Agriculture Reference
In-Depth Information
A market that accommodates separate prices for products grown with different
levels of food safety practices with respect to microbial food safety has not developed.
Because growers cannot necessarily recoup the costs of increased food safety, not all
adopt new practices. The outbreak linked to spinach provides an interesting example
of this problem. Other recent outbreaks have largely dealt with bulk commodities. The
leafy greens industry has both bulk and value-added bagged salad products, and each
segment has fared differently in its ability to increase prices to cover additional costs
of improved food safety practices.
Several large fi rms of bagged salads raised their prices after the outbreak from
spinach. Consumers might miss their favorite salad if a retailer refused to pay the price
increase. Also, with such a high level of concentration, if a very large retailer rejected
a request for a higher price from a large bagged salad company, the retailer might
have a hard time getting enough replacement product. Bagged salads are largely sold
via long-term contracts, and if fi rms did not raise their prices after the outbreak, they
tried to raise them when their contracts were next renewed. It is not clear whether
smaller companies were as successful as the larger companies in renegotiating contract
prices.
With bulk leafy greens, only a small portion is sold via long-term contracts and
fi rms are gradually trying to raise prices as contracts are renewed, just as the bagged
fi rms did. But the majority of bulk leafy greens are sold at the daily market price
where price is set by supply and demand; there has been no price increase for bulk
spinach or lettuce where one grower's product is essentially indistinguishable from
another's. Of course, in the long run, prices must rise to cover costs, or growers will
stop growing leafy greens, although this can sometimes be a slow adjustment process.
Immediately after the outbreak, many retail and food-service buyers joined a call
for better food safety standards in the leafy greens industry. When the California
industry put the LGMA into operation, they asked buyers to agree to buy only leafy
greens from California from signatories to the agreement. With only a few exceptions,
buyers generally refused to sign such an agreement. But if a large share of buyers had
signed such an agreement and LGMA participation fell substantially, there could be
a situation where there would be two markets, with one price for products grown with
the LGMA and one price for those grown outside the agreement. The price in the
segment grown with the LGMA would vary depending on supply and demand condi-
tions in that segment alone. Buyers pledged to purchase only from LGMA members
would not be able to buy from the others while honoring their agreement. The segment
grown outside the LGMA would respond to its own supply and demand conditions
as well as those in the LGMA group, with buyers able to buy from any supplier.
Public Benefi ts and Costs
The decisions individual growers make about food safety practices may not ensure
the level of food safety desired by consumers and society at large (Caswell and
Mojduszka 1996). Markets do not always work smoothly for all goods. Private deci-
sions by growers may not be socially optimal because of imperfect information and
negative externalities.
Imperfect information, which exists when buyers and sellers cannot identify certain
characteristics of a product, may reduce the incentives to adopt new food safety
