The hefty price tag for safe food

MSU Today

No one wants to run the risk of consuming unsafe food, but recent research by Michigan State University has found that federal legislation to prevent it from happening might end up costing consumers and restaurants billions of dollars.

“This act might be the furthest-reaching food safety legislation in the last 75 years,” said Mark Johnson, a finance professor at MSU’s Broad College of Business and lead author of the study.

The research, published in Agricultural Finance Review and Cornell Hospitality Quarterly, examines the impact that the Food Safety Modernization Act, or FSMA, has on food firms, restaurants and consumers.

Signed by then-President Obama in 2011, the legislation shifts the focus of food regulation from contamination response to prevention through record-keeping requirements, reporting and meticulously tracking each and every movement the food makes along the supply chain.

Estimates from the Congressional Budget Office between 2011 and 2015 show the magnitude associated with the legislation – totaling nearly $42 billion – ultimately reaching the everyday consumer and businessperson:

• $33 billion: the impact on wholesalers, food processors and grocers

• 5 percent (or $7.5 billion) of lost equity value: publicly traded restaurants

• $1.4 billion of administrative costs: taxpayers

The $42 billion price tag FSMA incurs could make the U.S. food supply safer, but outpunches the current costs of food recalls, which averages a food company $10 million in direct costs, brand damage and lost sales, according to a joint study by the Food Marketing Institute and the Grocery Manufacturers Association.

Johnson’s research does not oppose FSMA; rather, it calls into question how thorough policymakers are in evaluating costs when passing such far-reaching legislation. Today, such legislation would be health care reform and climate change regulation.

“The hope is that this research proves helpful for policymakers as they try to evaluate the performance of the legislation,” said Johnson. “Given the estimated financial cost FSMA incurs, the government should consider all of societies’ costs and benefits when passing such sweeping legislation.