An Economic Analysis of FRDC Investment in Food Safety (Cluster 20)

Background

The seafood industry has been facing the challenge of becoming familiar with changing export market standards in order to maintain market access and take advantage of Australian products where market premiums may exist due to a safe food status. Both of these challenges require independent data and testing to verify access and premium claims.

Likewise the domestic seafood market has become more aware of food safety issues so that in order to maintain market share in the domestic market, food standards have become more important and risk assessments have become part of quality assurance systems.

In March 2005, the Food Standards Australia and New Zealand Board approved the Final Assessment Report for the Primary Production and Processing Standard for Seafood. That report contains a scientific evaluation of risk within the seafood industry and management options to minimise the risk. It proposed applying basic food safety requirements to the seafood industry and documented food safety management systems to the highest risk sector of the industry, namely the seafood businesses that handle oysters and other bivalves (www.foodstandards.gov.au).

The research that FRDC has funded in this area is aimed at not only maintaining and improving the market for seafood, but also to improve consumer health and minimise negative impacts on the community including public health costs. Food safety is heavily regulated for both exported and domestically consumed produce.

FRDC had viewed food safety as an important part of the future of the seafood industry and had been supporting projects in that area for some years.

Lesson Learnt for Future Investment

A characteristic of many of the investments in this cluster was their win–win nature where increased food safety (actual or perception) firstly raises the image of the industry and potentially the demand for seafood. Second, in the case of actual food safety enhancements, the community and seafood consumer both benefit. Additional costs have not appeared prominent, in fact, in one case the investment has been shown to reduce supply chain costs by without compromising food safety. This is a strong argument for such investments to be supported jointly by industry and public funding.

Conclusions

Investment was made in a total of 13 projects within the cluster with the FRDC contribution approximating 51% of the total costs involved.

Both private and public benefits will arise from the cluster investment. On the basis of the five principal benefits identified, and equal weighting for each benefit, it could be concluded that public benefits to Australia could make up about 20% of the total benefits. If subjective weightings are taken into account, then over 11% of the total benefits could constitute public benefits to Australia.

The principal industry benefit from the cluster investment was its influence on the demand of Australian produced seafood in both domestic and export markets. Other principal benefits were associated with cost reductions along the supply chain. Public benefits were associated with a higher quality of life for seafood consumers and those working in the seafood industry.

Overall, the investment criteria estimated for the total investment of $9 million (present value of costs) in the 13 projects in the cluster were positive with a net present value estimated at $44 million and a benefit-cost ratio of just under 6, all estimated using a discount rate of 5% (benefits estimated over 30 years from the final year of investment).