Economic impacts of food safety incidents in a modern supply chain: E. coli in the romaine lettuce industry

Abstract

AbstractFood‐safety incidents disrupt impacted markets, cause destruction of edible product, shake consumer confidence, and impose economic losses upon participants across the implicated supply chain. Despite the prevalence of such incidents, we know surprisingly little about their supply chain impacts, especially in modern produce markets where contracts may impede the diffusion of price impacts through the supply chain. The November 2018 E. coli incident for romaine lettuce in Central California roiled North American produce markets throughout the fall of 2018 and well into 2019. Our study of the economic impacts of this incident benefited from access to disaggregate information on prices and sales for romaine and substitute leafy greens at all stages of the supply chain, enabling us to overcome data limitations that have impeded prior studies. We decompose impacts from the incident into price and quantity components. Romaine growers were largely protected from damage due to fixed‐price provisions in grower‐processor contracts. Economic losses were incurred mostly by romaine shippers and processors, and grocery retailers who pulled saleable product from the supply chain and lost sales during and well after the incident due to reduced consumer demand. We estimate that the total societal loss from the incident was in the range of $276–$343 million. Widespread and long‐lasting impacts from a food‐safety incident demonstrate the economic benefit of industries adopting mandatory food‐safety standards and improved traceability to minimize the occurrence and impacts of such incidents.