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DEVELOPMENT OF REGULATIONS IN THE FEDERAL GOVERNMENT

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DEVELOPMENT OF REGULATIONS IN THE FEDERAL GOVERNMENT Powered By Docstoc
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John C. Giraldez CFIA Regulatory and Parliamentary (613) 225-2342 giraldezj@inspection.gc.ca OTTAWA March 22, 2005 McGill University Montreal
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The CFIA • http://www.inspection.gc.ca/english/corpaffr/busplan/20032008/indexe.shtml Federal Regulatory Policy • http://www.pco-bcp.gc.ca/raoicssrdc/default.asp?Language=E&Page=Publications&Sub=Gov ernmentofCanadaRegula 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/efd9186ce4269b8d8 5256b4300527ad2/dec917daeb820a25852569c40078105b? OpenDocument Case study HACCP • http://www.ers.usda.gov/publications/aer755/ • http://www.inspection.gc.ca/english/anima/meavia/manobl/20 0407surve.shtml 2

Presentation Outline

The CFIA
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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

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Employs approximately 5,400 people across Canada The Government of Canada regulator for:
 food

safety (along with Health Canada)  Animal health  Plant protection
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Food Safety
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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
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Animal Health
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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

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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.
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Plant Protection
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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
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Acts
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 7  Seeds Act
 Agriculture

Government of Canada Reg.Policy
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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 8

Problem Exists and Government Intervention is Justified
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Problem Market Failure
 Inadequate
 Externality  Natural
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or Asymmetric Information

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
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Improved Government Processes

Alternatives to Federal Regulation
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Property right Voluntary standards Subsidies Fee or tax Market instruments (such as, marketable emission permits, third party delivery) Commercialization Provincial or municipal regulations
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Alternative Regulatory Options
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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
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Benefit-Cost Analysis: Principles
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Level of analysis (Costs)
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"Minor"
 Less

than $100,000 or miscellaneous

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"Significant"
 Between

$100,000 and $50 million and high acceptance than $50 million or between $100,000 and $50 million, but low acceptance

 "Major"
 Greater

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Benefit-Cost Analysis: Principles
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Baseline
 the

way the world would look absent the regulation

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Scientific method Discounting
present value  private & social discount rate, discount period
 Net

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Risk and uncertainty
 probability

distribution over a set of outcomes

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Assumptions
 to

be avoided or made explicit
agreements, B-C abroad

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International
13  Trade Effects,

Benefit-Cost Analysis: Principles
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Distributional Effects Benefits & costs
 Valuation

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

 market

Costs Versus Transfer Payments (distributional effects)

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Net Benefits
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Hazard Analysis Critical Control Points (HACCP) Meat and Poultry
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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
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Justification for Government Intervention
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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)
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Consumer Impacts of HACCP
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Reduced pathogens and foodborne illness
premature deaths  Lower medical costs  Lower productivity losses
 Fewer

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Other Impacts of HACCP
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Industry
 Trade

 Sales

and marketing  Prevention is probably more cost-effective than testing a product and then destroying it or reworking it  Fewer recalls
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Government
 Change

in inspection costs  Shift resources to higher risk areas  Changes in Cost Recovery
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Annual Burden of Foodborne Illness in USA
Total C ases K now n P ath ogens B acter ial P ar asitic V ir al U nknow n P atho gens Acute gastr oenter itis Gr and Total 173 ,0 00,000 211 ,6 29,641 62,0 00,000 75,8 14,925 263,015 323,867 3,360 5,169 5,2 04,934 2,541 ,3 16 30,883 ,3 91 Foodbor ne C ases 4,174,5 65 357,1 90 9,2 82,170 Foodbor ne H ospitaliz ation 36,466 3,219 21,167 Foodbor ne D eaths 1,2 97 383 129

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Major Costs of Foodborne Illness
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Medical Costs Premature Deaths
 VSL

$5.57 Million

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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.
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Major Pathogens
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Salmonella E. coli Listeriosis Staphylococcus Campylobacter Clostridium

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Disease Case for E. coli
~93,000 in USA
M e dic a l No ph ys ic ian v is it V is it p hys ic ia n a nd re co ve red fu lly Ho sp ita lize d Ch ron ic k idne y fa ilu re P rodu ctiv ity lo s s/p rem a ture de a th No ph ys ic ian v is it V is it p hys ic ia n a nd re co ve red fu lly Ho sp ita lize d Ch ron ic k idne y fa ilu re De a th 5 0% 3 2% 1 8% 0 .1% 3% 5 0% 3 2% 1 8% 0 .1%

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Benefits of HACCP
% illne s s HACCP % Dom e stic d ue to re duc tio n c on su mp tion m e at an d in fro m Fe d . Po ultry p ath oge ns Pla nts & Im p orts Ca mp ylo ba cte r 7 5% 39% 9 0% Clo strid iu m 5 0% 39% 9 0% E . co li O 15 7 :H7 5 0% 39% 9 0% E . co li, no n-O 1 5 7 7 5% 39% 9 0% ST EC L iste ria 5 0% 39% 9 0% Sa lm on e lla 6 3% 39% 9 0% Sta ph ylo co cc us 5 0% 39% 9 0% To ta l
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P ath og en re du ctio n in illn es s re latio n 10 0% -5 0% 10 0% -5 0% 10 0% -5 0% 10 0% -5 0% 10 0% -5 0% 10 0% -5 0% 10 0% -5 0%

HACCP % re duc tio n in illne s s

27% -13% 1 8% -9% 1 8% -9% 27% -13% 1 7% -9% 22% -11% 1 8% -9% $ 3 14 -1 57

Estimate Costs of HACCP


Industry - Business Impact Test
development  Annual plan reassessment  Initial and recurring training  Recordkeeping (recording, reviewing and storing data)  Testing (ex. E. coli, Salmonella)
 Plan

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Consumers
 Increase

in unit price

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Government
implementation  HACCP enforcement 24
 HACCP

Industry HACCP Costs in Canada
Year 1 F IRM S tart-u p Co sts On go ing Costs Net Co sts IN DUSTR Y N=767 Net Co sts $ 53,039 16,058 89,498 $ m illio n 69 Year 2 $ 0 49,067 73,819 $ m illion 57 Year 3 $ 0 61,206 75,154 $ m illio n 59 Year 4 $ 0 65,522 68,296 $ m illio n 52 Year 5 $ 0 64,532 59,815 $ m illio n 46

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Net Present Value & Annualized


Net present value of benefits and costs
V0+(Vi)/(1+r)t+…+(Vn)/(1+r)n  V = benefits - costs  r=discount rate
 NPV=
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 or C)= PV(B or C)* [r*(1+r)n]/(1+r)n-1

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Annualized present value
 A(B
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PV of Industry Costs
V alu e PV $M In dustry C o sts 607 A nnu al $M 45.9 Year 1 $M 68.6 Year 2 $M 56.6 ... Year 20 $M ... 45.9

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