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Pundit’s Mailbag — Food Safety Audits
And Government Oversight

Jim Prevor’s Perishable Pundit, January 22, 2007

We received a letter from a third-party auditor warning of a problem with the way the proposed California Leafy Green Handler Marketing Agreement and Marketing Order are structured:

My, and others’, biggest complaint with regards to the MA and MO for leafy vegetable crops is that there is no mechanism for forcing competitive pressure on the entities that obtain the funds. Providing “captured dollars” corrupts even the best intended firm, association, commission or agency. The fear of losing those funds for lack of performance or results is a healthy corrective force.

If the MO and MA provide a mechanism for funds to be redistributed back to growers and/or handlers (eliminate the centralized or unilateral decision making) and allowing the hiring and firing of the third party auditing firms by growers and/or handlers, then possibly some degree of duplication could be avoided.

There will be more than one buyer who questions the idea that the government is “here to help”. If we need a predictive model, simply study the beef industry. Its use of USDA inspectors on a 24/7/365 basis has neither eliminated nor reduced the number of private third-party audits.

Unfortunately the MA appears to provide CDFA with the ability to form its own auditing entity while also being the sole administrator. CDFA and USDA-AMS have a long history of expanding internal capabilities without regards to efficiencies. Each, like other government agencies, views the source of failure as a function of the under funding, not the lack of performance.

Getting as much of the MA and MO funding into the hands of folks that can be fired is the surest way of increasing the potential for the program’s success.

Getting an agency to administer a system that is responsive and adaptive to changes will be difficult. Allowing individual handlers or growers of leafy greens the option of selecting service providers under a program administrated by a “higher authority” would provide the credibility desired but maintain some of the benefits normally provided with services left to the “market.

A more carefully prepared MA, one that provides for “market” corrections for human and institutional failings, might actually be of benefit to the industry.

The Pundit was intrigued by this idea and asked a question:

Are you suggesting that the portion of the fee that is collected by the MA or MO should be a kind of voucher to be used with any certified or approved auditing body?

Our correspondent answered quickly:

In short, yes.

There will not be a single audit (e.g., observe EurepGap program and the multiplication of individual audits that have been added, etc.), but there could be a core audit that is critical for satisfying certain objectives (e.g., no audit performed in the United States should ever fail to cover the issues addressed by the FDA guidelines, and/or the new laws that will inevitably be passed in the near future, etc.).

There will be auditing firms that attempt to be recognized by the largest number of buyers or controlling entities (e.g., commissions, government, etc.). Their incentive is to maintain recognition and drive cost out of the system or increase their profits. Their competitors will force the cost to drop.

A logical approach is to force the service providers to attempt to satisfy the largest number of parties demanding some type of review (e.g., private buyers, government, commission, etc.). That will not occur under a program controlled by CDFA or USDA-AMS or any other commission, organization, private firm, etc., that has control of “captive dollars”.

Providing the audit or on-site review will be the most costly part of this effort. To amortize the cost of these visits the industry requires service providers capable of credibly balancing many different interests. On one side, growers and shippers that want an easy-inexpensive audit; on another a controlling authority that must confirm credibility; on a third, buyers will be looking for that little extra, etc.

It will happen if private firms are attempting to increase their value to their customers (e.g., European buyers, foodservice — high end to low end — grocery retailers, etc.).

We have all been here before… we just have to take human nature into account.

Our correspondent makes several key points:

  1. A government monopoly loses incentives to keep costs down and service up.
  2. In all likelihood this new audit will just be a base audit — with most major buyers demanding special audits. A private company is likely to be far better able to do the base audit and then add on to it — the Costco audit, the Wal-Mart audit, the Tesco audit, the Aldi audit, the Darden audit, the McDonald’s audit, etc. Dealing with all these auditors is a big expense and substantial inconvenience for suppliers. A system that can reduce this expense and inconvenience is much to be preferred.
  3. He adds a twist to these very valid arguments by saying that we could still keep the auditing mandatory and paid for through an assessment but give people a voucher to use with any “certified” auditor.

The Pundit adds another point: Food safety people who know what they are doing are tough to find and expensive. A government monopoly is likely to wind up understaffed and with unqualified people. As we learned in the Hunts Point scandal, government employees are also not immune to corruption.

Obviously as an auditor, our letter-writer has his own interests at stake when the government is talking about going into the business — but the points our correspondent make are reasonable. We shouldn’t set up a massive new government bureaucracy without more careful consideration of the point and of other possibilities.

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