Tuesday, 31 January 2012

Food Bill revisited

I wish I knew the likely effects of the upcoming food bill. NZCPR asked me for a short piece based on my prior post; here's what I gave them. One link didn't make it through there: 3 News on the Food Bill.

I wonder whether both Minister Kate Wilkinson and the bill's critics couldn't both be right. If the current de jure rules aren't strenuously enforced against small traders, or only are so irregularly, then the de jure loosening of restrictions on small traders could be a de facto toughening if enforcement is tightened.

Radio New Zealand last week featured one small cheese producer on the costs of the prior regime and her worries about the new one. Minister Wilkinson's comments there really aren't reassuring. [HT: Gonzo] She emphasizes that even small-scale cheese-makers will come under the regulatory apparatus:
The cheese that's produced from three cows or three thousand cows is still expected to be safe. ... We want the Biddies [cheese-maker Biddy Fraser-Davies] of this world to keep producing fantastic cheeses, but we also want that cheese to be safe.
But let's recall that the vast majority of costs of food-borne illness are the individually borne intangible costs of being sick. Those costs are very real and the Applied Economics study tabulating them seems pretty sound. But why oughtn't I get to choose to buy cheese from a small producer and take that individual risk without Wellington getting involved? The costs of head injuries from skiing may well be high, but if I'm the one bearing them, oughtn't I be the one who decides to wear a helmet? Wasn't this supposed to be the government of individual responsibility that defeated Helen Clark's Nanny State?

Wilkinson worries about ensuring that people can be confident in the local food system. If information asymmetry is the problem, all the government needs to do is give out stickers to producers wishing to produce under regulatory guidelines so that they can advertise as such; absence of that certification then says you have to be sure you can trust the producer. And, anybody who's paranoid about food poisoning can always choose to purchase from big producers at supermarkets instead of small guys selling home-made stuff at farmers' markets. And, frankly, I'll trust Biddy Fraser-Davies, the small cheese producer interviewed, over Wilkinson's bureaucrats.

I wrote for NZCPR:
Perhaps worse than my potential loss of choice as consumer is the loss of an easy pathway to small-scale entrepreneurship. Even if the monetary costs of registration as a food producer are low, Wellington often weighs too lightly the discrete hurdle thrown in front of a potential entrepreneur who has never otherwise had to worry about compliance regimes. The dread costs of figuring out which forms to fill out, and the fear of getting something wrong, can be very real barriers to would-be new small-scale entrepreneurs. When you’re really not sure if you’ll be able to make a go of a new venture, adding a hurdle of having to seek permission can provide a burden much larger than the nominal $50 registration fee.
Muriel Newman at NZCPR (link currently here, but likely to suffer linkrot) also comments:
For a government that claims to be committed to encouraging wealth creation and reducing compliance costs on small business, the Food Bill could be a major step backwards. It appears to be being driven more by bureaucratic considerations rather than the need to encourage entrepreneurship in the food sector - within the bounds of stringent food safety imperatives. It is also not clear what the answer is to a fundamental question that should be asked of all new legislation: Is there a problem to be fixed and if so will this Bill fix it?
At least raw milk doesn't seem likely to be killed under the new bill.


  1. Love what you're writing on the Food Bill, Eric.

    I wonder how far you go though? For me the question is why do we need to regulate at all? What are the food regulations attempting to do, that is not already covered by existing criminal and civil law? For example, negligence is covered anyway, as is, obviously, willfully poisoning someone. I suggest we don't need any specific food related bureaucracy and bureaucrats, and certainly not Food Officers with the search and seizure powers of the IRD.

    1. There are a few potential equilibria, Mark. A completely laissez-faire approach could be first best. But I'd worry that the existing regulatory regime gives cover to firms to avoid the costs of nuisance lawsuits from folks experiencing adverse outcomes from low-level risks; replacing that entirely with tort could increase transactions costs.

      I worry more that moving from where we are to a more prescriptive approach erodes consumers' attentiveness to food safety: with a sufficiently stringent regime, consumers will offload their diligence to the government, but that can never be enough unless the regulatory regime moves to very stringent standards. The mid-level regs regime may not be a stable equilibrium.

    2. Certainly yes to your second paragraph.

      Meanwhile, have you read this little gem :)


    3. Man, I wish I could force people to pay me for a service they don't want. Great business model that.

  2. Is it possible that there is an externality at play here? Somebody buys from a small time food producer. They die from food poisoning. Media covers the story on the dangers from buying from small producers. That hurts other small producers, as consumers view their product as less safe than before. Solution? Regulation? What do you think?

    1. Whenever there's that kind of risk, there's an opportunity for somebody to provide certification services, right? Think about auto mechanics. Similar kinds of asymmetric information problems - you don't know which ones will gouge you. They know that too, so they bond themselves with MTA so you'll trade with them.

      For small food handlers, I trust the folks running Riccarton Bush Market; they'll also take some of the reputational hit if something goes wrong. They're helping provide the kind of bonding service that MTA provides for mechanics.

      We really need to be careful that regulations don't wind up being an inferior substitute for the informal existing mechanisms that they might otherwise supersede.

  3. Don't certification services suffer from the same problems of informational assymetry? Alternative certification services can compete, and if consumers don't know which one to believe, bad certification services can drive out good certification services because they produce certification services at lower cost (i.e., they don't test.) Do you happen to know if Riccarton Bush Market tests any of the produce that is sold there? Are there currently certification services for small food producers? If not, does that mean that there isn't a problem? Or does it mean that the lemons problem (no pun intended) in certification services dominates the food market so that no certification services get produced. And how would you tell the difference? :-)

    1. The certificator becomes residual claimant on bad outcomes; all brands bearing the certificate take the reputational hit if any affiliated brand comes up with problems. Yes, it pushes the trust problem back a level. But to a level that can be dealt with. Check Dan Klein's work on reputation.

      I don't know the extent to which Riccarton Bush checks stuff with its vendors. I expect that if there were a big salmonella outbreak there, the market would take a hit big enough to ensure that it's keeping sufficient eye on its vendors.