November 5, 2013

Foreign Supplier Verification Programs For Importers of Food for Humans and Animals

  • Michael L. Marlow

    Professor of Economics at California Polytechnic State University, San Luis Obispo
  • Jerry Brito

    Former Senior Research Fellow
Contact us
To speak with a scholar or learn more on this topic, visit our contact page.

The Food and Drug Administration (FDA) has issued two regulations (together in RIN: 0910-AG64) on July 26, 2013 that are intended to strengthen oversight of foods imported for US consumers. Under the Foreign Supplier Verification Program (FSVP) regulations, importers would be required to perform certain risk-based activities to verify that food imported into the United States has been produced in a manner that provides the same level of public health protection as that required of domestic food producers. The FDA is also proposing a risk-based approach to foreign supplier verification that focuses on food safety risks identified through a hazard assessment process, rather than all risks covered by the adulteration provisions in section 402 of the FD&C Act. The FDA is proposing two options for the supplier verification activities for hazards that the foreign supplier will control or that the foreign supplier will verify are being controlled by its raw material or ingredient supplier. While the FDA has made a reasonable theoretical case for regulation of imported food safety, it fails to provide adequate justification for the proposed regulation. It has not developed what an optimal food safety regulation might look like or even documented the current state of imported food safety. The FDA also needs to consider a wider set of alternatives within a model of an optimal level of food safety that can be quantitatively assessed through conventional cost-benefit analysis.

Inadequate Justification for the Need of a Proposed Rule 

The FDA begins with a reasonably good discussion of why it believes private markets operating within the framework of the legal system do not optimally promote the health and safety of consumers. It argues that limitations of both the marketplace and the legal system result in inadequate control of some health and safety hazards and reduce societal welfare. While consumers and producers both would have sufficient information in a perfectly competitive market to result in the production of foods that are manufactured, processed, packed, or held by food facilities at an optimal level of safety, that is not the case in the current market. The FDA argues that consumers and producers may not have sufficient information on the safety attributes of foods. Although food facilities have incentives to implement their own safety programs, the FDA suggests that the lack of awareness and information about risks could result in an inefficiently high demand for food products produced using inadequate measures to prevent foodborne illness, adulteration, or contamination. Consequently, the market may not provide sufficient incentives for optimal food safety, according to the FDA. 

The FDA also argues that the legal system does not ensure the optimum level of safety for foods because consumers who become ill often do not know the reason for, or source of, their illness. The FDA acknowledges that markets characterized by branding may remedy market imperfections and result in optimum levels of safety, if the illnesses or adverse consequences from the foods can be linked to a brand or establishment. But branding is not used universally across the food sector and the FDA asserts that it is unlikely that the existence of brands in the food sector results in the optimal level of safety for society. 

Unfortunately, the FDA has stopped well short of an appropriate rationale for the current need to regulate foreign food through this particular rule. The FDA makes the leap from a plausible case of market failure to the proposed regulation without demonstrating either the optimal level of food safety or the extent to which the current level deviates from this norm. Furthermore, this optimal level cannot be determined by the FDA’s Regulatory Impact Analysis because the agency has failed to provide a benefit-cost analysis of food safety associated with the proposed regulation. Moreover, it has only presented two very narrow alternatives to the proposed regulation without even quantifying their benefits, thus suggesting that the proposed regulation is most likely not the best of relevant alternatives to remedy the market failure the FDA claims to have identified. 

Continue reading