The economics of food safety in India – a rapid assessment
In the context of the World Bank – India dialogue, principal challenges facing India today are analyzed, as the country seeks to consolidate its status as a middle-income economy. One of these challenges is food safety: despite growing recognition of the importance of food safety, India’s public funding priorities don’t reflect the substantive investments needed to bring its food safety system up to standard. Understanding the costs of not having an adequate food safety system in India is thus crucial to lift its importance and visibility in the public debate. Experts on food safety from the International Livestock Institute (ILRI) and economists from Wageningen Economic Research have conducted a study providing a rough estimate of such costs, using existing data and tools and discussing the resulting implications and actions needed for a more accurate estimate.
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Motivation of the study
Due to growing international trade, migration and travel, local food-borne disease outbreaks have become a potential threat to the entire globe (WHO, 2007). According to a recent WHO study (2015), there is a considerable food-borne disease burden affecting negatively people of all ages and particularly children under 5 years of age. Moreover, persons living in low-income sub regions of the world are disproportionally affected. This is particularly relevant in India, where despite growing recognition of the importance of food safety, India’s public funding priorities don’t reflect the substantive investments needed to bring its food safety system up to standard.
Understanding the costs of not having an adequate food safety system in India is thus crucial to lift its importance and visibility in the public debate. This study provides a rough estimate of such costs, using existing data and tools and discusses the resulting implications and actions needed for a more accurate estimate.
This study is the result of a collaboration between experts on food safety from the International Livestock Institute (ILRI) and economists from Wageningen Economic Research. Using data from a recent WHO report on the global burden of food-borne disease, public available databases and literature, ILRI provided estimates of the current food-borne disease burden and related health costs, with possible importance of different foods in contributing to the burden. Using MAGNET, a global general equilibrium model developed at Wageningen Economic Research, the expected FBD burden in 2030 was estimated taking into account an increasing population, GDP growth and urbanization in India. Against this 2030 reference point economic implications of improving the currently inadequate food system were assessed using scenario analysis. The scenarios combine two channels through which a properly established food safety system benefits the Indian economy – increased labour supply (resulting from avoided food borne disease related morbidity and mortality) and savings in health care costs (resulting from avoided sickness which brings along savings on care and medication). The analyses were conducted in 2017 and a draft report was sent to food safety experts (see acknowledgements).
Current and Projected Food-Borne Disease Burden
About 100 million cases of food-borne diseases (FBD) are estimated for India in 2011, but this is almost certainly an underestimation due to lack of accurate estimates and the available surveys. Since the FBD burden is related to consumption of specific types of food, a link was established between the number of cases and consumption of commodities susceptible for the food-borne diseases using four available studies from India and other regions. These provide lower and upper bounds of food disease burden estimates for India. An expert assessment of the applicability of these assessment methods for India was carried out in order to establish the reliability of this approach.
Given the expected significant economic growth between 2011 and 2030, population growth and urbanization, household incomes are expected to rise as a result of growing factor incomes (land rents and wages). This will be reflected in higher consumption of food, particularly fruits, vegetables and meat, which will result in a significant increase of FBD illnesses. The number of FBD cases is expected to rise from 100 million to 150 – 177 million in 2030 compared to 2011. This means that by 2030, one out of 9 people on average fall sick, up from one out of 12 in 2011. However, rich rural and urban households will be disproportionally more affected than others, where every third person could fall sick from food diseases. It is important to note that the future FBD increase might be still higher given the likely underestimation of the current FBD burden.
Decomposition of various drivers show that the growing FBD burden is attributed mostly to the GDP growth, followed by population growth. The GDP effect provokes a significant increase of meat consumption by 2030 (albeit from a low base relative to meat consumption in the rest of the world), which is a highly susceptible food category for infectious food diseases. Next to that, urbanization plays an important role for certain types of households.
Due to rising domestic demand and food prices, the negligible share of exports will decline further. Given the limited role of primary agrarian foreign trade in the Indian economy, the expected economic benefits of an improved food safety system will come from labour productivity and health improvements. Their contributions were investigated in the scenario assessment, building on the qualitative expert assessment to obtain reliable FBD risk ratios pertinent to the local Indian conditions.
Scenario analysis of avoiding FBD burden
This study is the first assessment of economic impacts of food safety using an economy-wide (CGE) model. Despite limitations of the CGE approach, especially in the rather coarse representation of consumers, various interesting insights on the how the Indian economy can benefit from an increase in food safety system were derived. The CGE assessment accounts for both exogenous and endogenous macro-economic changes, providing a valuable complement to existing FBD cost estimates.
Food diseases burden on the richer households side. It is not guaranteed that households with higher income are less prone to fall sick by food-borne diseases. On the contrary, due to their preference for more luxurious types of food such as meat, fruit and vegetables, richer households are paradoxically more affected than lower income households. In view of the continuing process of urbanization and GDP growth, every third person in the rich urban household may be affected by FBD by 2030, which is notably more than the average one out of nine.
Therefore, avoiding FBD burden benefits richer households first. Establishing a food safety system that would reduce the FBD burden has thus direct positive impact on higher income urban households. Although an increase in labour supply results in decline of wages, land and capital prices go up which compensates the income gap of the rich households.
Other households benefit indirectly too as real incomes rise and food prices go down. Not only the richest households gain, but all other households will enjoy economic benefits of the food safety system. This is because a general decline in prices and rise in employment increases real incomes and makes food and services more affordable.
Positive structural changes in the economy in favour of tertiary sector. Because FBD-prone higher income households are better endowed with skilled labour, reduction in FBD related morbidity and mortality makes skilled-labour intensive sectors such as public and private services more competitive. In view of this, it can be concluded that the food safety policy is a policy that creates value added and positive structural change in the economy.
Governmental services such as education and health become more affordable for everyone. The two channels through which a reduced FBD burden affects the economy fuel each other – cheaper skilled labour (labour supply channel) and health care cost savings both make governmental services more accessible, not only health care but also other services such as education and sanitation. An increase in government services may further stimulate economic growth, for example through an increasing skilled labour force, but these long run investment benefits are not captured in the current model.
Positive GDP effects that are comparable to the estimates from the alternative methods. Total GDP effects are in range of 0.5%, which is equivalent to an annually recurring benefit of up to 28 billion USD (for the Tam method) falling in between two crude ILRI estimates of the FBD burden. The implied ratio between the GDP increase per one avoided FBD sickness is about 160 USD per case. Given the possible underestimation of the FBD burden, GDP gains could amount to 80 billion USD, if the illness ratio is one in three instead of one in nine.
The results of the analysis show that investments in food safety can bring a positive impact on the Indian economy. Favourable structural change, support of employment of skilled labour and growth of services are all important positive effects of a food safety policy. Although the magnitudes of the effects are rather small, it is important to note that the seriousness of the FBD burden may be much higher than captured by the current data and therefore the potential benefits also much higher than those estimated in this study.
The important notion to highlight as well is that if no investments in food safety are made, the positive diet transformation from staple foods to more nutritious items such as meat, fruits and vegetables that is occurring elsewhere in the world could be jeopardized in India, as households would simply reject to consume these highly FBD-risky foods. Slowdown of the diet transformation can have then immense costs for the economy, in terms of poverty, undernutrition, obesity, supply chain underdevelopment and it may also affect the speed of urbanization.
Finally, it is important to note that the benefits of food safety are much broader than those quantified by economic models, for instance improved well-being and a reduced child mortality and morbidity of children, with repercussions on children school performance, birth and fertility rates.