DEVELOPMENT OF REGULATIONS IN THE FEDERAL GOVERNMENT

1. DRAFT DEVELOPMENT OF REGULATIONS IN THE FEDERAL GOVERNMENT John C. Giraldez CFIA Regulatory and Parliamentary (613) 225-2342 giraldezj@inspection.gc.ca OTTAWA March 22, 2005 McGill University Montreal

2. Presentation Outline • The CFIA • http://www.inspection.gc.ca/english/corpaffr/busplan/2003-2008/indexe.shtml • Federal Regulatory Policy • http://www.pco-bcp.gc.ca/raoics-srdc/default.asp?Language=E&Page=Publications&Sub=GovernmentofCanadaRegula • Regulatory development process • www.inspection.gc.ca/english/reg/rege.shtml • Benefit-cost analysis • www.whitehouse.gov/omb/inforeg/riaguide.html • http://yosemite.epa.gov/ee/epa/eerm.nsf/efd9186ce4269b8d85256b4300527ad2/dec917daeb820a25852569c40078105b?OpenDocument • Case study HACCP • http://www.ers.usda.gov/publications/aer755/ • http://www.inspection.gc.ca/english/anima/meavia/manobl/200407surve.shtml

3. The CFIA • Mission • The CFIA is a science-based federal regulator of food, animals and plants. We are committed to enhancing the safety of federally regulated food, contributing to the health and welfare of animals, and protecting the plant resource base • Employs approximately 5,400 people across Canada • The Government of Canada regulator for: • food safety (along with Health Canada) • Animal health • Plant protection

4. Food Safety • Delivers all federal inspection services related to food. This entails verifying that manufacturers, importers, distributors and producers regulated by the Government of Canada meet standards for safety, quality, quantity, composition, handling, identity, processing packaging and labelling • Certifies that exported food meets foreign country requirements • Works closely with Health Canada, the department responsible for setting food safety policy and standards

5. Animal Health • Prevent animal diseases from entering Canada and to control the spread of animal diseases within Canada • When disease outbreaks occur, the CFIA acts quickly to control and eradicate them • Regulates animal feeds and veterinary biologics • Conducts regular animal disease surveillance programs designed to head off serious threats to livestock • Certifies the health of Canada's animal exports, evaluates the safety of imports, and regulates the humane transportation of animals.

6. Plant Protection • Prevents foreign plant diseases and pests from getting into Canada and to control the spread of plant diseases and pests of quarantine significance within Canada • Verifies that seeds and fertilizers, both domestically produced and imported, comply with federal standards for safety, composition and process • Certifies that plants, plant material and other related matter intended for export from Canada comply with the phytosanitary import regulations of foreign countries

7. Acts • Agriculture and Agri-Food Administrative Monetary Penalties Act • Canadian Agricultural Products Acts • Canadian Food Inspection Agency Act • Consumer and Packaging and Labelling Act • Feeds Act • Fertilizers Act • Fish Inspection Act • Food and Drugs Act • Health of Animals Act • Meat Inspection Act • Plant Breeders Act • Plant Protection Act • Seeds Act

8. Government of Canada Reg.Policy • Before regulating, departments and agencies must demonstrate that: • a problem exists and government intervention, by regulation or other means, is justified • Canadians have been consulted • the benefits outweigh the costs • adverse impacts on the economy are minimized • intergovernmental agreements are respected • regulatory resources are managed effectively and enforcement is assured • other directives from Cabinet are followed, such as Environmental Assessments

9. Problem Exists and Government Intervention is Justified • Problem • Market Failure • Inadequate or Asymmetric Information • Externality • Natural Monopoly • A market can be served at lowest cost only if production is limited to a single producer • Market Power • When Firms reduce output below what a competitive industry would sell • Improved Government Processes

10. Alternatives to Federal Regulation • Property right • Voluntary standards • Subsidies • Fee or tax • Market instruments (such as, marketable emission permits, third party delivery) • Commercialization • Provincial or municipal regulations

11. Alternative Regulatory Options • More performance-oriented vs prescriptive or design standards • Different requirements for different stakeholders (ex. large vs small) • Alternative levels of enforcement • Alternative compliance methods • Data collection and information distribution (inadequate & asymmmetric information) • More economic approaches vs command and control

12. Benefit-Cost Analysis: Principles • Level of analysis (Costs) • "Minor" • Less than $100,000 or miscellaneous • "Significant" • Between $100,000 and $50 million and high acceptance • "Major" • Greater than $50 million or between $100,000 and $50 million, but low acceptance

13. Benefit-Cost Analysis: Principles • Baseline • the way the world would look absent the regulation • Scientific method • Discounting • Net present value • private & social discount rate, discount period • Risk and uncertainty • probability distribution over a set of outcomes • Assumptions • to be avoided or made explicit • International • Trade Effects, agreements, B-C abroad

14. Benefit-Cost Analysis: Principles • Distributional Effects • Benefits & costs • Valuation • market prices, engineering approach, models... • BIT survey, travel-cost studies, hedonic price models, statistical studies of occupational-risk premiums in wage rates, contingent-valuation methods, "value of statistical life”... • Real Costs Versus Transfer Payments (distributional effects) • Net Benefits

15. Hazard Analysis Critical Control Points (HACCP) Meat and Poultry • There are 7 HACCP Principles: • Conduct a hazard analysis • Determine the critical control points • Establish critical limits • Establish monitoring procedures • Establish corrective actions • Establish verification procedures • Establish documentation and record-keeping procedures

16. Justification for Government Intervention • Lack of consumer food safety information • Lack of incentives for producers to provide food safety information • Non-regulated market may yield greater than optimal levels of pathogens • Market failure requiring government intervention (“asymmetric information” and inadequate information)

17. Consumer Impacts of HACCP • Reduced pathogens and foodborne illness • Fewer premature deaths • Lower medical costs • Lower productivity losses

18. Other Impacts of HACCP • Industry • Trade • Sales and marketing • Prevention is probably more cost-effective than testing a product and then destroying it or reworking it • Fewer recalls • Government • Change in inspection costs • Shift resources to higher risk areas • Changes in Cost Recovery

19. Annual Burden of Foodborne Illness in USA

20. Major Costs of Foodborne Illness • Medical Costs • Premature Deaths • VSL $5.57 Million • Productivity Losses • $1.2 Billion in Canada Other Cost: pain and suffering, costs taken to avoid the illness by individuals, lost leisure time and lost altruistic benefits.

21. Major Pathogens • Salmonella • E. coli • Listeriosis • Staphylococcus • Campylobacter • Clostridium

22. Disease Case for E. coli~93,000 in USA

23. Benefits of HACCP

24. Estimate Costs of HACCP • Industry - Business Impact Test • Plan development • Annual plan reassessment • Initial and recurring training • Recordkeeping (recording, reviewing and storing data) • Testing (ex. E. coli, Salmonella) • Consumers • Increase in unit price • Government • HACCP implementation • HACCP enforcement

25. Industry HACCP Costs in Canada

26. Net Present Value & Annualized • Net present value of benefits and costs • NPV= V0+(Vi)/(1+r)t+…+(Vn)/(1+r)n • V = benefits - costs • r=discount rate • r industry = 5.25% (bank prime rate + risk premium) • r social = 2.35% treasury bills • n= 20 year final period in the future based on USDA • Annualized present value • A(B or C)= PV(B or C)* [r*(1+r)n]/(1+r)n-1

27. PV of Industry Costs