Economics and Agroterrorism

1. Economics and Agroterrorism Calum G. Turvey Dept of agricultural, Food and Resource Economics Food Policy Institute Rutgers University September 2003

3. New Concerns Over Food Safety and Security • New focus on food system security following September 11th attacks and anthrax mailings • Heightened concerns about deliberate and purposeful contamination of food and water supplies • Evidence that terrorists were considering use of aerial dusters (crop dusters) • Purpose unclear – contaminate agricultural and water systems? • Considerable concern about use of Weapons of Mass Destruction (WMD), including biological and chemical weapons • Many state-sponsored programs have focused on anti-crop and anti-livestock weapons

4. Food Safety and Security Osama Bin Laden • “It is very important to concentrate on hitting the American economy with every available tool…the economy is the base of its military power…The United States has a great economy but it is fragile” Dr. Rhona Applebaum of the National Food Processors Association stated • The potential for the food supply being a target or tool of terrorism can no longer be viewed in hypothetical terms

5. Homeland Security • Homeland Security and Bioterrorism Act designed to protect adulteration against food system • Shifting in focus from food safety to food system security • Section 303 Administrative Detention • FDA can inspect and detail suspected foods • Section 304 Registration of Food Facilities • All foreign and domestic food facilities must register with FDA • Section 306 Maintenance and Inspection of Records for Food • All firms (except farms, retail, and restaurants) • Maintain records 1 step back and 1 step forward • Section 307 Prior Notice of Imported Food Shipments • All food destined for US consumers must notify FDA of contents no more than 5 days and no less than 12pm on day prior to arrival at border point

6. Changing Face of Terrorism • Terrorist activity is being characterized by increasing lethality and efforts to obtain WMD • Increasing incidence of sub-national terrorist activity • Economic and political conditions have made documentation of nuclear/biological/chemical inventories more difficult • i.e., dissolution of USSR and its Biopreparat program • At its peak the Biopreparat program had 40 research and production facilities/40-50,000 workers • Technical expertise and materials not all accounted for • Engaged in anti-personnel, anti-crop, and anti-livestock bioweapons

7. Potential Threats to the Food System • Use of food/water as delivery mechanism for pathogens, chemicals, and/or other harmful substances for purpose of causing human death or illness • Introduction of anti-crop/anti-livestock agents into agricultural systems • Physical disruption of the flow of food/water (i.e, destruction of transportation/distribution infrastructure or water distribution systems) • Use of agricultural inputs as weapons or weapon delivery systems (i.e., crop dusters, agricultural fertilizers, etc.)

8. The Meaning of Hysteresis in the Context of Fear and Terrorism • Consumer hysteresis is a phenomenon that causes consumers to fail to reverse their consumption habits when the underlying source of uncertainty or ambiguity has reversed itself. • There is a time-dependency between what has occurred in the past and what is observed in the present • Risk perception relates to the cognitive ability of humans to perceive and judge risks (Arrow) • individuals judge future events by the similarity of the present evidence to it (Tversky and Kahneman) .

9. Hysteresis and the Economics of Fear • Basic Principles of Economic Model and Hysteresis • Fear of attack shifts and twists supply curve • Shift due to increased marginal costs of diligence • Twist due to hysteresis effect of ambiguity and uncertainty (more inelastic) • Uncertainty over safe food shifts and twists demand curve (more inelastic) • Combined effect leads to social welfare loss • Terrorist objective: Maximize Social Welfare Loss

10. Evidence of Hysteresis 1?

11. Evidence of Hysteresis 2?

12. Evidence of Hysteresis 3 • The Food System • Bocker and Hanf (2000) • that after a food scare demand drops, but then slowly builds as probabilistic assessments of food safety from the supplier increases • Liu et al (1998) • simply removing the source of uncertainty is not sufficient to regain consumer confidence and a return to initial demand • Caswell and Mojduska (1996) • food safety has a strong credence component due to the ambiguous causality between eating a food product and getting sick; • personal experience is insufficient to judge food safety

13. Evidence of Hysteresis 4 • Agricultural Products and Markets • $2.4 billion lost exports as the price of beef went to zero in the U.K. when the link between BSE and CJD was discovered • BSE in Canada, 2003 Canadian prices fall by as much as half of U.S prices • In 2001/2 three cases of BSE in Japan caused a 50% drop in beef sales • After the lacing of grapes with cyanide, consumers refused to buy all types of Chilean fruit. Markets never recovered

14. What are We Learning? • How can economics be used to combat terrorism? • The intelligent terrorist model • Terrorists will seek to optimize economic damage • Principles of hysteresis and risk perceptions provide some guidance • Susceptibility driven by demand and supply elasticities • More inelastic, the greater the impact • First line of defense from an economic perspective • is to identify key sources of risk and use first principles of marginal analyses and investment under uncertainty to examine impacts • Regional and international trade modeling • shows important impacts and welfare losses for the US and its trading partners

15. The Next Steps • We need to measure detailed trade impacts • We need to engage greater and more sophisticated models e.g. game theory • We need to address key policy issues; • Should policy be based on the precautionary principle? Or • Should policy be based probabilities costs to expected benefits • We need to incorporate economics into mitigation and damage assessment • But there is a role for agricultural economists to develop new models and frameworks to examine issues in agroterrorism