Economic damages of food-safety incidents in complex markets: 2018 E. coli outbreak and romaine lettuce

Abstract

Food-safety incidents are costly for everyone in the leafy greens industry. However, it is challenging to estimate the size and distribution of these costs in today's complex supply chains. Extensive use of formal contracts in markets such as leafy greens obscures prices and other terms of trade from the public view. Using proprietary data on prices and sales from a major leafy greens processor operating in the retail and food-service sectors, we are able to separately estimate short-run damages associated with the November 2018 romaine Escherichia coli advisory for growershippers, processors, retailers, and food-service operators. Due to fixed prices in grower-processor contracts, growers were only minimally impacted by the advisory. Processors, meanwhile, lost approximately $55.3 million from price and quantity impacts. Retailers incurred $14.1 million in losses after pulling product from distribution channels and shelves. Foodservice operators were less impacted because lower prices offset losses from destroying potentially contaminated products. Moving forward, the best way to mitigate losses during food-safety incidents is fast and efficient traceability.