How Will Food Safety Legislation Affect Corn and Soybean Growers?

Traceability and the crop producer

The researchers say several things will happen with the food traceability proposal:

1) A producer may see revenue decline when food is safer, because buyers react mildly to food safety incidents because with less food on the market after a recall prices will increase.

2) The revenue and profitability of individual producers will not be the same as the entire industry because they may take different levels of food safety than the entire industry.

3) If an industry uses traceability to encourage food safety, it cannot increase industry profits by using more traceability to induce producers to reduce food safety. They say that increased traceability induces individual producers to improve their safety above the level the industry would chose, and the industry would not rise to meet the higher standard.

4) The increased traceability may cause the industry to raise its standards when some producers decline in their standards. They report the industry may want to increase the degree of traceability, even when individuals exceed standards.

 

Summary

Food safety legislation may occur quite soon with its current Congressional schedule. In studying the issue, researchers say increased traceability protects the reputation of an industry from randomly occurring incidents by isolating the product from firms that were the source of the problem. The expected revenue of a competitive firm depends on the probability that other firms have delivered unsafe products in an earlier period, the probability that unsafe products are traced to their origins, and the reaction of buyers to the discovery of unsafe products. Increased traceability changes the incentives for individual firms to supply safe products.