Cost-benefit analysis

5.1 Costs
5.2 Benefits
5.3 Conclusion

Food safety regulations exist to help safeguard the integrity of food and hence protect public health by preventing and controlling the presence of food-borne pathogens and other disease-causing elements (eg, pesticides) in food. However, food safety regulations impose a number of costs on food suppliers, which in turn can result in higher prices, lower quantities being supplied and reduced product choice. Cost-benefit analysis is a particularly useful technique to assist public decision making by identifying the benefits and costs of food safety policies. The terms of reference for the Review of the Imported Food Control Act require the Review Committee: 

to analyse and, as far as reasonably practical, quantify the benefits, costs and overall effects of the Act.

In this section a number of costs and benefits arising from the Act and its administration are identified. However, because of data and resource constraints, it has not been possible to undertake a comprehensive cost-benefit analysis. Nevertheless, the analysis contains a significant quantitative component to assist in reaching conclusions about the overall value of the Act and operations under the Act.

5.1 Costs

IFIP imposes costs on importers and on the Commonwealth government, and can also have indirect effects on the economy through the impact of regulation on the allocation of resources. Direct costs to importers include documentation and inspection charges, the laboratory analysis fees and the cost of sampled product. There are additional costs incurred by importers due to delays caused by inspection and laboratory testing of certain foods, and also because of time and resources that importers have to commit in order to comply with the requirements of the program.

Since IFIP is a fully cost-recovered program, the net costs to government are small. These costs comprise an identified community service obligation (CSO) component of the program and are reflected in budgetary allocations made to ANZFA ($40 000) and AQIS ($100 000) for program support and policy development. AGAL also receives a budgetary allocation for laboratory test development work that has a public good element. Some of the results of that work are used for tests prescribed by IFIP but they also have a wider application and, hence, it is not appropriate to count such funding as a cost of IFIP.

As discussed in Section 2.3, the costs of IFIP extend beyond the imported food sector and affect the economy as a whole. Where costs are incorporated into the final price of the imported food, Australian downstream food processors are penalised by higher input costs, while consumers are penalised through higher prices and/or reduced choice of product. If through the Act and its administration, Australia's domestic food industries receive a higher level of protection than is needed to protect human health, then resources might be drawn to this sector at the expense of other more efficient industries. This can lead to a misallocation of resources with detrimental effects on Australia's gross domestic product. Further, since Australia presently exports more than four times the amount of food it imports, it is important that Australia does not face retaliatory action in overseas markets.

For this Review, only costs which directly impact on the food importing industry have been estimated. Costs that were calculated are the direct program charges, the cost of maintaining a higher level of stocks than would be needed in the absence of IFIP and administrative costs associated with industry compliance.

5.1.1 Inspection and laboratory charges

Importers are required to pay AQIS for documentation and inspection services and laboratories for the cost of testing. These direct program costs have been estimated to cost the importing industry $3.6 million per year, consisting of $1.2 million for laboratory analysis fees and $2.4 million for inspection and documentation charges. These charges represent 0.1 percent of the total value of food imported into Australia.

5.1.2 Stockholding costs

While the direct program costs of IFIP are readily quantified, it is more difficult to estimate the other costs of the program on industry. Of significance is the cost of holding stock while awaiting test results, as well as the cost of holding any additional stock in anticipation of an inspection delay. These costs can be attributed to the program and consist of storage and interest charges.

For an importer, continuity of supply is essential because of costs associated with the re-introduction of a product if it is delisted by a retailer. Many importers of surveillance food indicated that IFIP imposes no additional storage costs on their business because any delay is accommodated through their practice of routinely maintaining a minimum level of inventories to cover a range of contingencies. This is particularly the case for those importers who choose to release surveillance food after IFIP sampling, rather than awaiting the results of tests. Some importers stated that they maintain surplus stock levels as high as 10 percent of the value of the stock to cover all contingencies.

Storage costs vary considerably depending on the type of product imported and the method and place of storage. For example, importers of frozen and chilled product face higher storage costs than importers of non-perishable goods, while importers who need to rent additional space also bear additional charges. The cost of storage has been calculated using information supplied by importers. Weekly costs vary considerably depending on mode of storage, location, the extent to which importers use their own premises, and the value of the product. Estimates obtained from importers for storage in commercial premises ranged from 3.5 to 21 percent of the annual value of goods imported. Based on data supplied by the firms surveyed, the cost of storage has been assumed to be 15 percent of the annual value of goods imported. For the purposes of calculating interest costs, an average annual commercial interest rate of 10 percent was assumed. Annual interest rates are currently in the range of 8 to 12 percent. Therefore the total cost of holding stock was assumed to be 25 percent of the annual value of the stock.

To estimate storage costs on the basis of the value of imported foods, an average annual value of goods referred to IFIP for inspection in each risk category was extrapolated from a four-month sample of two "quiet" months (May and June 1997) and two "busy" months (October and November 1997). This information was extracted from AQIS and ACS databases.

Importers of risk category food and any surveillance food with a Holding Order have no choice but to hold foods until cleared by the program. It is because of this, that AGAL gives priority in testing risk category foods and foods with Holding Orders. Delays range, on average, from 7 to 14 days. An average 12-day delay for risk category food and food with a Holding Order was used for this analysis. It was assumed that importers hold 12 days additional stocks of foods that have the potential to be inspected. Using the four-month data sample, the value of risk category food referred to IFIP and surveillance category food with a Holding Order was estimated at $313 million, of which $195 million worth of product is tested. Assuming that all importers maintain extra stock for all risk foods to cover possible delays, the cost of IFIP to industry for risk category food and surveillance category food with a Holding Order is estimated to be in the order of $2.6 million annually.

From the four-month sample, the combined annual value of active and random surveillance food inspected by IFIP was estimated to be $288 million. This excludes foods with a Holding Order since these goods are held pending results from laboratory analysis and have been included with the risk category foods. Surveillance category foods are released by IFIP following an inspection, and delays for an inspection range from 1 to 5 days. Assuming an average inspection delay of 3 days, the annual cost to industry of holding stock for inspection is $0.6 million per year. Because of the random inspection in the surveillance categories, some importers may choose to maintain extra stocks in case their consignments are selected for inspection. Given that inspection rates in the surveillance categories are 10 and 5 percent for active and random surveillance respectively, and that the estimated delay is only 3 days, it is safe to assume that the extra stocks held for contingency purposes are in the order of 25 percent of the value of these categories of foods. Based on the assumptions stated above, the annual cost of this contingent stockholding is estimated to be $1.5 million.

Surveillance category food importers are not required to hold food selected for testing. The decision to hold or release pending the results of test analysis is a commercial decision of importers, based on importers risk assessment of releasing products. Those importers who choose to hold goods pending test results have determined that there is a risk of a product recall, and that the expected cost of the recall is greater than the cost of holding the stock until the tests are completed. Following discussions with a range of importers, it became evident to the Review Committee that while most importers of surveillance foods release stocks after IFIP inspectors take samples for testing, some importers choose to hold goods pending analysis. While these costs may be significant to those importers, the costs arising from this practice are not the direct result of government regulation but rather are based on commercial practice. Consequently, these costs have not been included in the total cost of the program.1

A number of points need to be made regarding the calculation of these costs. First, whilst the Committee is satisfied that the choice of a three-day delay for inspection is warranted, it is aware that in certain instances especially in busy centres such as Sydney the delay can be longer and this can be costly to industry. The Committee has calculated that an additional days delay in inspection clearance of surveillance foods would cost industry some $0.7 million per year in additional stockholding costs. This estimate also includes an adjustment in contingent stockholding from three to four days. Second, in calculating stockholding costs it is implicitly assumed that importers are able to move their stocks very rapidly and that the only delay is caused by IFIP. Whilst the Review Committee does not have information to comment on the average time it takes for food consignments to be sold, it seems unlikely that all stock will be moved within 5 to 10 days of being cleared by ACS. To the extent that this is the case, the calculations above will overstate the impost on industry of the Act and its administration in terms of additional stockholding charges. Finally it should be mentioned that the holding costs in the risk food category may be overstated as in some instances notably fresh seafood and canned tuna importers are allowed to release after sampling, thus reducing the 12-day waiting period.

5.1.3 Industry administrative costs

In ensuring that they comply with the requirements of the Act, food importers incur administrative costs in relation to the preparation of paperwork and the organisation of clearance of consignments that are subject to the provisions of the Imported Food Control Act. From the Committees discussions with industry, it was estimated that food importers spend on average between an hour and an hour and a half per shipment that is selected for inspection/testing. In 1997-98, some 17 000 shipments were selected for inspection by IFIP. Using average weekly earnings of $795, industry administrative costs are estimated to be in the order of $510 000 per year. The Committee is aware that in some cases, especially with smaller companies, handling import clearance matters may be done by relatively senior staff in which case use of average weekly earnings may understate the administrative cost of IFIP. However, given the range of company sizes and structures of importing firms, the Committee considered that the most accurate available measure was to use an official figure of average earnings to calculate administrative costs.

5.1.4 Total costs

The above costings have some limitations and should only be considered as indicative of the total cost to industry of the program. For example, the industry estimate of storage costs at 15 percent of value per year is the best available to this Review Committee.

Considering the foregoing, the total cost of IFIP to industry and government is estimated as approximately $9.0 million. These costs are summarised in Table 5.1.

Table 5.1 Direct costs of IFIP

Item

Cost ($)

Totals ($)

Government costs (appropriations)
AQIS
ANZFA

Program costs
Inspection charges
Laboratory charges

Industry administrative costs

Stockholding costs

Risk category goods/Holding Orders
Surveillance category goods tested
Surveillance category goods:
contingency


100 000
40 000


2 400 000
1 200 000

510 000



2 576 000
592 000

1 541 000



140 000



3 600 000

510 000






4 709 000

 Total direct costs  8 959 000  

5.2 Benefits

The benefits from government regulatory arrangements designed to safeguard the quality and the integrity of food stem from a reduction in the level of risk of illness that these regulations can achieve. Benefits from imported food regulation are diverse and widely spread across the community and include:

  • lower incidence of food-borne illness (and all associated costs);
  • lower incidence of dietary illness caused by prolonged consumption of potentially harmful food or additives;
  • savings in food product recalls;
  • increased consumer confidence in the safety of imported food;
  • reductions in recalls of processed foods that use imported food ingredients; and
  • protection of Australia's international reputation as a supplier of safe foods by preventing contaminated imported food ingredients from entering the food supply chain.

Most analyses of the benefits of food regulations have traditionally focused on the benefits from a lower incidence of acute food-borne illness. This is because these benefits are the most direct and can be calculated relatively easily. However, food regulation is also aimed at protecting consumers from harmful long term health effects, associated with prolonged use of foods containing high levels of pesticides, preservatives or other additives. As IFIP also tests for the presence of excessive levels of such ingredients, in assessing the benefits of the program there should be an acknowledgment of the potential savings achieved over the long run from a reduction in the incidence of dietary-caused illnesses. The calculation of these benefits is difficult, due to the long time frames involved and the difficulty in establishing causality, and is not attempted here.

Other benefits such as increased consumer confidence and protection of an industry's or Australia's reputation whilst also important are more diffused and difficult to estimate. Their calculation relies on the application of complex economic techniques such as contingent valuation and risk analysis. These benefits are discussed later in this section, but their quantification is beyond the scope of this Review and hence will not be attempted here.

The analysis that follows will concentrate on the benefits of lower incidence of acute food-borne illness. As most of these benefits flow from a reduction of the risk of transmission of illness through contaminated food, the causes of food-borne illness and the costs of such illness are discussed.

5.2.1 Food as a cause of illness

Food is a common cause of a number of gastroenteric diseases. These diseases are either bacterial or viral in origin and are generally relatively mild, without any long term complications for the patients. Nevertheless, in some cases they can be quite severe in their impact and may result in long term health complications or even in death. In such cases, these illnesses have extensive economic, health and legal ramifications for consumers, public health authorities and industry.

In recent years the incidence of food-borne illness has been rising in Australia, parallelling a similar trend in other developed countries. While this may be explained by improved diagnostic techniques and an increase in monitoring and reporting, there are indications that this increase is real and reflects changes in eating habits, food preparation and the adoption of more intensive methods of food production, particularly in animal husbandry. Figure 5.1 shows the incidence of three notifiable food-borne illnesses in Australia since 1991. For all three illnesses there is a distinct upward trend.

One of the biggest problems in estimating the true incidence of food-borne diseases is the difficulty in the collection of reliable data on food-borne illnesses (Kraa 1995). As official statistics only record reported cases, official figures on the incidence of food-borne diseases are invariably an under-estimate of the actual number of cases. The World Health Organization has estimated that in industrialised countries reported cases of food-borne illness could be under-reported by a factor of ten (Kraa 1995). In the United States, disease surveillance systems similar to Australia's suggest that in the case of Salmonella fewer than 1 percent of cases are detected during an outbreak (Crerar et al. 1996). Under-estimation of the number of cases of food-borne diseases is likely to be of a similar magnitude in Australia.

Outbreaks of food-borne diseases in Australia occur on a regular basis and can affect a large number of people. Recent outbreaks of such illnesses include:

  • an outbreak of gastroenteritis due to orange juice contaminated by a viral agent affecting over 3000 persons across Australia (1991);
  • an E. coli infection from mettwurst resulting in 23 cases of renal illness and the death of one child (1995);
  • a Salmonella outbreak in Victoria affecting 860 people, with as many as 80 people needing hospitalisation (1997); and
  • an outbreak of Hepatitis A in New South Wales from contaminated oysters that affected over 700 people with one reported death (1997).

5.2.2 The cost of food-borne illness

Food-borne illnesses are costly, and their costs are spread across the entire community. When a food-borne disease outbreak occurs, costs are generally borne by three groups namely, affected individuals, industry and government. Table 5.2 shows some of the main costs incurred by each group.

Figure 5.1 Reported cases of three food-borne illnesses in Australia

Figure 5.1 Reported cases of three food-borne illnesses in Australia

Source: National Centre for Disease Control (1998).

Note: Due to under-reporting, notified cases represent only a proportion of the actual number of cases that occurs.

Table 5.2 Summary of costs of illness by group

 

Individuals/households

Industry

Government/community

Loss of life

Pain and suffering

Medical/pharmaceutical expenses

Income/leisure loss

Litigation costs

Loss of productivity

Product liability litigation

Loss of consumer confidence and reduced product demand

Increased regulation and introduction of tighter food processing practices/procedures

Lower business viability

Investigation of outbreak

Monitor incidence and severity of outbreak

Disease containment and control

Medical/laboratory costs

Litigation costs

As most of the benefits from food regulation arise from a reduction of the risk of transmission of illness through contaminated food, the benefits of such regulation are "a measure of avoided costs" (Caswell 1998) and are usually assessed on the basis of cost of illness calculations. Although, this approach has been criticised by some economists for providing a lower measure of consumer willingness to pay for higher quality foods, government regulators, especially those who must prepare cost-benefit assessments of new regulations, often prefer to use cost of illness measures because they are conservative and relatively reliable measures of benefits (Caswell 1998).

Lack of data on many of the variables in Table 5.2 means that a comprehensive estimate of the cost of illness is not feasible within the scope of this Review. Because of data limitations, most cost of illness studies generally seek to quantify individuals medical costs and the cost of productivity losses.

A useful reference for methodological issues and the actual calculation of the medical costs and productivity losses from bacterial food-borne illness in the United States is provided in Marks and Roberts (1993) and in Buzby et al. (1996).

5.2.3 The cost of food-borne illness in Australia

There are no comprehensive studies of the total cost of food-borne illnesses in Australia. Whilst there have been a number of attempts to estimate the incidence and the cost of food-borne illness in Australia, data limitations and differing approaches between studies make the derivation of firm conclusions and the comparison of results problematic.

The Australian Institute of Health and Welfare puts the medical costs of intestinal infections in 1993-94 at $179 million. This amount is inclusive of all medical expenses (hospital, pharmaceutical, and consultations) and relates to illness originating from food as well as non-food sources. In the same year, there were 849 and 31 hospital admissions for salmonellosis and E. coli infections, respectively. Hospital costs were estimated to be $1.8 million for Salmonella and $45 000 for E. coli, implying a hospital cost per case of $2120 and $1450, respectively (Australian Institute of Health and Welfare, personal communication).

The Review Committee has examined, in some detail, two case studies of illnesses caused by food in Australia. The two case studies selected involve a Salmonella outbreak in Victoria and an E. coli outbreak in South Australia and are presented in Appendix H. Although these outbreaks did not originate from imported food, the pathogens that cause both these diseases are those for which IFIP tests and they provide an excellent example of the potential effects of a disease outbreak caused by contaminated imported food.

The Salmonella outbreak in Victoria was known to affect 860 people and was estimated to cost $1230 per case in medical/pharmaceutical costs and productivity losses whilst the hospital cost per case hospitalised was estimated to be $2470. The total estimated cost on a conservative basis was in the vicinity of $1 million. The South Australian outbreak was known to affect at least 150 people, with a total cost in the vicinity of $1.17 million. It is likely that the total costs were considerably higher than estimated, particularly in the South Australian case, which had such a severe and prolonged impact on many of the affected children (see Appendix H).

A report commissioned by ANZFA for a Regulation Impact Statement on the Proposed Nationally Uniform Food Hygiene Standard estimated the cost of diarrhoea and gastroenteritis caused by food to be $124.2 million per annum (John Hawkless Consultants 1998). This figure includes the cost of medical consultations and lost productivity, through days missed from work. The calculation is based on an estimate of 4.6 million cases of diarrhoea and gastroenteritis in Australia, 50 percent (2.3 million cases) of which were assumed to be attributable to contaminated food. The calculation implicitly assumes that all cases are mild with no complications and requiring no hospitalisation. Hence it may represent an under-estimation of the true cost of food-borne illness. A second more comprehensive estimate in the same report, puts the cost of food-borne illness in Australia at $2.1 billion. This is based on an estimated 2.1 million cases of food-borne illness in Australia annually and on an assumed average cost of illness of $1000 per case, based on comparable US and Canadian health cost data.

The AQIS submission to this Review reported that IFIP has the potential to save the Australian economy up to $73 million in human salmonellosis cases. This is based on an assumed cost per case of $2000 (medical treatment and lost productivity) and an estimated possible 36 500 cases of Salmonella infection from imported foods. The latter number is derived from US epidemiological data adjusted for the size of Australia's population and the fact that food imports account for 10 percent of food consumed in Australia. However, this proportional attribution of the risk of food-borne illness from imported foods does not take into account the risk type of imported foods. With quarantine controls restricting the importation of meat and poultry products, a large element of risk from food-borne illness from imported products is removed. Therefore the potential cost of food-borne illness that can be attributed to imported foods may be less than their share of the domestic food market would suggest.

It should be noted that none of the above estimates include the long term complications of food-borne illnesses, which can develop in some 2-3 percent of the acute cases. As scientific knowledge on these diseases improves, there is increasing awareness of the chronic or long term effects associated with some of these illnesses and of the additional costs, financial and non-financial, that they impose on society and individuals. Inclusion of these costs, together with other costs identified in Table 5.2, means that the actual cost of illness is considerably greater than studies focusing on medical costs and productivity losses alone would suggest. Therefore cost of illness estimates presented above should be treated with caution and viewed as providing only an indication of the minimum cost of food-borne illness in Australia.

5.2.4 Imported foods and the risk of illness

As already discussed, the objective of the Imported Food Control Act is to ensure that imported food complies with Australian public health and food standards. Unlike the situation with domestically produced food, IFIP relies on barrier inspection and testing because Australian authorities have no control over the production techniques in exporting countries. In this way the program aims to ensure that imported foods meet Australian food standards.

The program intercepted contaminated foods in the risk category that, if undetected, could precipitate an outbreak of salmonellosis, listeriosis or E. coli infection. Table 5.3 shows the number of failures for imported food tested for three bacterial pathogens in 1996 and 1997.

The figures in Table 5.3 suggest, that for the risk category at least, there are sound reasons for retaining a system of control. From Table 5.3 it can be seen that in 1997, 21 imported food consignments failed because of contamination with bacterial pathogens that could cause a potentially dangerous and costly food-borne disease outbreak. Although in percentage terms the number of failures is small (1 percent), the absolute number is large enough to justify continued monitoring of imported foods.

Table 5.3 Imported food failures for three bacterial pathogens: 1996 and 1997

Category of Food



Random surveillance Active surveillance Risk Risk
 1996  Tested.............Failed  Tested............Failed  Tested..........Failed

E. coli
Listeria monocytogenes

Salmonella


17.......................0
16 ......................0

93 ......................0
11 .....................0
199 ...................0

309 ...................1
495 ...................4
398 ...................4

879 ...................9

 

Total 126 .....................0 519.....................1 1772 ................17
1997 Tested ............ Failed Tested ......... Failed Tested ........ Failed
E. coli
Listeria monocytogenes
Salmonella

23........................0
29........................0

119......................0

26 ......................0
123 ....................0

445 ....................0

520 ...................4
540 .................11

974 ............. .....6
Total 171 .................... 0 594 ....................0 2034................21

On the basis of the costings for the Salmonella and E. coli case studies discussed in Appendix H, and taking a very narrow view of benefits in terms of calculating the cost of illness, the program in 1997 could potentially have saved the Australian economy at least $21 million in these three bacterial illnesses alone. The breakeven point for the community would be if the program prevented, on average, eight outbreaks from imported foods per year.

In reality the preventative value of the program is likely to be higher than implied above, as the 21 failures only relate to three bacterial pathogens. In 1997, there were a total of 86 failures (including the above 21) in imported foods, for reasons of high or longer term risk to human health, and 175 failures which involved lesser (but still health-related) risks (see Figures 4.1a and 4.1b). Whilst the risk and impact of illness would vary from case to case, there is little doubt that each case represents a potential health risk to the community from acute or long term dietary illness and that the repercussions of the release of such foods into the Australian market could result in substantial costs for consumers, industry and governments. These costs would be considerably larger than those quantified in terms of medical expenses and lost productivity.

Finally, the educational and deterrence role of IFIP over the years should not be under-estimated. After about eight years in operation, it can be claimed that IFIP has played a role in raising the standard of imported foods so that failure rates over time for serious health reasons have been declining (see Figures 4.1a and 4.1b). The implication is that, in the absence of a national imported food control mechanism, the incidence of unsafe or contaminated food being imported to Australia would be higher.

A good illustration of this positive effect of IFIP is the increasing awareness by importers of the benefits of sourcing foods from good overseas suppliers and efforts by importers to ascertain the track record of suppliers on matters of compliance with the Act.

5.2.5 Other benefits of the Act

In ensuring that imported foods meet Australian food standards, IFIP plays an important role in bestowing consumer confidence on imported food and in protecting the industry from the adverse effect of sale or consumption of contaminated food.

In the absence of the Imported Food Control Act, the commercial risk is that release of contaminated or unsafe food to the domestic market is likely to have a destabilising effect on the entire sector, regardless of whether it precipitates a disease outbreak or not. The repercussions of this will not be confined to the supplier of the contaminated product, but will impact on the entire sector as importers and domestic producers of untainted but similar products will also be affected and suffer loss of business.

Where release of contaminated food is associated with an outbreak of illness, the impact on the industry is likely to be far more extensive. Examples of this are the E. coli outbreak from contaminated mettwurst in 1995 and the problems with peanut butter in 1996, from which both sectors are still recovering. It is reported that in the aftermath of the E. coli outbreak, the entire smallgoods sector suffered a major drop in turnover, with sales still considerably lower than pre-outbreak levels a year after the event.

By testing risk food before release, IFIP intercepts unsafe foods before they are released on the Australian market and so reduces the need to resort to food recalls. Recalls are generally expensive because of high administrative costs and also undermine confidence in the types of food affected. Between January 1996 and December 1997, there were 18 imported food recalls (five of which were for viral, bacterial or fungal contamination). In the absence of the Act, this number could be significantly higher given that in 1997 total failures for reasons other than labelling infringements amounted to 261.

Finally, the release of safer food into the Australian marketplace helps reduce the prospects of expensive litigation action arising from the consumption of contaminated food and the consequent health implications.

5.2.6 Food safety and health information

In attempting to carry out a cost-benefit analysis of IFIP, the Review Committee found that while a considerable amount of information has been gathered on the interrelationship between food safety and health, there exists little analysis or interpretation of this information. It has been difficult for the Review Committee to draw an accurate cost picture of diseases in general, let alone for costs related to imported food. As noted previously, the necessary information does not exist to give management an adequate picture of the usefulness of the program. The same can be said of the monitoring of food-borne diseases. Health officials interviewed were of the opinion that it is important for research and analysis to be applied to this field and this is strongly supported by the Review Committee.

The Review Committee notes the lack of information available on the interrelationship between the government food safety programs and food-borne disease and encourages government to investigate the development of more effective food-borne disease monitoring and reporting.

5.3 Conclusion

The total cost of IFIP was estimated to be approximately $9 million, representing 0.25 percent of the value of food imported into Australia. Although this cost is small in relative terms, it nevertheless represents an impost on industry resulting in higher costs and potentially affecting the price and supply of imported foods. At the company level, the effect of the program may be more pronounced in some sectors of the industry, depending on how it impacts on firms of different size and therefore on the ability of smaller importers to enter the sector and remain viable. Where imported foods are used as ingredients for further processing, IFIP will increase costs and affect export competitiveness.

Benefits mainly relate to the avoidance of costs of illness. The cost of all food-borne illness in Australia in medical expenses and productivity losses alone has been estimated to be in the order of $2.1 billion annually (John Hawkless Consultants 1998). Whilst apportioning a share of this cost to imported food is difficult, there is little doubt that unsafe or contaminated imported food if released on the domestic market can precipitate an outbreak of food-borne illness and hence contribute to the total cost of illness.

In 1997, IFIP detected the presence of three disease-causing bacteria in 21 items of imported food, thus potentially saving the Australian economy at least $21 million in medical expenses and lost production. In fact the benefits of the program are likely to be much higher, if the impact of the total number of failures (261, excluding labelling irregularities) for that year could be assessed and if all the benefits flowing from procuring safe foods could be quantified.

The role of IFIP as an educative mechanism for importers and as a deterrent against the importation of unsafe food should not be under-estimated. In the absence of such a scheme, it is likely that the incidence of sub-standard or unsafe food imports to Australia would increase, thus raising the risk of food-borne illness from imported food.

On the evidence available, the Committee considers that the Imported Food Control Act provides a net benefit to the community and should be retained.

..'In response to comments received, the Committee considered it would be appropriate to provide an indication of the magnitude of these costs and estimated them to be approximately $0.9 million. This was based on a 12-day average delay and on the assumption that 75 percent of surveillance foods referred to IFIP for inspection are tested. It was further assumed that importers hold 50 percent of foods tested until the test results are released. These costs have not been included in the calculations.

Last reviewed:
23 Apr 2007