Mar 162015
Hepatitis A
Typical of the confusion Australian consumers face

In the wake of the Hepatitis A scandal, which as at this point has infected some 26 people in Victoria, New South Wales, Western Australia, Queensland, South Australia and the ACT. There has been a great deal of debate about food labelling laws, protocols, and food safety.

A potential cause of the outbreak and a potential solution fall within what readers of this blog might be familiar with – water quality and market-based instruments.

At this stage, it looks likely that the source of the infection was and is imported frozen berries from China.

Sufferers of Hepatitis A are likely to suffer gastro-intestinal problems such as nausea, vomiting, diarrhoea and fever and in some cases may suffer acute liver failure.*

Hepatitis A is spread through the “oral – faecal route”. So, there are perhaps two mechanisms for which Hepatitis A can be passed onto another person through ingesting food. One, involves an infected person exhibiting poor hygiene practices (such as not washing hands), and then directly handling the food. The second is contaminated water being used to wash or prepare food.

The outbreak and the poor quality control standards for food production and packaging shouldn’t have come as a surprise. China has had a well documented, if not at times overblown record of food contamination. Ranging from contaminated milk formula, to poisonous pet food, and garlic sprayed with outdated and harmful (to human health) fertilisers and pesticides. Frozen berries were thought to be the cause of Hepatitis A infections in the United States and European Union. These are problems in practices that would not be allowed to occur in countries like Australia.

Calls for better food labelling laws as a result of the Hepatitis A outbreak have been made by consumer groups. It is often a battle for consumers to understand where their food is sourced. Confusing labels such as “Made in Australia from local and imported ingredients” make food labelling meaningless and devalue the system as a whole. The federal government initially rejected such calls and deemed them an unnecessary regulation. However, it appears that a proposal is going to be made to cabinet by the end of March.

I support such a move, but I argue that it is positive and productive regulation. As opposed to restrictive regulation. Companies that import food products would be well aware of their supply chain – meaning a low cost of implementation for the companies involved.

The benefits are obvious. Consumers would be able to make better choices as a result of the extra information. It is unusual in any given market, that a consumer is unaware and cannot know the source of the product purchased. For example, if an oil company is selling oil, it is graded and sold on an exchange, with the details of the product known. Some oil grades will command a premium over other oils.

It should be the same with food. But because of our food labelling regulations, this is not the case. It is what is known as a market “friction”.

Friction occurs in a market where the buyer – in this case, the consumer – has to make choices based on insufficient information. The gaps between information between the seller and consumer in the market lead to an inefficient transaction of goods. Meaning that products that should sell for less, may sell for more and products that should sell for more, sell for less. These are transaction costs.

This is where Friction Reduction market-based instruments, or as I prefer to call them: Information based market-based instruments become relevant.

Information based MBIs or Friction Reduction Instruments reduce the transaction costs by creating a more efficient market. These instruments might include certification, labelling, education campaigns or any number of other related schemes. Many of these schemes are voluntary, on the part of producers, in response to demand from consumers.

A classic example is “fair-trade” coffee. This resulted from ethical considerations of coffee drinkers towards the growers and workers on coffee plantations.

One might ask why if it such a good thing, that local producers don’t already label their products more specifically, or precisely. The answer is that many if not all, already do.

The efficient functioning of a market relies on the underlying regulation. In this case, Australian growers and producers have their products devalued as a result of the lack of information. Those already providing the information are having their products lowered in value by those who don’t have to accurately state the source of their products. The confusion in the labelling raises the value of imported product, and lowers the value of local product.

There is something being missed out on as a result of the lack of informative labelling. Australian food and locally sourced food fetch a premium overseas and at home. Yet, when these products are in supermarkets, the value is less.

With the explosion of local farmers markets in Australia and so on, it is obvious that there is high demand, and an expectation of locally sourced and grown product. And people don’t mind paying a premium for the assurance that that provides.

If Australia looks to increase the value of our agricultural exports, we could probably learn a thing or two about increasing the value of our domestic premium produce sales. All this would take, is a simple change on the label.


*This is not a medical blog, or recommended advice. Please seek other advice or treatment if concerned.