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This week we will move back to the fresh meat and seafood industries to discuss HAACP regulations and their real effect on cost structures.

HAAPCP or Hazard Analysis and Critical Control Point is a food safety approach developed in 1959 by NASA and Pillsbury in an effort to create safe food products for the space program. It was adopted in 1995 for seafood and 1998 for meat plants. HAACP’s focus is on preventing hazards that can result in food born diseases. This is done by applying science based controls on raw materials as they pass through the food processing chain.

After a near decade of experience with processors using HAACP plans, what are the real economic effects of these government mandated controls? Many experts have argued that there is a net cost benefit to HAACP. However, clearly from the food guys standpoint, after the cost of implementing and maintaining is figured in, there is a net cost increase.

Many small slaughterers and processors have gone out of business because their size prevented them from absorbing those new costs. After a survey of the meat industry in 2000, it was concluded that HAACP, as a part of a Total Quality Control System, did actually reduce costs. The following conclusions were drawn:

1. Firms have lower marginal costs after HAACP as compared to before HAACP.
2. Firms without HAACP systems are less cost efficient than firms without those systems
3. Firms with HAACP systems have greater technical efficiencies than firms without HAACP.

These efficiencies are attributed to:

1. Improvements in operational efficiencies.
2. Reduction of transaction costs.
3. Creation of competitive advantage.

(Caswell et al 98,Bredahl et al, 01, Farina and Reardon 2001)

In a study of the British dairy industry by Henson in 2000 concluded HAACP also reduced waste, increased shelf life and decreased production costs.

Of course every one has their own experiences but since you have no choice but to use HAACP in your business, you should strive to update your plan using the latest science and equipment to leverage your investment and seek the savings related to the studies above. Finding more efficient ways of doing things always saves money and your protecting your business from a costly recall at the same time. A beef processor I know of introduced a very costly pasteurization process to prevent food born disease. This opened up new markets for the natural, minimally treated product, just as the market demand for that type of product began to rise.

Overall, the broad view by experts is that HAACP has brought about cost savings by reducing health costs related to those diseases and in the long run there is a social net benefit.

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