Food Bill

Kate Wilkinson, Minister for Food Safety, justifies proposed changes to New Zealand's food safety regime by citing the costs:

"The bill is designed to simplify 30-year-old food safety regulations and ultimately aims to reduce our high level of food-borne illness and corresponding economic cost.

"It's estimated that food-borne illness caused a $162 million loss to the New Zealand economy in 2010."

Wow. The economy lost $162 million due to food-borne illness. About $40 per capita. Seems a bit high, but not prima facie implausible. But let's have a look.

Australia's Applied Economics produced the report for the New Zealand Food Safety Authority a little over a year ago (HT: Squid expert Luis). The summary table at p. vi tallies costs of $161.9 million from foodborne disease. But $16.4 million of that is government outlays on food safety regulation. Unless the legislation specifically reduces the government's monitoring costs, which seems rather unlikely with a more onerous regime, that portion of cost cannot be saved. Similarly, cited industry costs of $12.3 million include both compliance costs and costs to business in case of outbreak; the effects of the new legislation here are then ambiguous as outbreak costs may fall but compliance costs will rise. Kate Wilkinson's citing of a total cost figure that includes enforcement and compliance costs as argument for stricter regulation is a bit of a problem; the more the government spends on food safety regulation, by that argument, the greater the argument for spending even more. Just like when the New Zealand Police include the costs of drug interdiction efforts as a benefit of drug seizures. I'm certainly not saying that the government's $16.4 million outlay was a waste; it's just not properly seen as something that can be abated by the new legislation. Fortunately, that's only about a sixth of the total.

The bulk of the remaining tabulated costs are individuals' intangible willingness to pay to avoid a foodborne illness - about $100 million in residual private costs as estimated from NZ value of statistical life estimates. We can leave aside for now problems in that we don't have good prevalence data on non-reportable illnesses like norovirus that manifests as mild gastroenteritis; Applied Economics is very up front about the limits of inadequate data here. But by far the biggest part of the cost estimates comes out of willingness to pay measures.* That's important. Why? Because people are choosing, all the time, which dining establishments to frequent.

Suppose that there's a roadside falafel place with food I adore but that comes with completely known 1% risk that I'll get mild food poisoning. I eat there a hundred times, I get food poisoning once. But I keep going back because of the taste. If new food safety regulations mean the place shuts down, Wilkinson's measure says I'm better off because I'm saved those willingness-to-pay derived figures on the costs of mild food poisoning. But I've already specified that I knew about the risk and judged it worthwhile; I'm then necessarily worse off if I can't get a falafel. You can't easily use a willingness-to-pay measure to overturn a consumer's decision when consumer decisions underlie willingness-to-pay measures. You can perhaps make an asymmetric information argument; that tends to argue for random inspections and public posting of findings on facility cleanliness rather than for big compliance regimes.

So is the new regime worth the cost? That depends on the compliance costs that will be faced by small and mid-sized traders. Wilkinson assures us that small traders won't face onerous burdens, but I'd really prefer seeing proper analysis of the Bill from someone like Otago's Andrew Geddis. And we have to keep in mind that a substantial proportion of the costs Wilkinson cites might actually be voluntary choices consumers are making that, on lucky draws, yield tasty goodness any diminution of which consequent to regulation ought be counted against the Bill's possible health benefits. Banning me and others like me from having my hamburgers medium-rare might save the health system a bit, but it'll certainly cost me some utils. Equally bad is what a big fixed-cost regime would do to food startups. I really hope that the legislation isn't as costly on those two fronts as some folks fear; I'd love to see independent legal analysis.



*Most of these costs come from more serious instances where people do go to the doctor, so the potential for being orders of magnitude out on actual instance of "treat at home" norovirus doesn't do tons to the bottom line.