Elsevier

Food Policy

Volume 66, January 2017, Pages 25-34
Food Policy

Consumer preferences before and after a food safety scare: An experimental analysis of the 2010 egg recall

https://doi.org/10.1016/j.foodpol.2016.11.008Get rights and content

Highlights

  • Economic experiments investigated consumers’ willingness to pay (WTP) for eggs.

  • One experiment was conducted just before and the other soon after a major egg recall.

  • The average WTPs were not significantly different before and after the recall.

  • WTP for organic eggs significantly increased in the negative information treatment.

  • Balanced information had a positive effect on consumer WTP for conventional eggs.

Abstract

In August 2010, more than half a billion eggs were recalled in the U.S. because of a Salmonella outbreak. This study examines the effect of the recall with a unique pair of auction experiments investigating willingness to pay (WTP) for conventional and organic eggs, one conducted shortly before and one right after the recall with the same participants. In addition to the before and after bids, participants bid again after a negative information or balanced information treatment about the event. Accompanying surveys showed consumers had a high level of awareness of the recall but less knowledge of specific details, and viewed information on egg farm conditions as very important in their WTP. While there were no significant before and after differences, WTP for organic eggs significantly increased in the negative information treatment, and balanced information had a positive effect on consumer WTP for conventional eggs.

Introduction

Foodborne illness is a serious public health problem in the United States. Each year, approximately 48 million Americans contract a foodborne illness, resulting in 128,000 related hospitalizations and 3000 deaths (Centers for Disease Control and Prevention, 2016). One of the most commonly used approaches to deal with foodborne illness is a product recall. Recalls are important as they attempt to remove the source of the problem to prevent further illnesses. However, recalls can also inflict serious damage on an industry through stigmatizing all like-products, including ones that are safe. Accordingly, the purpose of this research is to examine how food recalls impact consumer demand for both the product being recalled and a closely related version of the product.

A useful measure of consumers’ reaction to a food recall is its effect on consumer willingness to pay (WTP) for the product (Roberts, 2007). Ultimately, understanding these effects can improve the effectiveness of future food recalls in terms of preserving both consumers’ welfare and the economic well-being of the food industry. Economists commonly use experiments to elicit WTP, but experiments that test the impacts of a food recall usually rely on a laboratory setting and hypothetical food-safety risks (Kaiser et al., 1992, Maruyama and Kikuchi, 2004). Thus, the treatment used to test the impact of a food recall is purely hypothetical or provides information about a ‘potential’ risk unless the experiment can somehow include an actual recall. The study presented here benefits from an experiment on food preferences that was conducted shortly before one of the largest egg recalls in U.S. history and that allowed us to design a follow-up experiment to examine the effects of an actual recall.

On August 13, 2010, Wright County Egg Farms of Iowa initiated a voluntary recall of eggs, which it expanded on August 18, 2010. Two days later, the recall was again expanded to include Hillandale Farms of Iowa. In total, more than 550 million eggs distributed throughout the United States (see Fig. 1) were identified as presenting a potential risk of Salmonella contamination. Naturally, the recall received extensive attention by local and national media outlets (Laestadius et al., 2012). We take advantage of this actual food-safety event to examine consumer behavior in the midst of a situation in which the long-term health consequences of the recall were uncertain during the time of the experiment sessions.

Just prior to the recall, we had conducted an experiment involving adult participants in the mid-Atlantic region of the United States, which was not significantly affected by the subsequent recall, to investigate consumers’ WTP for conventional and organic food products, including eggs. After the recall was announced, we contacted the participants from that study about their willingness to participate in a follow-up study, without mentioning the motivating factor of the recall. Of the original 117 participants, 74 (63.24%) took part in the follow-up study, which was conducted during the first two weeks of September 2010.1

Both the initial and the follow-up study used a Vickrey fourth-price auction to analyze the impact of the recall on consumer WTP for eggs. The post-recall study included two parts. In the first part, all participants answered questions about their demographic characteristics, food consumer habits, and attitudes about food before bidding on several food products, including eggs. The experiments collected WTP for both conventional eggs (as were the ones recalled) and organic eggs, enabling us to examine if consumers reaction to the recall would vary by egg type. In the second part, the participants were split into two groups. The first group was given negative information obtained from a media source consisting of then-current information about the recall. The second group was given a more balanced set of information as it contained both the negative information and additional positive information about the recall that could potentially mitigate decreases in WTP caused by their receiving the negative information. To gauge the participants’ knowledge of the recall, several questions about it were asked before the information treatments. In addition, at the end participants were asked to rate the importance of each piece of information about the recall in terms of its influence on their WTP.

The primary objective of this study was thus to determine if consumer WTP for eggs was affected by the recall. Part of this was to examine if reaction to the recall varies between conventional and organic eggs. Specifically, for each egg type did participants react heterogeneously to the recall, and, if so, what factors contributed to any such difference? The second objective was to look at the possible influence on WTP of negative or balanced information about the recall on the two egg types. An included goal here was to see which pieces of information most influenced consumer responses.

Section snippets

Literature review

There have been two broad approaches to studying the impacts of food safety scares, in general, and food recalls specifically. The first approach has used observational market-wide data to discern any impact of a food safety event on either market demand or price. The second approach has used data collected directly from consumers through surveys or economic experiments, with the latter primarily limited to assessing whether hypothetical food safety treatments impact consumer WTP. This section

Experimental design

This study uses data from experimental sessions conducted shortly before and after the recall of eggs in August 2010. The first sessions were conducted in July 2010 for a project that examined consumer WTP for local and organic food products. Participants came from the mid-Atlantic region of the United States and were recruited through flyers at supermarkets, personal solicitation at the University of Delaware’s Agricultural Day (a large annual event open to the general public) and a Craig’s

Model

We use a random effects Tobit model to estimate whether the recall shifted WTP for either conventional or organic eggs. Selection of a two-limit random effects Tobit model is based on the format of the experiments. In the auctions, participants’ bids were confined to a range of $0 to $10. Therefore, we assume that a latent variable, bid, exists that represents each participant’s true WTP for the eggs offered in the auction round. The latent variables are related to the observed bidij bybidij=0

Conclusions

Due to increasing concern among U.S. consumers over food-safety issues and the perception that the number of food recalls is increasing (Hallman et al., 2009), a better understanding of how consumers react to a food recall is an important goal for both the food industry and the government. This study investigates the impact of an actual food recall on consumers’ WTP for the product associated with the recall and a closely related version. Specifically, we examined the effect of one of the

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