Food Safety and Food Price: Is There a Link?
Food safety remains a significant concern in many developing countries, thanks to a prevalence of decentralized, informal food markets and low enforcement of food safety standards. Formal markets and branded food products are starting to become more common, however, allowing firms to establish themselves in consumers’ minds as providers of safe, high quality food – and potentially to charge higher prices for that food. A forthcoming article in Agricultural Economics examines this link between food safety and food prices in the context of maize flour in Kenya.
In this paper, we develop a theoretical model that illustrates two mechanisms through which price and food safety may be linked. First, food safety may be correlated with other, more easily observable, food quality attributes, such as appearance or taste. Since a subset of consumers are willing to pay more for food that looks and tastes better, some firms fill this market niche, sourcing more expensive inputs and providing a higher quality product at a higher price point. This more expensive, higher quality food is also (incidentally) safer.
Second, firms whose brands are more widely recognized by consumers may be more likely to invest in meeting food safety standards to avoid potential harm to their brand should a food safety incident occur.
The study looks specifically at aflatoxin, a fungus found in up to 50 percent of the maize supply in the study area. Aflatoxin-contaminated food can pose a serious health hazard, leading to liver disease, liver failure, and death when consumed in high quantitites. The study aims to understand how compliance with the Kenyan aflatoxin regulation relates to the price of a particular brand of maize flour. Data was taken from more than 900 aflatoxin tests of maize flour samples from 23 maize flour brands; the samples were taken over a six month period in 2013.
The link between price and aflatoxin contamination levels appears to be quite strong. The lowest priced brands in the study sample were 25 percent less likely than the highest priced brands to meet the regulatory standard for aflatoxin contamination.
While the study is unable to rule out the possibility that the relationship between food safety and price is merely a byproduct of the relationship between food quality and price, several maize millers interviewed for the study reported testing maize grains for aflatoxin prior to purchase, at significant cost, suggesting that explicit food safety investments by firms do play a role.
Improved food safety in formal markets can potentially increase consumers’ awareness of and demand for compliance with food safety standards. If improved food safety standards bring with them higher prices, more firms may be willing to invest in achieving such standards; these price signals could eventually make their way up the entire maize value chain, providing incentives for farmers and millers to invest in improved food safety practices as well.
However, Kenya’s weak enforcement of regulatory standards means that contaminated maize still reaches the market. The primary strategy for complying with food safety standards used by maize millers is to test maize at the factory stage; however maize that is rejected by firms with higher quality standards can still reach consumers through firms that test less carefully or that do not test for aflatoxin at all.
Such sub-standard products are typically consumed by poorer consumers, who cannot afford the higher priced, higher quality brands. In addition, poor consumers, especially those in remote rural areas, often depend on informal markets, where grain is bought in bulk from untraceable sources. Thus, unless incentives for food safety can be passed on to farmers to address the aflatoxin problem at the source, a voluntary compliance regime risks putting poor consumers at greater risk of exposure to the toxin.
By: Vivian Hoffman and Sara Gustafson, IFPRI