antibiotics

• demand (overuse) and supply side (lack of new
R&D)
• Perpetual antibiotic innovation may be uncertain…….
Focus on DD-side (conservation)
• Focus on Agricultural use… Why?

• accounts 80% of total consumption (US, Canada &
Denmark)
• predicted to increase with rising demand for animal
protein, likely to double by 2050
Regulation of agricultural antibiotic use in Denmark
• The rationale
• Growing evidence that antibiotic use in animal agriculture is linked to
antimicrobial resistance
• Relevant reforms
• The cascade rule in 1993:
• Restricted use of critical medicines by imposing mandatory first
priority to medicinal products approved for relevant species,
with subsidiary approval for other species.
• 1995 limits to economic incentives to veterinarians or others
when distributing medicines,
• banning AGP in 1998
After ban of AGPs

• Yet antibiotic consumption for therapeutic use has been

increasing after the ban
• Increase consumption largely represented overuse
and was not justified by disease patterns or increased
production alone
• Information disclosure, Danish yellow card
initiative, etc.
Literature
• Information disclosure as third-generation regulatory

instrument (See eg. Titenberg)
• Complementary and substitute to CC & MB instruments
• Remains to be very controversial!! …
• Can be too costly due to market over-reaction, eg. Volkswagen
emissions scandal or food scares (salmonella outbreaks etc.)
• Shown to be effective in other areas:
• Environmental regulation (Hamilton 1995; Khanna et al 1998;

Konar and Cohen 1997; Cohen, and Santhakumar 2007; García et
al. 2007; Bennear and Olmstead 2008; Delmas et al. 2010; Powers
et al. 2011; Campa 2018);
• Consumer protection (Dranove et al. 2003; Jin and Leslie 2003;

Ramanarayanan and Snyder 2012; Seira et al. 2017)
• Criminal justice (e.g., Luca 2011; Webbink et al. 2017).
• None of these studies examined the contexts of antibiotic use, which is

known to affect private benefits and may have far-reaching
consequences
The intervention
• Summer 2010- Danish government publicly exposed identities of high

antibiotic using farmers:
• Part of broader initiatives to reduce consumption of antibiotics in
Danish pig farming…… under Food Minister Henrik Høegh (V)
• The list (name, address, owner of farms) was published on

websites such as the Danish Parliament, www.sickpigs.dk,
www.landmisbrug.dk, https://www.kommunikationsforum.dk/
and https://www.aabenhedstinget.dk).
• Viewed as a policy experiment, the disclosure was characterized
by being
• 1) unexpected by the farmers,
• 2) disclosing only high-using farms,
• 3) a one-off event (but with no guarantee that it could not be
repeated).
Unique Context
• Very specialized Danish pig farms
• High public awareness of antibiotic use in agriculture (eg.
Mørkbak et al. 2011; rising incidence of MRSAC398 in Denmark,
SSI 2017)
Geographic Location of publicly Disclosed Pig farms (2010)

Research Questions
• What is the effect of the information disclosure on farmers’

subsequent antibiotic use
• Is there heterogeneity in the effect of the information disclosure

among pig farmers
• Does the information disclosure affect farmers' input structure?
• What is the effect of the information disclosure on farms market

survival
Theoretical Framework
Disclosure of information on compliance with antibiotics regulation may affect farmers’

reputation
Farmers’ incentives for using antibiotics under information disclosure:

Direct productivity effect (+)
reputational damage (-)
Static context
Assumptions
• Antibiotic use in food animal production or the presence of antibiotic residues in

food is viewed negatively by consumers and citizens (Mørkbak et al. 2011)
• A perfectly competitive market where there are many profit-maximizing farmers.

• Suppose represents a profit function, where .
• The regulator possesses knowledge about and the capacity to disclose the
identity of high-use farms to the market.
• represents reputational loss due to disclosure of antibiotic use, where .
• With no public disclosure, it is assumed that nobody in the market (except the
farmer himself) knows his antibiotic use, i.e., , and thus that the farmer incurs
zero reputational loss.
• A profit-maximizing representative farmer would then maximize the following

objective function:
(1)
Taking the first derivative with respect to leads to the first-order condition
The disclosure and reputational cost
• Suppose now that the regulator discloses farmer ’s antibiotic use to the
community.
• Farm ’s antibiotic use is now exposed (which otherwise would be farm ’s

private information),
• It is assumed that the community can detect farms that have a high use
of antibiotics and that these farmer therefore incur a reputational cost.
• The cost due to reputational damage could constitute a (threat of) lower
price, boycott of its products, stigmatization within the social network and
in the wider public, etc.
The farmer’s optimum under such information disclosure becomes:

(2)
Hypothesis: compared with the non-disclosed situation, the farmer will

decrease his antibiotic use to a level where there is a balance between the
production gain from additional antibiotic use and the cost incurred from the
damage to its reputation.
Graphical illustration
Marginal reputational loss is assumed to be an increasing a constant marginal reputational cost function
function of use, .i.e., .
Dynamic setting
Assumptions
• Suppose the farm’s antibiotic use is disclosed to the public for two periods,
and that we focus on reputational effects only.
• Farm chooses quantities of the antibiotics to use in each period after the
disclosure - and .
• Farm s private information about its antibiotic use is exposed to the public in
the two periods t=1, 2, with perceived probability for disclosure in second
period, respectively, and is the reputational cost of being publicly disclosed.
• The farm maximizes the net present value of its stream of profits,
discounted by a factor .
(3)
,
• Assume the damage to reputation in the second period t=2 is given by ,

which indicates serial correlation in reputational damage between successive
periods.
• In addition, the marginal reputational damage in the second period is

assumed to be an increasing function of reputational cost in first period,
given by the second-order derivative
• If >0, reputational damage in period 1 will amplify reputational cost of
disclosed high use in period 2,
• If , the reputational loss in period 1 has drained the pool of reputation and
there is less reputation to be lost in period 2.
• If the expected damage to reputation does not carry over to the

next periods, and.
• This implies that the optimum of the farm is given by the first-order
conditions
;
i.e., the disclosure in period 1 has no effect on subsequent production
behavior.
• However, if period 1’s damage to reputation carries over to the next

period, the serial correlation between costs to reputational damage
is given as .
• This implies that in the second period, the farmer’s optimum
becomes:
(4)
• Equation (4) states that optimal antibiotic use in period 1 reduces (compared to the period
with no perceived risk of exposure) when we take into account the inter-temporal
reputational damage in our model.
• This change in incentive depends on the magnitude of the second-order derivative .
• Such a (potentially) repeated disclosure may provide more dynamic incentives for farmers
to reduce their subsequent antibiotic use than a one-time exposure.
• Both the static and the dynamic model predict that with information disclosure,
farmers will reduce subsequent antibiotic use until the expected marginal
reputational cost from an extra unit of antibiotic use is equal to its marginal
productive benefit.
• The dynamic model further suggests that an observed response in antibiotic use in period 1
could reflect a combination of concerns for reputational loss in period 1 after disclosure
and for reputational losses in subsequent periods.
Data
Sources:
VETSTAT
CHR-registry both owned by Danish Ministry of Environment
and Food
Constructed a panel from 2008-2014
Disclosed 1249
Not disclosed (Whole Sample) 8034
Not disclosed (Matched Sample based on pre- 1,538
disclosure antibiotic use)
Total 9,283
Trends in antibiotic consumption
Average annual antibiotics consumption (kg. active compounds)

Identification Strategy
• Public disclosure of private (antibiotic use) information as a quasi-experiment---provides

an exogenous variation in damage to reputation
• Identifying Assumption: absent disclosure the two groups would follow similar trend.
• Generalized Diff-in-Diff
yit   0  1 post * Disclosed it  t   i  wzt   it

Where
is consumption of antibiotics by farm at time ,
takes value of 1 if time period is after summer 2010 and zero otherwise.
takes value of 1 if farm is publicly disclosed and zero otherwise.
and stand for year and farm fixed effects.
year-of-sample by zip-code fixed effects,
Threats to identification
Identifying the counterfactual
Three different comparison groups:

1) Non-disclosed farms
2) Non-disclosed farms matched based on pre-treatment consumption (in
2008 - well before the exposure).
• Sample from 2009 not included to avoid potential
contamination with exposure in 2010.
• Constructed based on Average Daily Doses (ADD), a technical
measure often used to compare consumption from different
species and age groups.
3) Non-disclosed farms matched based on propensity scores over farm
type, experience, farm size and location of farms in 2009.
Kernel distribution of propensity scores demonstrating

common support
8
0
Pre-matching Post-matching
.3 .5 .7 .9
.3 .5 .7 .9 p-score Disclosed p-score Non-Disclosed
p-score Disclosed p-score Non-Disclosed

Main Results
Antibiotic Consumption
Heterogenous Effects
Effect of public disclosure on market survival

Changes in Input structure

Robustness checks
Trimmed Sample (2008-2012)



Monthly sample
Main findings
• Farms with private information disclosed in public

significantly reduced antibiotic use compared to industry
peers.
• The effect differs across production type: Much of the effect

comes from Finishers
• The disclosure has induced input substitution – in terms of

significant increase in vaccine purchase among disclosed
farms.
• Public disclosure of antibiotic use is found to have no effect

on farms market survival.
Objectives
• To evaluate the effect of the Danish yellow card initiative on famers’ economic
performance
• To identify the potential mechanisms that could channel the effect of the
yellow card initiative on farmers’ economic performance
The Danish yellow card initiative (YCI)
• Introduced in a rollout fashion in which pig farmers joined the

program at the end of 2011 and cattle farmers in 2014
• Imposes restrictions on the farmers to use antibiotics

• It has two features:
• (i) antibiotic use is prescription-based and veterinarians
are not allowed to profit from the sale of antibiotics
• pharmacies, veterinarians and farmers must report

the use and sale of antibiotics to the Danish system
for surveillance of veterinary drug consumption
(VETSTAT)
• (ii) restrictions on farmers to use antibiotics below a level

dynamically set at an amount twice the sectoral average
consumption in the previous year
• applicable to all farmers, but those who surpass the limit

will get a ‘yellow card’, accompanied by a lump sum fee
and requirement of extra (costly) supervision and
unannounced inspection visits.
• within 9 months after receiving yellow card,
• the violator is prohibited from storing or using

antibiotic-containing drugs in the herd if the drug in
question is re-ordered more than once and is
intended for mixing in feed or water.
• Despite no significant disease outbreak reported in cattle and pig

production during our study period, reports from Danish Food agency
show that
• 2012: 54 yellow cards and 20 faced inspection visits.
• 2013: 43 yellow cards and 18 supervisions visits.
• 2014: 32 yellow cards and 43 supervision visits.
• until mid-2015: 44 yellow cards and 17 supervision visits.
• The ‘yellow card’ is expected to shift the responsibility of minimizing

antibiotic consumption from veterinarians to farmers
Identification strategy
• Exploits the timing variation in the sequential introduction of the Danish
yellow card initiative on pig and cattle farmers as a rollout (phase-in)
design.
The rollout of the reform provides a quasi-policy experiment:

• pig farmers as a treatment group
• cattle farmers as a comparison group
• Identifying assumption
• Accounting for terms of trade and other covariates, in the absence of
the yellow card initiative, the two groups would follow similar trend in
economic performance
• The basic model adopts a generalized difference-in-differences
𝑦 𝑖𝑡 = 𝛽 0 + 𝛽 1 𝑝𝑜𝑠𝑡 ∗ 𝑄 𝑅𝑖𝑡 + 𝛽 2 𝐱 𝑖𝑡 +𝜂 𝑡 +𝛼 𝑖 +𝜗 𝑧 , 𝑡 + 𝜀 𝑖𝑡
• Data
• FADN data from Danish statistics using 2008-2014
• Data for price indices from Danish statistics bank
Main Results
Placebo test
Parallel Trends in Efficiency scores before the interventions

Main findings
• The yellow card initiative has decreased the profit and increased the input
expenses of livestock producers on average
• The reduction in performance is largely driven by increased spending on

veterinary medical services, feed costs, labor hour and costs.
Motivation
Problem
• Existing regulatory instruments (such as yellow card initiative) fail to
address the information asymmetry that exists between farmers and
regulators
• The regulator lacks knowledge about each farmers’ abatement cost of
antibiotics use
Objective
• Investigate potentials of Montero (2008) auction mechanism to address
this issue of asymmetric information
Basic Montero Auction
• Suppose 𝑛 pig farmers and a regulator, credible and determined to

implement the first-best solution
• The regulator inverts the marginal damage function to get a supply

function of allowances i.e.
• Each farmer submits its demand function for antibiotic use right, i.e. ,
with , where is farm’s antibiotic consumption
• Farmer residual supply function

Basic Montero Auction….continued
• The regulator then equates the residual supply to the farmer demand
schedule to get the total number of allowances i.e. or equivalently
• Farmer receives a fraction of the auction revenue i.e. , where
The rebate induces truth–telling to be a dominant strategy

Extensions I: Imperfect substitutability of individual

farms’ antibiotics use
Assume
Marginal damage function ,
Where
vector of farms’ antibiotic use,
constant dose-response parameter identical for all farms;
vector of weights that accounts for heterogeneity in individuals’
contribution to the damage function,
is weighted relative to the farm that contributes least to the damage
function, which is set equal to 1
Graphic illustration of how the main variables in the auction evolve to

changes in the weighting parameter
Extensions II: Different groups of farmers
Suppose
social damage (antibiotic resistance) given by a simplified, differentiable and
convex function
Where
vectors of consumption pig sector
vectors of consumption cattle sector
A two-stage Montero auction mechanism is proposed in this case
Extensions III: Different classes of antibiotics

Empirical Example: Simulation results using Danish Data

Effects of a Montero auction at the sub-sector level
Dairy All
Sow Finisher Integrated pig cattle livestock
farms farms farms All pig farms farms farms
Number of farms 855 1215 451 2520 2860 5380
Sows per farm 842 78 448 403 0 189
Dairy cows per farm 5 0 0 2 173 93

Baseline antibiotic use
(kg/farm) 55.1 21.7 38.6 36.0 4.5 19.3
Permit price (€/kg) 726 794 782 757 605 722
Permit price (% of market
price) 180% 197% 194% 187% 150% 179%
Post-auction antibiotic use

(kg/farm) 30.3 11.0 19.9 19.2 1.1 9.6
Rebate rate 0.01% 0.00% 0.00% 0.00% 0.00% 0.00%
Profit change per sow or dairy

cow (€/animal) -37 -166 -51 -52 -10 -32
Profit rate change (% of

baseline output) -2% -1% -2% -2% 0% -1%
Sales revenue from allowance 26 112 35 36 4 21

Change in damage -31 -155 -47 -46 -16 -32
Economic welfare effect
(€/animal) 20 101 31 30 10 20
Economic welfare effect
(€/LU) 44 24 35 34 6 20
Note: Economic effects are measured per sow for the four pig farm types, per dairy cow for dairy
cattle farms, and for livestock unit (LU) for all livestock farms
Effects of a Montero auction at the individual farm level

Dairy
Sow Sow Integrat cattle
farms, Sow farms, farms, Finisher ed pig farm
small medium large farms farms s
Permit price (€/kg) 744 744 755 804 794 544

Permit price (% of 135
market price) 184% 184% 187% 199% 197% %
Post-auction
antibiotic use
(kg/farm) 12.7 22.1 51.6 10.9 19.6 1.5
69.5
Rebate rate 51.8% 51.8% 52.3% 54.8% 54.3% %
Profit change per sow or
dairy cow (€/animal) -23 -21 -26 -106 -33 -3
Profit rate change (% of

baseline output) -1% -1% -2% -1% -1% 0%
Sales revenue from
allowance 12 11 14 51 16 1
Change in damage -32 -27 -35 -157 -47 -8

Economic welfare
effect (€/animal) 21 17 23 102 31 5
Economic welfare
effect (€/LU) 45 38 49 24 35 5
Note: Economic effects are measured per sow for the four pig farm types, per dairy cow for dairy cattle
farms, and for livestock unit (LU) for all livestock farms
Comparison of incremental cost-benefit ratios

Integr All
ated Dairy livestoc
Sow Finishe pig All pig cattle k
farms r farms farms farms farms farms
0.34 0.33
One Montero auction 3 0.314 0.319 0 0.457 0.331
Sub-sector specific
auctions 0.346 0.350 0.348 0.347 0.370 0.356
Farm-level auction 0.348 0.353 0.354 0.351 0.326 0.339

Proportional
reduction 0.391 0.358 0.364 0.376 0.235 0.386
Main Conclusions
• Superior over quota scheme for antibiotic use
• Reduces antibiotic use
• welfare improving
• Can be implemented under asymmetric information
• Can be implemented Nonlinear damage function
• Strategy proof… truth telling dominant strategy flexible in terms of time
• fixed supply of allowances or endogenous supply yield benefits beyond
covering the costs of resistance
• Injection vs feed
Practical Issues
• Farmers need to be trained
• occurrence of purely exogenous shocks, such as relatively rare disease
outbreaks,
Economic evaluation of interventions
Valuing the costs and benefits or risk reduction
• Costs:
• Industry costs (compliance)
• Governmental costs (administrative, inspection)
• Benefits:
• Private benefits (i.e. reduced risk of pain, illness, death)
• Public benefits (i.e. reduced public spending on medical treatment,
reduced lost productivity & reduced risk of AMR)
• How to value health/life?

How to measure the value of risk reduction?
Monetary measures
• Used in cost-benefits analyses;
• Individual willingness to pay to reduce the risk of becoming
injured or ill;
• Measure of a benefit of a program= sum of WTP in society
Non-monetary measures
• Public health perspective: health is a ”merit/public good”
• Merit/public goods are those goods and services that the government
feels that people will under-consume, and which ought to be
subsidised or provided free so that consumption does not depend
primarily on the ability to pay for the good or service.
Cost of illness (COI) approach

• Based on the measurement of
• the medical costs of an illness
• the foregone market income due to lost work time
• varying approaches to mortality valuation;
• Major advantage:
• empirically tractable with available medical and economic data
• Disadvantages:
• COI is not equivalent to WTP; but it is considered a lower
bound WTP to prevent illness
• Mixes private and public benefits
• In practice cost of illness (COI) calculations often attach a value to

life, called the value of statistical life [VSL].
• This is calculated as the amount people are willing to pay for a small
reduction in the probability of death;
• Example:
• Suppose a new standard would reduce the risk of cancer by 1 in a million

and suppose further that on average people are willing to pay €1 for the
greater security.
• A million people would in total be willing to pay €1 m and, statistically,

1 life would be saved.
• In this example the value of a statistical life would be €1 m.

Welfare gains from a reduction in risk:
𝑊𝑖𝑙𝑙𝑖𝑛𝑔𝑛𝑒𝑠𝑠 𝑡𝑜 𝑝𝑎𝑦 𝑓𝑜𝑟 𝑟𝑖𝑠𝑘 𝑟𝑒𝑑𝑢𝑐𝑡𝑖𝑜𝑛

𝑉𝑎𝑙𝑢𝑒 𝑜𝑓 𝑟𝑖𝑠𝑘 𝑟𝑒𝑑𝑢𝑐𝑡𝑖𝑜𝑛 =
𝐸𝑥𝑜𝑔𝑒𝑛𝑜𝑢𝑠 𝑐ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝑟𝑖𝑠𝑘
Example:
A person is willing to pay US-$ 6 to reduce the risk of death by 1 life in
1,000,000 from 4 lives in 1,000,000 -> a 3 in 1 million-risk reduction
𝑈𝑆$ 6
𝑉𝑎𝑙𝑢𝑒 𝑜𝑓 𝑟𝑖𝑠𝑘 𝑟𝑒𝑑𝑢𝑐𝑡𝑖𝑜𝑛 =3
1,000,000
= 2,000,000
𝑈𝑆$
Formally, cost of illness for any pathogen can be expressed as follows:
Where
n is the number of estimated annual cases of disease caused by pathogen

p,
𝜋𝑖 is the probability of health state i occuring,
𝑐 𝑖is cost of medical treatment,
R is the adjusted average population daily wage rate,
𝑤𝑖 is the number of work days lost,
V is the VSL, and m is a binary value that is 1 if i is death and 0
otherwise.
Source: Traill & Koenig (2010)


USDA cost of illness calculator:
• Note that the VSL used here is $5.3 m, rather higher than the figure of
€2m mentioned above.
• Average medical cost of a case of Salmonella in the US is just over

$1766 implying that the benefits of an intervention to reduce Salmonella
would be ($1766* the number of cases saved).
• Note as well that although there were only 415 deaths from 1.4m cases
of Salmonella, the cost per case estimate is overwhelmingly dominated
by the VSL component without which the cost per Salmonella case
estimate would fall to $202.
-> Thus the overall estimate depends crucially on its most problematic
component.
Public health perspective – Non-monetary valuations
Health-adjusted life years (HALYs) measures
• Quality-adjusted life year (QALYs):

• Introduced in the early 1970s;
• Widely accepted as the reference standard in cost-
effectiveness analysis since the 1990s
• Disability-adjusted life year (DALYs):

• Introduced in 1993 by the World Bank;
• Primarily a measure of disease burden: they respresent the years
lost due to decreased quality of life and/or premature death as a
consequence of a given disease or condition, at the individual or
population level
Public health perspective

• The QALY is an attempt to measure in a single utility figure the
private benefits of an intervention that increases both life
expectancy and the quality of life.
• For example, a reduction in the incidence of Salmonella cases

would save a number of lives and prevent a much larger number
of people becoming sick.
• Instead of combining them in monetary terms, as in the cost of

illness approach, QALYs combine the two in utility terms by
assigning to each year of ill-health a utility value that is a
fraction of the value of a year of good health.
QALY for a given pathogen is calculated as follows:
Where M is the number of different life periods i,

is the𝑞 𝑖weight of period i, i.e. the quality of health/life in period i,
s the duration
𝑇𝑖 of period i

• Numerical example:
• Suppose in an average year food poisoning killed one person 10

years prematurely and made 100 more people acutely ill for all
or part of that year.
• Suppose further the quality of their lives in the year they suffered the
food poisoning was only 90% of the quality of a year spent in good
health.
• The utility loss would be 10 + 100 * 0.1 = 20 QALYs. An

intervention that reduced the probability of Salmonella
infection by 50% would save 10 QALYs.
• If such an intervention cost €10m and an alternative

investment of €10m into, say, safer rail travel saved 5 QALYs,
then the salmonella intervention can be said to be more cost-
effective.
• If an intervention provided perfect health for one additional year, it

would produce one QALY.
• Likewise, an intervention providing an extra two years of life at a

health status of 0.5 would equal one QALY.
• Cost per QALY

• If a new treatment gave an additional 0.5 QALYs and the cost of the
new treatment per patient is a 5,000 € then cost per QALY would be
10,000 € (5,000/0.5).
• In principle all interventions should have the same cost per QALY
gained, otherwise a reallocation of resources from high to low cost
interventions could save more QALYs for the same total financial
outlay.
• People complete a questionnaire, choosing one of the three options in each

category, and an evaluation of their overall well being (between 0 and 1).
• With perfect health (1 1 1 1 1) anchored at 1, death at 0, a statistical

analysis of a large enough survey can estimate the weights people attach
to the various health states.
DALY = YDL+ YLL

• YDL: sum of years lived with disability
• YLL: sum of years of life lost
• where n is the numer of cases with health outcome i, t the

duration of the health outcome (the average number of days of
illness or injury consequences) and dw the disability weight
assigned to health outcome i.
• where d is the number of fatal cases due to health outcome i in

a certain period and e is the residual expected individual life
span at the age of death
DALYs
Numerical Example:
• A woman with a standard life expectancy of 82.5 years and
• dying at age 50 would suffer 32.5 YLL.
• If she additionally turned blind at aged 45, this would add 5 years
spent in a disability state with a weight factor of 0.33, resulting in 0.33
x 5 = 1.65 YLD.
• In total, this would amount to 34.15 DALYs.

Total burden of disease associated with

different food pathogens in Denmark, 2012

Source: Hoffmann et al. (2012)

Source: Hoffmann et al. (2012)


Cost-benefit analyses
• Theoretical basis in welfare economics;
• Theoretical: private benefits should be measured in terms
of WTP
• Practical alternative: monetarized QALYs
• Does the program’s expected aggregate benefits exceed its
cost to society, i.e. is the program worth doing?
Cost-effectiveness analyses
• Weaker link with economic theory;
• Benefits are measured in natural units (e.g. QALYs);
• How to allocate a limited budget as effectively as possible to achieve a
defined goal?
Empirical studies related to WTP for food safety
Paper by Waldmann & Kerr (2015)
Please apply the skim reading technique
• What is the background/research question of the

study?
• How do they approach this methodologically?
• What are the main results?
• What are the policy implications/conclusions drawn?
• Do you agree with these conclusions?
Monday, Feb 3, 2014

Consumer Risk Perception – Terminology
• Risk perceptions represent a person’s views about the risk inherent in

a particular situation.
• Perceptions about food safety risk are what the individual believes
would be the amount of health risk, if any, they would face from
consuming a food product.
• Risk attitudes are a person’s overriding tendencies toward risk

across different risky situations.
• Risk attitudes refer to how willing a person is to accept risk.
Consumer Risk Perception – Systematic Bias
Empirical evidence:
• Consumer risk perception is systematically biased
• overestimation of the risk from low-probability hazards

(e.g. mad cow disease)
• underestimation of more familiar, higher-probabilty
hazards (e.g. diabetes, obesity)
• This has practical consequences when consumers evaluate (risk-

reducing) technologies.
Consumer Risk Perception – Systemic bias
Source: Fox (2011)

The Experts versus the Public
• Besides systematic bias in assessing risk probabilities, the public often

differs in assessing the acceptability of different hazards;
• Prominent examples: GMOs, food irradiation, nano-

technology
“Food irradiation (the application of ionizing radiation to food) is a

technology that improves the safety and extends the shelf life of foods
by reducing or eliminating microorganisms and insects. Like pasteurizing
milk and canning fruits and vegetables, irradiation can make food safer
for the consumer.”
• Experts usually consider them safe, whereas consumers do not.

Food irradiation label (US)
Debunking Irradiation Myths:

“Irradiation does not make foods radioactive, compromise nutritional quality,
or noticeably change the taste, texture, or appearance of food. In fact, any
changes made by irradiation are so minimal that it is not easy to tell if a
food has been irradiated.”
Source: FDA website

Food Irradation in the EU
• Currently all member states of the European Union (EU) have

their own set of rules governing which foods they permit for
irradiation, and at what doses, for sale within their borders. For
details go to Food irradiation (europa.eu)
• Irradiated foods traded within the EU must only have been treated
at EC authorised irradiation facilities. To date no facilities outside
the EU have received the EC authorisation.
• The EC Directives require all foods, or listed ingredients of

foods, which have been irradiated, to be labelled with the
words 'irradiated' or 'treated with ionising radiation'.
• Source:
http://www.foodcomm.org.uk/campaigns/europe_and_the_uk/
Empirical Studies – Risk attitudes & risk perception
• Schroeder et al. (2007): Consumer Food Safety Risk

Perception & Attitudes of Beef Across Countries
• Four different countries: Canada, US, Japan, Mexico
• By risk perception, we mean the risk that consumers

believe to exist from eating a food product.
• By risk attitude, we mean the way consumers react to that

perception (e.g. degree of risk aversion).
• Who matters more?
• Should public policy be based on objective risk assessment or take

subjective assessments into account?
• Example: GMO
• Rather different approaches taken in the US versus the EU
• EU: mandatory labeling requirement for GMO food based on the

precautionary principle
• US: no labeling required since GMO food is not deemed to differ
substantially from non-GMO food
Mandatory versus no labelling versus ban
Policy relevance
• Relatively low consumer risk aversion towards GM food coupled

with a reduced price for GM products and high segregation costs
associated with mandatory labelling could explain
• ”no labelling” policy in the US
• In contrast, high consumer aversion towards GM food might

explain mandatory labelling.
• mandatory labelling in EU
Take home messages
• Burden of FBDs continues to increase across the globe.

•
• Given that food safety is a credence attribute and imperfect information
is present governmental interventions are needed/justified.
• Different policy responses and interventions are justified depending the

context.
• Food safety interventions can be evaluated either by cost-benefit or cost-

effectiveness analyses providing knowledge about which interventions to
choose.
• Objective and subjective risk perceptions might differ quite substantially

raising questions about which one to follow in setting up appropriate food
safety systems.
References
• Fox, J. A. (2011). Risk Preferences and Food Consumption, 75–
98.
• Giannakas, K., & Fulton, M. (2002). Consumption effects of
genetic modification: What if consumers are right? Agricultural
Economics, 27(2), 97–109.
• Henson, S., & Traill, B. (1993). The demand for food safety.
Food Policy, 18(2), 152–162.
• Hoffmann, S., Batz, M. B., & Morris, J. J. G. (2012). Annual Cost

of Illness and Quality-Adjusted Life Year Losses in the United
States Due to 14 Foodborne Pathogens. Journal of Food
Protection, 75(7), 1292–1302.
• Pires, S. M. (2014). Burden of Disease of Foodborne Pathogens
in Denmark. Technical Report. Online available at
www.food.dtu.dk
References
• Schroeder, T. C., Tonsor, G. T., Pennings, J. M. E., & Mintert, J. (2007).
Consumer Food Safety Risk Perceptions and Attitudes : Impacts on Beef
Consumption across Countries. The B. E. Journal of Economic Analysis &
Policy, 7(1), 1–27.
• Traill, W. B., & Koenig, A. (2010). Economic assessment of food safety

standards: Costs and benefits of alternative approaches. Food Control,
21(12), 1611–1619.
• Waldman, K. B., & Kerr, J. M. (2015). Is Food and Drug

Administration policy governing artisan cheese consistent with
consumers’ preferences? Food Policy, 55, 71–80.

Lecture - 10 Food Safety and Health

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Department of Food and Resource Economics

Food Safety and Health

• Definitions and Global burden of Food borne diseases (FBD)

• Impact evaluation of food safety regulatory policies in Denmark

• Experts versus the public

• Describe gloabl burden of food borne diseases

• Analyse the topic of food safety from economic point of view

• Describe policy instruments to address food safety

• Analyse impacts of regulations aimed at addressing one health

• Assess the cost/benefits and efficiency of preventive (healthy

• Understand how consumers perceived risk might differ from an

Food borne disease burden: World

WHO (2015): Report on global burden of foodborne diseases

• Foodborne diseases (FBD) are an important cause of morbidity and

• In 2010, 31 global hazards caused:

Food borne disease burden: Denmark

• The true impact of foodborne illnesses is still unknown

• Campylobacter caused the highest burden of disease, 1709 DALYs

• The second highest ranked pathogen (Salmonella: 492 DALYs; 95%

Source: Pires et al. (2020)

Source: Pires (2014)

• What are the main causes of food safety issues

Causes of Food Safety Issues

• Occurs at different stages, such as during (agricultural and food)

• Improper handling and Inadequate cooking

• Inadequate hygiene practices by food handlers, such as improper

• Not adequately cooking food to kill pathogens, bacteria can multiply

• Poor storage conditions

• Inadequate food processing and preservation:

• Inadequate canning, drying, fermenting, or packaging techniques

• Improper storage and temperature control can lead to the growth of

• Lack of traceability and accountability

• Widespread asymmetric information between producers and

• Food fraud and adulteration

• Inadequate regulations and enforcement

Food Safety ”Terminology”

• All activities involve risk, by which we mean the combination of the

• Uncertainty can be distinguished from probability.

Food Safety ”Philosophies”

• Precautionary principle (PP): provides norm for risk management

• Relevant for example for GMO regulation

• EU: PP principle >mandatory GMO labeling

• US: No mandatory GMO labeling > waits for evidence of harm to

Food Safety from an Economic point of View

• In an ideal world, consumers would make consumption decisions with

• Food safety is usually an experience or trust attribute.

Food Safety – Rationale for Intervention

Market Imperfections in the Context of Food Safety

• Imperfect information with respect to food safety (either asymmetries

• Consumer risk perceptions widely at odds with objective measures of

• Market prices do not reflect the full social costs and

Food Safety from an Economic point of View

Source: Traill & Koenig (2010)

Policy responses to address food safety issues

Group work (5 minutes)

• Think of any food safety issue.

• Supply side responses

• Labelling (Mandatory vs Voluntary)

• Popular when there is uncertainty in safety status of new food

• A new input of uncertain safety standard could be allowed for

• Popular in settings with low safety surveillance and enforcement

• Helps address asymmetric information problem between

• Mandatory and voluntary