<FONT color=blue>[QA Online Extra]:</FONT> Stimulating Innovation

Editor's note: Read more about the economics of food safety in "Dollars and Sense."

Though private industry has historically had little market incentive for innovation in food safety, the food industry itself has developed a number of mechanisms to stimulate this investment. According to a 2004 report on the meat industry by USDA’s Economic Research Service (ERS), these include:

1. Customer requirements. With their stringent requirements on product safety and quality, large fast food restaurants have become the dominant drivers of innovation and have successfully created markets for food safety. The success of these restaurants rests on their enforcement of standards through testing and process audits, and meat processors are willing to make the needed investment in food safety to reap the contractual rewards.

2. Branding. Name-brand recognition can be a double-edged sword — while it enables consumers and regulators to identify and reward firms that produce high-quality, safe products, it also increases their ability to identify firms that are guilty of safety lapses. Branding reduces the chances of remaining anonymous in case of a foodborne outbreak, thereby further strengthening the incentives to invest in food safety.

3. International trade. By demanding high safety standards in testing product for safety, and then paying premiums or guaranteeing sales for safe producers, foreign buyers fuel the growth of markets for food safety and stimulate safety innovation.

4. First movers. The first company to adopt a new technology often can appropriate the benefits of innovation. The Texas American Foodservice Corporation, for example, did not patent its newly developed Bacterial Pathogen Sampling and Testing Program or seek any other sort of protection for the innovation. In fact, the company sought to disseminate the technology, explaining that anything that helps reduce the possibility of outbreaks associated with hamburgers is good for business. Firms might also share new technologies with competitors and government regulators to influence the industry standard. Setting a standard that is difficult to meet can help set a barrier to entry that benefits first adopters.

5. Collaboration. If performance of the industry as a whole affects the reputation and profitability of all firms, then it is beneficial for firms to collaborate to improve overall industry performance. In two cases studied where the innovative process was dependent on collaboration, the technical and managerial expertise of the collaborators combined to facilitate the development of the innovation and ensure that it would be effective in a commercial setting. In addition, collaboration can also provide risk-sharing benefits.

6. Market conditions. While economies of scale play a large role in plant adoption of capital-intensive food safety technologies, market conditions factor in. In the beef industry, for example, large and small slaughter plants face different markets. Large plants tend to supply large, homogeneous markets with relatively elastic demand, while smaller plants tend to serve smaller markets with less elastic demand. Thus, to protect their markets, large plants may have more incentive to adopt food safety innovations. In addition, large firms may invest more in food safety because lapses have the potential to be more costly for them because they may involve larger amounts of product.

7. Foodborne disease outbreaks. As recent history has shown, outbreaks continuously lead to increased consumer awareness of food safety issues and trigger a spike in demand for food safety. For many consumers, news about foodborne illness outbreaks is their only information about food safety. As a result, the market is susceptible to large fluctuations after foodborne illness outbreaks, as consumers reassess their buying decisions.

8. Third-party validation. Research results have also shown that the design and fabrication of a technology may be secondary to technological validation in determining its ultimate success. Not only is it difficult to measure pathogen control and technological efficacy, but even the best technology can be undermined by deficiencies in the overall safety system. The actual efficacy of the technology may vary greatly from plant to plant, thus innovators may have a difficult time certifying or otherwise guaranteeing the efficacy of the technology for controlling pathogen contamination.