Price and Welfare Effects of the Food Safety Modernization Act Produce Safety Rule

• Departmental Seminar

Date and Location

Thursday, January 10, 2019, 10:30 AM - 11:50 AM
ARE Library Conference Room, 4101 Social Sciences and Humanities

Abstract

Implementation of the U.S. Food Safety Modernization Act (FSMA) Produce Safety Rule is expected to cost about 1.1 percent of revenue for covered farms producing raw and minimally processed fruits and vegetables in the United States. To simulate the price and welfare effects of the rule, we develop an equilibrium displacement model for 18 fruits and 20 vegetable commodities, drawing on recent estimates of the rule’s commodity-level cost of compliance and new retail scanner data-based estimates of commodity-level price elasticity of demand. We find that consumer and farm prices increase by 0.66 and 2.05 percent respectively for fruits and 0.16 and 0.59 percent for vegetables. Costs associated with the rule’s implementation across these commodities are estimated to reduce producer welfare by 0.28 percent for fruits and 0.48 percent for vegetables (as a share of revenue). If the rule’s provisions were enacted unilaterally by growers of individual commodities, producer welfare losses would increase to 0.71 percent for fruits and 0.50 percent for vegetables. We also compare our estimates of the cost to producers of implementing the rules with the potential benefits to producers from the avoidance of costs associated with food-borne illness outbreaks.