As the death toll from listeria in cantaloupe reached 25 this week, marking the deadliest outbreak of foodborne illness in a quarter-century, some industry insiders are placing blame on the local foods movement. On economic grounds, they may have a point.
The contaminated melons were traced to a self-described small farm in Colorado that the FDA said had “poor sanitary” conditions. The FDA reported Wednesday that it found listeria in numerous areas of the farm’s packing facility, including a floor drain, a produce dryer, and a conveyor belt. Standing water and poorly designed equipment created “the perfect environment for listeria growth and spread,” according to one FDA expert. The farm claimed to have passed an outside audit just days before the outbreak that has sickened more than 100 people and devastated the cantaloupe industry. Farmers in California are plowing their crops under because of the collapse in demand.
That the outbreak occurred on a small farm selling principally to regional buyers is an obvious point, but also an important one because this kind of food contamination is less likely to occur at the large-scale farming operations that locavores love to hate. Consider first that local food systems largely ignore the important role comparative advantage plays in agriculture. Comparative advantage explains why corn is grown in Iowa, almonds in California, and winter vegetables in Florida. The different regions, with different soils, land qualities, climates, and opportunity costs specialize because they can produce their respective crops better than other regions. Comparative advantage implies significant gains from interregional and international trade. And it isn’t just relevant to costs of production and farm yields. It applies also to food safety.
Some regions are just safer places to grow certain crops than others—a point made recently by long-time food industry observer Jim Prevor at his “Perishable Pundit” website. Colorado, he notes, is a particularly unsafe place to grow cantaloupes, which are particularly susceptible to contamination because bacteria can hide out in the crevices of the melon’s rough skin. Rains splatter mud on the melons in Colorado, requiring them to be washed post harvest, a process that can lead to cross contamination among melons and create the moist conditions in which bacteria thrive.
In contrast, dry summers in California and Arizona create safe conditions for cantaloupe production because the crops are watered by drip irrigation and are much less likely to get dirty. Consequently, California cantaloupes bypass the rinsing phase and are packaged dry, sometimes right in the field. But the local foods movement kicks comparative advantage to the curb, favoring foods grown within a certain distance over foods grown in the best conditions.
The small farm is also likely to invest less in preventing food contamination than the big farm because its losses and legal exposure from any outbreak will be smaller. Even if the contaminated farm in Colorado grew half of the state’s 2,200 acres of cantaloupe, its loss from pulling its harvest is only $4 million in revenues. (The total U.S. harvest in 2010 was valued at $314 million.)
A larger farm has much more at stake, both in terms of lost harvest revenues and reputation. Reputation is critical to firms in the food industry as health scares can dramatically reduce demand well into the future. To large firms in the industry, an outbreak can mean hundreds of millions of dollars in foregone sales and liability. This creates a big incentive for these firms to invest in equipment, procedures, and testing to minimize the risk of food contamination at farms and packing sheds. Further, geographic concentration of production allows farms to work jointly and cooperatively to achieve food safety for their mutual protection.
It’s not just that the benefit of food safety investments (i.e., avoided losses) is lower for small farms. Their costs of achieving a given level of risk are often higher, too. Large firms exploit economies of size to achieve food safety standards more cheaply than small firms. A simple example is fencing a field to avoid animal intrusions and fecal contamination. The cost of fencing per unit area is decreasing in the size of the field. At $10 per foot, it costs $4000 to fence a 10,000 square-foot field. The cost of fencing a field 100 percent larger is only $5,650*, less than 50 percent more.
More generally, because of the fixed costs associated with prevention efforts, large firms have an advantage in mitigating against food contamination. They can spread the costs of equipment and personnel over larger quantities of output to lower their average costs. Thus it is no surprise that research by economists at UC Davis, and the USDA found that large food operations have lower costs for complying with food safety standards and are more likely to invest in equipment and pathogen testing to reduce contamination risk. Large firms also often hire food safety specialists to oversee food safety protocols and testing for contamination.
Because the costs of achieving low levels of contamination risk are so high for small farms, they were exempted from stricter food safety standards required by Food Safety Modernization Act signed by President Obama earlier this year. The act calls for the USDA to issue tighter standards for preventive measures and testing on farms and elsewhere in the food supply chain.
Food-safety costs are also greater for the taxpayer when dealing with small-scale, geographically scattered farming. The cost of monitoring regulatory compliance is smaller the fewer and more concentrated the farms become. In the locavore utopia, federal inspectors would have to travel to hundreds of local food sheds and inspect dozens, perhaps hundreds, of farms in each one. As the number of commercial farms increases, either the costs of labor and transportation associated with inspection go up, or the compliance level falls. The local foods movement, then, makes it more costly for the government to assure the food supply is safe.
Finally, assuming small farms are not inherently safer than large farms, then as food retailers endeavor to meet the demands of locavores by sourcing meats and produce from local farms, they must compromise on other priorities, like reducing contamination risk. Food retailers have many objectives in securing produce from suppliers, including minimizing cost and maximizing flavor. The many potentially conflicting objectives impede the retailer’s ability to achieve any one objective to the greatest degree possible. The retailer faces tradeoffs. Sourcing local food from smaller farms that are less effective in mitigating contamination risk almost surely comes at the cost of food safety, a point also made by Mr. Prevor.
The recent listeria outbreak highlights the risk posed by accidental food contamination to consumers and farmers alike. Twenty-five dead. Hundreds sick. And millions of dollars of cantaloupe plowed into the ground. It’s a painful reminder of how much we rely on a safe and secure food system. And it is worth asking if a local food future will put us at greater risk.
*An earlier version incorrectly read, “At $10 per foot, it costs $4000 to fence a 1000 square-foot field. The cost of fencing a field 100 percent larger is only $6,000, a mere 50 percent more.”