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THE PROMISE OF SAFE FOOD: A Law-in-Action Perspective.

Denis W. Stearns, J.D.dstearns@marlerclark.com

Who’s Minding the Store - The Current State of Food Safety and How It Can Be Improved

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FOOD: the most dangerous product in the

United States?“In fact, contaminated food products caused more deaths each year than the combined totals of all 15,000 products regulated by the U.S. Consumer Product Safety Commission.”1

For just FIVE foodborne pathogens, medical costs, productivity losses, and the costs of premature death total: $6.9 BILLION2

1. Buzby, et al. Product Liability and Microbial Foodborne Illness (2001) ERS Agricultural Economic Report No. 799.2. USDA ERS 2000 Cost-estimate, cited in S. Crutchfield & T. Roberts, “Food Safety Efforts Accelerate in the 1990’s,” Food Review, 23:3, p. 48 (September-December 2000).

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Primary Incentives for Food SafetyECONOMIC

+ Cost/Benefit Analysis

+ Return on Investment

+ Brand-value, good will

LEGAL— Regulations

— Lawsuits

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THE NEED FOR REGULATION:Market Failure & Public Safety

Food is a “Credence” Good

Because safety is invisible, no price premium

Companies unable to compete on safety

“For the most part, food safety is a credence attribute, meaning the consumers cannot evaluate the existence or quality of the attribute before purchase, or even after they have consumed [it].”1

1. See E. Golan, et al., Savvy Buyers Spur Food Safety Innovation in Meat Processing, Amber Waves, April 2004,

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HISTORY OF FOOD REGULATION:

Safe Food as a Moral ObligationLaw of Moses required: “a perfect and just weight, a perfect and just measure.” DEUTERONOMY 25:15

Han Dynasty, 2nd Century BC prohibited: “the making of spurious products, and the defrauding of buyers.”

Roman Law, Theodosian Code, A.D. 438 required bread to for public sale to be arranged on the steps of a building according to its grade to prevent fraud.

Food exchange was neither anonymous nor disinterested; it was defined by relationship, not contract nor other legal duty.

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Merchants and the Rise of MarketsThe Middle Ages saw the rise of farmer-

sellers and merchant-manufacturers selling at local markets.

“Expanded trade in the countryside was…itself a precondition for the growth of the cities.”1

Given the local character of the economy, a merchant’s reputation would be well-known and much relied upon.

Food quality and integrity protected by extra-legal sanctions, the importance of preserving reputation, and “self-help.”

1 See H.J. Berman, LAW AND REVOLUTION 296 (Harvard 1983)

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Examples of Extra-Legal Sanctions

See H.J. Berman, LAW AND REVOLUTION 296 (Harvard 1983)

In 1315, in France, angry French citizens staged mass punishment of 16 bakers who mixed flour with animal droppings, lashing them to wheels and beating them.

Butcher paraded through the streets in a garbage cart for the offence of selling “measly” meat.1

Community accountability thus joins moral accountability.

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Merchant Guilds & Purity LawsMerchants formed self-policing guilds, giving rising to a body of customary mercantile law to resolve disputes.

violators risked expulsion from the guild

meant to protect reputation of merchant class

As guilds became more powerful, self-policing lessened, giving rise to local ordinances prohibiting adulteration

Purity laws enacted—e.g., Thuringian Rostbratwurst purity law of 1432, and the Bavarian beer purity law of 1516

The lack of anonymity in the food supply meant community reputation continued to be primary incentive for safe food.

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“the only safe rule is to confine the right to recover to those who enter into the contract: if we go one step beyond that, there is no reason why we should not go fifty. The only real argument in favor of [allowing] the action is, that this is a case of hardship; but that might have been obviated, if [Mr. Wright] had made himself party to the contract. “

Winterbottom v. Wright, circa 1842, England (affirming rule of privity).

The Enforcement of Civil Remedies: The Origins of Product

LiabilityØ A product need only be as good as was promised

Ø Broken promise both creates and defines liability

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GROWTH OF INDUSTRIALIZATION:

From the 18th to the 20th Century

AGRARIAN

RURAL

FOODGROWN TO EAT

INDUSTRIAL

URBAN

FOODBOUGHT;GROWN TO SELL

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The Rise of National, Vertically- Integrated Food Companies

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The Invention of Refrigerated Rail Car & Nationwide Distribution

And so a food supply once defined by a lack of anonymity and community accountability transformed into its opposite.

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ECONOMICS BECOME KING: A Call for National Regulation

Factory food production de-emphasized quality, emphasized cost & productivity.

Investing in quality and safety was an economic and competitive disadvantage. “there is an incentive for sellers to

market poor quality merchandise since the returns for good quality accrue mainly to the entire group…rather than to the individual seller.” ~ George Akerlof, Ph.D.from “The Market for Lemons: Quality Uncertainty and the Market Mechanism.”

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Definition of “Adulteration

”

by Prosper Montagne, published 1938

So who was the So who was the Pure Food Act Pure Food Act & Federal & Federal Meat Meat Inspection Act Inspection Act reallyreally intended to intended to protect?protect?

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Collective Punishment: Fresh Spinach

“With the fall 2006 outbreak, all spinach growers suffered from decreased consumer demand for their product, even though only one grower’s spinach was contaminated.”

See L. Calvin, Outbreak Linked to Spinach Forces Reassessment of Food Safety Practices, Amber Waves, June 2007,

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THE TRIUMPH OF BIG FOOD:Leveling the Competitive Playing

Field “Buried in the disputes over federal regulation is a conflict between local and national food companies. In various ways, federal regulations conferred competitive advantage on national firms.”See C. Coppin and J. High, THE POLITICS OF PURITY: Harvey Washington Wiley and the Origins of Federal Food Policy (1999).

“”The unwholesome, adulterated, mislabeled, or deceptively packaged articles can be sold at lower prices and compete unfairly with the wholesome, not adulterated, and properly labeled and packaged articles, to the detriment of consumers and the public generally.” FMIA, §602 Congressional Statement of Findings,

Compare Medieval Merchant Guilds’ “self-policing” with Western Grower’s Association Produce Marketing Agreement.”

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BENDING THE RULE OF PRIVITY: An Exception for Unsafe Food.

“To the old rule [of privity] should be added another exception—not one arbitrarily worked by the court—but arising...from the changing conditions of society. … … a manufacturer of food products under modern conditions impliedly warrants his goods when… and that such warranty is available to all who may be damaged by reason of their use in the legitimate channels of trade…” Mazetti v. Armour & Co.,azetti v. Armour & Co., 75 Wash. 622 (1913)75 Wash. 622 (1913)

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Creating Modern Product Liability: The Justice Traynor

Two-Step STEP ONE: “The consumer no longer has the means or skill enough to investigate for himself the soundness of a product.” Escola v. Coca Cola Bottling Co., 150 P.2d 436, 467 (1944) (Traynor, concurring).

STEP TWO: “The purpose of [strict] liability is to insure that the costs of injuries resulting from defective products are borne by manufacturers that put such products on the market rather than by the injured persons who are powerless to protect themselves.” Greenman v. Yuba Power Products, 377 P.2d 897 (1963)

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Who Pays for the decision NOT to invest in food safety? “Private markets often fail to

provide adequate food safety because information costs are high, detection often very difficult, and the nature of contamination is complex. Underlying many of the food safety failures is the existence of externalities, or costs not borne by those whose actions create them.”

Helen H. Jensen, Food-system risk analysis and HACCP, p. 63, in NEW APPROACHES TO FOOD-SAFETY ECONOMICS, G.J. Velthius, et al. (eds.) (2003).

June Dunning

Betty Howard

Ruby Howard

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Externalities: “…costs not borne by those whose actions create them.”

“Reported outbreaks probably account for only a small proportion of deaths from unknown foodborne agents because most foodborne outbreaks are never recognized or reported.”1

FBI Costs

Food IndustrySOCIETY

1. Paul Frenzen, Deaths Due to Unknown Agents, Emerging Infect. Dis., 10; 9 (Sept. 2004).

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“Lawsuits by consumers to recover damages due to foodborne illness can affect the behavior of firms that make or distribute food products. The magnitude of this effect is unknown, however, because information about litigation involving injuries due to food products contaminated by microbial pathogens is scarce. Firms…generally prefer to resolve consumer complaints about foodborne illness outside the courtroom, where they can keep the compensation payments confidential, and avoid or reduce adverse publicity about their products.” (Buzby, et al., Chapter 1, at p. 2)

THE NEED FOR LITIGATION:Market Failure & Public Safety

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Economically-speaking, a product liability lawsuit is a COST-SHIFTING

mechanism.Person injured by unsafe food pays cost in medical bills, lost wages, and pain.

Lawsuit seeks recovery of damages caused by (profits of) sale of unsafe food.

While lawsuits remain a relatively ineffective incentive to increased food safety investment, they are highly effective at compensating the person injured by defective foods.

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LEARNING TO TRUST AGAIN: A Return to Locally-Sourced Foods

“Locavore”— a person who adopts the practice of relying on fresh, locally grown food items

2007 Oxford American Dictionary Word of the Year

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Tel: 206.346.1888Fax: 206.346.1898email: dstearns@marlerclark.comweb: www.marlerclark.com