The holiday season is upon us and supply chain disruptions have become a conversation at the dinner table. Higher food prices abound as beef, pork and chicken prices rise 26 percent, 19 percent and 15 percent from pre-pandemic levels. Why the soaring prices? As the pandemic continues, labor shortages and congested ports are the focus of media coverage, but reports have largely ignored the impact of onerous and overlapping regulatory restrictions on supply chain disruptions. food supply.
The objectives of food law are often clear, but the outcome of these laws is often confused. Regulators want to ensure that food is safe to eat, that the workforce has safe working conditions, that production spending takes into account long-term environmental costs, and that animal welfare standards are respected. The regulations also aim to ensure that food manufacturers do not exercise market power or engage in other unethical business practices. These stated goals led to the Food Safety and Modernization Act (FSMA) of 2011. Featured as “the most significant update to US food safety laws since the passage of the US Federal Food, Drug and Cosmetic Act of 1938, “The FSMA has prescribed a strong framework to thwart food fraud, prevent foodborne illness and improve sanitary conditions in food and agriculture. Supporters of the FSMA have proposed solutions to food system shocks by providing a comprehensive emergency plan with preventive measures.
While well-intentioned, food regulations can limit the resilience of U.S. food systems in three ways:
1) When regulators implement new restrictions without eliminating previous and archaic restrictions, regulatory burden can increase prices consumers pay for groceries and restrict product availability to low-income households.
At a minimum, the cost of a regulation is the compliance cost associated with reading, understanding and complying with the restriction. This is particularly relevant for the food and agricultural economy, as the poorest quintile of U.S. households spend more than a quarter of their income on food.
Indeed, our research indicates that regulatory restrictions in food systems have increased by 300 percent over the past half-century, much of this growth has come in the wake of the FSMA.
For an ounce of beef protein produced in the United States, more than 200,000 regulatory restrictions directly or indirectly influence on-farm production, processing, wholesale and retail sales. By comparison, less than 50,000 restrictions impacted the same system in 1970.
2) Regulatory barriers restrict flexibility between interconnected supply chains. When the retail prices of shell eggs soared 141% in 2020, cracking stock eggs – which are mainly used in catering and restaurants – has dropped below the cost of bottled water. Although both types of eggs can often be raised in the same production system, it was not until the United States Food and Drug Administration issued temporary exemptions from certain overlapping food safety standards that the market prices were able to return to their pre-pandemic ratio. Agile supply chains require a greater focus on results rather than process.
3) Regulatory burdens can inhibit the economic dynamism and entrepreneurial growth of American businesses. The existing patchwork approach US food regulations create overlapping and onerous guidelines for industry members throughout the food supply chain.
Given the interconnectivity of modern food supply chains, differences in state regimes can create additional barriers for interstate trade. State-level supply chain restrictions have been linked to stalled growth in a myriad of food and beverage companies ranging from breweries To aquaculture production.
Although most food regulations are implemented at the national level, state governments vary widely in the number of additional regulations on the protein supply chain. Our research indicates that the total number of state-level regulatory restrictions associated with animal product ions ranges from 715 in North Dakota to 18,010 in Oregon.
As food supply chains become increasingly national and international, regulatory policy needs to be modernized to focus on goals rather than processes, to encourage innovation and foster transparency. An important step towards increased resilience of the food system is to assess the overlapping regulatory restrictions that hamper producers, processors, distributors and retailers. Regulatory policy should focus on individual supply chains to develop goal-oriented policies rather than process-oriented policies. Instead of regulating how a product is made or what should or should not be added to a product, regulators should focus on stated policy goals.
Policies must also encourage innovation. Just as technological gains are synonymous with innovation in agriculture, the enforcement of agricultural and food regulations can benefit from technological advances.
For example, meat processing facilities must be inspected by certified government officials, but concerns about the movement and safety of inspectors induces a lack of meat inspectors, increasing production costs. Virtual inspections, similar to those flown in Iceland, could provide additional flexibility and resilience.
Food regulatory policy must also take into account the importance of cybersecurity for secure communication in globalized markets. With tens of thousands of regulatory restrictions influencing the behavior of producers, the need to share information between every node in the supply chain means that producers must devote a great deal of time, energy and other resources to the process. understanding of their legal constraints. If the U.S. economy takes supply chain resilience seriously, regulatory reform needs to be part of the discussion.
Trey Malone is an Agricultural Economist and Elton R. Smith Endowed Fellow in the Department of Agricultural, Food and Resource Economics at Michigan State University. Follow Malone on Twitter: @DrTreyMalone
Aaron Staples is an agricultural economist in the Department of Agricultural, Food, and Resource Economics at Michigan State University. Follow Staples on Twitter: @AaronJStaples
Malone and Staples are co-authors of the recent study “Regulatory Restrictions in U.S. Protein Supply Chains. “