Issue: International food trade is growing, as consumers

take advantage of lower prices and greater seasonal availability of some foods abroad. Most countries have regulations governing the safety of food production. Conflicts

over differences in food safety standards between trading

partners can stifle trade. Countries receive benefits from

international food trade, but they also receive benefits

from strong food safety regulations. Countries with differing safety standards, however, have several different alternatives for resolving their conflicts.

Background: The market has incentives to provide some

degree of food safety, as firms depend on their reputations

for repeat sales. However, the market generally does not

provide the socially desirable amount of food safety for

two reasons. First, consumers cannot determine how safe

food is before buying it. Even when consumers purchase

foods, they often cannot tell whether a particular food was

responsible for making them ill or whether consuming it

might have long-term health consequences. Consumers

will not necessarily be able to assign the appropriate credit

or blame to firms that provide safe or unsafe food. Their

uncertainty about the safety of a particular type of food

might even make them reluctant to buy it. Food safety

measures can increase costs for firms, and this lack of consumer information reduces the incentives for a firm to provide safe food. Second, when consumers eat unsafe food

and become ill, costs extend beyond consumers themselves to healthcare workers, employers, and family members. Consumers do not usually take such costs into

account when they consume food. 

Government regulation attempts to increase the level of

food safety provided by the market, as the market alone

will usually not provide the socially desirable level.

Regulations can specify particular processes that a firm

must use to produce food. For instance, a government

might require manufacturers to seal food in plastic to prevent contamination with foreign matter. Alternatively, regulations can specify a level of quality for the final food

product. For example, most countries have maximum

allowable levels of pesticide residue that may be present

on fruits and vegetables. This type of regulation allows

firms to select the least expensive method of arriving at the

desired product quality. 

Regulations often raise costs for firms in an industry, as

reflected in the new supply curve. Consumers are, however,

often willing to pay more for safer food, as indicated by the

new demand curve. However, firms that improve the safety

of their food might be unable to communicate that improved

safety to consumers, in which case they do not receive the

higher prices indicated by the new demand curve.

United States

Department of

Agriculture

Economic 

Research

Service

Issues in Diet, Safety, and Health / Agriculture Information Bulletin Number 789-2 February 2004

Food Safety and

International Trade 

Theoretical Issues

Lorraine Mitchell, lmitchel@ers.usda.gov, (202) 694-5234

A change in food safety regulations

S1

S2 (includes new food 

safety regulations)

D1

D2 (reflects desire

for safer food)

Q2 Q1

P2

P1

P
2 Economic Research Service / USDA

Food Safety and International Trade: Theoretical Issues / AIB-789-2

When countries trade internationally, the same issues

arise, with a few additional concerns. Regulations might

differ across countries, as countries have different types of

regulations, different levels of tolerance for food safety

risks, and different costs of producing safer food. If a regulation imposed by the government of one country is more

stringent, its firms will have higher costs and may be

unable to sell their goods as cheaply as foreign firms not

subject to the regulations. Consumers will pay more for

safer food, but the firm’s inability to communicate its food

safety level — and the consumers’ inability to take social

costs into account — can leave the domestic firms at a disadvantage. Firms attempting to comply with their trading

partners’ regulations might incur higher costs if geography

or climate make it more difficult to comply, or if they

must take steps to assure their trading partners of their

compliance. These regulatory differences can create conflicts across countries.

Findings: When countries disagree over trade safety regulations, several outcomes are possible. The outcome chosen should depend on the relative size of the benefits of

trade versus the costs of altering or complying with food

safety regulations. 

 The domestic country could ban less regulated foreign

foods. If the foreign producers really cannot provide

the safer food as cheaply as domestic firms, consumers

are better off with the ban, if the food safety benefits

are high. The benefits from trade are low if the imported good is less safe. However, if foreign firms could

provide food that is cheap and safe, consumers lose

from a ban, as they lose the benefits from trade and do

not gain added food safety. 

 If the foreign firms decide that the value of the domestic country’s market is high enough, the foreign firms

can adopt the domestic country’s costlier food safety

regulations, either as regulations for exported goods or

regulations for all production. If these regulations

spread throughout the foreign country’s industry, this

can improve food safety for the foreign country’s own

consumers. 

 The countries can negotiate a compromise solution, if

both feel that the costs of altering their regulations or

production practices are worth the benefit of maintaining the trading relationship. Third-party standards,

such as those of the Codex Alimentarius, can also be

adopted.

Information Source:

For full text, see Mitchell, Lorraine. “Economic Theory

and Conceptual Relationships Between Food Safety and

International Trade,” chapter 2 in International Trade and

Food Safety: Economic Theory and Case Studies. J. Buzby

(ed.). USDA, Econ. Res. Serv., AER-828, Nov. 2003.

www.ers.usda.gov/publications/aer828/

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3 Economic Research Service / USDA

Issues in Diet, Safety, and Health Research Brief Number 1-