When you care enough to send the very (best) pest

• Agricultural Economics Workshop

Date and Location

Wednesday, October 13, 2021, 4:10 PM - 5:30 PM
Online Meeting, Zoom

Abstract

Border inspections are a powerful tool for preventing pest invasions through the pathway of international trade. Inspection resources, however, are highly constrained, meaning only a small subset of incoming shipments is actually inspected. Inspection efficiency can be improved by targeting effort, for example, towards shipments of fresh produce and horticultural products from exporters with a history of sending contaminated products. While such targeting is well-understood and used by many importers, it is not effective for the targeting of novel and/or transient threats. In this study, we combine theory and empirical analysis to investigate how market-based signals such as price spikes can be exploited to fine-tune inspection effort. We build a simple theoretical model to analyse the behaviour within the supply-chain for perishable goods when heterogeneous manufacturers (e.g. hothouses) face capacity constraints and risk-mitigation is endogenous. The theoretical model suggests price fluctuations in the market may provide early warnings of increasing risk in a pathway. The underlying mechanism is that wholesalers may increase purchases from non-traditional sources when prices spike—sources that have no reputational risk from supplying infested products—thereby increasing the contamination rate for shipments received from a given shipper. The primary testable hypothesis is that price spikes correlate with higher infestation rates, especially when the price spikes are unanticipated. We test this hypothesis using data from the UK inspection agency on import inspections from 2010-2019. After controlling for seasonality, commodity and exporter fixed effects, we find a strong, positive link between price increases and pest infestation. Historically, profiling imports for pest risk has been limited to using the outcomes of prior inspection outcomes. Our analysis offers an important new tool for leveraging real-time market data to enhance the cost-effectiveness of scarce border inspections for the mitigation of damaging pests, especially from novel, emerging threats.