United States

Department

of Agriculture

Economic

Research

Service

Agricultural

Economic

Report

Number 831

Food Safety Innovation

in the United States

Evidence from the 

Meat Industry

Elise Golan

Tanya Roberts

Elisabete Salay

Julie Caswell

Michael Ollinger

Danna Moore

Electronic

Report
Abstract

Recent industry innovations improving the safety of the Nation’s meat supply range

from new pathogen tests, high-tech equipment, and supply chain management systems,

to new surveillance networks. Despite these and other improvements, the market incentives that motivate private firms to invest in innovation seem to be fairly weak. Results

from an ERS survey of U.S. meat and poultry slaughter and processing plants and two

case studies of innovation in the U.S. beef industry reveal that the industry has developed a number of mechanisms to overcome that weakness and to stimulate investment in

food safety innovation. Industry experience suggests that government policy can increase

food safety innovation by reducing informational asymmetries and strengthening the

ability of innovating firms to appropriate the benefits of their investments. 

Keywords: Food safety, innovation, meat, asymmetric information, Beef Steam

Pasteurization System, Bacterial Pathogen Sampling and Testing Program

About the authors

Elise Golan, Tanya Roberts, and Michael Ollinger are economists at the Economic Research

Service, USDA. Elisabete Salay is the Director of the Interdisciplinary Center for Food

Research (NEPA) and Associate Professor at the Food Engineering Faculty (FEA) of the

State University of Campinas (UNICAMP), Brazil. Julie Caswell is a professor in the Dept.

of Resource Economics, University of Massachusetts. Danna Moore is Assistant Director,

Social and Economic Sciences Research Center, University of Washington. 

Acknowledgments

The economic analysis of the case studies required the active cooperation of the innovators.

We heartily thank Timothy Biela, Mike Brodziak, Jerome Leising, Randall Phebus,

David Theno, and R. Craig Wilson for their willingness to explain details and answer a 

very long questionnaire. We would also like to thank Gary Becker, Neal Hooker, Janet

Perry, and Matt Rendleman for thoughtful reviews of the entire paper; and Dana Rayl West

and Thomas McDonald for expert editing and Wynnice Pointer-Napper for the document

layout. Professor Salay’s participation in the study was supported by a fellowship from the

Fundação de Amparo à Pesquisa do Estado de São Paulo (FAPESP), Brazil.

United States

Department

of Agriculture

www.ers.usda.gov

Electronic Report from the Economic Research Service

April 2004

Agricultural

Economic

Report

Number 831

Food Safety Innovation in the

United States

Evidence from the Meat Industry

Elise Golan, Tanya Roberts, Elisabete Salay, 

Julie Caswell, Michael Ollinger, and Danna Moore
Contents

Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .iv

Economic Theory and Empirical Evidence from the Meat Industry . . . . . . . .1

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1

Part I. Theory: The Economics of Food Safety Innovation . . . . . . . . . . . . . . .2

Food Safety Innovation Boosts Social Welfare . . . . . . . . . . . . . . . . . . . . . . .2

Appropriability, Market Demand, and Technological Opportunity 

Are Key to Innovation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2

Changes in Appropriability, Demand, and Technological Opportunity 

Vary the Costs and Benefits of Innovation and Imitation . . . . . . . . . . . . .4

Market Failure Distorts the Incentives for Food Safety Innovation 

and Imitation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5

Part II. Empirical Investigation: A Closer Look at Food Safety 

Drivers in the Meat Industry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9

Food Safety Investments in the Meat and Poultry Industries:

Survey Results . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13

ERS Survey Reveals Variation in Food Safety Investment . . . . . . . . . . . . .13

Plant Size Influences Amount and Type of Food Safety Activity . . . . . . . .15

Appropriability Influences Food Safety Investment . . . . . . . . . . . . . . . . . .17

Appropriability Mechanisms Encouraged Early Adoption of 

HACCP-Like Programs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .19

ERS Survey Indicates that Buyer Specifications are Key to 

Spurring Safety Innovation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .19

A Case Study of the Equipment Market and the Invention of the 

Beef Carcass Steam Pasteurization System . . . . . . . . . . . . . . . . . . . . . . .21

History of BSPS Invention: Collaboration and Risk Sharing . . . . . . . . . . .22

The Innovating Collaborators Appropriated a Variety of Benefits . . . . . . . .26

The BSPS-SC: Three Years to Technological Innovation and 

Market Acceptance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .27

Appendix A: Time Line for Beef Steam Pasteurization 

System Innovation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .29

Innovation for Microbial Pathogen Control in the Supply Chain for 

Hamburger Patties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .30

The 1993 E. coli O157:H7 Outbreak Catalyzed Changes at 

Texas American Foodservice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .30

Development of New Sampling and Testing Protocols:

Innovation Through Collaboration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .31

Texas American Leads the Way...and Appropriates the Benefits . . . . . . . .33

An Emerging Market for Food Safety Opens the Door to 

Food Safety Innovation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .34

Appendix B: Time Line for the Texas American Foodservice 

Corporation Innovation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .36

Part III. Market and Regulatory Incentives for Food 

Safety Innovation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .37

Market Incentives for Food Safety Innovation: Lessons from 

the Meat Industry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .37

Designing Regulatory Incentives for Food Safety Innovation . . . . . . . . . . .40

References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .44

ii ● Food Safety Innovation in the United States / AER-831 Economic Research Service/USDA
List of Tables

A-1—Economic literature suggests three main drivers of

innovation and imitation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5

A-2—Four firm concentration ratios, value of shipments basis . . . . . . . . . . . . . .11

A-3—Percent of animals slaughtered in large plants . . . . . . . . . . . . . . . . . . . . . .11

A-4—Large plants' share of industry value of shipments . . . . . . . . . . . . . . . . . . .12

A-5—Annual animal inputs per plant by plant size for cattle 

slaughter plants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12

A-6—Product output share by plant size for cattle slaughter plants . . . . . . . . . . .12

B-1—Large cattle-slaughter plants have higher food safety ratings than small 

plants, mainly because of more capital intensive activities . . . . . . . . . . . . . . .16

B-2—Food safety ratings for cattle slaughter plants with buyer specifications 

are considerably higher than for other plants . . . . . . . . . . . . . . . . . . . . . . . . . .18

B-3—Food safety ratings for cattle slaughter plants that serve export markets 

are higher than for non-exporters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .18

B-4—Food safety rating of hog slaughter plants that sell products under 

their own brand are about the same as other plants . . . . . . . . . . . . . . . . . . . . .18

B-5—Food safety ratings for three appropriability mechanisms for 

cooked-meat processing plants without slaughter operations . . . . . . . . . . . . . .19

B-6—Percent of plants with HACCP-like programs prior to promulgation 

of the PR/HACCP rule by various appropriability mechanisms . . . . . . . . . . . .20

C-1—History of U.S. steam pasteurization experiments on meat 

and poultry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .22

C-2—Reduction in pathogens as a function of steam application 

time in SPS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .23

C-3—General characteristics of Frigoscandia Equipment, 2001 . . . . . . . . . . . . .25

D-1—General characteristics of Texas American Foodservice 

Corporation, 2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .31

Economic Research Service/USDA Food Safety Innovation in the United States / AER-831 ● iii
Summary

Recent industry innovations improving the safety of the Nation’s meat supply

range from new pathogen tests, high-tech equipment, and supply chain management systems, to new surveillance networks. Despite these and other improvements, the market incentives that motivate private firms to invest in innovation

seem to be fairly weak. Results from an ERS survey of U.S. meat and poultry

slaughter and processing plants and two case studies of innovation in the U.S. beef

industry reveal that the industry has developed a number of mechanisms to overcome that weakness and to stimulate investment in food safety innovation. 

Large restaurant chains have created a market for food safety. By far the

dominant drivers of food safety innovation in the meat industry are the stringent requirements on product safety and quality demanded by large fast food

restaurants. By demanding safer products from their suppliers, these restaurants have successfully created markets for food safety. The success of these

markets rests on the ability of these large buyers of meat to enforce standards

through testing and process audits—and to reward suppliers who meet safety

standards. Through contracts with these large buyers, meat processors are able

to appropriate the benefits of their investments in food safety.

Branding helps firms appropriate benefits from food safety innovation.

Branding also plays an important role in helping firms appropriate the benefits of safety investments. The major, name-brand fast food restaurants are

able to appropriate some of the benefits of their investments in food safety

because of their reputations for safe food. However, name-brand recognition

is a double-edged sword: it allows consumers (and regulators) to identify and

reward firms that produce high-quality, safe products, but it also increases

their chances of identifying firms that are guilty of safety lapses. Branding

reduces the chances of remaining anonymous in case of a foodborne outbreak,

thereby further strengthening the incentives to invest in food safety.

International trade stimulates demand for safety and provides technological

spillovers. International trade has played an important role in stimulating the

demand for food safety, much the same way as large fast food restaurants. By

demanding high safety standards in testing product for safety, and then paying

premiums or guaranteeing sales for safe producers, foreign buyers fuel the

growth of markets for food safety and stimulate safety innovation.

First movers appropriate the benefits of innovation and encourage diffusion.

The first company to adopt a new technology can often appropriate the benefits

of innovation. The Texas American Foodservice Corporation (Texas American),

for example, did not patent its newly developed Bacterial Pathogen Sampling

and Testing Program or seek any other sort of protection for the innovation. Its

first mover advantage was sufficient to forestall pressure from competitors and to

allow it to appropriate the benefits of the innovation. Not only did Texas

American not seek protection for the innovation, it actually sought to disseminate the technology, arguing that anything that helps reduce the possibility of

outbreaks associated with hamburgers is good for business. Another reason that

firms may have an interest in sharing new technologies with their competitors

and with government regulators is to influence the standard of care for the

iv ● Food Safety Innovation in the United States / AER-831 Economic Research Service/USDA
industry. Setting a standard of care that is difficult to meet can help set a barrier

to entry that benefits the first adopters.

Collaboration facilitates innovation and dissemination. The observation that

the performance of the industry as a whole affects the reputation and profitability of all firms in the industry provides incentives for firms to collaborate

to improve overall industry performance. In the two case studies presented

here, the innovative process was dependent on collaboration. In each case, the

technical and managerial expertise of the collaborators combined to facilitate

the development of the innovation and ensure that it would be effective in a

commercial setting. In addition to technical and managerial benefits, collaboration also provides important risk-sharing benefits.

Market conditions push large firms to innovate. The ERS survey indicates

that large slaughter plants had much higher food safety technology ratings

than smaller ones, suggesting that economies of scale, i.e., lower per unit

costs for large plants over small ones, plays a major role in whether plants

adopt capital-intensive food safety technologies. However, economies of scale

do not sufficiently explain all differences. Two characteristics peculiar to the

beef industry and food safety also play a role. First, large and small slaughter

plants face different markets. Large plants tend to supply large, homogeneous

markets with relatively elastic demand, while smaller plants tend to serve

smaller markets with less elastic demand. To protect their markets, large

plants may have more incentive than small firms to adopt food safety innovations. Another reason large firms may invest more in food safety than small

firms do is that lapses in food safety have the potential to be more costly for

large firms because they may involve larger amounts of product.

Foodborne disease outbreaks spur the demand for safety and innovation.

The 1993 outbreak of E. coli O157:H7 was a seminal food safety event in the

United States. This outbreak led to increased consumer awareness of food

safety issues and triggered a spike in demand for food safety that is still being

felt in the industry. For many consumers, news about foodborne illness

outbreaks is their only information about food safety. As a result, the market

is susceptible to large fluctuations after foodborne illness outbreaks, as

consumers reassess their buying decisions.

Technological validation by third parties is as important as technological

opportunity in driving innovation. The Steam Pasteurization System case study

highlights an important observation about technological innovation for food

safety: the design and fabrication of the technology may be secondary to technological validation in determining the ultimate success of an innovation. Not only

is it difficult to measure pathogen control and technological efficacy, but even the

best technology can be undermined by deficiencies in the overall safety system.

The actual efficacy of the technology may vary greatly from plant to plant,

depending on the characteristics of each plant’s safety system. As a result,

innovators may have a difficult time certifying or otherwise guaranteeing the

efficacy of the technology for controlling pathogen contamination.

The drivers of food safety innovation highlighted by the ERS survey and the case

studies suggest four areas where government policy may be well targeted for stimulating food safety innovation:

Economic Research Service/USDA Food Safety Innovation in the United States / AER-831 ● v
● Strengthening appropriability (the ability to control and exploit the benefits from innovation)

through safety information,

● Strengthening appropriability through increasing the costs of food safety failure and the benefits

of success,

● Providing flexibility in the choice of food safety technology, and 

● Investing in the scientific infrastructure and supporting research on safety testing.

In general, government policy targeted at overcoming asymmetric information

problems in markets for food safety will go a long way toward establishing incentives for efficient investment in food safety innovation.

vi ● Food Safety Innovation in the United States / AER-831 Economic Research Service/USDA

National Agricultural Library Cataloging Record

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Food safety innovation in the United States : evidence from the meat

industry.

 (Agricultural economic report ; no. 831)

 1. Meat industry and trade--United States--Safety measures.

 2. Meat contamination--Prevention--Economic aspects--United States.

 3. Meat industry and trade--Technological innovations--United States.

 4. Industrial policy--United States. I. Golan, Elise H.

 II. United States. Dept. of Agriculture. Economic Research Service. III.

Title.

HD9416 
Introduction

The last decade marked a period of extensive innovation

in the science and regulation of food safety in the

United States. New production technologies, supply

management systems, detection methodologies, regulatory approaches, and surveillance networks are improving the safety of the Nation’s food supply. Improved

food safety is in turn lowering the incidence of foodborne illness in the United States. Data from the Centers

for Disease Control and Prevention show a 23-percent

overall decline in bacterial foodborne illness in the

United States from 1996 to 2001 (CDC, 2002). 

Despite this progress, bacterial contamination and large

recalls are still making news. Unprecedented recalls of

hamburger patties in 2002 because of pathogen contamination indicate that control programs have yet to be

reliably successful. Can producers do more to efficiently

control pathogen contamination? What motivates producers to invest in food safety innovation? How can

policymakers and regulators best target policy to

increase efficient food safety investment? 

The drive for food safety innovation has come from a

number of sources. The food industry, consumers, and

lawmakers have all played a part in stimulating the

development and adoption of food safety innovations. In

some cases, lawmakers or consumer organizations have

prodded industry into making improvements to food

safety. In other cases, food manufacturers have pioneered new methodologies to improve the safety of their

products, often producing foods that exceed government

safety requirements. When industry successfully innovates to produce safe foods, a win-win situation arises,

with the innovating firm, consumers, and government

all benefiting from improved food safety.

In this report, we investigate the factors that motivate

firms to invest in food safety innovation and identify

government policies supporting such motivation. We

begin with an overview of the economic literature on

innovation in which we examine the core drivers of

innovation in the economy. We then conduct a theoretical analysis of the strength of these core drivers for

motivating investments in food safety innovation. We

hypothesize that the core drivers of innovation are relatively weak for food safety. We test this hypothesis with

evidence from a recent survey of U.S. meat and poultry

slaughter and processing plants and two case studies of

food safety innovation. We find that industry has developed a number of mechanisms for overcoming weaknesses in the food safety incentive structure and for

stimulating food safety innovation. We build on industry

experience to suggest government policies that may best

support food safety compliance and innovation. 

Economic Research Service/USDA Food Safety Innovation in the United States / AER-831 ● 1

Food Safety Innovation 

in the United States

Economic Theory and Empirical Evidence 

from the Meat Industry

Elise Golan, Tanya Roberts, Elisabete Salay, Julie Caswell, 

Michael Ollinger, and Danna Moore
Food Safety Innovation 

Boosts Social Welfare

Innovation is all the scientific, technological, organizational, financial, and commercial activities necessary

to create, implement, and market new or improved

products or processes (OECD, 1997). Innovation takes

two forms: product innovation and process innovation. 

A product innovation is the development and commercialization of a product with improved performance

characteristics (OECD, 1997). Product innovation

tends to expand consumer choice. More product

choice allows more consumers to find products that

better match their particular tastes and preferences,

thereby expanding consumer welfare. This welfareincreasing effect of product innovation is not guaranteed, however. Product innovations that become the

industry or regulatory standard may ultimately reduce,

not increase, product differentiation and consumer

welfare. For example, some cities prohibit sales of

unpasteurized milk, thereby reducing choice through

the elimination of raw milk markets. 

A process innovation is the development or adoption

of a new or significantly improved production or delivery method (OECD, 1997). Process innovations may

be technological or organizational, involving changes

in equipment, human resources, working methods or

any combination of these. Process innovation tends to

make production more efficient. With diffusion, some

or all of these efficiency gains may be passed on to

consumers in the form of lower prices. Social welfare

is improved through lower prices and more efficient

use of resources. 

The distinction between product and process innovation for food safety is not clear cut because food safety

process innovations often lead to safer foods, not just

the same level of safety at less cost. Pasteurized milk,

juices, and eggs, ultra-high temperature (UHT) milk,

and irradiated spices and meat patties encompass technological innovations that have made standard food

products safer. Even such processing changes as properly refrigerated trucks, lot coding, lay-date stamping

on eggs, pathogen testing, and instant-read thermometers all lead to safer final products, blurring the line

between process and product innovation. 

Imitation plays an important role in ensuring that the

benefits of innovation, whether product or process, are

maximized. Imitators, those firms that adopt and adapt

innovations pioneered by other firms, help ensure that

the choice and efficiency gains of innovation are realized. Product innovations that are widely marketed have

a bigger impact on consumer choice than those with

limited market exposure. Process innovations that are

widely adopted or account for a large share of industry

output have a larger impact on industry efficiency and

consumer welfare than those with limited use. 

Widespread diffusion of food safety innovation not

only increases choice and economic efficiency, it also

saves lives and improves health. In 1999, the U.S.

Centers for Disease Control and Prevention estimated

that annually, one in three Americans become ill from

a foodborne illness, one in 700 are hospitalized, and

one in 60,000 die (Mead et al., 1999). The human toll

is mirrored by an economic one. USDA’s Economic

Research Service estimates that the annual economic

cost of five foodborne illnesses1 is approximately $6.9

billion per year (ERS, 2001). Innovation and the adoption and diffusion of food safety improvements will

help combat foodborne illness and improve the quality

of life for all Americans. 

Appropriability, Market Demand, and

Technological Opportunity Are Key to

Innovation

How can policymakers and regulators encourage food

safety innovation to improve public health and expand

social welfare? Why do some policies succeed in stimulating food safety innovation for some firms but not

for others? To begin to answer these questions, we first

turn to the general economics literature. Economists

and business analysts have spent well over half a century investigating the questions of “What drives firms

to innovate?” and “What differentiates innovating from

non-innovating firms?”

2 ● Food Safety Innovation in the United States / AER-831 Economic Research Service/USDA

1 The five pathogens included in the ERS estimate are

Campylobacter, Salmonella (nontyphoidal serotypes only), E. coli

O157:H7 and non-O157 STEC, and Listeria monocytogenes.

Part I. Theory: The Economics of Food Safety Innovation 
A starting point for much research on innovating

behavior is Schumpeter’s work on growth and innovation (Schumpeter, 1934 and 1942). His assertion that

large firms operating in concentrated markets are the

best engines of technological progress motivated early

innovation researchers to focus their investigations on

the role of firm size and market concentration. Only

relatively recently have researchers expanded the

investigation to examine other factors, eventually identifying appropriability (the ability to control and

exploit the benefits from innovation), market demand,

and technological opportunity as the core drivers for

innovation and technological change. In this section,

we outline how these core drivers of innovation operate in most industries and then examine their operation

in the food industry for food safety innovation. For

more complete reviews of the innovation literature, see

Freeman (1994), Cohen (1995), and Stoneman (1995).

Pray and Fuglie (2000) examine the literature on the

drivers of innovation in agriculture. 

Appropriability

Appropriability, the ability to control and exploit the

benefits from innovation, plays a key role in driving

investment in innovation. Only if firms expect to be

able to reap the benefits of an innovation will they

have an incentive to innovate. This principle was articulated by Schumpeter when he argued that the expectation of ex-post market power is an important

inducement to innovation (Schumpeter, 1942). 

Early researchers, including Schumpeter, argued that

bigger, diversified, oligopolistic firms are typically in a

better position to appropriate the benefits of innovation

than smaller, specialized, firms without market power.

This is more likely to be the case when the most efficient mechanism for appropriating the benefits of

innovation is through a firm’s own output. However,

when other means of appropriation are as effective,

then size, degree of diversification, and ex-ante market

power are joined by other firm and industry characteristics in predicting a firm’s potential for appropriating

the benefits of innovation—and therefore, for predicting which firms will invest in innovation. 

Supply chain management, patents, branding, marketing, customer service, secrecy, early sale of innovative

rights, and first-mover advantage all provide varying

degrees of protection from competition and help firms

appropriate the benefits of innovation. Firms that successfully develop any of these appropriation mechanisms will be better able to capture benefits from innovation, and therefore have more incentive to innovate,

than firms that are unable to create these mechanisms.

Firms may use any of these mechanisms. In their survey of American firms (the first comprehensive survey

of appropriability conditions in the U.S. manufacturing

sector), Levin et al. (1987) found that 80 percent of

surveyed firms regarded investments in complementary sales and services as an effective means to protect

returns to innovative investments. Many of the firms in

the Levin et al. survey stated that a head start and the

ability to move quickly down the learning curve were

more effective means of appropriation than patents.

Peculiarities of the industry, firm, and even the type of

innovation interact to determine the most efficient

means of appropriation and the firms that are most

successful in establishing them.

The importance of appropriability in motivating innovative activity extends to every manager and worker in

the firm or plant. Managers and workers who are able

to appropriate some of the benefits of innovative activity will be more likely to initiate and engage in such

activity. Subtle firm-level characteristics such as the

organization of product development, information processing capabilities, and internal organization may

have a strong effect on the appropriation structure

within the firm and the incentives of individual workers to engage in innovative activity. This observation

echoes one made by Schumpeter in his discussion of

the delusory effect of hierarchical management systems on managerial initiative. He argued that managers

who do not have some control over the product of their

labor will lose the incentive to innovate. 

Demand 

The view that market demand has an almost exclusive

pull on innovation was staked out by Schmookler in his

work on the determinants of technical change

(Schmookler, 1962 and 1966). He argued that demand

determines the rate and direction of inventive activity

because rational, profit-seeking firms are responsive to

economic incentives. Schmookler argued that there is a

general pool of knowledge and technical capability, and

that only those industries driven by market demand are

motivated to dip into the pool and adapt technologies to

their own purpose. Market demand provides the incentive to firms to innovate and adapt technologies. 

To test Schmookler’s hypothesis, researchers have primarily examined intermediate products, demand for

Economic Research Service/USDA Food Safety Innovation in the United States / AER-831 ● 3
which is derived from estimates of final demand and

the downstream production technology. Though

Schmookler’s own empirical investigation found that

demand played a major role in driving innovation

(Schmookler, 1966), subsequent researchers have not

duplicated this result. In general, the empirical evidence has not identified demand to be a key determinant of innovation (Cohen, 1995). 

Though demand may not directly spur innovation,

researchers have suggested two principal ways in

which demand conditions may influence innovative

activity. First, the size of the market may influence

innovation because even if innovative activity is scale

neutral, the benefits of innovation are proportional to

the size of the market. In other words, holding constant the cost of innovation, more innovative activity

would be expected in the larger market or in the market expected to grow more rapidly. 

Second, the elasticity of demand may also play a role

in determining the level of innovation. Kaimen and

Schwartz (1970) demonstrated that the gains from

process innovation are larger when demand is more

elastic. Process innovation lowers production costs,

thereby shifting out the supply curve. Movements of

the supply curve result in larger quantity changes and

smaller price changes, the more elastic the demand. As

a result, process innovation triggers larger increases in

producer surplus when demand is more elastic. The

effect of demand elasticity on the gains from product

innovation is less straightforward. Market structure

and the degree to which consumers view the new and

old products as substitutes determine gains from product innovation more than do existing demand elasticities. (For an introduction to this literature, see Carlton

and Perloff, 1994.)

Technological Opportunity

Contrary to Schmookler’s position, the “technologypull” hypothesis posits that the direction and rate of

technological change is determined not by demand, but

by the suitability of the technology to a particular industrial application. In general, the empirical evidence

tends to support this hypothesis, finding that cost and

applicability of design are as important as, or more

important than, demand considerations (Cohen, 1995). 

The existence or growth of scientific knowledge

encourages innovation through a number of avenues.

First, the cost of undertaking a science-based innovation may decrease as scientific knowledge increases. A

strong scientific base focuses innovative activities in

the most productive direction, reducing the costs of

trial and error. Second, a strong scientific base may

provide a rich pool of potential technologies, thereby

increasing the likelihood of finding a technology efficiently suited to a firm’s or industry’s specific objectives. Third, a strong scientific base may actually

increase a firm’s or industry’s set of objectives,

decreasing innovation costs by expanding the set of

problems with solutions. 

The development of technologies is often completely

divorced from demand considerations—though applications triggered by initial technological breakthroughs are

often motivated by demand conditions. In many cases, a

major innovation triggers a series of smaller innovations

tailored to the specific needs of a particular firm or

industry (Walsh, 1984). For example, the scientific

research behind the harnessing of electron beams, xrays, or gamma rays was not motivated by the demand

for pathogen control in food processing. However,

demand for food safety has motivated the application of

irradiation technologies for controlling pathogens and

improving the safety of a variety of foods. Irradiation

technologies have been developed to control pathogens

and fungi in spices and dried vegetable seasonings, to

delay ripening and sprouting in fresh fruits and vegetables, and to control pathogens and extend shelf-life of

raw meats and meat products (ERS, 2003). 

Changes in Appropriability, Demand, and

Technological Opportunity Vary the Costs

and Benefits of Innovation and Imitation 

As outlined above, the theoretical and empirical economics literature points to appropriability, market

demand, and technological opportunity as the key factors affecting the costs and benefits of innovation. The

strength of these factors helps to tip the balance

toward innovation for some firms and away from innovation for others. Strong appropriability mechanisms,

large potential markets, elastic demand, and innovations that are easily adaptable to firm-specific applications all increase the benefits of innovation, tipping the

innovation cost-benefit calculus toward innovation.

Table A-1 illustrates how these three factors condition

a firm’s innovation cost-benefit calculus. 

Appropriability, market demand, and technological

opportunity also play key roles in a firm’s decision to

4 ● Food Safety Innovation in the United States / AER-831 Economic Research Service/USDA
imitate (adopt a technology developed by someone

else in the industry). These three factors influence the

costs and benefits of imitation—though not always in

the same direction as they influence innovation.

Column 3 in table A-1 illustrates how these three factors stimulate or dampen a firm’s incentive to imitate. 

When innovating firms have strong appropriability

mechanisms, the cost of imitation rises, tipping the costbenefit calculus away from imitation. For example, the

cost of imitation is higher when an innovation is

patented. Mansfield et al. (1982) found that of 48 firms

interviewed, the median estimate of the increase in the

cost of imitation due to patents was 11 percent on average. In their survey of American manufacturers, Levin et

al. (1987) found that the relative cost of duplicating an

innovation was higher for patented than for unpatented

process and product innovations. Any innovation appropriability mechanisms that make it more costly for imitators will dampen the extent of imitation. 

Potentially large markets and demand elasticities have

the same influence on imitation as they have on innovation. Imitators will reap more benefits from investments to duplicate process innovations in large

markets with elastic demand. 

Technology spillovers from innovating firms reduce

the amount of resources imitating firms must spend

on R&D activities. Technologies that are easily adaptable to firm-specific characteristics reduce the cost of

imitation. Innovative spillovers increase the speed of

the diffusion of innovation and increase consumer

welfare. Spence (1984) dubs this the efficiency effects

of spillovers.

The dynamics of the firm’s innovation and imitation

incentives reflect constantly changing information

regarding the costs and benefits of innovation and

imitation—and the extent of appropriability, technological opportunity, and market demand. Firms are

constantly adjusting to new information and updating

their innovation and imitation strategies. The simple

cost-benefit seesaw described in table A-1 is influenced by a stream of new information that can tip the

balance without any actual change in the underlying

cost-benefit structure. 

Market Failure Distorts the 

Incentives for Food Safety 

Innovation and Imitation 

Though there is no reason to suspect that technological

opportunity has been exhausted for food safety innovation, appropriability and market demand seem relatively

difficult to establish for food safety. As a result, the

incentives for food safety innovation are less than in

Economic Research Service/USDA Food Safety Innovation in the United States / AER-831 ● 5

Table A-1—Economic literature suggests three main drivers of innovation and imitation

Innovation Imitation

Appropriability + The stronger the ability of innovators to - The stronger the ability of innovators to 

appropriate the benefits of innovation, the appropriate the benefits of innovation, the 

higher the likelihood of innovation lower the likelihood of imitation

+ The stronger the ability to appropriate the 

benefits of imitation, the higher the likelihood 

of imitation

+ The higher the likelihood that firms will + The higher the likelihood that firms will be 

be forced to bear costs of food safety failure, forced to bear costs of food safety failure,

the higher the likelihood of innovation the higher the likelihood of imitation

Size and shape of demand

Size + The larger the market, the stronger the incentive + The larger the market, the stronger the 

to innovate incentive to imitate

Elastic demand + The more elastic the demand, the stronger + The more elastic the demand, the stronger 

the incentive to invest in process innovations the incentive to invest in process imitation

Technological opportunity + The greater the technological opportunity, + The greater the technological opportunity,

the lower the cost of innovation and the greater the lower the cost of imitation and the greater 

the incentive to innovate the incentive to imitate
industries with large markets and effective mechanisms

for appropriating the benefits of innovation. However,

weak appropriability may hasten the diffusion of innovation, thus amplifying the consumer benefits of any

innovation that does take place. In this section, we

examine the logic behind these observations. 

Information Asymmetries Erode the

Appropriability of Food Safety Innovation 

It may be difficult for producers to appropriate the

benefits of food safety innovation because improved

food safety is a difficult attribute for consumers to

detect. For the most part, food safety is a credence

attribute. Credence attributes are those that consumers

cannot evaluate even when they use or consume the

product (Darby and Karni, 1973). Consumers cannot

usually determine before purchase, or even after consumption, whether a food was produced with the best

or worst safety procedures, or whether a food poses a

health risk. For example, consumers are unable to distinguish between raw ground beef contaminated with

E. coli O157:H7 and uncontaminated ground beef. 

Because consumers cannot detect food safety, they

may be unwilling to pay a premium for “safer” food.

Consumers may worry about fraud and the possibility

that some foods marketed as safer products are actually standard or even sub-standard products. In fact,

firms producing low-safety foods may have an incentive to market their products as high-safety; they could

charge high-safety prices, and because of their cost

cutting, have greater profits than high-safety producers. If this incentive were left unchecked, the market

would be dominated by low-quality products with little

or no product differentiation (Akerlof, 1970). In this

case, consumers would be correct in assuming that all

products were of low quality unless proved otherwise. 

In some cases, food producers themselves may be

unaware of the safety characteristics of individual

products. For example, poultry producers do not typically have information on whether a specific package

of chicken thighs is contaminated with Salmonella.

Producers do know, however, what safety procedures

are maintained in their plants and whether their procedures surpass, meet, or fall below industry standards.

As a result, although producers do not have complete

information, they have more information than consumers about product safety. Firms with poor safety

records may try to take advantage of the fact that consumers lack full information about firms’ safety

records and market their products as if they had been

produced with the best safety technologies. 

Producers have developed a number of approaches for

overcoming problems associated with marketing credence attributes and for assuring consumers that attributes such as safety actually exist (for a review of this

literature, see Golan, Kuchler, and Mitchell, 2000). For

food safety and quality, one of the most common

approaches is to establish a brand name associated

with high standards. Connor and Schiek note the

advantages of this strategy (1997, p. 348):

In consumers’ minds the brand names identify

the main attributes of the product and are a

guarantee of consistent or minimum quality.

Brands are preferred by consumers to unbranded

products because they reduce the uncertainties

concerning product performance, quality, and

value associated with food purchases. 

Third-party quality verification is another approach

used by firms to overcome consumer skepticism

regarding credence quality attributes. Third-party entities offer a wide variety of inspection services to verify

that a firm’s production standards or quality content

are as advertised. Third-party certifiers inspect traceability systems to verify the existence of credence

process attributes such as organic, fair trade, dolphinsafe, no child labor, and earth-friendly. Third-party

certifiers also inspect production facilities and bookkeeping records to verify that firms have adhered to

safety standards. Some third-party certifiers provide

testing services to verify that pathogen contamination

or other safety problems are under control. 

A growing number of food manufacturers are insisting

on third-party safety certification from their suppliers.

Traceability documentation, lab results, and detailed

safety inspections are becoming increasingly important

in contracts among food processors (Golan et al.,

2003). To date, most consumers do not demand this

type of information from food suppliers, and firms do

not typically supply this information to their consumers. Since this information exists, particularly for

high-quality firms, it is puzzling that producers do not

use it to advertise their good safety records and appropriate more of the benefits of their safety investments.

One reason may be that in advertising their good

safety records, and disclosing the poorer safety records

of their competitors, firms also disclose general food

facts that may frighten consumers. Consumers may not

react positively to claims like “our Salmonella count is

6 ● Food Safety Innovation in the United States / AER-831 Economic Research Service/USDA
50 percent less than the leading brand.” Firms may

decide that though such advertising could differentiate

them from poorer quality producers, any overt mention

of safety risks could work to their disadvantage and to

the disadvantage of the industry as a whole. 

In addition, firms may want to avoid specific safety

guarantees that could expose them to additional liability. Food safety is not easy to guarantee, particularly in

the case of pathogen contamination. Even the most

careful producer could experience a safety problem.

Deviations from planned procedures, uncertainty

regarding input contamination, equipment malfunction, personnel factors, pathogen grow-back, and sampling variability all contribute to the potential for

safety breaches (Bisaillon et al., 1997; Bogetoft and

Olesen, 2003; Roberts et al., 2001; Sofos et al., 1999). 

Firms may also shy away from advertising or establishing other appropriability mechanisms if there is

value in some level of anonymity. If appropriability

systems increase the probability that a firm will be

identified in the case of food safety problems and be

exposed to liability, then the firm may have an incentive to forgo appropriating the benefits of a good

safety record and to remain anonymous. The benefits

of branding, third-party verification, specific quality

claims, and other appropriability mechanisms may not

outweigh the costs of being more easily linked to a

food product in the case of safety problems. 

Not only does the ability to remain anonymous

dampen the incentive to establish appropriability (and

to innovate), it also reduces the threat of punishment in

the case of safety lapses, thus further dampening the

incentive to innovate. The complex diets of most consumers, the long incubation periods of many foodborne pathogens, incomplete lab analyses of intestinal

illnesses, and the fact that the food evidence is usually

destroyed (eaten) all reduce the chances of identifying

producers of unsafe foods (Buzby et al., 2001). Firms

are often able to avoid the negative consequences of

safety lapses, including fines, recalls, bad publicity, or

litigation because consumers and government regulators are unable to identify the source of foodborne illness. The incentive to invest in food safety is reduced

because the probability of detection and punishment in

the case of safety failures is less than one. 

All in all, the problem of asymmetric information in

the market for food safety has the potential to reduce

incentives to invest in food safety innovation. The difficulty of advertising and differentiating food on the

basis of safety attributes reduces the ability of firms to

appropriate the benefits of safety innovation, thereby

reducing producers’ incentives to invest in safety innovation. Producers’ incentives to invest to overcome

appropriability constraints are in turn damped by the

fact that anonymity is valuable in the case of food

safety problems. As a result, the amount of food safety

and food safety innovation supplied by the market is

likely to be lower than the socially optimal amount. 

The Nature of the Product May Dampen

Demand for Food Safety

Consumers also play a role in slowing the development of markets for food safety and in dampening

incentives to invest in food safety. Skeptical, discerning consumers are not the norm when it comes to food

safety attributes. Most consumers are unaware of the

specifics of food production—and many may prefer to

stay that way. For example, Kuchler (2001) argues that

consumers do not really want to know the content of

most processed meat and, as a result, labels indicating

that a product contains “meat” are preferable to more

specific labels indicating what meat actually is, such

as the official “Muscle tissue of cattle, sheep, swine,

goats, or equines which is skeletal or found in the

tongue, diaphragm, heart, or esophagus with or without accompanying or overlaying fat, bone, skin, sinew,

nerve, or blood vessel which are not separated during

dressing” (USDA, FSIS, no date).

Whether they do not want to know or just do not have

the time to learn, consumers do not know very much

about how food is produced or about food safety. In

the United States, both marketplace behavior and survey results indicate that most consumers are not very

knowledgeable about food content or production practices. Throughout the 1990s, surveys found that only

30 to 40 percent of consumers in the United States

were aware of the use of biotechnology in food production and most were unaware of general food production techniques. 

The low level of consumer knowledge about food

safety makes it difficult to gauge the size and depth

of the market for food safety. The low level of

knowledge may also contribute to the susceptibility

of this market to large perturbations after foodborne

illness outbreaks: well-publicized outbreaks may be

many consumers’ sole source of safety information.

In fact, dramatic and highly publicized outbreaks

have often driven sharp increases in demand for

Economic Research Service/USDA Food Safety Innovation in the United States / AER-831 ● 7
safety, at least in the short run. In Europe, a number

of high-profile scares, including those involving

Bovine Spongiform Encephalopathy (BSE or mad

cow disease) and dioxin-contaminated feed have

triggered increased demand for food safety. In the

United States, the 1993 outbreak of E. coli O157:H7

in Jack-in-the-Box hamburgers led to a dramatic

decrease in demand and the company lost around

$160 million in the 18 months following the outbreak (Roberts et al., 1997). 

If the size and intensity of consumer demand have

the same impact on food safety innovation as they

do on innovation in other industries, then the rather

nebulous and episodic demand for food safety 

probably dampens incentives to invest in food safety

innovation. 

Asymmetric Information Helps Spur

Imitation and Technological Spillover

Asymmetric information problems may ultimately

amplify the benefits of food safety innovations by providing innovating firms with an incentive to share new

technologies with their competitors. A food safety problem in one firm or one segment of an industry has the

potential to discredit a whole industry because consumers cannot distinguish safe and unsafe product and

producers. For example, the BSE outbreak in the United

Kingdom dampened beef markets around the world, not

just markets where producers used feed containing mammalian protein. As a result, safe producers have an

incentive to try to raise the safety level of the whole

industry. The desire of safe firms to protect themselves

from negative publicity means that spillovers could be

large in food safety. This observation may help explain

why the American Meat Institute, the National Chicken

Council, the National Cattlemen’s Associations, and

other industry groups support food safety research activities and information dissemination. 

The same incentive does not exist in other markets. For

example, faulty brakes on one brand of cars do not hurt

business for other brands of cars. A car brand with an

innovative new braking system has no incentive to share

the discovery with its competitors in order to bolster the

reputation of the industry. However, because of asymmetric information problems in markets for meat safety,

massive recalls of hamburger, for example, shake consumer confidence in the whole industry. Hamburgerborne disease outbreaks hurt everyone in the industry,

and innovation to reduce such outbreaks helps everyone

in the industry—including the innovating firm. In the

hamburger industry, and many other food industries,

negative spillovers provide an added incentive to innovate and disseminate innovation. 

Firms also have an incentive to share new technologies

with their competitors and with government regulators

to influence the standard of care in the industry. In

some cases, standards of care that are difficult to meet

can help establish a barrier that benefits the firms that

first adopt such standards. First adopters gain larger

market shares (and maybe market power) if the

expense of new technologies forces some producers

out of business. Even if all firms eventually adopt the

technology, first adopters will benefit from limited

competition during the period when their competitors

are installing the new technologies. Such benefits may

help explain why the large meat and poultry slaughter

and processing plants generally have supported stricter

food safety regulation. 

Imitative spillovers of innovations are prevalent in the

food processing industry. Levin et al. (1987), in their

survey of American firms, report that many in the food

processing industry found patents ineffective because

they often did not withstand legal challenges. Eleven

of 130 industries in the Levin et al. survey, all from the

food processing and metalworking sectors, reported

that no mechanism of appropriating the returns from

product innovation was even moderately effective. 

8 ● Food Safety Innovation in the United States / AER-831 Economic Research Service/USDA
The theoretical literature suggests that failure in markets

for food safety may dampen two of the primary drivers

of innovation: appropriability and market demand.

Because safety is a credence attribute, firms may have

difficulty appropriating the benefits of food safety innovation—and given the graphic nature of many safety

attributes, even firms with the safest records may have

little incentive to disclose their records, if it means raising consumer concerns about food safety. In addition,

firms may actually avoid establishing appropriability, if

it also entails an increased likelihood of facing liability

when food safety problems arise. On the demand side,

consumers are largely unknowledgeable about food

safety practices and tend not to demand product differentiation on the basis of food safety. 

With little incentive for safety disclosure on the part of

firms, and episodic demand from consumers, it is

almost surprising that any firms invest in improved

food safety and continue to innovate to improve food

safety. Yet they do. How do they overcome the disincentives discussed above? 

To investigate this question, we turn to evidence from

the meat industry. The meat industry is an important

industry in which to investigate these questions for three

reasons. First, though our meat products are some of the

safest in the world, food safety remains a critical issue

within the industry. Meat and poultry are estimated to be

responsible for more than 40 percent of human illnesses

associated with four common pathogens (USDA, 1996,

p. 733). The meat industry has also experienced a number of large, well-publicized recalls and has been at the

heart of some of the Nation’s most tragic foodborne illness outbreaks (see box “The 1993 Jack in the Box

Restaurant E. coli O157:H7 Outbreak”). 

Second, controlling pathogen contamination in meat production, particularly ground meat production, is a challenging task. Pathogens can be introduced and or

amplified at many stages along the production, processing, and retailing chain (Roberts, Ahl, and McDowell,

1995). Farm inputs may bring pathogens onto the farm,

and production practices on the farm may increase

pathogen numbers, as well as expose food animals to

new pathogens. Transportation may cause stress in animals, increasing shedding and the spread of pathogens.

Slaughtering procedures may spread pathogens among

animals, carcasses, and cuts of meat. Processing and

product fabrication may encourage the growth of existing pathogens and introduce new pathogens through

worker handling, ingredients, poor temperature control,

and the water used in processing. Hamburger production,

in which scraps of meat are ground into a homogeneous

product, introduces the potential for integrating

pathogens throughout the product. The transportation of

meat products to wholesale/retail operations may result

in pathogen growth, cross-contamination of products, or

introduction of new pathogens. How foods are stored

and displayed affects pathogen growth through temperature control, possibilities for cross-contamination, and

length of shelf-life. How food is handled in the kitchen

affects the probability that pathogens multiply or crosscontaminate other products. Hamburgers that are not

thoroughly cooked may harbor pathogens in the interior

of the patty. 

The challenge of controlling pathogens in meat production makes the industry particularly fertile ground for

food safety innovation: the potential for killing or controlling pathogen growth exists at all or most points

along the production chain. This potential, along with

technological and methodological advances in pathogen

control, contributes to making the meat industry particularly interesting for a study on food safety innovation.

The development of new tests for microbial pathogens

has created additional options for detecting unwanted

pathogens associated with meat. Improved analytical

tools for risk assessment, new processes and equipment

to kill pathogens, as well as new procedures and management systems to control pathogens, have all led to

reduced levels of pathogen contamination and greater

efficiency in pathogen control at many different stages

in the meat production chain. 

The third reason the meat industry is an important industry in which to examine food safety innovations is its

size and diversity. The Food Safety and Inspection

Service of USDA (FSIS) and State inspection agencies

monitor about 2,500 establishments that process meat or

poultry products as their primary business activity.2

Economic Research Service/USDA Food Safety Innovation in the United States / AER-831 ● 9

2 Together, FSIS and State agencies monitor over 9,000 plants producing meat and poultry products. However, the vast majority of

these plants have other businesses that are much larger than their

meat and poultry operations. The Bureau of the Census identifies a

little more than 3,000 manufacturing plants producing meat and

poultry products. Of those plants, we estimate that only about 2,500

have meat or poultry manufacturing as their primary line of business.

Part II. Empirical Investigation: 

A Closer Look at Food Safety Drivers in the Meat Industry
10 ● Food Safety Innovation in the United States / AER-831 Economic Research Service/USDA

The 1993 Jack in the Box Restaurant E. coli O157:H7 Outbreak 

In 1993, a Seattle pediatrician noticed an unusual spike

in the number of children with bloody diarrhea. He

alerted Washington State health officials about a possible

foodborne disease outbreak. Within a week of documenting the diarrheal disease outbreak, health department

investigators identified E. coli O157:H7-contaminated

hamburgers from Jack in the Box restaurants as the

cause. In all, 73 Jack in the Box restaurants in the States

of Washington, Idaho, California, and Nevada were

involved in the outbreak and recall. Seven hundred people became ill and four children died. Epidemiologists at

the Centers for Disease Control and Prevention concluded that the outbreak resulted from errors in meat

processing and cooking (Bell et al., 1994).

Epidemiologists had been following E. coli O157:H7

since 1982, when the pathogen was first linked to human

illness in a two-State outbreak associated with hamburgers from McDonald’s (Bryan et al., 1994). They soon

discovered that the E. coli pathogen had interacted with

Shigella, a well-known, virulent pathogen, to develop the

ability to produce the toxin causing the human illnesses.

In 1985, epidemiologists documented E. coli O157:H7

as the leading cause of acute kidney failure in children,

and in 1992 they concluded that it was the most common

bacterial cause of bloody diarrhea. 

The 1993 Jack in the Box E. coli O157:H7 outbreak

marked an important turning point in epidemiologists'

approach to E. coli O157:H7 and infectious disease in

general (Editor, 1993). Before the outbreak and the fullblown emergence of E. coli O157:H7 as a foodborne

pathogen, many epidemiologists had predicted that the

discovery of sulfa and penicillin would eliminate infectious diseases as a public health problem. 

Repercussion from the outbreak—and the newly recognized public health threat—were widespread. Within the

18 months following the outbreak, the Jack in the Box

company lost approximately $160 million in reduced

sales and other costs (Roberts et al., 1997). These costs

included those associated with the company's voluntary

recall of all hamburger meat from their restaurants. They

also included legal costs. A number of ill customers and

parents of ill or dead children filed suits against Jack in

the Box and its parent company, Foodmaker, Inc. All

cases were settled out of court, with one family receiving

over $15 million for a child who was brain damaged.

Stockholders also filed suit against the company for

court costs and lost sales due to adverse publicity.

The Federal Government responded to the Jack in the Box

outbreak in several ways. President Clinton signaled the

importance of the outbreak by sending the Secretary of

Agriculture to testify before the Washington State legislature. The Food and Drug Administration (FDA) raised the

recommended internal temperature for hamburgers cooked

in restaurants to 155o F. USDA's Food Safety and

Inspection Service (FSIS) initiated several programs after

the outbreak: a safe-food-handling label with instructions

for consumers on packages of raw meat and poultry sold in

supermarkets, an information campaign alerting school

children to eat hamburgers cooked well-done, and tests for

E. coli O157:H7 in raw ground beef prepared in federally

inspected establishments and in retail stores. FSIS also

changed the status of E. coli O157:H7, declaring it an

adulterant in raw ground beef. As a result of the outbreak,

the Centers for Disease Control and Prevention (CDC)

obtained additional funding for its FoodNet program to

identify foodborne pathogens causing intestinal illness. The

outbreak also accelerated efforts to modernize Federal

requirements for food safety using the Pathogen Reduction

and Hazard Analysis and Critical Control Point (PR/

HACCP) system (see box “Pathogen Reduction and Hazard

Analysis and Critical Control Point Program, p. 14”). 

The outbreak united parents of those children who had

become ill in the outbreak to create the first consumer

activist group devoted to food safety, Safe Tables Our

Priority (STOP). STOP has been a very visible lobbying

group for safer food at congressional and USDA hearings,

at professional conferences, and in the media (for example,

see Eskin et al., 2003). 

The 1993 outbreak also spurred the beef industry to fund

research. The Washington Beef Commission supported

research on techniques for detecting E. coli O157:H7 in

hamburger (Bell et al. 1994) and the National Cattlemen's

Beef Association (NCBA) set up a task force to fund

research on how to reduce E. coli O157:H7 in cattle and

slaughterhouses, as well as how to establish testing and

sampling programs to detect the pathogen. The interventions developed by the NCBA have a high rate of adoption

by the industry (Smith, 2003). The NCBA spends an average of $2.5 million on food safety research and technology

each year (Voldseth, 2002). In early 2003, NCBA helped

form a new committee, the Beef Industry Food Safety

Council (BIFSCo), with representatives from all segments

of the beef industry. BIFSCo's mission is to develop industry-wide, science-based strategies to solve the problem of

E. coli O157:H7 and other foodborne pathogens in beef

(Beef Food Industry Safety Council, 2003). 
These establishments can be grouped into five categories: producers of cooked or otherwise further

processed products with no slaughter operations; raw

meat processors with no slaughter operations; and cattle,

hog, and poultry slaughter plants. Some slaughter plants

engage in a wide range of processing, and some cattle

slaughter plants slaughter animals other than cattle,

including hogs, sheep, and goats.

The main products of cooked meat processors include

roast beef and other cooked meats, luncheon meats and

frankfurters, bacon and other smoked products, pepperoni and other fermented products, and raw meat products. Raw meat processors with no slaughter operations

produce mainly ground beef and pork, fabricated cuts,

and other raw products. Carcasses and hamburger and

other boneless beef are the chief products of cattle

slaughter plants while carcasses and cooked and other

further processed products are the main outputs of hog

slaughter plants. Poultry plants, in contrast to hog and

cattle slaughter, sell mainly cut-up products (about half

of their output) and products processed beyond cut-up

(about a quarter of their output). 

In 1997, the meat and poultry industry supplied about

$110 billion of output. Cattle and hog slaughtering

was by far the largest sector, accounting for about half

of industry output. Poultry slaughter and processing

amounted to about $31 billion in sales, while cooked

and raw meat processors without slaughter operations

accounted for the final quarter of industry output.

Cattle and hog slaughter plants were also more numerous than poultry slaughter plants, with 1,400 plants

and over 140,000 employees. Poultry slaughtering had

about one-third the number of plants, but, due to the

much larger size of its plants, employed about 225,000

workers in 1997. There were also a large number

(about 1,300) of raw- and cooked-meat processors but

they employed only about 90,000 workers (Bureau of

the Census, 1999 a, b, and c). 

The cattle slaughter industry, the focus of the case

studies, had an output of about $28 billion in 1997, the

vast majority of which was supplied by the 300 federally inspected plants (USDA, FSIS, 1999). The industry has become increasingly concentrated in the last

three decades, with its four-firm concentration ratio

(the share of the industry’s output held by the four

largest producers in the industry) exhibiting a dramatic

increase from 1963 to 1992 (table A-2). The growth of

large cattle slaughter plants during this period is also

striking. Table A-3 shows that the percent of animals

slaughtered in large plants grew from 12 percent in

1977 to 65 percent in 1997 (MacDonald et al., 2000).

Eighty percent of steers were slaughtered in large

plants in 1997. Table A-4 shows that over the 1977-92

time period, large plants’ share of industry value of

shipments grew from 31 percent to 72 percent

(MacDonald et al., 2000). 

Large cattle slaughter plants differ from small plants 

in more than just the volume of production. They also

vary with respect to the diversity of inputs and outputs,

with smaller plants processing a more diverse set of

animals and products than large plants. A recent survey of cattle slaughter plants found that smaller plants

slaughtered hogs and other animals such as sheep 

and goats while larger plants slaughtered only cattle

Economic Research Service/USDA Food Safety Innovation in the United States / AER-831 ● 11

Table A-2—Four-firm concentration ratios, value of

shipments basis

Slaughter industry

Year Cattle Hogs Chickens Turkeys

1963 26 33 14 23

1967 26 30 23 28

1972 30 32 18 41

1977 25 31 22 41

1982 44 31 32 40

1987 58 30 42 38

1992 71 43 41 45

Source: MacDonald et al. (2000).

Table A-3—Percent of animals slaughtered in large plants

Slaughter classes (size cutoff1)

Year All cattle Steers Heifers Cows/bulls Hogs Sheep/lambs

(500,000)1 (500,000)1 (1 million)1 (150,000)1 (1 million)1 (300,000)1

1977 12 16 nr 10 38 42

1982 28 36 nr 15 59 73

1987 51 63 31 20 72 84

1992 61 76 34 38 86 74

1997 65 80 60 62 87 75

1The size cutoff, in parentheses, refers to the minimum number of animals slaughtered annually in the large plant category.

Source: MacDonald et al. (2000).
(table A-5). Smaller plants also processed more meat

into further processed products than did larger plants.

Larger plants preferred to sell trim products to other

processors for further processing (table A-6). 

To investigate drivers of safety innovation in the meat

industry, we first examine recently completed survey

data of U.S. meat and poultry slaughter and processing

plants. These data reveal the characteristics of firms

that do and do not innovate or adopt new food safety

technologies or methodologies. This information helps

to reveal the incentives and constraints to food safety

innovation and imitation in slaughter and processing

plants. We then turn to two case studies of innovation

in the beef industry. The first case study examines the

development and marketing of a new food safety technology. The second examines the development of a

microbial management system for hamburger patties. 

12 ● Food Safety Innovation in the United States / AER-831 Economic Research Service/USDA

Table A-6—Product output share by plant size for cattle slaughter plants1

Small plants2 Medium plants2 Large plants2

Raw meat products

Carcasses 22.0 29.2 26.3

Ground beef 19.2 15.8 11.2

Trim or other boneless beef or pork 14.8 18.0 27.9

Sub-primal and fabricated cuts 10.2 14.9 15.2

Other raw-meat products 8.0 8.2 9.3

Cooked or otherwise further processed 

products 25.8 31.9 9.1

Mean pounds of output 

(1,000 pounds per year) 186 7,860 260,127

Number of plants 28 95 27

1 Average output shares are based on all reporting plants.

2 Plants in the small category are in the 0-19 percentile of plant sizes; plants in medium category are in the 20-79 percentile;

and plants in large category are in the 80-99 percentile.

Source: Ollinger, Moore, and Chandran (forthcoming).

Table A-5—Annual animal inputs per plant by plant size for cattle slaughter plants1

Small plants2 Medium plants2 Large plants2

Number of animals

Cattle 161 3,448 191,781

Hogs 387 4,178 0

Other animals 

(mostly sheep and goats) 36 1,000 0

Number of plants 28 95 30

1 Animal inputs based only on plants reporting one or more animal input.

2 Plant size categories by percentile of output: plants in small category produced 19 percent of total industry output; plants in medium 

category 20-79 percent of total industry output; and plants in large category produced 80-100 percent of total industry output.

Source: Food Safety Inspection Service, Enhanced Facilities database and the Economic Research Service, Food Safety Technology and

Practices and HACCP costs survey.

Table A-4—Large plants' share of industry value of

shipments1

Slaughter industry

Year Cattle Hogs Chickens Turkeys

1963 31 66 d2 d2

1967 29 63 29 16

1972 32 62 34 15

1977 37 67 45 29

1982 51 67 65 35

1987 58 72 76 64

1992 72 86 88 83

1Large plants are defined as those with more than 400 employees.

2Data cannot be disclosed, in order to retain respondent confidentiality.

Source: MacDonald et al. (2000).
An empirical investigation into the level and type of

food safety investments made by meat and poultry

slaughter and processing plants reveals much about the

diffusion of food safety innovation in the meat and

poultry slaughter and processing industries.1 The survey shows that larger plant size and stronger appropriation mechanisms, particularly those associated with

buyer safety specifications, result in a higher number

of safety investments. In this section, we examine the

findings from this survey and their implications for the

dissemination of food safety innovations. 

ERS Survey Reveals Variation 

in Food Safety Investment 

USDA’s Economic Research Service (ERS) recently

completed a survey on food safety technologies and

practices in the 1,725 largest meat and poultry slaughter and processing plants inspected by USDA’s Food

Safety and Inspection Service (Ollinger and Moore,

forthcoming). The overall survey response rate was

about 57 percent or 987 plants.2 Slaughter-plant

respondents accounted for 44 percent of all slaughtered cattle, 77 percent of all slaughtered hogs, 48 percent of all slaughtered chickens, and 55 percent of all

slaughtered turkeys. Respondents among processors

with no slaughter operations accounted for 55 percent

of all processed meat and poultry products. 

Data from the survey include information on plant

size, products, markets, type of food safety investments, and Pathogen Reduction Hazard Analysis and

Critical Control Point (PR/HACCP) rule compliance

costs (see box “Pathogen Reduction and Hazard

Analysis and Critical Control Point Program

(PR/HACCP”). The survey contains approximately 40

questions dealing with food safety technologies and

practices covering five broad safety activities: equipment, testing, careful dehiding (for cattle slaughter

plants), sanitation, and plant operations (see box

“Sample questions from the ERS survey ...”, p. 15). 

To compare food safety investments across firms,

Ollinger and Moore (forthcoming) created an index for

each of the five types of food safety activities identified in the food safety questionnaire. In creating the

index, they adhered to a number of principles. First,

they maintained that the rating system should be

monotonic because more intensive operations should

yield greater food safety protection than less intensive

ones. By monotonic, they meant that plants with more

intensive cleaning or with a certain piece of food

safety equipment have higher scores than plants with

less intensive cleaning or without such equipment.

Second, they compared plant food safety systems on

the basis of similar technology types since some types

of technology, such as plant operations, may have different purposes and long- and short-term effects than

other technologies, such as equipment. Thus, they

assert that the relevant comparisons are the equipment

rating of one plant versus that of another and sanitation of one plant versus that of another, etc. Altogether,

they considered five technology types: equipment, testing, dehiding, sanitation, and plant operations. Third,

since food safety requires a systematic approach, it is

necessary to consider a variety of technology components within each technology type. For example, they

considered steam vacuum units, Frigoscandia carcass

pasteurizers, and other food safety equipment as

equipment technologies. Additionally, they categorized

hand and knife cleaning and other cleaning practices

as sanitation technologies. See Ollinger, Moore, and

Chandran (forthcoming) for additional details on technology components in each technology type.

For the safety index, Ollinger and Moore assigned a

value of 1 to safety activities that generated the most

food safety process control, and a value of 0 to those

that generated the least. They assigned values between

Economic Research Service/USDA Food Safety Innovation in the United States / AER-831 ● 13

1 It is worth noting that the Food Safety and Inspection Service

examines all meat and poultry plants engaged in interstate commerce for the adequacy of plant food safety controls. Plants

deemed to be using unsanitary production practices are prohibited

from selling products. Thus, all plants must achieve a high level of

food safety quality.

2 This response rate is substantially higher than that achieved in

recent surveys by Hooker et al. (1999) who had a less than 50

percent response rate (41 out of 98 questionnaires) and Boland 

et al. (2001) who reported a 36-percent response rate (18 of 50

questionnaires).

Food Safety Investments in the Meat and Poultry Industries

Survey Results

Michael Ollinger and Danna Moore
0 and 1 to activities that indicated an intermediate

level of food safety process control. For example, for

the equipment usage question listed above, Ollinger

and Moore assigned a value of 1 to plants that

responded yes, that they used a steam carcass pasteurizer. For the sanitation question, plants earned 0 points

for this activity if they sanitized their drains once per

week, 0.33 point if they sanitized more than once per

week but less than once per day, 0.66 point if they sanitized more than once per day but less than once per

shift, and 1 point if they sanitized more than once per

shift. Ollinger and Moore then summed the points

within each activity category and divided by the maximum points possible in that category, i.e., the number

of questions in that category. This number is the firm’s

rating for the specific activity category. Each firm was

given a rating for each of the five activity categories. 

Ollinger and Moore also created an overall safety rating by summing the total number of points from all

questions and then dividing that number by the total

number of questions. For example, if the entire survey

consisted of only the five questions listed above, then

a plant would receive a total of 3.66 points if it

responded that it 1) has a Frigoscandia pasteurizer, 2)

tests for E. coli 0157:H7, 3) sanitizes drains once per

day, 4) does not offer incentives, and 5) does have a

vacuum at the dehiding area. Since there are five questions in this hypothetical survey, the plant’s overall

safety rating would therefore be 0.732 (3.66/5).

Other rating schemes are possible. For example, there is

no reason why each technology component should have

an identical maximum score of one. Ollinger and Moore

used an equal rating of one as the maximum value

because, for most technology components, they had no

14 ● Food Safety Innovation in the United States / AER-831 Economic Research Service/USDA

Pathogen Reduction and Hazard Analysis and Critical Control Point Program (PR/HACCP)

The Pathogen Reduction and Hazard Analysis and

Critical Control Point (PR/HACCP) program is

administered by the Food Safety and Inspection

Service (FSIS) of the U.S. Department of Agriculture,

which is responsible for ensuring the safety of raw

meat and poultry products. The program covers all

Federal- and State-inspected meat and poultry slaughter and processing plants in the United States, as well

as foreign plants that export meat or poultry products

to the United States. The PR/HACCP final rule was

posted in July 1996 (USDA, FSIS, 1996).

The four major components of the HACCP program

are:

(1) Implementation of a written HACCP plan 

by every slaughter and processing plant; 

(2) Adoption of Sanitation Standard Operating 

Procedures (SSOPs) by every slaughter and 

processing plant; 

(3) Salmonella performance standards for 

slaughter and ground product plants; and 

(4) Generic E. coli performance standards for 

slaughter plants.

The HACCP plan component of the HACCP program

requires each slaughter and processing plant to analyze

its own production processes and identify Critical

Control Points (CCPs) where potential hazards affect

food safety. Plants must then develop a written HACCP

plan and maintain records to ensure that the production

process remains within predetermined critical limits at

each control point, based on parameters such as temperature or chlorine level. The largest plants, 500 or more

employees, had to implement HACCP plans by January

1998. Smaller plants had until 1999 or 2000 to implement plans, depending on plant size.

The SSOP component of the HACCP program requires

all slaughter and processing plants to prepare a written

plan describing the daily procedures used to ensure sanitation during production. Plants must also detect, document, and correct any sanitation deficiencies. All plants

were required to have SSOPs in place by January 1997.

The Salmonella and generic E. coli performance standards included in the HACCP program allow FSIS to

monitor whether plants are adequately preventing

pathogen contamination of raw meat and poultry

products. Salmonella was selected for monitoring

because it is one of the most common foodborne

pathogens and is present in a wide variety of raw food

products. Generic E. coli was selected because it is

naturally found in animal feces and serves as an indicator of fecal contamination during production. FSIS

sets maximum acceptable limits for both pathogens,

based on baseline surveys of each class of animal and

food product. All slaughter plants were required to

begin testing for generic E. coli in January 1997.
information suggesting that one technology was superior to another for all the equipment and practices they

considered. Additionally, instead of a proportional ranking scheme, they could have used a logarithmic or

square root scale and still achieved monotonicity. Future

research will refine the rating scale.

Plant Size Influences Amount and 

Type of Food Safety Activity

The ERS survey indicates that plant size influences both

the amount and type of food safety investment, as

reflected in the plant’s food safety ratings. Table B-1

shows how food safety activity varied by cattle slaughter plant size. The table focuses on cattle slaughter

plants, and not the other types of plants in the survey,

because there is a larger variation in plant size and food

safety activity in this industry. This variation provides a

basis for comparing safety activity across plant size.

Results are similar for other industries unless noted. 

The largest cattle slaughter plants had the highest

overall food safety rating of the size groups as well as

consistently higher ratings across the five food safety

activities than smaller plants. Differences were particularly dramatic in the more capital-intensive food safety

technologies—equipment, testing, and careful dehiding—in which large-plant food safety technology

index values were nearly twice as high as small plant

levels. By contrast, ratings for large plants in the more

labor-intensive technologies—sanitation and operations—were only about 20 percent higher. 

Much of the difference in food safety rating between

large and small plants is likely due to economies of

scale, particularly with respect to capital-intensive activities. Large plants have much greater volume of production than small plants, lowering their average capital cost

per unit of production. Some equipment that raises carcass temperature to 160 degrees or higher can cost more

than $1 million, often requires technical skills that are

available only in large plants with a variety of automated

processes, and can be housed only in very large plants.

Ignoring technical skills and plant size and assuming a

5-year life of the equipment, such equipment would cost

a large plant (processing 100 animals per hour and running two 8-hour shifts per day, 240 days per year) about

Economic Research Service/USDA Food Safety Innovation in the United States / AER-831 ● 15

Sample questions from the ERS survey of food safety in meat and poultry slaughter 

and processing plants

The ERS survey of meat and poultry slaughter and

processing plants contained approximately 40 questions dealing with food safety technologies and

practices covering five broad safety activities:

equipment, testing, careful dehiding (for cattle

slaughter plants), sanitation, and plant operations.

Complete questionnaires and response rates are on

the ERS website http://www.ers.usda.gov/Data/

HACCPSurvey/. A sample question for each safety

activity follows. 

Equipment usage: 

Does this plant use a steam carcass pasteurizer, such as a Frigoscandia, to pasteurize 

carcasses?

Testing: 

Over and above that which is required under

PR/ HACCP Rule, does this plant test raw or

cooked product with tests for E. coli 0157:H7

or Listeria?

Sanitation: 

Which one statement best describes how often

drains are sanitized?

1. Drains sanitized once per week.

2. Drains sanitized one or more times per week,

but less than once per day.

3. Drains sanitized one or more times per day,

but less than once per shift.

4. Drains sanitized more than once per shift.

5. Don’t know.

Plant operations:

Does this plant offer worker incentives, such

as gifts or compensation, for detecting and

reporting possible sources of contamination or

unsanitary conditions?

Careful Dehiding:

Does this plant use an air exhaust system vacuum or other system that creates a negative

air pressure around the carcass in the dehiding

area?
$0.52 per head of cattle in equipment costs alone. By

contrast, it would cost a smaller plant, processing only

two animals per hour, but otherwise operating under the

same conditions, about $26 per head. Note, this estimate

varies with the assumed life of the equipment and considers only capital costs. We have ignored maintenance

costs, housing costs, and the possibility of smaller scale

equipment. Maintenance costs would rise over time and

be more costly for smaller plants because they have

fewer available skills to maintain complex equipment

than do large plants. Housing costs would also be higher

for smaller plants because their much smaller processing

operations often run in batches rather than the continuous mode for which such equipment is designed. Of

course, lower cost and lower volume equipment could

also be designed, but there apparently has been little

demand for it since, to our knowledge, no such units are

for sale, much less installed.

Labor-intensive activities do not require such large

fixed costs, and hence the smaller spread between

large and small plants for more labor-dependent safety

activities. Suppose workers in both the small and large

plant are required to clean their knives after they finish

cutting a carcass and that 10 cuts are made in each carcass. Additionally, assume workers are paid $12 per

hour and that each cut takes 1 minute. For both the

small and large plants, the cost per head of cattle for

cleaning the knives is $2.40, so the practice favors neither large nor small plants. 

Though economies of scale probably explain a large

part of the safety variation between large and small

plants, they do not explain it all—particularly for less

capital—intensive activities. Another possible contributing factor is linked to the observation that large plants

tend to supply large, homogeneous markets with relatively elastic demand, while smaller plants tend to serve

smaller markets with less elastic demand. In homogeneous markets, in which a number of firms produce and

market similar or identical products, any slip in safety

could result in a sharp drop in demand for the offending

plant. Buyers could replace sub-standard products with

product from competing plants. The product from

smaller plants may be less fungible. Small plants tend to

compete with the larger firms by providing differentiated products for niche markets, such as fresher or more

specialized cuts. Their products are less easily replaced,

and their buyers may be more willing to overlook food

safety slips or to work with a plant to overcome safety

problems. To protect their markets, large plants may

therefore have more incentive than small plants to adopt

food safety innovations. 

In fact, slaughter plants that can consistently supply

high levels of product safety, as required by a number

of major food retailers, gain access to almost guaranteed markets for large volumes of product. Plants that

can produce the desired level of safety at the lowest

cost will reap the largest benefits, and those that can

supply the desired amount of safety only at higher

prices will face greatly reduced demand. Plants in

markets with relatively elastic demand have incentive

to adopt the most efficient approaches for achieving

product safety. Large slaughter plants operating in

elastic markets may therefore have more incentive to

adopt the safety activities included in the ERS survey

than plants operating in less elastic markets. 

An additional incentive for large firms to innovate is

tied to the observation that large and small firms tend

to face different size markets. As discussed in the

16 ● Food Safety Innovation in the United States / AER-831 Economic Research Service/USDA

Table B-1—Large cattle-slaughter plants have higher food safety ratings than small plants, mainly because

of more capital-intensive activities

Plant size category1

Small Medium Large All plants

Safety rating 2

Overall rating 0.43 0.49 0.62 0.50

Equipment 0.32 0.37 0.55 0.39

Testing 0.34 0.48 0.75 0.51

Careful dehiding 0.26 0.36 0.45 0.36

Sanitation 0.51 0.56 0.59 0.56

Operations 0.59 0.60 0.70 0.62

Number of plants 48 158 49 255

1 Plants in the small category are in the 0-19 percentile of plant sizes; plants in medium category are in the 20-79 percentile;

and plants in large category are in the 80-99 percentile.

2 Higher numbers are better. See text for explanation.
theory section, even if innovative activity is scale

neutral, the benefits of innovation are proportional to

the size of the market. Holding constant the cost of

innovation, more innovative activity would be

expected in the larger market or in the market

expected to grow more rapidly. This fact may have

spurred large plants, which tend to operate in large

markets, to innovate more than small plants, which

tend to operate in smaller markets. 

Another reason large firms may invest more in food

safety than small firms is that food safety lapses have the

potential to be very costly for large firms because they

may involve large amounts of product. Large amounts of

contaminated product increase both the probability of

detection and the cost of recall. Larger plants have more

potential for larger amounts of contamination than

smaller plants because mistakes that expose product to

contamination spread more quickly the faster the line

speed and the greater the volume of production. 

For example, suppose both large and small plants

clean their dehiding areas once per hour. Assume

also that workers in each plant rupture the intestines

of an animal at the beginning of the hour. A plant

running 100 head of cattle per hour will contaminate

the carcasses of those 100 animals before cleaning

the contaminants while a plant running two head of

cattle per hour will contaminate the carcasses of

only those two animals. The problems do not stop

there, however. If each one of the contaminated cattle has trim that goes into separate bins, then those

100 cattle contaminate 100 bins. Further, if each one

of those 100 bins is then mixed with 20 other bins to

achieve a desired ground meat quality (a common

practice), then the 100 head of cattle would have

contaminated 2,000 bins of meat while the small

plant would have contaminated only 40 bins. The

greater volume of contaminated product produced by

the larger plant increases the likelihood of a

detectable foodborne illness outbreak and the likelihood that the plant will be identified and held liable.

As a result, larger plants may have greater incentive

to invest in food safety activities. 

Appropriability Influences Food 

Safety Investment

The survey data also reveal that meat and poultry

processors that had mechanisms for appropriating the

benefits of food safety innovation used more types of

safety investment and had better safety ratings. Among

the processors in the survey, the appropriability mechanism most strongly linked with more safety investment was buyer specification. When buyers specify

higher safety or quality requirements from their suppliers—and pay a premium or guarantee sales—they

provide processors with a way to benefit from safety

investments. Processors who invest to supply safer

products appropriate the benefits of their investments

through the price premiums or guaranteed sales. 

In the meat industry, a growing number of large buyers,

such as Burger King, Jack in the Box, McDonald’s, and

Wendy’s, require their suppliers to meet safety and

quality standards. These buyers spend millions of dollars advertising their brand names and building reputations for safety and quality. To protect their brand-name

investments, these buyers set input safety and quality

standards and require their suppliers to meet them.

These standards cover a wide variety of safety activities

ranging from pathogen tolerance levels to accounting

procedures. Buyers enforce the standards through testing and process audits. 

Table B-2 shows a marked difference between cattle

slaughter plants facing buyer specifications and others.

Again, cattle slaughter plants are an interesting case

because of the large variation in safety activity in these

plants. Results are similar for the other industries unless

noted. The largest differences appear for safety activities

requiring the most sophisticated technologies, equipment, testing, and careful dehiding. However, even for

the other two activities, sanitation and plant operations,

Economic Research Service/USDA Food Safety Innovation in the United States / AER-831 ● 17

Table B-2—Food safety ratings for cattle slaughter

plants with buyer specifications are considerably

higher than for other plants

Process control Does customer impose 

method standards1

No Yes

Overall rating 0.43 0.63

Equipment 0.30 0.56

Testing 0.35 0.77

Careful dehiding 0.28 0.48

Sanitation 0.51 0.61

Operations 0.58 0.68

Number of plants2 128 98

1 Question in survey asks, "Do some major customers of plant test

product for pathogens or harmful bacteria or require sanitation and

product handling practices that are more stringent than those

demanded by FSIS?"

2 29 plants did not indicate whether customers impose standards.
there is a large difference. The pervasiveness of the difference in safety activities between firms with and without buyer specifications suggests that buyers establish

standards along a wide spectrum of activities.

Export markets may also entail higher quality specifications. These markets can provide a lucrative outlet for meat suppliers if plants meet the importing

country’s food safety standards. Table B-3 provides

ratings for food safety technology for cattle slaughter plants that serve export markets. The pattern of

the ratings, as in table B-2, shows a distinct difference in plant food safety technology between cattle

slaughter plants that export and those that do not.

The magnitude of the differences and their pervasiveness across all five categories is striking. The

greatest differences are for equipment, testing, and

careful dehiding technologies. The differences are

smaller for sanitation and plant operations, yet a

substantial gap remains.

Branding should have the same effect on food safety

activity as buyer specifications and export markets.

Meat processors, such as Oscar Meyer, that sell

branded products through retail outlets are held

directly responsible for food safety quality by consumers. These processors, and others who are easily

linked to their product, should have stronger incentives to invest in safety than processors that sell

unbranded products to large grocery stores and

restaurant chains or to a host of smaller buyers that

serve as intermediaries between the slaughter plants

and the consumer. Having no brand name means that

consumers can make no connection between the producer and food safety. 

Surprisingly, selling branded product appeared to have

less impact on safety investment than buyer specification. Table B-4 shows plant food safety technology differences between hog slaughter plants selling products

under their own brand and other plants. The survey data

show only a modest difference in safety activity

between the two types of plants. Dehiding and sanitation are higher for plants not selling products under

their own brand and the other categories are higher for

plants that do sell products under their own brand.

One explanation for this result could be that surveyed

firms may have misunderstood the branding question.

This question asked whether the plant produced products under its own name. The intent of the question was

to see if the plant sold branded products to consumers.

However, the overwhelming majority of all plants

responded affirmatively. Yet, most plants, particularly

cattle slaughter plants, do not sell directly to consumers.

Thus, it appears that respondents understood the question to be whether the product was shipped to a customer with the producer’s name on the box, regardless

of whether it was going to final consumers or vendors

to be repackaged or further processed. 

The confusion over the branding question resulted in a

watered-down definition of branded for the analysis:

“branded” denotes plants that either sell a branded

product to consumers or put their name on a box of

products that are shipped elsewhere for processing.

The very modest differential illustrated in table B-4

shows that selling under a brand, as defined here,

failed to generate much of a difference in the use of

food safety technologies.

18 ● Food Safety Innovation in the United States / AER-831 Economic Research Service/USDA

Table B-3—Food safety ratings for cattle slaughter

plants that serve export markets are higher than

for non-exporters

Process control Does plant export 

method products1

No Yes

Overall rating 0.43 0.64

Equipment 0.28 0.62

Testing 0.36 0.79

Careful dehiding 0.28 0.51

Sanitation 0.54 0.60

Operations 0.59 0.68

Number of plants2 169 84

1 Question on survey asks, "Does this plant export products 

outside the United States?"

2 2 plants did not indicate whether they export.

Table B-4—Food safety rating of hog slaughter

plants that sell products under their own brand 

are about the same as other plants

Process control Is product sold under 

method plant’s own brand?1

No Yes

Overall rating 0.44 0.50

Equipment 0.34 0.39

Testing 0.40 0.50

Careful dehiding 0.32 0.30

Sanitation 0.59 0.55

Operations 0.52 0.61

Number of plants2 25 180

1 Question on survey asks, "Does this plant produce products 

under its own brand?"

2 5 plants did not indicate whether they sell products under their 

own brand.
The effects of the appropriability mechanisms were

similar for cattle, poultry, and pork slaughter plants;

however, the effect of one of the appropriability

mechanisms was slightly different for processors.

Table B-5 summarizes responses for cooked-meat

processors without slaughter operations (results were

similar for raw-meat processors). The table shows

that plants with buyer specifications had distinctly

higher equipment and testing activity ratings than

plants without, but nearly identical ratings for sanitation and plant activities. 

Why did buyer specifications not have the same positive effect on sanitation and plant activities? One possible explanation for the higher testing rating for plants

with customer requirements is that the buyer may

demand proof that the products it buys are safe. The

almost equal scores for plants with or without customer requirements for sanitation and plant operations

could be due to the nature of the meat processing

industry compared to animal slaughtering. Processing

plants tend to sell unique products that can be readily

linked to the producer. This linkage forces producers

to adhere to as strict a standard as a buyer would

require explicitly in a contract since buyers, regardless

of whether they have specifications, can readily punish

a plant that practices poor food safety quality control.

Slaughter plants, on the other hand, produce generic

products that cannot be distinguished from products

from other plants with which they may be commingled. Thus, without buyer specifications, slaughter

plants may feel they can adhere to weaker sanitation

and food safety operating activities.

Appropriability Mechanisms 

Encouraged Early Adoption of 

HACCP-Like Programs

The influence of appropriability is also evident in rates

of adoption of HACCP-like programs prior to implementation of PR/HACCP (see box “Pathogen

Reduction and Hazard Analysis and Critical Control

Point Program (PR/HACCP”). HACCP programs are

designed to enhance safety and quality control management in food processing operations. Producers who

are able to reap the benefits of improved quality or

safety should have stronger incentives to adopt these

programs than producers who cannot. 

The ERS survey queried plants about their use before

1996 of the three core elements of HACCP programs:

schematics, review of operations, and product or environmental testing. If plants had the three core elements, they were considered to have a HACCP-like

program. Table B-6 shows the relationship between

plants with HACCP-like programs and the three

appropriability mechanisms (branding, buyer specifications, and export markets). The data indicate that

plants subject to buyer specifications were much more

likely than other plants to have implemented a

HACCP-like process control program before 1996.

ERS Survey Indicates that Buyer

Specifications Are Key to Spurring 

Safety Innovation

The ERS survey shows that plant size and appropriability mechanisms seem to encourage the use of more

Economic Research Service/USDA Food Safety Innovation in the United States / AER-831 ● 19

Table B-5—Food safety ratings for three appropriability mechanisms for cooked-meat processing plants

without slaughter operations

Market mechanisms

Process control Product sold under Customer food safety 

method own brand requirements Plant exports

No Yes No Yes No Yes

Overall rating 0.55 0.57 0.51 0.64 0.53 0.63

Equipment 0.51 0.55 0.46 0.65 0.49 0.65

Testing 0.67 0.61 0.47 0.78 0.51 0.78

Careful dehiding -- -- -- -- -- --

Sanitation 0.53 0.56 0.55 0.57 0.56 0.56

Operations 0.61 0.63 0.60 0.66 0.61 0.65

Number of plants 12 356 202 166 230 138
sophisticated food safety technologies. Investments by

large plants could be a response to economies of scale,

greater product demand, and demand elasticity, but

production technologies that make large plants more

likely to be exposed for a food safety failure may also

drive these investments. Appropriability mechanisms,

such as product branding, buyer specifications, and

export markets, enable suppliers to benefit from food

safety and encourage the adoption of a spectrum of

food safety practices and equipment. 

20 ● Food Safety Innovation in the United States / AER-831 Economic Research Service/USDA

Table B-6—Percent of plants with HACCP-like programs prior to promulgation of the PR/HACCP rule 

by various appropriability mechanisms

Appropriability mechanisms

Industry category Product sold under Customer food safety 

own brand requirements Plant exports

No Yes No Yes No Yes

Percent

Cattle slaughter 16 24 23 49 14 38

Hog slaughter 20 18 15 24 15 22

Poultry slaughter 22 26 12 33 7 29

Processing—cooked-meat 22 25 17 36 18 36

Processing—raw meat 20 24 16 32 17 32

Total number of plants by market mechanism

Cattle slaughter 43 210 128 98 169 84

Hog slaughter 25 180 106 66 138 68

Poultry slaughter 11 99 65 28 16 93

Processing—cooked-meat 23 575 354 244 378 220

Processing—raw meat 109 690 439 360 458 341
In 1995, Frigoscandia Equipment began marketing a

Beef Steam Pasteurization System (BSPS), a new technology designed to kill pathogens on the exterior of

beef carcasses. This case study examines the economics of the BSPS invention, using published literature

and open-ended interviews of the parties involved in

the invention. The survey questions follow the object

approach in the Oslo Manual (OECD, 1997). (For the

survey questionnaires, see Salay, Caswell, and

Roberts, 2003). 

The BSPS case study highlights the importance of collaboration between technology developers and users in

successful food safety innovation. It also highlights the

difficulty of designing and successfully marketing

technologies for the control of pathogen contamination

in meat. Pathogen control requires systematic control

throughout the farm-to-table supply chain (Ahl,

Roberts, and McDowell, 1995; Gill, 1999). While

some steps in pathogen control can substitute for each

other, often the controls are complementary in producing an increased probability of safe food. Even the

best technology, however, can be undermined by deficiencies in control along the supply chain. The interlinked nature of the steps required to control pathogens

(and prevent them from growing) means that the technological success of one particular piece of equipment

may be difficult to accurately determine and market. 

The BSPS equipment is the invention of Frigoscandia

Equipment, though its successful adaptation to beef

slaughter plants was also due to contributions from

Excel, the second largest U.S. beefpacking company (a

division of Cargill, Inc.) and microbiological data from

collaborators at Kansas State University (KSU). The

BSPS technology uses steam to kill pathogens on beef

carcasses. The BSPS unit itself is contained in a stainless steel cabinet that is installed at the end of the

slaughter line, just before the sides of beef (hanging

from an overhead rail) enter the chiller. Within the

BSPS cabinet, three procedures are performed:

 Air is blown onto the carcass to remove the film of

water covering the side of beef. This permits the

steam to reach and kill the surface bacterial

pathogens that otherwise would be protected by the

water film.

 Steam is applied to the side of the beef at a sufficient temperature and over a sufficient time period

to kill the target pathogens, generally E. coli

O157:H7, Salmonella, and generic E. coli. The

industry commonly uses steam heated to 190o

Fahrenheit (F) applied for 10-15 seconds to the

sides of beef (Brodziak, 2002), though individual

plants may vary temperature and time depending on

the stringency of their safety requirements. 

 Icy water is briefly poured over the carcass to help

bring back the “bloom” (red color) to the carcass

and to stop the depth of “cooking.”

The 1993 E. coli O157:H7 outbreak from hamburgers

from Jack in the Box was the key initiating event in the

development of the BSPS. First, it increased consumer

awareness of and demand for food safety. After this outbreak, consumers, retailers, government officials, and

processors themselves began to reassess the beef industry’s food safety standards. The outbreak forced companies to respond to growing customer and consumer

concerns, if for no other reason than to avoid legal liability suits. Second, the outbreak accelerated efforts to

modernize Federal requirements for food safety using

the Pathogen Reduction and Hazard Analysis and

Critical Control Point (PR/HACCP) system (see box

“Pathogen Reduction and Hazard Analysis and Critical

Control Point Program). PR/HACCP provided food

processors with more flexibility to innovate and adopt

new safety technologies, such as the BSPS. In addition,

the increased testing for pathogens included in

PR/HACCP increased the probability that a foodborne

disease outbreak would be discovered. The testing also

potentially increased demand for food safety innovations such as the BSPS. 

The initial assessment of the steam pasteurization

technology for reducing pathogen contamination of

beef was encouraging. Engineers at Frigoscandia

Equipment considered the BSPS’s technological

Economic Research Service/USDA Food Safety Innovation in the United States / AER-831 ● 21

A Case Study of the Equipment Market and the 

Invention of the Beef Carcass Steam 

Pasteurization System

Tanya Roberts and Elisabete Salay
risks to be low (Wilson, 2001 and 2002). Steam, the

technology behind the BSPS, was well-known for its

ability to kill pathogens, and early experiments in

the meat and poultry industry, though mixed, were

promising enough to interest Frigoscandia in the

technology (table C-1). Discussions with key people

in the U.S. beef industry were positive, indicating

potential market demand. 

Discussions with consumer activists indicated that they

considered steam a safe and acceptable method for

killing pathogens. Surveys of consumers have indicated that steam pasteurization is more acceptable than

some other new food safety technologies such as irradiation (Fingerhut et al., 2001). However, the extent of

pathogen reduction is also important to consumer evaluations of competing food safety technologies (Lusk

and Hudson, forthcoming). 

Given the positive initial assessment of the innovation,

Frigoscandia Equipment funded an exploration of the

technical feasibility of the project. Frigoscandia

Equipment realized a substantial investment would be

required to develop the equipment. Building the

machinery and testing the efficacy of the procedure

would require time and financial commitment. Whether

the BSPS innovation would prove financially profitable

would depend on how well the BSPS equipment

reduced pathogens, the cost of the equipment, and the

cost and benefits of alternative pathogen-control systems available to beefpacking plants. Would the domestic beef industry consider the pathogen-reduction

benefits worth the purchase price of the equipment?

Would the innovation succeed in global markets?

History of BSPS Invention:

Collaboration and Risk Sharing

The Swedish company, Frigoscandia Equipment, had

extensive experience with inventing and marketing

equipment in cold storage and food transportation (see

Timeline in appendix A). By keeping foods at a very

low temperature, food product quality was improved,

shelf-life was extended, and food safety concerns were

met. Frigoscandia’s ultra-cold storage unit was being

used for long-distance meat shipment by 1950. Its

FLoFREEZE, a belt-type freezer tunnel, was named

one of the 10 most important Swedish inventions ever

by the Chalmers University of Technology in

Gothenburg, Sweden. Steam pasteurization was a new

food safety technology, a complementary addition to

the company’s product line, and a new marketing

opportunity for Frigoscandia Equipment.

To reduce the technological risks and share the costs

of creating the new BSPS technology, Frigoscandia

Equipment contacted a business client, Excel, the second largest U.S. beefpacking company, which agreed

to collaborate on the BSPS invention. Excel had the

day-to-day knowledge of operating beefpacking plants

where the equipment was to be used. Though the two

companies jointly developed the technology and

applied for the patent, Frigoscandia Equipment holds

the rights to the patent on this technology because the

global beef industry was the target sales market. If

Excel co-held the rights to the patent, other beef companies may have been reluctant to purchase equipment, thinking they would be supporting a competitor. 

As a first test of the technology’s efficacy,

Frigoscandia Equipment built a prototype BSPS unit.

22 ● Food Safety Innovation in the United States / AER-831 Economic Research Service/USDA

Table C-1—History of U.S. steam pasteurization experiments on meat and poultry

Year of publication Product Results and effectiveness against bacteria Researcher(s)

1972 Hog carcass Steam effective, significant distortion of pigskin Carpenter

1972 Meat surfaces Steam applied in jacketed chamber; effective Vogel and Silliker

1979 Frozen and Steam applied with a nozzle 10 cm away, Anderson, Marshall,

thawed beef not effective Stringer, & Naumann

1985 Chicken carcass Steam chamber with continuous flow, mixed Davidson, D'aoust,

results, cooked appearance of skin and Awell

1994 Beef frankfurters Steam chamber to "surface pasteurize," Cygnarowicz-Provost,

effective against Listeria—4 log reduction Whiting, and Craig

1996 Sheep, beef Steam treatment is effective if meat is first Dorsa, Cutter, Siragusa,

air-dried and Koohmaraie

Source: Data from Phebus et al., 1997.
Preliminary tests at Frigoscandia Equipment found

that the BSPS prototype successfully killed the

pathogen on small pieces of beef inoculated with E.

coli O157:H7.

Next Frigoscandia Equipment and Excel decided to

add academic microbiologists to the team as outside,

nonbiased evaluators of the performance of the BSPS

prototype. Dr. Randall Phebus at Kansas State

University (KSU) was chosen to head the academic

team. Frigoscandia Equipment shipped the prototype

steam pasteurization system to KSU. Excel supplied

six live market-weight steers. Both Frigoscandia

Equipment and Excel contributed the kits and other

materials required for pathogen tests of beef samples. 

After slaughter at KSU, meat samples were inoculated

with 5 logs of a pathogen (100,000 organisms/cm2)

and then treated in the BSPS prototype. All three

pathogens tested, E. coli O157:H7, Salmonella

typhimurium, and Listeria monocytogenes, were

reduced by 4.65 to 5 logs at 15 seconds of steam treatment at 196-99o F (table C-2 and fig. C-1). Dr. Phebus

and his team concluded that “Steam pasteurization is

an effective method for reducing pathogenic bacterial

populations on surfaces of freshly slaughtered beef...”

(Phebus et al., 1997, p. 476). 

The researchers found steam pasteurization provided

numerically greater pathogen reductions than any other

single treatment studied. One reason for this result is

that steam vapor uniformly blankets irregularly shaped

surfaces, in contrast to hot water coming from a nozzle

aimed at carcasses. If there is any irregularity on the

surface of the carcass, the back side of the irregularity

will not receive the hot water treatment and pathogens

lurking there will not be killed. Properly applied steam

can reach these problem areas. BSPS is superior to

chemical rinses for carcasses because it does not entail

treatment of potentially toxic wastewater. 

In 1995, after the success of the prototype at KSU,

Frigoscandia Equipment engineers designed, built, and

installed a commercial sized BSPS unit at an Excel

plant in Sterling, Colorado. This stainless steel

clamshell could hold four sides of beef at a time and

moved along the slaughter line (fig. C-2). It also used

monitoring techniques for temperature and lot identification that Frigoscandia Equipment had developed for

its food chilling and freezing equipment. After solving

a number of technical issues related to the pressure,

temperature, and application of the steam in the moving clamshell BSPS, Wilson (Frigoscandia

Equipment), Leising (Cargill/Excel), and other

Frigoscandia Equipment inventors filed a patent application on Nov. 6, 1995 (U.S. Patent, 1998). 

Testing the Commercial-Scale Prototype

To test the efficacy of the commercial scale-up of the

BSPS prototype, Frigoscandia Equipment and Excel

again invited the KSU team into the plant to conduct

tests. The objective was to determine the effectiveness of

the BSPS unit in reducing naturally occurring populations of indicator organisms on the surfaces of commercially slaughtered beef carcasses. Indicator

microorganisms, not pathogens, were used because of

the danger of introducing pathogens into a commercial

facility. Over a 10-day testing period, 140 carcasses (70

cows and 70 fed cattle-steers/heifers) were tested with

steam applied for 8 seconds at 195-201o F. Twenty carcasses (9 cows and 11 fed cattle) were tested with steam

applied for 6 seconds. An additional 20 control carcasses

(10 cows and 10 fed cattle) received no steam treatment. 

Economic Research Service/USDA Food Safety Innovation in the United States / AER-831 ● 23

Table C-2—Reduction in pathogens as a function of

steam application time in SPS

Seconds of steam Pathogen reductions in log10 CFU1

used in SPS unit (5 logs inoculated on carcass)

E. coli Salmonella Listeria

O157:H7 typhimurium monocytogenes

5 seconds 3.37 4.54 4.51

10 seconds 3.57 3.95 4.23

15 seconds 4.65 5.08 5.01

1CFU (colony forming units) is the unit microbiologists use to count

pathogens. 

Source: Data from Phebus et al., 1997.

Figure C-1

Steam pasteurization reduces mean pathogen 

population on beef carcasses

Source: Data from Phebus et al., 1997.

Log CFU/cm2

Before BSPS

After 

BSPS

E. coli O157:H7 Salmonella

typhimurium

Listeria 

monocytogenes

0

1

2

3

4

5

6
The KSU team found that steam treatment for 8 seconds was “very effective” in a commercial setting for

reducing overall bacterial populations on beef carcass

surfaces after 24 hours in the chiller (Nutsch et al.,

1997, p. 491). In most cases, the enteric bacteria

(some of which can be pathogens) were undetectable

after pasteurization. Reductions in bacterial populations after a 6-second steam exposure time were very

similar to those obtained with an 8-second exposure

time. The equipment worked equally well with cows

and steers/heifers, despite considerable variations in

carcass size and shape. 

For the third set of tests in 1996, Frigoscandia

Equipment installed a moving clamshell BSPS in a

larger commercial facility, Excel’s plant in Fort

Morgan, Colorado. Again, KSU conducted the testing

(Nutsch et al., 1998). This time, the testing team made

several changes to the testing protocol to more closely

approximate an actual plant operation. Samples were

randomly selected from 200 carcasses from two production shifts, rather than the known carcasses in the

earlier test at the Sterling plant. Steam temperature

was lowered to 180o F. for either 8 or 6.5 seconds.

Instead of excising a small piece of meat to test,

sponges were swabbed over the carcass and the liquid

was tested to see if microbes were detected. Twenty

carcasses were sampled at five carcass locations to see

if the steam treatment effectiveness differed at the five

sites. The KSU team concluded that the BSPS moving

clamshell unit was effective in reducing natural bacterial populations on freshly slaughtered beef carcasses.

Frigoscandia Equipment submitted the KSU’s laboratory

results on pathogen reduction to USDA. USDA regulatory approval of the BSPS process was a necessary step

for commercial acceptance. The KSU data was shared

with regulators, industry members, and consumer

groups. In December 1995, USDA certified that

Frigoscandia Equipment’s BSPS moving clamshell can

significantly reduce pathogens (Cargill, 1995). The

BSPS is equipped with recordkeeping capabilities: carcass identification, carcass surface temperature in the

steam chamber, exposure time, and deviations are automatically logged into a computer for plant monitoring

and regulatory review. The monitoring features make it

feasible to use the BSPS as a critical control point under

FSIS PR/HACCP regulations.

In 1996, another food processing equipment innovator,

Chicago-based FMC FoodTech (FMC) purchased

Frigoscandia Equipment (table C-3). FMC has 100

years of experience designing and selling food-processing equipment. FMC manufactures a wide variety

of “in-container” sterilization systems, such as canning

and retort systems. FMC was particularly interested in

Frigoscandia Equipment for its GyroCompact freezer.

The purchase of Frigoscandia Equipment’s freezing

and chilling equipment complemented FMC’s sterilization equipment. In 2001, FMC’s sales were $2 billion annually, of which $150 million were

Frigoscandia Equipment sales (Brodziak, 2001 and

2002). Though the BSPS technology was not an

important factor in the Frigoscandia Equipment purchase, it did add another piece of food safety equipment to the FMC product line. 

24 ● Food Safety Innovation in the United States / AER-831 Economic Research Service/USDA

Figure C-2

Beef sides exiting the SPS clamshell unit in

Sterling, Colorado

Source: Tanya Roberts.
Development of the Static-Chamber BSPS

The KSU researchers had noted two problems with

operating the moving clamshell BSPS unit at the Fort

Morgan plant: 1) The steam pasteurization treatment

was somewhat less effective at the neck area, perhaps

because the steam inlet valves were only at the top of

the moving BSPS clamshell. 2) A small percentage of

carcasses were not steam treated during the two sampling days because of occasional cycle failure (Nutsch

et al., 1998, p. 576). This last problem was caused by

problems synchronizing the timing of the moving

clamshell unit on fast line speeds—a problem that

could not be readily fixed. 

To address these problems, Frigoscandia Equipment

decided to redesign the BSPS as a static chamber. The

BSPS-Static Chamber unit (BSPS-SC) envelopes the

sides of beef as they move along the overhead rail

from the slaughter floor to the chiller. The static chamber performs the same three processes as the moving

unit, except that with the static unit, the sides of beef

travel through the enclosed chamber and sequentially

receive 1) dewatering treatment, 2) steam treatment, 3)

cold water shower (fig. C-3). With the BSPS-SC

design, carcasses can travel through the chamber at

Economic Research Service/USDA Food Safety Innovation in the United States / AER-831 ● 25

Table C-3—General characteristics of Frigoscandia

Equipment, 2001

Main activity Designing, installing, and maintaining 

equipment and their monitoring mechanisms for the food processing industry.

Main products Freezing and chilling equipment (half of 

world's frozen food is frozen in 

Frigoscandia Equipment units); steam 

pasteurization systems 

Number of Around 300 employees all over the 

employees world, primarily involved in sales, service,

or engineering

Sales Around $150 million annually, primarily 

in the chilling and freezing business

Exports Half of sales are in USA, almost half in 

Europe. Sales growth areas are Latin 

America and East Asia

Parent Company: Sales of about $2 billion annually.

Headquarters in Chicago. Emphasis on 

FMC FoodTech solutions (R&D centers around world),

food safety (innovative technologies),

and service (technical support, HACCP 

certification)

Ownership Privately owned corporation

Air

blowers

Water

removal

section

Steam pasteurization

chamber

Source: Frigoscandia Equipment

Chilling

section

Steam

line

Steam let

down valves

Steam tank

Infeed

Outfeed

Chilled water

line

Beef Steam Pasteurization System — Static Chamber Unit

Figure C-3
any chosen line speed. The doors and the overhead rail

(on which the carcasses hang) have seals to maintain

the positive air pressure in the chamber. In January

1998, Wilson (Frigoscandia Equipment), Leising

(Excel), and other Frigoscandia Equipment inventors

filed a patent application for a static chamber system

that uses steam to destroy surface pathogens on meat

(U.S. Patent, 1999).

The BSPS-SC has several advantages over the moving

clamshell BSPS. The unit does not break down as often

or require as much maintenance as the moving unit,

reducing the warranty costs to Frigoscandia Equipment

(Brodziak, 2002). This additional reliability is a benefit

to customers as well: it facilitates use of the BSPS-SC

system as a control measure in a plant’s PR/HACCP

system. Control measures must be reliable because the

whole slaughter line must stop production if any of the

critical control points in the PR/HACCP system are not

functioning correctly. The BSPS-SC unit is reliable

enough to use as a critical control measure. 

Another benefit to beefpacking plants with the BSPSSC was a reduction in operating costs because the

steam part of the tunnel can be kept at a constant high

temperature (Leising, 2002). In the moving unit, all

three processes were conducted in the same chamber

with the temperature fluctuating between the hot steam

and the cold water wash, resulting in greater costs to

bring the steam chamber up to its desired temperature. 

The fourth and final invention was a change in the

entrance and exit doors. Instead of two large doors, the

doors were subdivided on each side into two-foot long

segments, or eight doors on each end of the BSPS-SC.

With this modification, the uneven-sized sides of beef

enter the chamber with only the relevant doors being

opened. As a result, the doors remain open less time

with the static version. As a result, the vacuum seal is

more easily maintained, the amount of steam needed

was reduced, and the reliability of the equipment was

further improved. In February 1999, Wilson

(Frigoscandia Equipment), Leising (Excel), and other

Frigoscandia Equipment inventors applied for a patent

on the improved doors (U.S. Patent, 2000). 

The Innovating Collaborators

Appropriated a Variety of Benefits

The three collaborators for the BSPS-SC invention,

Frigoscandia Equipment, Excel, and KSU, contributed

in different ways to the development of the

technology—and benefited differently. Frigoscandia

Equipment, through Craig Wilson, initiated the innovation and contributed technical and administrative

expertise. The costs to Frigoscandia Equipment of

designing, building, and testing the BSPS prototype

and the moving clamshell BSPS unit was $1.2 million

spread over 3 years, mid-1994 to mid-1997 (Brodziak,

2001 and 2002). These costs were in-house labor and

other variable costs, including contracting costs to the

machine shop that produced the parts for the prototypes. The BSPS-SC modification took Frigoscandia

Equipment 9 months and $100,000 to design and build.

Frigoscandia Equipment’s total investment was $1.3

million for the BSPS-SC innovation.

The two largest U.S. beefpacking companies, Excel

and IBP, bought the equipment for all of their slaughterplants. Frigoscandia Equipment earned a small

profit on the BSPS-SC equipment sales and the installation (Brodziak, 2001 and 2002). From 1996-2001,

Frigoscandia Equipment sold 28 BSPS-SC units: 20

large and 8 smaller units. Smaller units were sold at

approximately $250,000 each, depending on site-specific requirements. 

Excel’s contribution included paying for the beef used

in the testing and all plant operation costs during the

testing at the Excel’s Sterling and Fort Morgan plants.

Excel also invested a considerable amount of resources

in adjustments and adaptations to the unit, including

engineering maintenance. Excel recouped some of

these expenses because it was not charged for the first

moving clamshell BSPS unit and adjustments were

made in the purchase price of other BSPS units to

compensate for Excel’s investment. Excel also benefited by taking advantage of its “first right of refusal”

and being the first U.S. company to install the BSPS

and BSPS-SC in all its packing plants (Cargill, 1997).

This gave them a “first mover” advantage (Porter,

1998), namely, an enhanced reputation as a leader in

food safety research and development that led to an

increase in beef sales and contracts.

KSU was brought into the development team to conduct

a wide variety of microbiologial tests on pathogens and

indicator organisms using four different pieces of equipment, using different testing procedures, and using different combinations of steam temperature/time in the

BSPS units. KSU contributed the time of two Ph.D. students and one professor to the project. Most of the testing equipment was purchased by Frigoscandia

26 ● Food Safety Innovation in the United States / AER-831 Economic Research Service/USDA
Equipment and Excel, including about $40,000 to

$50,000 worth of testing kits and other supplies. 

All three collaborators boosted their food safety reputation through their involvement in the innovation.

Frigoscandia Equipment strengthened its position in

the food safety equipment industry. Excel became

known as a food safety leader and gained market share

in the beefpacking business (Leising, 2002). KSU

became known for its expertise in microbial food

safety (Leising, 2002). Two KSU students earned doctorates doing microbiological research on the BSPS

technology. KSU now grants distance-learning degrees

in Food Science and this program has been recognized

for its quality by the Institute of Food Technologists

(Phebus, 2002).

The BSPS-SC: Three Years to

Technological Innovation and 

Market Acceptance 

A review of the history of the BSPS-SC technology

reveals that numerous factors led to the successful

development and commercialization of the technology,

including outbreaks and recalls, patent protection,

technical expertise, industry contacts, and government

regulations. The 1993 E. coli O157:H7 outbreak supplied the initial push for the innovation, driving

Frigoscandia Equipment and Excel to pursue the technology (Cargill, 1997). In August 1997, another outbreak of E. coli O157:H7 in hamburger occurred, and

the Hudson Foods Company recalled 25 million

pounds of contaminated beef, closed the plant for

cleaning, and finally sold the plant because sales contracts were canceled. This outbreak convinced IBP, the

largest U.S. beefpacking company, to purchase the

BSPS equipment for all its slaughterhouses. 

Patents played a critical role in protecting the appropriability of the innovation. To keep competitors from

copying the design of the BSPS-SC, four patents were

issued to Frigoscandia Equipment. The first patent, on

the prototype tested at KSU, was a concept patent and

was filed early in the innovation process, 1994, to act

as a place-holder for patent protection for more developed designs (Wilson and Leising, 1994). The BSPSSC invention was protected by three more patents on

the more complex and complete designs: moving

clamshell unit, static chamber model, and static chamber with improved entrance and exit doors (U.S.

Patent, 1998, 1999, 2000).

Technical expertise and personal contacts also played

critical roles in the development of the innovation.

Frigoscandia Equipment had a 50-year history in making chilling and freezing equipment for the beef industry. The BSPS-SC used pieces of the monitoring

equipment from these chillers and freezers in building

the monitoring equipment for the BSPS. Craig Wilson,

director of special projects for the U.S. office of

Frigoscandia Equipment, played the pivotal role in

conceptualizing the invention, building the prototype,

and designing the commercial scale-up. His professional and personal relationship with Dr. Leising

helped forge the links in the agreement between

Frigoscandia Equipment and Excel that led to the risksharing and knowledge-sharing and culminated in the

successful BSPS innovation. KSU played a critical

role in testing different BSPS models at a variety of

time/temperature combinations. These data from an

academic and independent source were critical for

USDA approval and important for the beef industry to

understand the relationships among pathogen reduction levels, steam temperature, and the duration of

steam application.

U.S. government certification in 1995 that BSPS significantly reduces pathogens lessened the uncertainty facing industry purchasers regarding the efficacy of the

technology and opened the door for use of the BSPS as

a critical control point in PR/HACCP (Cargill, 1995;

USDA, 2002). In addition, a number of government

guidelines have explicitly endorsed the use of the technology. For example, in 2000, USDA’s Agricultural

Marketing Service specified that suppliers of beef trim

and ground bison to Agency-administered purchasing

programs, such as the school lunch program, must

include an anti-microbial intervention as a critical control point (CCP) in the establishment’s HACCP plan.

“The CCP must be one of the following processes:

steam pasteurization; an organic acid rinse; or 180o F

hot water wash” (USDA, 2000). 

The BSPS-SC innovation has enjoyed great market

success in the United States. Excel, the second-largest

U.S. beefpacking company, installed the technology in

all seven of its beefpacking plants by June 1997. IBP,

Inc., the largest beefpacking company, installed BSPSSC equipment in all its beef slaughterhouses. (In 2001,

IBP was purchased by Tyson Foods, Inc., and Tyson

became the world’s largest marketer of beef, pork, and

chicken.) Costco requires all of its beef suppliers to

use the Frigoscandia Equipment BSPS-SC in the

slaughterhouse.

Economic Research Service/USDA Food Safety Innovation in the United States / AER-831 ● 27
The positive market response is also reflected in a

beef-product recall insurance policy available through

the American Meat Institute, the meat industry’s

largest trade association. This recall insurance, which

is sold by MacDougall Risk Management, offers the

possibility of reduced rates and higher likelihood of

coverage for plants that have installed the BSPS-SC

(MacDougall, 2002). Other insurance programs covering product quality or safety are also sensitive to baseline plant risks and safety investments. 

Despite the major marketing accomplishments in the

United States, the BSPS-SC technology has yet to

become standard practice in the beef industry outside of

North America. One explanation for this result could lie

in the difficulty of successfully integrating even the

most reliable technology into a plant’s pathogen control

system (Bisaillon et al., 1997; Powell et al., 2001). Part

of the skill in using any new pathogen-reduction technology is integrating it in the whole production system.

For example, the effectiveness of the BSPS-SC, may be

compromised if the carcasses are not chilled fast

enough or are improperly spaced. Improper spacing of

carcasses allows touching in the chiller and results in

compromising both the temperature reduction and the

rate of drying, creating conditions where pathogens can

multiply (Phebus, 2002). 

Pathogen control is difficult, and the food industry has

a history of using multiple-hurdles to control foodborne pathogens, especially since pathogens can

recover from a “kill-step” and grow back (unlike

chemical or material contaminates) (Morris, 1999).

Key factors in pathogen control in a beef slaughter

plant include whether pathogens enter the plant on the

hides and in the gastrointestinal tract of incoming cattle, whether hide removal or evisceration contaminate

the carcass after killing, whether steam pasteurization

and other kill steps are effectively administered, and

proper spacing and temperature reduction in the

chiller. The combination of all these events determines

the probability of pathogen-free status for carcasses as

they enter the fabrication room (Roberts, Malcolm,

and Narrod, 1999; USDA, 2001; Sofos et al., 1999;

Roberts, Narrod, Malcolm, and Modarres, 2001).

The benefits of any pathogen-reduction system are

also difficult to measure on an ongoing basis, since

constant monitoring and microbial testing are required.

There is great variability in the pathogen load that the

individual cattle bring into the plant, there is variability among workers and their practices, and different

firms may use different steam times and temperatures.

Pathogen testing is required to assure the BSPS-SC is

as effective “as planned.” The benefits of the BSPSSC technology can also be reduced if the appropriate

level of control is not maintained at all subsequent key

processing stages in the plant. Because the efficacy of

the technology is judged within the context of a plant’s

whole safety system, the dependability of the technology could vary greatly from plant to plant, depending

on the characteristics of each plant’s safety system.

This fact complicates the task of developing and marketing food safety technologies—and the task of proving and maintaining their efficacy on a daily basis. 

The series of tests that Frigoscandia Equipment and

Excel funded prior to marketing the BSPS was necessary to gain U.S. regulatory acceptance and market

acceptance by the two largest U.S. beefpacking companies. Nevertheless, even this level of testing has so

far been unable to convince European companies to

purchase the BSPS-SC. In addition, the technology has

not been adopted by other slaughter industries: to date

no U.S. hog slaughter companies have purchased the

BSPS-SC system for pork carcasses. Future market

penetration of the BSPS-SC technology, both domestically and internationally, hinges on the proven dependability of the technology and its role in the process

control systems of the future. 

28 ● Food Safety Innovation in the United States / AER-831 Economic Research Service/USDA
1979: Frigoscandia Equipment, now established in the

United States, begins working with the U.S. meat

industry on freezing. 

Jan. 1993: A foodborne disease outbreak in the

Western States is associated with E. coli O157:H7 in

hamburgers from Jack in the Box. 

Late 1993/early 1994: Craig Wilson, in charge of

special projects at Frigoscandia Equipment (Bellevue,

WA) discusses with other Frigoscandia engineers

how to prevent such outbreaks. Steam pasteurization

of beef carcasses is suggested as a technically viable

option. Wilson calls his professional friend Jerry

Leising, Excel Vice President and Director of

Research and Development, who offers to collaborate

in inventing and testing equipment to use steam to

pasteurize the surface of beef carcasses.

Early 1994: Frigoscandia designs and builds a small

prototype to assure that E. coli O157:H7 on beef can

be killed with steam. Informal talks with meat and

poultry companies reveal that beef companies are the

most interested in steam pasteurization equipment.

Nov. 7, 1994: Wilson (Frigoscandia Equipment) and

Leising (Excel) apply for a patent, “Method and apparatus for steam pasteurization of meats,” U.S. Pat.

Appl. 08/335,437. Frigoscandia Equipment is the

assignee on the patent.

1994: Kansas State University (KSU) is included as

part of the development team. Frigoscandia’s prototype moves to KSU and tests begin on beef carcasses.

1995: Larger moving clamshell BSPS unit pieces are

manufactured by subcontractors and assembled/installed

by Frigoscandia engineers in an Excel plant in Sterling,

Colorado. 

Nov. 6, 1995: Patent application is filed by Wilson

(Frigoscandia Equipment) Leising (Excel) and other

Frigoscandia inventors for a larger moving clamshell

BSPS unit. Frigoscandia Equipment is the assignee on

the patent.

Dec. 1995: USDA approves the BSPS process for

killing pathogens on the surface of beef carcasses.

1996: FMC FoodTech, a Chicago-based firm with 100

years of experience in food technology, buys

Frigoscandia Equipment.

June 1, 1997: Excel announces that Frigoscandia’s

BSPS has been installed in all its North American beef

plants. 

Aug. 1997: FSIS requests the recall of ground beef

for contamination with E. coli O157:H7 at Hudson

Foods. The recall is very large, because contaminated

meat from one day is mixed in with the next day’s production.

Aug. 1997: IBP, Inc. executive asks Wilson to meet

with IBP executives. IBP decides to purchase the

BSPS-SC for all its beef slaughter plants. 

Sep. 1997: USDA turns over approval of meat and

poultry equipment to NSF International, a private 

certification body.

Jan. 23, 1998: Patent application is filed by Wilson

(Frigoscandia Equipment), Leising (Excel) and other

Frigoscandia inventors for a static chamber system that

uses steam to destroy surface pathogens on meat.

Frigoscandia Equipment is the assignee on the patent.

Oct. 1998: Wilson leaves Frigoscandia Equipment

and becomes Costco’s assistant Vice President for food

safety and technology in Issaquah, Washington. 

Feb. 26, 1999: Patent application is filed by Wilson

(Frigoscandia Equipment), Leising (Excel) and other

Frigoscandia inventors for apparatus for steam pasteurization of food. The unique element is the improved

entrance and exit door structures to the static chamber.

Eight doors, each 2 feet tall on each side, move when

touched by the side of beef, and the vacuum seal is

better maintained in the system. Frigoscandia

Equipment is the assignee on the patent.

2002: Costco and other buyers stipulate that beef supplies must come from a plant using the Frigoscandia

Equipment’s BSPS-SC system at an appropriate time

and temperature (Wilson, 11/4/02).

Economic Research Service/USDA Food Safety Innovation in the United States / AER-831 ● 29

Appendix A: Time Line for Beef Steam Pasteurization System Innovation
Microbial pathogen control in hamburger patty production poses several challenges. Grinding operations

typically take raw beef trimmings from multiple

sources and mix these inputs together to make patties.

Meat trimmings may carry high pathogen loads

because of how they have been handled and because

they have multiple exposed surfaces. The grinding

operation itself disperses any pathogens present on the

trimmings throughout the ground product, and there is

opportunity for those pathogens to multiply in the subsequent supply chain. Designing testing protocols for

detecting sporadic pathogen loads in high volumes of

product is a challenge, as is getting quick results on

which to base management decisions.

This case study focuses on the development of the

Bacterial Pathogen Sampling and Testing Program by

the Texas American Foodservice Corporation (Texas

American) in collaboration with four other entities: the

Jack in the Box restaurant chain, one of Texas

American’s major customers; Qualicon, a unit of

DuPont Company; the Public Health and Science Office

of the U.S. Department of Agriculture’s Food Safety

and Inspection Service; and the National Cattlemen’s

Beef Association.1 The story of the Bacterial Pathogen

Sampling and Testing Program is one of a series of factors coming together at one time. These included a

demand for increased pathogen control by a major

buyer of hamburger patties, the competitive interest of

the supplier in building a reputation for quality control,

and the technological opportunity afforded by the interest of an input supplier in adapting its improved testing

technologies to the food industry. The outcome was a

significant food safety innovation.

The Bacterial Pathogen Sampling and Testing Program

is a process innovation combining a new sampling

protocol/management system for E. coli O157:H7,

Listeria monocytogenes, and Salmonella sp. and a new

application of a patented testing technology to hamburger patty processing lines. The process innovation

has resulted in a product innovation: hamburger patties

with consistently low levels of pathogen contamination. This case study sheds particular light on the

nature of appropriability for process innovations aimed

at improving the safety of food products. It also sheds

light on the set of incentives generated in the supply

chain when operational change is necessary to assure a

higher and more reliable level of food safety.

The 1993 E. coli O157:H7 Outbreak

Catalyzed Changes at Texas American

Foodservice

Texas American is a unit of the American Foodservice

Corporation, a privately owned company that operates

three plants in the United States (table D-1 presents

background on the general characteristics of Texas

American). American Foodservice Corporation is one

of the largest independent ground beef producers in

the United States. The main product of Texas

American is frozen hamburger patties, supplied mostly

to national and regional fast food companies, such as

Jack in the Box. At the time of the 2001 interview,

Texas American had 430 employees and processed 150

million pounds of ground beef annually, all of which

was sold within the United States. 

When Texas American began producing hamburger

patties in the mid-1980s, there was no significant publicity or regulatory policy around ground beef and

microbial food safety risk. Nevertheless, in the early

1990s, it began to focus on the effects of improving

quality control and food safety. These effects included

improving external failures (product rejections, product returns, liability, threatened loss of supply contracts, and a threatened increase in USDA inspection

oversight), as well as internal process failures that

resulted in product losses. 

In 1992, Texas American hired a leading expert on quality control, Timothy Biela, to assist it in the redesign of

its pathogen control system. Shortly thereafter it began

investigating clinical microbiological testing technologies, such as Polymerase Chain Reaction (PCR) testing,

30 ● Food Safety Innovation in the United States / AER-831 Economic Research Service/USDA

Innovation for Microbial Pathogen Control in the 

Supply Chain for Hamburger Patties

Elisabete Salay, Julie A. Caswell, and Tanya Roberts

1 Information on this innovation was obtained in interviews with

Timothy Biela (Texas American Foodservice) in 2001 and 2002

and with Dr. David Theno (Jack in the Box) in 2001 and 2002.

(For survey format see Salay et al., 2003.)
that could be adapted for use in monitoring pathogens

in the hamburger supply chain. 

The need for better pathogen control in the hamburger

patty supply chain was brought to widespread attention

in the United States by the 1993 Jack in the Box foodborne illness outbreak associated with inadequate cooking of hamburger patties that were contaminated with E.

coli O157:H7 (see box “Pathogen Reduction and

Hazard Analysis and Critical Control Point Program,”

p. 15). In the wake of the 1993 outbreak, Jack in the

Box instituted quality control programs reaching over

all aspects of company operations from procurement

through in-store cooking and handling to the consumer.

First, the company hired a new manager with food

safety experience in the poultry industry, Dr. David

Theno, to head its safety program. Next, the company

suspended all existing contracts with hamburger patty

suppliers and designed new contract specifications.

Only two companies, one of them Texas American, met

the demands of the new contracts. 

Texas American was in a good position to respond to

the call from Jack in the Box for producers who could

supply hamburger patties that met strict quality standards. It was able to move quickly after the 1993 outbreak because it had already begun developing a new

systematic approach to pathogen control and had

begun investigation of testing methodologies. 

Development of New Sampling and

Testing Protocols:

Innovation Through Collaboration

The Bacterial Pathogen Sampling and Testing Program

is a process innovation combining two parts: a new

sampling protocol/management system and the new

application of a patented testing technology to hamburger patty processing lines. Safety in the Texas

American program is controlled through strict testing

to assure that standards are met in raw materials, in

bulk product coming out of the grinder, and in finished

patty products. Though Texas American maintains

strict temperature control and cleaning regimes within

the plant, it does not include a kill step, such as steam

pasteurization or irradiation, in its production lines.

The key critical control point in its safety system is the

quality and temperature of raw materials coming into

the grinding plant (most of the actual activities necessary to reduce pathogen loads occur in the plants of

the raw material suppliers). 

The successful development of the Bacterial Pathogen

Sampling and Testing Program hinged on the development of a well-targeted sampling protocol and a good

testing technology (see box, “Texas American

Foodservice Corporation Bacterial Pathogen Sampling

and Testing Program” for the major elements of the

innovation and the appendix to this chapter for an

overall timeline for the development of the innovation). Sampling protocols are of great importance to

the management of pathogen risk because testing

every product is not economically feasible, particularly

since the pathogens of interest tend to be sporadic and

at a low level (Pruett et al., 2002). 

The Texas American sampling protocol is designed to

manage risk to an acceptably low level. Trimmings

entering the plant are sampled based on type, supplier,

and supplier performance but not less than every

100,000 pounds, which for most raw material suppliers

is daily. If lots test higher than standards, the supplier

is notified immediately and testing is intensified. All

raw materials are routinely screened for Aerobic Plate

Counts (APC), generic coliforms, generic E. coli,

Staphylococcus aureus, Salmonella, and Listeria

monocytogenes. These routine test results are reported

to suppliers and reviewed with them monthly. 

Samples are next taken at the final grind head, where

each batch of 3,000 pounds of hamburger is tested for

E. coli O157:H7. Finally, samples of the finished prodEconomic Research Service/USDA Food Safety Innovation in the United States / AER-831 ● 31

Table D-1—General characteristics of Texas American

Foodservice Corporation, 2001

Main activity Ground meat producer, two facilities in

Fort Worth, Texas

Main products Ground beef, 150 million pounds annually 

Number of 430 employees (under USDA FSIS 

employees classifications, this is a small (< 500 

employees) operation)

Main market 85% of production is frozen patties for 

segment commercial fast food, other markets 

include casual dining, retail, and wholesale

Exports No exports

Parent Company: 5 plants in the United States with total

American Foodservice production of 280 million pounds of 

Corporation ground beef annually

Ownership Privately owned corporation
uct are taken from each process line every 15 minutes.

Every hour, composites of the four samples are tested

to detect E. coli O157:H7. These samples are also

combined to make a “half-shift” composite, which is

tested for an entire microbial profile (APC, coliform,

E. coli, Staphylococcus aureus, Salmonella sp., and

Listeria monocytogenes). If the half-shift composites

show spikes or high counts, more tests are run on the

backup samples, also collected every 15 minutes. At

all testing points, action levels and actions to be taken

if deviations occur are clearly defined.

The development of a good testing technology was as

important as the sampling protocol to the success of the

Bacterial Pathogen Sampling and Testing Program.

Texas American believed that no one truly understood

the incidence of contamination of beef with pathogens

and that traditional microbiological testing methods were

inadequate because they relied on culturing samples of

meat, were not very sensitive, took time to run, and were

not well defined for these organisms. Texas American

started its quest for a new testing methodology by

upgrading its own microbiology lab and investigating the

availability of human clinical microbiological testing

technologies that could be adapted for use in monitoring

pathogens in the hamburger supply chain. Their investigation eventually led them to DuPont Qualicon, which

had developed the BAX® system, based on Polymerase

Chain Reaction (PCR) technology, to test for E. coli

O157:H7 and other pathogens in food. The PCR technology allows users to target known DNA strands from

specific organisms and is capable of detecting the target

organisms at levels much lower than standard serological

(cultural) methods. 

Both Texas American and Qualicon wanted to apply

the PCR technology to detect E. coli O157:H7 in hamburger in an actual meat plant environment. To accomplish this, Texas American took hamburger samples

and used the BAX® system equipment, reagents, and

primers. Qualicon fine-tuned the protocols to achieve

the best results. For validation, side-by-side test com32 ● Food Safety Innovation in the United States / AER-831 Economic Research Service/USDA

Texas American Foodservice Corporation Bacterial Pathogen Sampling and Testing Program 

(and description of additional quality control procedures)

Element of Protocol

Temperature monitoring of incoming combo bins (2,000

lbs.) of beef trim; reject if temperature is above 40oF

Combo bins sampled based on type, supplier, and supplier performance record; sampled not less than every

100,000 lbs.; most raw material lots sampled daily

Test results given to supplier monthly for all lots tested; if

lots test higher than standards, supplier is notified immediately and testing is intensified, monthly review of supplier

performance on microbiological criteria and in-plant audits

to assess compliance with Texas American standards with

performance compared to that of other suppliers

Temperature control (40oF) and inventory management

system for combo bins, first-in-first-out, use by 5th day

after boning

Samples are taken at the final grind head for each 

3,000-lb batch of hamburger tested for E. coli O157:H7

Samples of finished products are taken from each

process line every half-hour; half-hour samples are combined into "half shift" composites representing every 4

hours of production, tested for complete microbial profile (APC, coliform, E. coli, Staphylococcus aureus,

Salmonella sp., and Listeria monocytogenes), individual

backup samples for each half hour are tested only if

composites show spikes or high counts

Rework procedures in place, internal failures (e.g., the

patty does not meet specifications) are continuously

reworked during the day with quantity of rework

recorded for each batch, end of day rework is only used

during the last hour of production on the next day (segregated by product), at end of week all remaining rework

is destroyed

In-plant cleaning regime in continuous operation,

monthly random pre-operational swab tests to verify the

efficacy of cleaning procedures and monitor the environment for pathogens

Temperature control (less than 10oF) for frozen patties

Continuous review of procedures and results; adjustment

of operating procedures to address problems and opportunities for improvement
parisons with a standard culture test for E. coli

O157:H7 were conducted. Texas American benefited

by having a more accurate, sensitive, and specific test

it could use in ground beef. Qualicon benefited by validating the BAX® system assay, equipment, and protocols for meat products. 

To properly validate and sell the efficacy of the technology, Texas American also solicited the involvement of

several other groups. Until this time, there was significant speculation about the sensitivity of the PCR/DNA

method and resistance to its use. It was also not well

understood how organisms contained in food products

(meat) reacted in typical grinding operations, for example, how they moved and the level of transfer from contaminated to non-contaminated meat. The validation

collaboration involved parallel testing, using different

methods, of a number of samples by Texas American by

Silliker Laboratories (the largest independent commercial testing lab in the United States) and by USDA’s

Food Safety and Inspection Service (FSIS), through its

Office of Public Health & Science (Pruett et al., 2002).

Texas American funded its technicians, the microbiological assays, and data analysis. The National Cattlemen’s

Beef Association funded the testing by Silliker

Laboratories. FSIS funded testing at FSIS labs. 

Jack in the Box played an active role throughout the

development of the Bacterial Pathogen Sampling and

Testing innovation. Since Texas American sells

unbranded product in intermediate markets, it must tailor its product to the specifications of its major potential customers such as Jack in the Box. When Texas

American became a supplier, Jack in the Box was

looking for partners who could work with it to overcome the limits of microbial pathogen control. Jack in

the Box established standards and was involved in

monitoring the quality of raw material suppliers and

specifying plants approved to supply to grinding operations producing hamburger patties for sale to Jack in

the Box (Jack in the Box signs essentially cost-plus

contracts with its patty producers that cover the costs

of quality control). The result was a close collaboration that evolved over time as both parties learned

more about the systems required to assure food safety. 

Interestingly, government regulation was not an obvious driver in the development of the innovation. In

fact, though some USDA regulation was a stimulant to

better management of risks, Texas American often

found itself in the position of sharing its superior

information with regulators or driving collaboration

with FSIS. Regulatory and consumer developments in

other countries were also not drivers for innovation by

Texas American because the company sells only

within the United States. 

The successful collaboration of Texas American, Jack

in the Box, Qualicon (DuPont), FSIS, and the National

Cattlemen’s Beef Association ultimately resulted in the

Texas American Bacterial Pathogen Sampling and

Testing Program. Texas American believes that this

innovation has reduced by 80 percent the risk associated with distributing a raw product that can potentially contain organisms that can cause illness or death

if consumed prior to proper cooking and preparation.

The company has never had a recall of its products

and believes that its program significantly lowers the

risk of recall or negative publicity associated with

foodborne illness outbreaks. 

Texas American Leads the Way...

and Appropriates the Benefits 

Texas American appropriated the benefits of its process

innovation through establishing a substantial lead over

its competitors. Texas American did not believe that

pursuing patents or secrecy was important to maintaining or increasing the competitive advantage it would

gain from the innovation. Indeed, the collaborative

nature of the innovation process, with strong involvement from Qualicon and Jack in the Box, which in turn

would be working with other suppliers, probably made

secrecy unworkable. In fact, Texas American and Jack

in the Box have been very active in sharing the new

approach with other members of the hamburger patty

supply chain. They believe that the reputation of the

entire industry, including their own, is on the line anytime poor quality control results in illnesses and outbreaks associated with hamburger products. Texas

American’s stance is to share its knowledge about the

implications of organisms like E. coli O157:H7 with

potential customers as well as with competitors. 

The Texas American experience supports the idea that

transparency of an innovation does not necessarily

imply that it will be widely imitated. The complexity

of the management systems and the discipline they

require, along with continued innovative activity, have

helped Texas American build and maintain a competitive advantage. In addition, given current market conditions, the costs of adoption are high relative to

opportunities to market improved pathogen control. 

Economic Research Service/USDA Food Safety Innovation in the United States / AER-831 ● 33
Texas American’s first-mover advantage is also maintained through the fact that it captured a significant

share of the market for hamburger patties produced to

a higher pathogen control standard. Its dominant position may discourage other firms. However, this could

change if demand for higher quality control standards

becomes more widespread among buyers.

Texas American has been able to reap numerous benefits from its food safety innovation—and its first-mover

advantage. One of the major benefits is that Texas

American has been able to shift from being a commodity producer selling on a week-to-week basis to being a

contract supplier. This shift has allowed Texas American

to improve its operational efficiency through better

planning for capacity utilization, capital investment,

spending plans, and other business activities. 

Another benefit of the innovation is Texas American’s

ability to use its superior knowledge and expertise in

the area of pathogen control to attract new customers.

Texas American has enhanced its reputation with quality control, superior knowledge, and risk management

skills it has built over a period of almost a decade. The

company’s sales increased approximately 5 percent

annually after it implemented the innovation. Over the

3 years up to 2001, Texas American estimates that

about 25-30 percent of its new sales opportunities

occurred because of the innovation. The increase in

sales has had the added important benefit of allowing

Texas American to increase its utilization of fixed capital by 20 percent over the last 5 years. 

Texas American also attributes significant savings and

other financial benefits to adoption of the program.

The superior knowledge about incidence rates and

potential for product contamination that Texas

American has gained through the program has enabled

it to make better risk-management decisions regarding

suppliers of raw materials. Texas American’s understanding of which raw material suppliers have higher

incidence levels and at what times of the year to

expect positive test readings in different types of raw

materials allows it to make better purchasing decisions. Avoiding high-risk raw materials leads to fewer

product rejections and helps save money. Thanks to

the Bacterial Pathogen Sampling and Testing Program,

Texas American has been experiencing very few contamination incidents per year for E. coli O157:H7; in

some years it has had none or one. 

The benefits of the Bacterial Pathogen Sampling and

Testing Program to Texas American have outweighed

the costs of the innovation even though the costs of

instituting the program involved significant initial

expenditures. Texas American characterized the startup

expenses as very high. In addition, there were high

costs related to destruction of product in the early

stages of the implementation. To contain some of these

costs, Texas American worked with USDA to get

approval of a system to identify sub-lots for purposes

of testing and recall. Over time, costs have not

increased, even though testing technology has become

increasingly sensitive. 

Texas American reports that costs are being controlled

due to several factors. First, the development of the sublot system has reduced the amount of product that needs

to be removed by pinpointing product that is contaminated. Second, the raw materials industry has reduced

microbial contamination rates for incoming product

under the Texas American program, since Texas

American works with its suppliers to reduce contamination and the performance of the industry has generally

been improving. Finally, Texas American has set a reasonable threshold level for the BAX® tests of its finished, frozen hamburger patties. Texas American set the

threshold level for product rejection to eliminate the possibility of outbreak and massive recall. The most sensitive BAX® test for ground meat is extremely sensitive;

it is able to detect 1 cell/125 grams of product. Using the

lower bound of such a sensitive test could result in rejection of as much as 30-65 percent of product depending

on the geographical source and time of year.

Current costs of the program are minimal now that the

innovation has been in place for a period of years.

Texas American estimates that the cost per pound of

the system runs between $0.001 and $0.01, without

significant increases in labor, raw material consumption, or energy consumption. To maintain a competitive edge, and its name as a food safety leader, Texas

American continues to expend capital on research and

development, with the bulk of these expenditures

going to food safety improvements. 

An Emerging Market for Food Safety

Opens the Door to Food Safety Innovation 

The Texas American case study illustrates the impact

that the emergence of a market for food safety can

have on the appropriability of food safety

34 ● Food Safety Innovation in the United States / AER-831 Economic Research Service/USDA
innovation—and hence on innovation itself. In the

Texas American case study, Jack in the Box, a highly

knowledgeable buyer with the ability to test for and

verify safety attributes helped spur the development of

the market for food safety attributes. Jack in the Box,

and a number of other fast food and restaurant companies, have a great deal staked on the continued good

reputation of their brand names. Particularly since the

1993 E. coli O157:H7 outbreak, these companies have

had strong incentives to expend the resources necessary to control for food safety. They also typically deal

with a very small number of suppliers and maintain

traceability systems that allow them to track the source

of any problems. Thus the failures usually thought to

exist in markets for food safety are mitigated to a significant extent by the nature of the supply chain for

hamburger patties used in chain restaurants. 

The development of demand for food safety in this

market, in response to the need to manage risk, in turn

increased the probability that a company that invested

in innovation for food safety control would be able to

appropriate benefits from that investment. For Texas

American, the push by Jack in the Box to find highquality hamburger patty suppliers offered the opportunity to intensify the company’s new commitment to

quality assurance with substantial certainty that its

efforts would be rewarded with sales at prices that

would recognize the company’s quality achievements. 

Texas American and Jack in the Box worked collaboratively over time to attain higher standards. Both

companies were first motivated by the need for risk

management to limit or eliminate the damage in reputation, sales, and liability stemming from inadequate

quality control. Both companies have found that a reputation for quality has served as a foundation for

growth. These companies have helped develop a market for food safety—and through their reputations as

safety leaders, both have reaped benefits from supplying this market.

Economic Research Service/USDA Food Safety Innovation in the United States / AER-831 ● 35
1985: Texas American plant starts hamburger patty

production.

Early 1990s: Texas American becomes concerned

about quality control and begins exploring new methods to improve quality assurance.

Mar. 1992: Timothy Biela, Director of Quality

Assurance, conducts hazard analysis for bacterial,

physical, and chemical hazards for Texas American

hamburger patties.

Early 1993: Jack in the Box E. coli O157:H7 

outbreak.

Mar. 1993: Biela and Texas American General

Manager schedule meeting with Jack in the Box to

discuss a strategy and program for supplying frozen

hamburger patties to Jack in the Box.

Mar.-Apr. 1993: Contract negotiated with testing

details and responsibilities for affected products specified in the contract.

May 1993: Texas American starts supplying Jack in

the Box. 

May 1993-1994: Texas American upgrades microbiology lab, writes specific operation procedures, develops new sampling and testing protocols, acquires

equipment from Qualicon and other suppliers.

1993-1994: Validation of Qualicon testing protocols.

1994-Present: Continued refinement of sampling and

testing program.

2000: Begins joint venture into retailing Modified

Atmosphere Packing of ground beef products.

2001: Texas American opens a second plant in Texas. 

36 ● Food Safety Innovation in the United States / AER-831 Economic Research Service/USDA

Appendix B: Time Line for the 

Texas American Foodservice Corporation Innovation
Market Incentives for Food Safety

Innovation: Lessons from the 

Meat Industry 

The ERS survey and the two case studies illustrate how

the meat processing industry has developed mechanisms

for partially overcoming the incentive problems caused

by asymmetric information in food safety markets. In

this section, we identify and discuss eight primary drivers of food safety innovation in the meat industry, as

revealed by the survey and case studies. 

Emerging Markets for Food Safety 

Overcome Market Failure 

By far, the dominant drivers of food safety innovation

in the meat industry are the stringent requirements on

product safety and quality demanded by large fast

food restaurants, such as Burger King, Jack in the

Box, McDonald’s, and Wendy’s. By demanding safer

products from their suppliers, these restaurants have

successfully created markets for food safety. The success of these markets rests on the ability of these large

buyers to enforce standards through testing and

process audits—and to reward suppliers who meet

safety standards and punish those who do not.

Through contracts with these large buyers, meat

processors are able to appropriate the benefits of their

investments in food safety. 

The emergence of savvy buyers who demand quality

alleviates two market failure problems that typically

occur in markets for food safety. The first problem

characterizing most food markets is that demand for

product differentiation on the basis of safety is typically episodic because consumers are largely uninformed about food safety. The large fast food

restaurants reverse this trend; they are anything but

uninformed. To protect their investments in brand

equity, these restaurants have become educated about

food safety processes and testing. They are pushing

food suppliers to provide safer products—something

that typical food consumers rarely do. 

The second market failure problem, that of asymmetric

information, is also alleviated by the emergence of

demanding large buyers. In typical food markets, producers who use the safest processes and produce the

safest products have a difficult time differentiating

themselves from their less safe competitors, since most

buyers cannot tell the difference between safe and

unsafe product. Because large retailers have the capability to test or otherwise verify safety, food processors

that use safe processes can differentiate themselves

from their competitors and seek compensation for

higher quality products. Thanks to the emergence of

these technically proficient buyers, safer meat processors can appropriate some of the benefits of their

investments in safety through price premiums or guaranteed sales. 

In the market for hamburger, fast food restaurants have

adopted the role of channel captains, monitoring the

safety of products up and down the supply chain. They

have created markets for food safety that have stimulated demand for safety and provided processors with

mechanisms for appropriating the benefits of food

safety innovation. Slaughter plants subject to buyer

specifications invest in more food safety activities than

those without buyer specifications. 

The experiences of Texas American/Jack in the Box

and Frigoscandia Equipment/Excel illustrate the

advantages of a market for food safety. These companies gained reputations for safety and benefited from

increased demand and market stability. As pointed out

in the Texas American case study, the fact that there

are so many advantages to creating markets for food

safety raises the question of why markets for food

safety have not developed as quickly in other parts of

the food industry. In particular, though some grocery

stores are beginning to monitor the safety practices of

their suppliers, why have food retailers generally not

adopted the same channel captain role as restaurant

chains in overseeing the quality of hamburger sold

through their outlets? Why have food retailers not been

as aggressive in demanding safer inputs? Maybe the

real question is: What prompted the large fast food

restaurants to break ranks with other retailers and

begin to demand safer inputs? 

Branding to Appropriate Benefits 

from Food Safety Innovation

Branding also plays an important role in helping firms

appropriate the benefits of safety investments. Though

Economic Research Service/USDA Food Safety Innovation in the United States / AER-831 ● 37

Part III. Market and Regulatory Incentives for Food Safety

Innovation
the ERS survey did not reveal more safety investment

by branded slaughter plants, this result is probably

explained by the fact that many respondents misunderstood the branding question. A better indicator of the

importance of branding for food safety innovation is

the key role that the major name brand fast food

restaurants have had in driving safety innovation. As

discussed above, these companies have emerged as

savvy food safety consumers and have succeeded in

stimulating food safety innovation. 

The major, name-brand fast food restaurants are able

to appropriate some of the benefits of their investments

in food safety because of their reputations for safe

food. Even more important, perhaps, these firms benefit from their investments through a reduced risk of

being associated with a foodborne illness outbreak. A

firm that is identified as being responsible for a foodborne illness outbreak faces the potential for bad publicity, liability, and recalls. A food safety outbreak

could cost the firm in terms of market share, equity

value, and legal liability. As previously mentioned, in

the 18 months after the 1993 outbreak of E. coli

O157:H7, Jack in the Box and its parent company,

Foodmaker, Inc., lost about $160 million (Roberts et

al., 1997).

Not only do branded firms have more equity investment at risk than unbranded firms if they are associated with an outbreak, they also have a higher

probability of being identified and held liable in the

case of food safety problems. Name brand recognition

is a double-edged sword: it allows consumers (and

regulators) to identify and reward firms that produce

high-quality, safe products, but it also increases their

chances of identifying firms that are guilty of safety

lapses. Branding reduces the chances of remaining

anonymous in case of a foodborne disease outbreak. 

The fact that the advantages of anonymity are forfeited

with branding may explain why fast food restaurant

chains, and not foodstores, have been the first to

become channel captains in the meat industry. The ability of these restaurants to remain anonymous may have

been very limited in the first place, meaning that they

had little to lose by aggressively branding their products. For slaughter plants, meat processors, and foodstores, product mixing reduces the chance that the

source of a foodborne illness will be identified and that

the guilty party will be held accountable. For these

firms, the value of remaining anonymous may be larger

than the value of branding and channel captaining. 

In addition, since restaurants have final responsibility

for meat preparation, they bear final responsibility for

proper meat handling and cooking. They are clearly

liable if food is improperly prepared, while such liability is less clear cut in the case of slaughter plants or

processors. The added risk of liability is likely another

factor driving more and more restaurants to shoulder

the role of channel captains. 

In fact, only a limited number of input providers or

retailers have chosen to brand and to become channel

captains. For example, few if any U.S. food retailers

engage in premium or luxury house branding of meats.

With this approach, retailers attempt to build a name

for quality and safety that umbrellas all of the storebranded products—including their branded meat products. Surprisingly, European retailers have been using

this strategy for some time with great success. For

example, as early as 1992, supermarket chains’ brands

accounted for about 50 percent of sales in the United

Kingdom (Selame and Kolligian, 1992). In the United

Kingdom and European Union generally, grocery

stores have taken on the role of channel captain and

many developments in food safety management on

that side of the Atlantic can be traced to the major grocery stores. The question remains as to why European

retailers find it advantageous to relinquish their

anonymity and become channel captains, while U.S.

retailers do not. 

International Trade Stimulates Demand for

Safety and Provides Technological Spillovers

International trade has played an important role in

stimulating the demand for food safety, with many foreign buyers playing a channel captain role in much the

same way as the large fast food restaurants. Foreign

buyers who demand high safety standards tend to test

product for safety and to pay premiums or to guarantee sales for safe producers; these are the buyers who

fuel the growth of markets for food safety and stimulate safety innovation. The ERS survey data reveal 

that slaughter plants with foreign buyers invested in

more safety activities than those serving exclusively

domestic markets. 

The Frigoscandia Equipment case study illustrates

another potential benefit of trade in food safety: technology spillovers between countries. The development

of the Steam Pasteurization System benefited from the

technological expertise that the Swedish company had

built up over 50 years in the cold storage business.

38 ● Food Safety Innovation in the United States / AER-831 Economic Research Service/USDA
Swedish technological expertise provided spillovers that

benefited U.S. food safety innovation. 

First Movers Appropriate the Benefits of

Innovation and Encourage Diffusion

The Texas American case study illustrates the importance of first-mover advantage in establishing a means

to appropriate the benefits of innovation. Texas

American did not patent the Bacterial Pathogen

Sampling and Testing Program or seek any other sort

of protection for the innovation. It was confident that

its first-mover advantage would forestall pressure from

the competition and provide it with space for appropriating the benefits of the innovation. In fact, the complexities of the Bacterial Pathogen Sampling and

Testing Program, along with continued innovative

activity, have helped Texas American build and maintain a competitive advantage. In addition, as a first

mover, it was able to capture a significant share of the

market for safety-controlled hamburger patties, making

entry less attractive to other firms. 

Not only did Texas American choose not to seek protection for the innovation, it actually sought to disseminate

the Bacterial Pathogen Sampling and Testing Program

throughout the industry. Jack in the Box and Texas

American have both been very active in sharing the

innovation with other members of the hamburger patty

supply chain. Both companies argue that hamburgerborne outbreaks hurt everyone in the industry and that

anything that helps reduce the possibility of outbreaks

associated with hamburgers is good for business. 

Another reason that firms may have an interest in sharing new technologies with their competitors and with

government regulators is to influence the “standard of

care” for the industry. For innovators such as

Frigoscandia Equipment, the advantage of setting the

standard of care is simple: more sales of its patented

Steam Pasteurization System. For a firm like Texas

American, which is not selling its innovation, the

advantages are subtler, though potentially as large.

Setting a standard of care that is difficult to meet can

help set a barrier to entry that benefits the innovating

firm. First adopters gain larger market shares (and

maybe market power) if the expense or complexity of

the innovation forces some producers out of business.

Even if all firms eventually adopt the innovation, first

movers will benefit from limited competition during

the period when their competitors are installing and

adapting the new technologies or processing protocols. 

Collaboration Facilitates Innovation 

and Dissemination

The observation that the performance of the industry

as a whole affects the reputation and profitability of all

firms in the industry provides incentives for firms to

collaborate to improve overall industry performance.

In both case studies, the innovative process was

dependent on collaboration. The successful collaboration of Frigoscandia Equipment, Excel, and Kansas

State University led to the development of the Steam

Pasteurization System. In the case of the Bacterial

Pathogen Sampling and Testing Program, Texas

American, Jack in the Box, Qualicon, USDA-FSIS,

and the National Cattlemen’s Beef Association worked

collaboratively to develop the innovation and improve

industry performance. 

In each case, the technical and managerial expertise of

the collaborators combined to facilitate the development of the innovation and ensure that it would be

effective in a commercial setting. Teamwork is essential to move an industry:

...innovation...requires careful, dedicated, and

enthusiastic attention to detail—to the specifics

of product and services and markets and materials—by all kinds of people in the organization.

These people are not merely implementers; they

are strategists too, because any really good idea

can change a company—and an industry.”

(Mintzberg, 2002, p. 143)

In addition to technical and managerial benefits, collaboration also provides important risk-sharing benefits. In both case studies, collaboration between buyers

like Excel and Jack in the Box and sellers like

Frigoscandia Equipment and Texas American reduced

marketing risks and provided feedback that improved

the quality and success of the innovation. In both case

studies, collaboration was essential to the willingness

of the innovators to commit time and resources to the

endeavor. Collaboration between buyers and sellers

also helps speed diffusion of the innovation. 

Market Conditions Push Large 

Firms to Innovate

The ERS survey indicates that large slaughter plants

had much higher food safety technology ratings than

smaller ones, particularly with respect to more capitalintensive activities. For the capital-intensive activities

of equipment, testing, and careful dehiding, large

Economic Research Service/USDA Food Safety Innovation in the United States / AER-831 ● 39
plants had ratings about twice that of smaller plants

whereas for the more labor-intensive activities of sanitation and operations, they had only about a 20-percent

higher rating. These differences in technology ratings

suggest that economies of scale, i.e., much lower unit

costs for large plants versus small ones, play a major

role in whether plants adopt capital-intensive food

safety technologies. However, economies of scale do

not sufficiently explain all differences. Two characteristics peculiar to the beef industry and food safety also

explain some of the differences in food safety investment between large and small plants. 

First, large and small slaughter plants face different

markets. Large plants tend to supply large, homogeneous markets with relatively elastic demand, while

smaller plants tend to serve smaller markets with less

elastic demand. In homogeneous markets, in which a

number of firms produce and market similar or identical products, any slip in safety could reduce demand

for products from the offending plant. In less elastic

markets, products are less fungible, and buyers may be

more willing to overlook food safety slips or to work

with a plant to overcome safety problems. To protect

their markets, large plants may therefore have more

incentive than small firms to adopt food safety innovations. In fact, slaughter plants that can consistently

supply high levels of product safety, as required by a

number of major food retailers, gain access to almost

guaranteed markets for large volumes of product.

Large firms may therefore have more incentive than

small firms to pursue food safety innovation. 

Another reason large firms may invest more in food

safety than small firms is that food safety lapses have

the potential to be more costly for large firms because

they may involve larger amounts of product. Large

amounts of contaminated product increase both the

probability of detection and the cost of wasted product

or recall as illustrated in the Frigoscandia case study,

though smaller lot sizing can help control the extent

and cost of contamination. For large firms, the cost of

not adopting the safety innovation may be greater than

the cost of adopting the innovation. For small firms,

the cost of not innovating may be much less and therefore not provide the same motivation. 

Outbreaks Spur the Demand for Safety and

Accelerate Innovation 

The 1993 outbreak of E. coli O157:H7 was a seminal

food safety event in the United States. This outbreak

led to increased consumer awareness of food safety

issues and triggered a spike in demand for food safety

that is still being felt in the industry. It is directly

responsible for the decision by fast food restaurants to

assume channel captain roles—a decision that has had

repercussions for the safety of the whole industry. 

The outbreak also pushed the Federal Government to

reassess the beef industry’s food safety standards and

to make a number of key policy changes, including

declaring E. coli O157:H7 an adulterant in raw ground

beef. The effects of this change have yet to be fully

appreciated. The outbreak also accelerated efforts to

update the Federal inspection system with PR/HACCP. 

Technological Validation is as Important as

Technological Opportunity in Driving

Innovation

The Steam Pasteurization System case study highlights

an important observation about technological innovation for food safety: the design and fabrication of the

technology may be secondary to technological validation in determining the ultimate success of an innovation. Not only is it difficult to measure pathogen

control and technological efficacy, but even the best

technology can be undermined by deficiencies in the

overall safety system. The actual efficacy of the technology may vary greatly from plant to plant, depending on the characteristics of each plant’s safety system.

As a result, innovators may have a difficult time certifying or otherwise guaranteeing the efficacy of the

technology for controlling pathogen contamination. 

One of the largest stumbling blocks Frigoscandia

Equipment faced in the development of the Steam

Pasteurization innovation was the validation of the

technology. The long and arduous series of testing that

Frigoscandia Equipment required prior to marketing

the technology was necessary to gain market acceptance. Nevertheless, even this level of testing was

unable to convince all U.S. or foreign beef companies

of the dependability of the equipment in different production environments.

Designing Regulatory Incentives for 

Food Safety Innovation

Asymmetric information in food safety markets may

result in a level of food safety investment that is less

than socially optimal. If policymakers determine that

intervention is necessary to stimulate innovation, they

then face the task of determining which policy tools to

40 ● Food Safety Innovation in the United States / AER-831 Economic Research Service/USDA
use. As discussed in the previous section, the ERS survey and the two case studies reveal a number of mechanisms developed by the beef industry to overcome

asymmetric information problems and stimulate innovation. What can policymakers learn from industry

experience? Has the market evolved in such as way as

to make some policy choices more efficient than others? This section examines those policy options suggested by the theoretical and empirical evidence. 

Strengthen Appropriability Through 

Safety Information

The success of the fast food restaurants and other

channel captains in stimulating innovation reveals the

importance of the ability to verify safety and quality

claims. Channel captains require their suppliers to provide testing and/or other evidence that food safety

standards have been met. As a result, asymmetric

information problems are reduced—and food safety

innovators can more easily appropriate the benefits of

their investments. 

Likewise, reducing asymmetric information is probably an important step in any government policy

designed to stimulate food safety innovation.

Government programs that provide consumers (both

final consumers and input consumers) with food safety

information, particularly information on safe and

unsafe producers, will help the market to operate more

efficiently. With more safety information, consumers

will be able to choose the level of food safety (and

price) that best matches their preferences. As a result,

the market supply of food safety and food safety innovation will better reflect consumer preferences. For

example the introduction of irradiated meat patties in

some markets has expanded the welfare of consumers

who place a high value on safety. These consumers are

able to pay a premium to purchase meat virtually guaranteed free of pathogens. 

With better informed consumers, it is more likely that

unsafe firms will bear some of the costs of unsafe production, such as recall, liability, and bad publicity.

Information therefore strengthens market incentives for

firms to produce safe foods—and to invest in food

safety innovation. Information helps firms appropriate

the benefits of safety investments and helps ensure that

unsafe firms “appropriate” at least some of the costs of

safety failures. Jin and Leslie (2003) found that consumer demand was sensitive to hygiene quality grades

required by Los Angeles County and posted in restaurant windows. Information about hygiene helped clean

restaurants benefit from their investments while restaurants that did not meet county standards paid the price

of their negligence in the form of fewer customers. In

addition, foodborne hospitalizations decreased after the

1998 Los Angeles County requirement.

The government has a number of tools at its disposal

to reduce asymmetric information and transform credence attributes, such as food safety, into attributes

more closely resembling search attributes that consumers can evaluate by reading labels or investigating

other information sources prior to purchasing products

(Caswell and Mojduszka, 1996). Labeling programs

could provide general food safety information like the

safe-handling labels on retail meat and poultry packages in the United States, or more specific information

like the “Salmonella Free” labels available to Danish

poultry producers. Government safety labeling programs could be mandatory, like nutrition labeling, or

voluntary, like some allergen labeling. 

Labeling is not the only government program targeted

at increasing food safety information and the transparency of the safety system. For example, both FSIS

and the FDA post a list of recalls for contaminated,

adulterated, or misbranded products. In another program, FSIS requires that the results of the HACCP

Salmonella testing program for meat and poultry be

published annually and made available to the public

(though, unfortunately, results are not reported for

individual firms, as was originally proposed by FSIS). 

Other government programs that could be used to provide consumers with more information about food

safety include time/temperature indicators for each

package of refrigerated food; harvest/lay/slaughter

dates on each package of an animal protein product;

pathogen performance information on each company

and its products; and a government-certified label for

low-risk foods, so companies can compete on providing safety from pathogens.

As a prerequisite to providing consumers with information on safe and unsafe producers, the government

must generate data on safety records. In the United

States, the Federal Government and other public health

officials have taken strides in building the infrastructure for tracking the incidence and sources of foodborne illness. The Foodborne Diseases Active

Surveillance Network (FoodNet) combines active surveillance for foodborne diseases with related epidemiologic studies to help public health officials better

respond to new and emerging foodborne diseases.

Economic Research Service/USDA Food Safety Innovation in the United States / AER-831 ● 41
FoodNet is a collaborative project of the Centers for

Disease Control and Prevention (CDC), nine States,

the United States Department of Agriculture, and the

Food and Drug Administration. 

Another network, PulseNet, based at CDC, connects

public health laboratories in 26 States, Los Angeles

County, New York City, the FDA, and USDA to a system of standardized testing and information sharing.

PulseNet helps reduce the time it takes disease investigators to find and respond to foodborne outbreaks.

Both FoodNet and PulseNet differ from passive surveillance systems that rely on reporting of foodborne

diseases by clinical laboratories to State health departments, which in turn report to CDC. Under passive

information gathering, only a fraction of foodborne illnesses are routinely reported to CDC. 

In addition to improving market results, information

on safe and unsafe producers is also important for targeting government enforcement activities. Unless regulators can distinguish between safe and unsafe

processors, they cannot ensure that those with poor

records pay the cost of their safety lapses. Information

is vital to government efforts to ensure that food safety

innovators appropriate the benefits of their investments

and the shirkers appropriate the costs of any failures. 

Strengthen Appropriability Through 

Increasing the Costs of Failure and the 

Benefits of Success

Not only do restaurants and other entities acting as

channel captains distinguish between safe and unsafe

producers, they provide real benefits to those who consistently produce safe products. Suppliers that meet

standards benefit in terms of sales contracts and/or

price premiums, while those that fail standards lose

access to these important markets. The ERS survey

results indicate that plants with buyer specifications

had higher levels of safety activities than those without. Government policies targeted at strengthening the

costs of food safety lapses and the benefits of food

safety compliance and investment may likewise stimulate innovation. 

Policies specifically targeted to rewarding producers of

safe products include government safety certification

and preference in government procurement programs.

Policies specifically targeted to increasing the cost of

food failures include recalls, testing schedules linked

to performance, and higher fines or longer plant closures in cases of noncompliance. Any policy that

increases the probability of getting caught selling

unsafe food also increases the probable cost of producing unsafe food. 

A potential drawback to any policy targeted to

strengthening appropriability is the possibility that

imitation and the diffusion of new technologies will be

slowed. When innovating firms have strong appropriability mechanisms, the costs of imitation rise, reducing the rate of diffusion. In the case of food safety, the

stimulating effect of strengthened appropriability on

social welfare may outweigh the dampening effect of

lowered diffusion. 

Provide Flexibility in Choice of 

Food Safety Technology

Regulation that does not dictate any particular technology is likely to encourage efficiency and innovation.

When government safety standards focus on performance, not process, individual firms can choose the

most efficient approach to achieve a particular standard. For some firms, capital-intensive activities will

be more efficient than labor-intensive activities; for

other firms, the opposite will be true. Performance

standards encourage efficiency by letting firms use

whatever approach is best for their particular production process. 

Performance standards encourage innovation by giving

firms the freedom to develop new approaches to achieve

outcome targets. Past regulations have often prescribed

particular remediation technologies. For example, in

pollution control, the government has specified “best

available technology” and “best available control technology,” while food safety regulation has focused on the

prescription of Good Manufacturing Practices. The

specification of process is deeply rooted in U.S. practice

and implies that one technology is best, which discourages innovation. As Porter and Linde (1995) note, the

government should maximize the opportunity for innovation by letting industries discover how to solve their

own problems. 

The Steam Pasteurization System case study directly

illustrates the power of a flexible regulatory approach

for stimulating innovation. PR/HACCP provides food

processors with flexibility to innovate and adopt new

safety technologies as critical control point measures

in a plant’s PR/HACCP system. If PR/HACCP had

specified particular technologies for each critical control point, the drive for more efficient control point

measures would have been severely dampened and

42 ● Food Safety Innovation in the United States / AER-831 Economic Research Service/USDA
Frigoscandia Equipment would have had little incentive to develop the Steam Pasteurization System. 

The variety of food safety activities listed in the ERS

survey results provides more evidence of the role of

regulator flexibility in stimulating innovation and efficiency. If PR/HACCP had specified particular technologies for each critical control point, then the variety

of safety activities would likely have been restricted

and large and small firms would have had more difficulty finding an efficient mix of capital- and laborintensive activities. 

Invest in the Scientific Infrastructure and

Support Research on Safety Testing 

The ERS survey and the two case studies did not highlight any food safety innovations that directly depended

on government research and development or on government expertise. This does not mean that governmentsupported institutional infrastructure, such as

intellectual property rights protection, was not important

to the development of the innovations highlighted in the

empirical investigation (patent rights were critical in

enabling the invention of the Steam Pasteurization

System technology). Nor does it mean that basic government-funded research did not contribute indirectly to

the development of these innovations. By expanding the

general pool of knowledge about pathogen testing and

food processing, government researchers helped build

the infrastructure for both the Steam Pasteurization

System technology and the Bacterial Pathogen

Sampling and Testing Program. 

Fuglie et al. (1996) contend that government research

and development plays an important role in food

safety innovation: They note:

The private sector often underinvests in agricultural research because only a share of the

total economic benefits can be captured. This

is most true of fundamental (pre-technology)

research and is also true for applied research

that generates important non-market benefits,

such as environmental, social science, food

safety, and nutrition research. (p. 33) 

Government can also play a role in building collaborations—something that the case studies showed to be

important to successful innovation. Governments

encourage collaborations through a number of vehicles, including cooperative funding agreements, outreach programs, and tax-free research areas. In the

United States, the Federal Technology Transfer Act of

1986 and the National Cooperative Research and

Production Act of 1993 (National Science Board,

2002) bolster collaborative research efforts. 

The Frigoscandia Equipment case study suggests a

more direct sort of technical research support that could

be provided by government research: validated testing

methodologies or certification for pathogen control

technologies. To successfully commercialize the Steam

Pasteurization System technology, Frigoscandia

Equipment needed to establish the efficacy of the technology. However, as with many pathogen reduction

technologies, success was not easy to prove, particularly

given the wide range of production technologies in different slaughter plants. When standards are technically

difficult to verify, government services may be instrumental in helping to establish testing norms. For example, the Grain Inspection, Packers, and Stockyards

Administration has established a reference laboratory to

evaluate and verify the validity of analytical techniques

applied to the detection of genetically enhanced traits in

grains and grain products (for more information, see

http://www.usda.gov/gipsa/newsroom/backgrounders/

b-reference-lab.htm).

Another important function for government research

and development may be to improve food safety 

monitoring capabilities. Advances in technology are

key to supporting, and in many cases, stimulating

information provision. For example, “DNA fingerprinting” technology makes it easier to link illness to

specific firms. Such information may be key in health

investigations of outbreaks and in food safety litigation

(Buzby et al., 2001). 

Economic Research Service/USDA Food Safety Innovation in the United States / AER-831 ● 43
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