howard kunreuther and peter schmeidler risk management and decision processes center e-mail:...
TRANSCRIPT
Howard Kunreuther and Peter Schmeidler
Risk Management and Decision Processes Center
E-mail: [email protected]
Presented at a Conference on
ALL FOOD IS NOT CREATED EQUAL:
Policy for Agricultural Product Differentiation
Berkeley, CA.
November 16, 2004
Third Party (Voluntary) versus Government Certifications for Food
Safety
OUTLINE OF TALK
Examples of Safety Inspections
Introduction to EPA Risk Management Program (RMP)
Third Party RMP Audit ProjectIntroduction to the Risk Management and Decision Processes
Center at the Wharton School
Product differentiation and safety and quality certification
Examples of Third Parties in Food Safety
Potential for Third Parties in Product Differentiation?
WHARTON RISK MANAGEMENT CENTER
Focus on low probability-high consequence events• Natural Disasters • Chemical Manufacturing Incidents• Terrorism and Interdependent Security• Workplace Safety
Use of Public-Private Partnerships to develop strategies to manage these risks
Private Component: Insurance and Third Party Inspections
Public Component: Regulations and Well Enforced Standards
WHARTON RISK CENTER PROJECTS Agreement with EPA Office of Emergency Prevention, Preparedness and Response (OEPPR)
• Near Miss
• Third Party RMP Audits
• Accident Epidemiology
Lockheed-Martin - Airline Security
Drug-Related Risk Management – with a large pharma firm
Managing and Financing Extreme Risks
Nat’l Institute of Standards and Technology – Safer Communities
Web site: http://opim.wharton.upenn.edu/risk
EXAMPLES OF SAFETY INSPECTIONS
• Steam Boilers - mandatory (by insurer)
• Workers Compensation – mandatory (by insurer, if indicated)
• LA County Restaurant Ratings
Mandatory (by County)
NEED FOR WELL ENFORCED CHEMICAL SAFETY REGULATIONS
Firms Don’t Make Benefit-Cost Tradeoffs
Threshold Models
Myopia (NIMTOF)
Limited Assets
Interdependencies in Multi-Division Firms
Externalities
And these points hold for other industries!
EPA RISK MANAGEMENT PROGRAM (RMP) BACKGROUND
There are 15,500 sites that meet the RMP threshold of handling at least one of 143 listed hazardous chemicals
The threshold chemical at ~50% of the sites is ammonia (refrigeration for food processing) and at ~30% of the sites is chlorine (waste water treatment and purification)
EPA has ~50 inspectors to cover the above
Some states such as Delaware and NJ have their own RMP programs and carry out inspections in lieu of EPA
RMP is administered by OEPPR formerly CEPPO , the Chemical Emergency Preparedness and Prevention Office
WHY THIRD PARTY AUDITS FOR RMP?
An alternative to “Command and Control”
Limited EPA resources – infrequent inspections
Volunteer sites means EPA can focus on “bad” facilities
3rd Party provides benchmark for best practices
Private party rather than a regulator inside the facility
Opportunity for Community goodwill via transparency
Potential to avoid penalties by self reporting
Potential for lower insurance premiums
Regulatory/litigation relief in case of an incident
INSURANCE AS THE THIRD PARTY
Insurers want inspections to be “complete enough” because otherwise they lose in claims
Inspection can reveal ways the individual company can reduce its safety and legal risks
Analysis of all inspection data can identify patterns to
reduce safety risks Insurers should reduce premiums to reflect lower risk
PILOT STUDY: AUDITOR TRAINING
Two day training of insurance engineers and safety consultants in ammonia and chlorine safety by DNREC
Delaware – has state RMP program; 4 ammonia and 4 chlorine sites; follow-up inspections by DNREC
Pennsylvania – does not have state RMP program;
4 ammonia and 9 chlorine sites; follow-up inspections by EPA
Region III
Conclusions: Trainees are capable of conducting RMP compliance inspections with performance parallel to an implementing agency
PROPOSED REVISION TO SECTION 112(r) OF THE CLEAN AIR ACT AMENDMENTS FOR 3RD PARTY
AUDITSVoluntary participation
EPA establishes qualification standards for auditors
Facility hires auditor or works with insurer
Comprehensive RMP audit performed
Auditor provides report to facility
Facility reviews report
Facility can:
Take corrective action and submit report to EPA or
Take corrective action and not submit report to EPA or
Take no action and not submit report
If report is submitted, EPA provides regulatory benefits of waiver of fines for non-compliance (within limits) and a three year window of freedom from an EPA RMP audit
SAFETY & QUALITY CERTIFICATION IN FOOD MARKETS
• Supermarket Food Products are Becoming More Differentiated– More processing outside the home
• For example, branded meat entrees– Distinctive agricultural production
• Organic produce; hormone free meats– Large scale Production + special processing
• potential for greater impact if breakdown occurs• Foreign sourcing
DIFFERENTIATION IMPOSES NEW PRESSURES ON REGULATORY &
CERTIFICATION FUNCTIONS
• Regulation: How should meat inspection respond to varying safety emphases?
• Certification: What role should USDA play in responding to consumer demands regarding production processes?
• Each stretches resources; alters traditional focus
INSURANCE AND FOOD SAFETY
Insurer has staff with food experience that spend 80% of their time
in facilities (including restaurants)
Several certified in HACCP (Hazard Analysis/Critical Control Points)
Regional firms are biggest challenge – normally started small and
still behaving as a small organization despite growth
Lack of resources – QC person becomes HACCP person and HACCP
program done in-house without consultation
Relationship with insurer grows such that facilities feel more comfortable with than regulator – leads to sharing of best practices
Concerns: consolidation leading to fewer “batches”, if problem occurs it can effect a larger population
Forces insurer to look at more closely at controls
EXAMPLES OF THIRD PARTIES IN FOOD SAFETY
Pa. Egg Quality Assurance Program
Ca. Dairy Quality Assurance Program
Fresh Produce Audit Verification
Program
Qualified Through Verification
Minnesota Certified Pork
PA. EGG QUALITY ASSURANCE PROGRAM(PEQAP)
Voluntary program developed by PennAg Industries Poultry Council to minimize Salmonella enteritidis (SE) contamination
Third party monitoring by the Pa. Dept. of Agriculture
Program elements – rodent control, remedying positive houses,optional vaccination for SE, egg holding and processing requirements, testing
PEQAP symbol for successful audit
By 2002 85% of egg production PEQAP
Program started in 1994
Results – 1992 SE positive product 23% vs. 2003 1.8%
Flocks – 1992 38% positive vs 2003 4.4%
CALIFORNIA DAIRY QUALITY ASSURANCE PROGRAM (CDQAP)
Three components – Food Safety, Environmental, Animal Welfare
Environmental component fully operational with third party audits
Food safety course ready for implementation “Food Safety and Emergency Preparedness” with focus on bio-terrorism
Use of third-party audit for Food Safety under discussion
FRESH PRODUCE AUDIT VERIFICATION PROGRAM
GAP/GHP –Good Agricultural Practices/Good Handling Practices
Based on: Guide to Minimize Microbial Food Safety Hazards for Fresh Fruits and Vegetables
Voluntary independent third-party audit by F/SIS
Auditors are licensed fresh fruit and vegetable inspectors
Passing audit results are posted on USDA website
Results are valid for one year
USDA Certificate (suitable for framing)
Program has been in place for 2 years
No plans for metrics
QUALIFIED THROUGH VERIFICATION (QTV) FOR MINIMALLY PROCESSED PRODUCE
Based on AMS QTV manual
Voluntary independent audits by AMS
Facility develops QTV plan + 30 day trial
AMS starts audit after plan trial successful
Audit levels IV to I; frequency range – 2/mo to 1/3 mo
Avg. audit cost - $1200; range - $400 to 1800
USDA shield with QTV in center band on passing
Website designating participants in development
Pilot of project started in 1996
Informal internal metrics
MINNESOTA CERTIFIED PORK(MNCEP)
Pilot program covering five herds; part of wider Mn. Certified Production program
Based on MNCEP Quality Handbook (ISO 9000 basis)Components: Best production procedures; Pre-harvest food
safety; Environmental stewardship; Animal welfare; Recording and Documentation (SOP’s)
Internal monthly audit by DVM/ Annual Handbook compliance audit by MN. Dept of Ag.
Processing by Swift; sold to upscale grocery chainSalmonella levels reduced form 8.7% to essentially 0Not successful because: competition from case ready goods consumer would not pay premium for guarantees quality inconsistent because herds not genetically identical
WHY THIRD PARTY AUDITS FOR FOOD SAFETY?
An alternative to “Command and Control”
Limited USDA resources – infrequent inspections
Volunteer sites means USDA can focus on “bad facilities
3rd Party provides benchmark for best practices
Regulatory/litigation relief in case of an incident
Opportunity for Community goodwill via transparency
Potential for lower insurance premiums
Questions for discussion
Are there additional opportunities in food safety for third parties?
Could these opportunities benefit the movement to product differentiation?
Can insurers play an important role as third party certifiers in food safety in conjunction with USDA?
REFERENCESCollins, L. et al. The Insurance Industry as a Qualified Third Party Auditor. Professional Safety, April 2002, 31-38
Jin, G. and Leslie, P., The Effect of Information on Product Quality: Evidence from Restaurant Hygiene Grade Cards. The Journal of Economics, May 2003, 409-451
Kunreuther,H., McNulty,P. and Kang,Y. Third Party Inspection as an Alternative to Command and Control Regulation. Risk Analysis, Vol. 2, 2002, 309-318
Kunreuther, H., Metzenbaum, S., Schmeidler, P., Private Inspections and Mandatory Insurance for Managing Safety and Environmental Risks, Leveraging the Private Sector : Management-Based Strategies for Improving Environmental Performance (Cary Coglianese and Jennifer Nash, editors), forthcoming in RFF Press