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Eric Crampton

Eric is Senior Lecturer at the University of Canterbury. He blogs at Offsetting Behaviour.

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NZCPR Guest Forum
The Food Bill
Dr Eric Crampton
29 January 2012

Nobody really seems to know just what will come of the proposed changes to New Zealand’s food safety regime. Minister for Food Safety Kate Wilkinson assures us that the regime simply modernizes New Zealand legislation and, if anything, reduces the regulatory burden facing food producers. Where current legislation does little to distinguish large from small processers, the revised legislation provides a graduated scale ranging from government provision of safety information to very small informal producers of low-risk products to full-scale safety regulation for larger concerns. Despite those assurances, many small producers fear the new system will impose costs that they cannot bear. 3 News reports on a small organic food exchange whose founder says they’ll more likely close than bear the up-front costs of developing compliant food safety plans; the founder of Lisa’s Hummus says she could not have started had she been subject to the new rules. Without a legal background, it’s pretty difficult to tell just what the effects will be.

One possibility is that both the Minister and the producers are right. The de jure rules may well subject small sellers of pickles and jams at farmers’ markets to the same rules as Watties, but only the most officious of compliance officers would dream of enforcing them on small producers. If the new regime eases the de jure rules facing small producers, it could nevertheless increase the de facto burden if small suppliers are expected to come into compliance where they previously were ignored.

Without knowing the likely real effect on small producers, it’s very difficult to tell whether the new rules would pass any serious cost-benefit analysis. Food poisoning is very real and imposes real costs. Minister Wilkinson says food-borne illness cost the economy $162 million in 2010. But when we look at the report that produced the figure, we find that a sixth of that cost figure represented government outlays on food safety regulations and industry compliance and outbreak costs; unless the new bill comes with lower compliance and enforcement costs, it’s unlikely that the bill can reduce that portion of the Minister’s cited costs.

Moreover, even the very real subjective illness costs cited – some $100 million in estimated private willingness to pay to avoid incurred food-borne illness – are gross figures, not net. Suppose that I really enjoy the food produced by a small operator whose food safety standards might not be perfect. If I know the risk and choose to consume his product anyway, the joy I get from his product – homemade yogurt, cupcakes, jam, free-range eggs or otherwise – must outweigh those risks. If the regulations shut down the producer, I lose both the costs of borne risk but also the benefits from eating tasty homemade products. We need to know not only the costs of food-borne illness but also the effects of any regime change on enjoyed consumer surplus to be able to say much about the desirability of the new regulations.

Since moving to New Zealand eight years ago, I’ve really come to love buying odd startup food products from new food entrepreneurs at farmers’ markets like the weekly markets at Lyttelton and at Riccarton Bush. I first started buying Cassels & Sons’ beer at the Lyttelton Farmers’ Market; when they realized there was strong dem and for their product, they expanded up and now have a thriving brewpub in post-earthquake Christchurch. I really hope that the regulatory changes won’t adversely affect the small upstart producers that supply me with the excellent cakes, breads, produce and free-range eggs and meat that form a relatively large proportion of my weekly menu. I choose to buy from those vendors because I trust them and I trust the markets from which they rent stall space. I’d hate for regulatory changes to take that choice away from me.

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.

A graduated regime with low compliance costs for small traders makes a lot of sense. And a year from now, when we see which small traders have survived, we’ll be able to form a better assessment of whether the government set the thresholds at the right levels.