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United States Department of Agriculture Economic Research Service Economic Information Bulletin Number 82 October 2011 Food Safety Audits, Plant Characteristics, and Food Safety Technology Use in Meat and Poultry Plants Michael Ollinger, Mary K. Muth, Shawn A. Karns, and Zanethia Choice www . sda.gov u . s er Visit Our Website To Learn More About Production Technology! http://www.ers.usda.gov/briefing/FoodSafety/private.htm Recommended citation format for this publication: Ollinger, Michael, Mary K. Muth. Shawn A. Karns, and Zanethia Choice. Food Safety Audits, Plant Characteristics, and Food Safety Technology Use in Meat and Poultry Plants, EIB-82, U.S. Dept. of Agriculture, Economic Research Service. October 2011. Use of commercial and trade names does not imply approval or constitute endorsement by USDA. Cover photo: USDA, Agricultural Research Service. 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USDA is an equal opportunity provider and employer. A Report from the Economic Research Service United States Department of Agriculture Economic Information Bulletin Number 82 October 2011 www.ers.usda.gov Food Safety Audits, Plant Characteristics, and Food Safety Technology Use in Meat and Poultry Plants Michael Ollinger, ollinger@ers.usda.gov Mary K. Muth Shawn A. Karns Zanethia Choice Abstract Food safety technology can increase a company’s capacity to prevent a foodborne contamination. A food safety audit—a quality control tool in which an auditor observes whether a plant’s processing practices and technologies are compatible with good food safety practices—can indicate how effectively food safety technology is being used. Fast food restaurants, grocery stores, and other major customers of meat and poultry processing plants conduct their own audits or hire auditors to assess the soundness of a plant’s processing operation. Meat and poultry plants can also audit themselves as a way to help maintain process control. In this report, we document the extent of food safety audits in meat and poultry processing plants. We also examine the associations between the use of audits and plant size, firm structure, and food safety technology use. Results show that larger plants, plants subject to food safety audits, and plants that are part of a multiplant firm use more food safety technology than other plants. Plants subject to both plant-hired and customer-hired audits had greater technology use than single (plant- or customer-hired) audit plants. Keywords: Meat and poultry processing, safety standards, product recalls, food safety technology, food safety audits Acknowledgments The authors would like to thank Jessica Todd, Ephraim Liebtag, Laurian Unnevehr, Elise Golan, and Jay Variyam, USDA, Economic Research Service, and William K. Shaw, USDA, Food Safety and Inspection Service (FSIS), as well as three anonymous reviewers for their helpful reviews. We also thank our editor, Priscilla Smith, and our designer, Susan DeGeorge. Michael Ollinger is an economist with USDA’s Economic Research Service. Zanethia Choice was an intern with ERS when this research was conducted; she is now in graduate school at the University of Florida. Mary K. Muth and Shawn A. Karns are with RTI International, a nonprofit research institute based in Research Triangle Park, NC. ii Food Safety Audits, Plant Characteristics, and Food Safety Technology Use in Meat and Poultry Plants / EIB-82 Economic Research Service / USDA Contents Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . iv Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Types of Audits and Reasons for Using Them . . . . . . . . . . . . . . . . . . . . . 3 Auditor Services and the Incentives To Use Them . . . . . . . . . . . . . . . . . . 4 Types of Audits and Their Incentives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Audit Compliance and Audit Certification . . . . . . . . . . . . . . . . . . . . . . . . . 5 Number of Audits and the Incentives for Food Safety . . . . . . . . . . . . . . . . 6 Economic Framework . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Why Plants Make Food Safety Investments and Use Auditor Services . . . 7 Plant Size and Firm Type, Food Safety Investment, and the Use of Auditor Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 Survey Techniques and the Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Variable Measurement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Construction of a Food Safety Technology Index . . . . . . . . . . . . . . . . . . 12 Discussion of the Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 Concluding Discussion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 Appendix A: Survey Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 Appendix B: Index Construction and Descriptive Statistics . . . . . . . . . 33 iii Food Safety Audits, Plant Characteristics, and Food Safety Technology Use in Meat and Poultry Plants / EIB-82 Economic Research Service / USDA Summary What Is the Issue? Food contamination poses serious threats to human health as well as to the economic viability of meat and poultry plants. Food safety technology can increase a company’s capacity to prevent a foodborne contamination. A food safety audit—a quality control tool in which an auditor observes whether a plant’s processing practices and technologies are compatible with good food safety practices—can indicate how effectively food safety technology is being used. Fast food restaurants, grocery stores, and other major customers of meat and poultry processing plants conduct their own audits or hire auditors to assess the soundness of a plant’s processing operation. Meat and poultry plants also can audit themselves as a way to help maintain process control and as a marketing tool. In this report, we document the extent of food safety audits in U.S. meat and poultry processing plants and examine the association between the use of audits and plant size, firm structure, and food safety technology use. What Were the Study Findings? • In the poultry slaughter, cattle slaughter, and ready-to-eat products (e.g., luncheon meats) industries, at least 90 percent of output is from audited plants. • In the hog slaughter, ground beef, and not-ready-to-eat products (e.g., meat cuts) industries, at least 70 percent of output is from audited plants. • More than one-half of all plants were audited in the poultry slaughter industry. About one out of three cattle slaughter and hog slaughter plants were audited. • Plants with customer-hired or plant-hired auditors use significantly higher levels of food safety technology than plants without auditors. The most notable differences between plants using auditors and those not using auditors were in the use of testing and equipment technologies, and the smallest differences were observed in sanitation practices. These results hold within plant size categories. • The use of double audits may indicate firms with the strongest incentives to maintain food safety. Double-audit plants—those using both plant-hired and customer-hired auditors—use greater food safety technology than plants using only one audit type (either plant-hired or customer-hired). These results hold after controlling for plant size. • Larger plants and plants owned by multiplant firms are associated with a significantly higher level of food safety technology use across all industries that were examined. How Was the Study Conducted? Food safety technology use in six categories of meat and poultry plants— cattle, hog, and poultry slaughter; ready-to-eat (e.g., luncheon meats); not-ready-to-eat (e.g., meat cuts); and ground beef—is examined using a technology index developed by Ollinger, Moore, and Chandran (2004) and iv Food Safety Audits, Plant Characteristics, and Food Safety Technology Use in Meat and Poultry Plants / EIB-82 Economic Research Service / USDA using Tukey-Kramer comparison tests and other statistical tools. Six technologies were examined: hide removal (dehiding), sanitation, operations, equipment, testing, and an overall measure. The data on the use of food safety technologies are nationally representative and include information on 600 slaughter plants and 700 processing-only meat and poultry plants collected by RTI International for USDA’s Food Safety Inspection Service in 2004 and 2005. They are the most recent data available. v Food Safety Audits, Plant Characteristics, and Food Safety Technology Use in Meat and Poultry Plants / EIB-82 Economic Research Service / USDA Introduction Food safety audits provide information about the efficacy of a plant’s food safety process control system at some point in time and are becoming increasingly important to the meat and poultry industry.1 Fast food restaurants, grocery stores, and other major customers of meat and poultry plants use audits to assess the soundness of a plant’s processing operation and often require audits as conditions for granting a plant their business. Meat and poultry plants use audits as a way to help maintain process control and also as a marketing tool that could be useful for winning more business (Richard, 2003). By 2005, the use of auditors had become widespread. Some recent food safety incidents, however, have called into the question the usefulness of audits. Moss and Martin (2009) and Harris (2010) reported that several recently audited plants had recalled millions of dollars worth of peanut, meat, egg, and other products. The 1993 outbreak of E. coli O157:H7 in hamburgers served at Jack-inthe-Box restaurants led to a loss in net income for the restaurant company of around $160 million over the 18 months following the outbreak (Roberts et al., 1997). In response, Jack-in-the-Box imposed strict food safety standards on its suppliers and became a leader in the provision of food safety (Golan et al., 2004). Other restaurant chains, grocery stores, food manufacturers, and other buyers also recognized the threat that an adverse food safety event could pose to their business. Thus, they developed their own food safety process control programs and hired food safety auditors to evaluate their effectiveness. 1The terminology surrounding food safety audits can be confusing. In the certification literature, a first-party audit is an audit performed within the meat or poultry plant by the plant itself; a second-party audit is an audit conducted by or on behalf of a purchasing organization, such as a grocery store chain or another meat or poultry plant; a third-party audit is undertaken by an independent certification body that certifies a process and has no ties to either the customer or the supplier. In the trade literature, a third-party auditor is often referred to as an auditor who is not an employee of the plant or customer. To avoid confusion, we do not use the first-, second-, and third-party audit terminology. Audits may complement food safety technology. While the amount of investment in food safety technology indicates a company’s commitment to food safety and also its capacity to prevent foodborne contamination, food safety audits can indicate how effectively food safety technology is being used. To date, there has been little research on the use of audits and their relationship with food safety technology in meat and poultry plants. Although the use of auditors does not necessarily cause plants to use more food safety technology or vice versa, an association may exist between the use of auditors and food safety technology, particularly if plants using auditors are the types of plants that make more extensive use of food safety investments or if the forces encouraging the use of food safety auditors encourage the use of food safety technologies. Our purpose in this paper is to (1) examine the extent of food safety audit use, (2) see whether the use of audits varies with plant size and across industries, and (3) evaluate whether the use of audits, plant size, and firm type are associated with food safety technology use. Our analysis relies on data from a 2004-05 national survey of meat and poultry plants by RTI International for USDA’s Food Safety Inspection Service (FSIS) on the use of food safety technologies. Altogether, nearly 400 meat slaughter, more than 200 poultry slaughter, and almost 700 processingonly plants responded to a survey that was sent to a nationally representative sample of plants. The survey covered an extensive array of food safety technologies. Some of these are more labor-intensive food safety tasks, such as sanitation practices, and others are fixed assets, such as steam vacuum 1 Food Safety Audits, Plant Characteristics, and Food Safety Technology Use in Meat and Poultry Plants / EIB-82 Economic Research Service / USDA units. The survey also gathered information on plant characteristics, such as product inputs and outputs, plant size, and firm type. We measure plant food safety technology using an index that is constructed from the food safety technology questions included in the RTI International survey. There is one comprehensive measure of all technologies and separate indexes for five technology types—hide removal (dehiding), sanitation, operating practices such as disposal of scrap products (operations), equipment, and testing. By using five specialized technology indexes that separate laborintensive food safety activities, such as sanitation, from capital-intensive food safety measures, such as equipment, we can better understand how types of technologies vary with plant characteristics. Indexes were based on a more comprehensive assortment of food safety technologies than was available for Ollinger, Moore, and Chandran (2004). We next discuss food safety audits and then provide an economic framework of how incentives provided by the private market (e.g., major customers) encourage food safety. After that, we discuss the survey methodology, describe the data in more detail, and present results of food safety expenditures and technological choices in the context of our model. 2 Food Safety Audits, Plant Characteristics, and Food Safety Technology Use in Meat and Poultry Plants / EIB-82 Economic Research Service / USDA