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Analysis of the decision process within business to improve food safety and standards, both voluntarily and in response to regulation, and associated stakeholder consultation processes

Project Code: D03006

31/08/2006

Greenstreet Berman
McMahon, A ; Wright, M; Norton Doyle, J; Smith, R; Ali, F; Walker, O

This report summarises Phase 1, 2 and 3 of a research project carried out over 2005 to 2007 for the Food Standards Agency (FSA). The work aims to:

Understand the compliance decision-making processes of businesses and enable the FSA to provide within consultation better information to businesses;
To develop strategies for encouraging behaviours amongst food businesses that enhance
food safety and higher levels of compliance;
Review stakeholder consultation carried out by the FSA and, in particular the effectiveness
of consultation on the costs and benefits of proposed policies.

This is a summary report.

The research had three main phases and two additional studies. The first and second phases of work aimed to develop an understanding of food business compliance decision-making processes, as an input to thinking about regulatory and non-regulatory options, as outlined below. Two ‘new’ interventions (scores on the doors and partnerships) that were of particular interest were then explored in more detail. Another part of Phase 1 examined the FSA's stakeholder consultation process, in recognition of the importance of stakeholder perception of regulations in their decisionmaking. This led to a third phase of work that explored how to better develop cost of compliance estimates.

Main drivers

The survey reinforces the view from the literature review that food safety practices are:

Primarily driven by customer expectations and the related need to avoid bad publicity;
The single most important driver for food safety compliance is the need to secure and maintain customer confidence and business reputation;
Infringement of regulation is one way by which a reputation may be damaged;
Regulatory and enforcement processes are second ranked factors.

The responses are consistent with previous research in that satisfying customer demands and avoiding bad publicity of poor food safety are top ranked motivators, followed by legal obligations and EHOs' demands. Avoiding adverse enforcement, such as prosecution, and being sued are lesser factors but still rated as between 'moderate' and 'great' factors. Demands from insurers and investors are rated lowest at below 'moderate' factors.

The rated role of motivational factors concurs with the perceived potential consequences of a serious food safety incident, namely that loss of sales and damage to reputation are the top potential consequences. Direct action in the form of enforcement comes third, adverse consequences such as bankruptcy, loss of investment and prosecution are ranked lower. Internal costs of responding to incidents such as business interruption and product recall are ranked above the possibility of prosecution (although prosecution is noted by 60% of respondents). Thus, the perceived possibility of loss of sales follows on from the judgement that meeting customers' expectations is the top rated motivator for improving food safety.

Suggestions for incentives

Suggestions for how to promote improved standards of food safety and hygiene in food businesses were sought at each stage of the project, in the literature review, during interviews, consumer focus groups and in the postal survey. Each option was rated in the business survey from 1 to 5 where 1 = very ineffective, 3 = no effect and 5 = very effective. It can be noted that:

Three of the top ten options relate to regulation – simpler regulations, more consistent enforcement and more targeted enforcement;
More training and advice is second with training and advisory partnerships ranked 9th;
Three options relate to customer pressure, namely informing customers of food safety performance (e.g. displaying awards), more pressure from business customers, and publicising incidents in local or national news;
The 7th ranked option is more incentives, such as cheaper insurance.

These rankings are consistent with the earlier findings that regulation and customer pressure are key factors in that they aim to enhance the operation of these factors. The high ranking of more support does contrast with the earlier finding that respondents do not lack expertise.

Stakeholder engagement

It is clear that the FSA already carries out a wider range of effective stakeholder engagement processes. The majority of organisations see involvement in FSA consultation as beneficial and believe the processes are transparent, effective and credible. Stakeholders do cite some areas for improvement, including:

More pre-consultation engagement and feedback from the FSA's;
More targeted questions, better summaries of practical issues;
Completing evaluations of consultations;
Better internal FSA co-ordination of consultations.

A number of key issues are noted in the area of cost-benefit analysis, including:

Stakeholders' motivation to consult on regulatory impact assessments and other matters is influenced by their perception of the scope for influencing the proposals;
Where stakeholders consider the 'consultation' to be at a final stage, they request information on the typical costs of compliance for organisations such as them, rather than information on the national balance of costs and benefits;
Stakeholders are more interested in business specific cost-benefit information than national level data;
Consumer groups are, on the other hand, primarily interested in the food safety benefits of regulations and interventions than their costs.

In order to effectively engage stakeholders in the review of regulations and other interventions it is important to engage them at a stage where they believe they can influence the outcome. However, at this early stage stakeholders feel they are unable to assist with provision of information on the potential costs of compliance.

Estimating compliance costs

This research has highlighted that there are major gaps in the information on costs of compliance to food safety and hygiene regulations. Businesses do not record the necessary information and data to enable them to respond meaningfully to retrospective quantitative surveys. The cost of compliance is thought to be only a small proportion of the overall operating costs. Thus, it is concluded that the lack of monitoring of costs by business combines with the view that the costs are relatively low (1% of turnover for example) casts doubt on the feasibility of retrospectively developing meaningful estimates of compliance costs.

As a way forward, to capture better the costs of regulatory compliance to businesses, the FSA might wish to consider the collecting cost data proactively rather than retrospectively.

However, feedback from businesses indicates that they do not quantify the direct costs and benefits of food safety requirements, and instead see these to be costs of doing business. On the other hand, food businesses are acutely aware of the reputation impact of good or poor food safety and hygiene. This leads onto the question of whether further economic work could explore the modelling of the relationship between brand value, goodwill and financial performance with food safety and hygiene performance. Such brand value analysis, such as royalty relief methods, would include assessing impacts on consumer behaviour, competitive analysis and goodwill.

Compliance framework

The findings from the research activities have been drawn on to develop a 'framework' of compliance processes and possible interventions. The framework is intended to help inform review of alternative interventions. After outlining the framework and interventions we identify current examples of the interventions, and in so doing incidentally indicate areas where further development may be considered.

We have 'synthesised' and interpreted the research findings to develop the framework. The framework is written in a stand alone style without point by point references back to the research. It aims to encapsulate the factors that might be reviewed when considering the selection of regulatory and voluntary interventions for specific food safety and hygiene issues.

The framework is in the form of a set of schematics and supporting information. The framework does not attempt to provide a decision making flow chart of alternative interventions due to (1) the complexity of interactions between factors and (2) the level of subjectivity in the interpretation of points. The framework is only intended to highlight the considerations and the interplay of factors.

Conclusions

Whilst it is apparent from research that there are clear business incentives for food safety and hygiene, particularly customer pressure, it is also clear that the operation and application of these incentives vary between businesses and are influenced by many factors. The observed limitations of consumer pressure highlight the opportunity to further capitalise on this by further supporting informed consumer choice as well as the importance of operating a regulatory framework.

The FSA are already pursuing or exploring a wide range of the regulatory and non-regulatory interventions identified by this research, particularly supporting consumer choice through means such as Scores on the Doors and food labelling, and supporting business through advice, support
and effective enforcement. Current consumer oriented activities focus on information about product content. Much of this activity is aimed at facilitating consumer choice for the sake of improved dietary behaviour. Whilst it is apparent that food labelling is used and valued, it is not clear that Farm Assurance is recognised, understood or valued by customers. In addition, many business respondents did not convey confidence in Farm Assurance. As Farm Assurance is a key strategy for assuring safety of products and communicating this to consumers, the role and operation of Farm Assurance schemes could benefit from further review.

There is relatively less development regarding informing consumers as to the performance of food businesses, with the notable exception of the public display of food hygiene inspection results (scores on the doors). A number of interventions that fall into this category include:

Publicity of offences;
Facilitating reporting of food borne illness and public reporting of cases;
Publicising frequency of suppliers failing farm assurance requirements;
Public reporting of food safety performance by food businesses, such as frequency of complaints, serious incidents etc.

It is also pertinent to note that most survey respondents perceived their standards to be good. This raises the question of whether there is a need for benchmarking between businesses. Such benchmarking could also link in to public reporting of performance.

The finding that neither investors nor insurers play a leading role in engaging their clients or investees on food safety can be interpreted as indicating that there is scope for development here. Our research indicates that investors and insurers are currently relatively most influential in the case of larger food businesses and those that require product recall insurance. The FSA could consult with investors and insurers regarding how they could engage food business.

Food businesses are mainly influenced by the prospect of consumers switching between outlets or products. There is less evidence that businesses are influenced by the prospect of bearing the costs associated with resolving cases of food borne illness. Notwithstanding the difficulties in ascribing cases of food borne illness to sources, the extent to which businesses liable for the consequences of such illness is low compared to other fields of liability. Options that could be considered include: improved tracing; Imposing duties on businesses to trace and compensate victims; Getting liable organisations to bear the medical, NHS, investigation and other costs of food borne illness.

Finally, the concept of partnerships and working via intermediaries to deliver support to businesses are recognised but emerging concepts that could benefit from further development and wider application.

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