How COOL is your seafood?

Resource Economics
UMass, Amherst

For her final oral examination for a Ph.D in Resource Economics, Siny Joseph presented an analysis of Country of Origin Labeling (COOL) for seafood. I echo the words of the external member of her committee, who said,

“After reading this paper, I pay more attention to my seafood.”

Dr Siny Joseph’s field is I.O. Economics – a term that I had to Google after the defense! My complete ignorance of the jargon in this field should alert you to the high probability that I have misconstrued or misunderstood major elements of her work. I will do my best to summarize and hope for correcting comments as needed.

Extrapolating from the wikipedia entry and my limited exposure to other disciplines, Industrial Organization explores the economic interaction between two dynamic forces:

  1. the strategic behavior of firms (which I believe is the purview of my friends specializing in strategic management) and
  2. the structures of markets (statistical analysis like I’ve never seen!)

Given my lowest-score-in-the-cohort competence in all things math, most of the substance of Siny’s analysis and discussion with her Committee Members occurred in a language I cannot even pretend to understand: replete with “k-bars,” and K’s with subscript L’s and H’s, “thetas” and fixed parameter values composing profit maximization formulas… Go grrl go! Her findings, however, were described in comprehensible English – and they are fascinating.
Siny answering a question.jpg
Seventy percent of seafood purchased by consumers in the U.S. is imported; of these imports, 80% comes from less developed countries. COOL (Country of Origin Labeling) is legislation introduced in the 2002 Farm Bill, and implemented with seafood in 2005, with the idea that food quality and food safety are linked with where the food originates. Coincidentally, COOL is being extended to more foods this year with continuing debate over exemptions and on-going criticism of delays, making Dr Joseph’s research findings immediately relevant. Regarding seafood, huge sectors are exempt: restaurants and other food service providers, specifically, and products deemed to be “processed.” In general, then, COOL applies to the seafood you buy in a grocery store or market to cook at home.
It seems the first major task in an I.O. economic analysis is to define the boundary between what is included and what is excluded from the study. Siny focused on the US market, presumably because the boundaries could be readily established. (In a case study on shrimp, she explained the distinction between a “covered” and “uncovered” market, explaining she’d had to go with the former – specifically an undifferentiated market – because the mathematical expressions for the latter were unmanageable. Basically (I think!) this means using idealized equations rather than ones more representative of real life.) Generally, Americans will assume that seafood of domestic origin is of higher quality than seafood of foreign origin, and consumers are most willing to pay the costs of labeling during and immediately after food scares – so that they (we, smile) can make (at least) this basic differentiation.
But (I kept thinking to myself) – labeling after a scare doesn’t do much to protect consumers during the scare and of course has no contribution to risk prevention whatsoever. So why isn’t labeling just done, as a matter of business habit? “Because,” Dr Joseph explained, “firms can masquerade low quality seafood as high quality when consumers don’t have all the information, and that’s where the profit comes from.” She and her committee members debated nuances of the statistical measurements, recommending and justifying choices of particular statistical tools, but did not question Siny’s basic finding that (now, with only three years of info available) the greatest profit comes under what’s called “voluntary COOL” (which does occur with some seafood products), followed by partial implementation of COOL (the status quo), and drops the lowest under “total COOL” – an ideal she recommends because “real consumption is greatest when there is full implementation of COOL.”
The rub for me during the whole presentation is the use of this indicator called WTP: Willingness to Pay. What I’d like to see is a complementary WTP2 (squared) equation: Willingness to Profit. Somehow the whole debate seems framed with WTP2 as an unquestionable given – companies have the inalienable right to maximize profit and consumers have to pay for safety. It just strikes me as wrong; at least out-of-balance. Firms can afford to pay much more than any individual can! Anyway, Siny’s Committee engaged vigorously with her findings: “I like the story you’re trying to tell,” said a professor by speakerphone, wondering about pursuing the angle of diversion, and all of them wondering about policy recommendations based on these findings.
There was a measure of “Total Welfare” that supposedly mixes the best consumer outcome with the best business outcome…. and Dr Joseph did present some evidence that companies would label voluntarily under certain/specific conditions (of known/demonstrated consumer demand?), but for the most part companies are trying to duck this completely. For instance, shrimp traders are required to label unprocessed shrimp, so they would rather do something that qualifies as “processing” in order to avoid labeling. Doesn’t it cost to do that, too? Honest – I get very confused! Why is one type of cost preferable to another? I think someone needs to institute an equation such that consumer WTP cannot exceed 1/2 the square root of the actual incurred cost apportioned over the entire volume in order to somehow link a decrease in the firm’s WTP2 (willingness to profit) with the increase consumers are willing to pay. (Which is probably why I’m not an economist.)
Siny's graph.jpg
Nonetheless, even if the current data is not totally amenable to a single clear and concise argumentative point, I definitely agree with Siny’s committee member: “I like your plan of attack.” I want to be able to argue convincingly that the government (through legislation) should be on the consumer’s side – not only in the grocery store, but I would also like to be able to confirm the quality of seafood purchased in restaurants.
Keep it up, Dr Siny Joseph!

References/Resources:
Industrial Organization, Wikipedia
Market coverage strategy, answers.com
Diversion, BusinessDictionary.com

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