How do food safety regulations influence market price? A theoretical analysis

Purpose This study is in line with the debate concerning the compatibility between the qualitative and quantitative food production objectives. The purpose of this paper is to identify the causal relationship that may exist between public food safety regulations (specifically, the maximum authorised levels of chemical or microbiological contaminants), and the expected price in the spot markets (wholesale markets, for example). Design/methodology/approach The authors propose a theoretical industrial economic model that identifies the causal link which may exist between public food safety regulations (e.g. the maximum authorised levels of chemical or microbiological contaminants), the expected price in domestic markets, and the rate of exclusion of local producers. This general model allows one to characterize the price formation process in markets subject to maximum residue level constraints by focusing on the role of the official inspection systems established by public authorities. Findings The authors show how strengthening official controls does not systematically impact negatively on producers’ participation and does not always decrease supply. Moreover, the authors show that reinforcing the maximum permitted contamination thresholds is not always sufficient for ensuring consumer health. Originality/value The originality of the model is that it shows how all variables (economic and sanitary variables) interact in the formation of agricultural prices and determine the final size of the productive system (number of active producers). The characterisation of the market price as a function of producers’ investment efforts and of the level of official control reliability allows one to determine both the total supply and the proportion of this supply that is contaminated (i.e. does not comply with the maximum threshold of contamination).