PRELIMINARY REGULATORY IMPACT ANALYSIS OF THE PROPOSED REGULATIONS TO ESTABLISH PROCEDURES FOR THE SAFE PROCESSING AND IMPORTING OF FISH AND FISHERY PRODUCTS December 15, 1993 Richard A. Williams, Jr., Ph.D. Chief, Economics Branch, HFS-726 Office of Scientific Analysis and Support David J. Zorn, Ph.D. Economics Branch, HFS-726 Office of Scientific Analysis and Support Please address all comments to: Dr. David J. Zorn tel:(202) 205-4729 fax:(202) 260-0794 djz@fdacf.ssw.dhhs.gov FDA (HFS-726) 200 C St., SW Washington, DC 20204 TABLE OF CONTENTS I. Executive Summary II. Failure of Existing Regime III. Regulatory Options IV. Costs and Benefits of Mandatory HACCP V. Costs of the Proposed Mandatory HACCP Option VI. Benefits of the Proposed Mandatory HACCP Option VII. Small Business Impact VIII. Summary IX. Appendices 1. Average Costs of Compliance 2. Discussion of Hazards 3. HACCP Prevention Measures 4. Summary of Requests for Comment I. EXECUTIVE SUMMARY FDA has examined the impacts of the proposed rule under Executive Order 12291 and the Regulatory Flexibility Act. Executive Order 12291 compels agencies to use cost-benefit analysis as a component of decision-making. The Regulatory Flexibility Act (P.L. 96-354) requires regulatory relief for small businesses where feasible. FDA finds that this proposed rule constitutes a major rule under both the Executive Order and the Regulatory Flexibility Act. Executive Order 12291 requires federal agencies to justify the need for regulations by demonstrating that the problem that the regulation is designed to remedy cannot be adequately addressed by measures other than federal regulation. In its review of such alternatives, FDA finds that the current system (periodic inspection plus sampling of a small proportion of seafood), coupled with the uncertainty in estimating the illnesses related to seafood, have not adequately assured consumers that a minimum level of safety has been established. Although the tort system is not able to provide remedies for unsafe seafood, the price system provides some differentiation between products based on brands and retail reputation. However, the price system works in conjunction with current federal regulation which signals consumers as to a minimum level of seafood safety. As is argued in the preamble, countless public arguments and attempts at legislation imply that the minimum levels that some consumers believe they are getting (those that do not search for higher levels) is probably higher than the actual levels of seafood safety. The tort system fails because consumers are often unable to trace either the source of their foodborne illness to seafood and even where that is possible, it is often difficult to trace seafood to a specific company. I.A. Regulatory Options FDA has evaluated multiple options to address the compelling public interest in further ensuring seafood safety. These options include: 1) Maintain the existing approach -- "snapshot" inspections and sampling; 2) significantly increase the frequency of both snapshot inspections and sampling under the existing approach; 3) begin a voluntary HACCP program in addition to the existing approach; 4) begin mandatory HACCP for high risk products only, in addition to the existing approach; 5) begin mandatory HACCP for all seafood (the proposed approach); 6) begin a more comprehensive mandatory HACCP program than that proposed, similar to the Model Seafood Surveillance Project (MSSP), which would include all Good Manufacturing Practices (GMPs), quality and economic fraud as critical control points; and 7) begin a mandatory water-to-table HACCP program which would include all vessels, carriers and retail food operators. The existing approach does not adequately address the compelling public interest in further ensuring seafood safety because sampling the large volume of seafood with FDA's limited resources cannot detect many violative products. Increasing the frequency of sampling and inspections are also unlikely to resolve this problem without significant increases in funding. These options are discussed extensively in the preamble to the proposed regulations and in the PRIA. The third option, voluntary HACCP, has been in existence at the National Oceanic and Atmospheric Administration (NOAA) and has very few participants. The forth option, risk-based HACCP, has been evaluated in the PRIA in several forms including HACCP only for the highest risk products from an historical perspective and HACCP only for those products with the potential for "catastrophic" risk. For example, one possibility evaluated under this option would be to implement HACCP solely for molluscan shellfish, which the National Academy of Science and other groups concluded constitute most of the risk from seafood. The sixth option is more costly than the proposed option and includes more reliance on GMPs. Finally, the last option involves mandatory HACCP for nearly 1 million establishments. The options evaluated in the PRIA have both lower and higher costs than the proposed option. However, the benefits of all options are not equal to the proposed option. FDA has quantified net benefits of some of the high risk options and has found them to have been positive net benefits for those costs and benefits which have been quantified. These options are not all equal in terms of cost and benefits. They differ significantly from one another in this regard, as well as from the option that FDA has selected to propose as new part 123. They are also not equal in their ability to meet all the regulatory objectives stated in the preamble, including effective treatment of imports and an appropriate alignment of industry and government responsibilities. FDA seeks comment on the costs and benefits as well as on the general pros and cons of all the stated options and on any options that the agency may have overlooked. It is extremely important that FDA's evaluation of regulatory options be as thorough as possible for purposes of developing a final rule, and that the agency be able to fully articulate the distinctions among them and the significance of those distinctions. I.B. COSTS There is no single source of data that FDA has found to be entirely satisfactory for developing a preliminary estimate of the costs of the proposed regulations. Consequently, FDA has considered two sources of information, each with its own strengths and weaknesses. The results provide a range of possibilities, and FDA invites comment on them. The first source is U.S. seafood processors that have actually implemented HACCP systems. The number of such firms may exceed 100. Understandably, many firms are reluctant to make public detailed information about the costs of operation; consequently, the information available to FDA from this source is incomplete. On the other hand, there is enough information from which some preliminary conclusions can be drawn that are relevant to an economic assessment. The second source is a study of the costs of implementing a form of HACCP that was developed by the Department of Commerce for the congressionally mandated MSSP. That study was performed by an independent contractor for the National Fisheries Education and Research Foundation, Inc. and commissioned under a grant from the National Marine Fisheries Service (NMFS). While these data are the most detailed available, fitting them to the proposed regulations required extensive adjustments and extrapolations. Thus, these data also fail to eliminate the considerable uncertainty of the results as they relate to these proposed regulations. I.B.1. Costs: actual industry experience FDA has some information relevant to the actual costs of implementing HACCP experienced by a number of seafood firms. While this information is neither detailed nor complete enough to definitively answer the question of how much the proposed regulations will cost the industry, it does provide insight into the costs of the proposed regulations. This information includes responses to a 1991 evaluation questionnaire from 4 of the 8 firms that participated in the FDA/NOAA seafood HACCP pilot in 1990-1991 (Ref. 40). It also includes information more recently provided to FDA from seven firms through the assistance of the National Food Processors Association, and from two trade associations. The trade associations, the National Fisheries Institute and the New England Fisheries Development Association (NEFDA) provided FDA with summary information about member firms that were implementing HACCP systems. NEFDA has operated a HACCP pilot with member firms through a Federal grant. The two trade associations provided information on 16 firms. The seven firms that provided information about themselves through NFPA operate a total of 44 processing plants, so FDA has information on at least 64 plants (Spiller, P., Memorandum, "Industry Costs of HACCP," Sept. 13, 1994. On display in Dockets Management Branch, FDA, rm. 1-23, 12420 Parklawn Dr., Rockville, MD). The firms represent a good cross section of processing operation types, including canned, fresh, frozen, smoked/salted, and cooked, ready-to-eat products as well as molluscan shellfish. The majority of firms were involved in HACCP as participants in either pilot programs, the NOAA fee-for-service program, or the State of Alaska program, and therefore have been subject to some form of third party verification of their HACCP systems. Virtually all of them developed HACCP plans, and the majority of these included critical control points for quality or economic fraud or both in addition to safety. In this respect, the majority of firms implemented a more extensive form of HACCP than is being proposed by FDA. Presumably, start-up costs for HACCP are normally higher than operating costs in subsequent years. The majority of firms that could estimate their own start-up costs indicated costs in the $1,000-$5,000 range. The remaining minority appear to be roughly equally divided between lower and higher costs. A few firms indicated costs in the $20,000 or higher range. These may be firms that decided to hire additional personnel in order to install or implement HACCP. It should be noted that the cost figures that come from firms that operate more than one plant are for the total costs of their plants collectively; in order to calculate the average per-plant start-up cost for these firms, their costs would have to be divided by the number of plants. Nearly twice as many firms did not hire additional personnel or did not anticipate hiring additional personnel as a result of operating HACCP systems as those who did or felt the need to do so. The overwhelming majority of firms reported that they believed that the advantages they derived from HACCP were worth the costs to them in terms of better control over their operations, better sanitation and greater efficiencies such as reduced waste. Virtually all foresaw long term benefits from operating under HACCP. FDA notes that there are several uncertainties with this data. The first is that FDA does not know the extent of previous HACCP-type activities in these firms so that they may have different incremental costs than the industry average. In addition, these firms may have been relatively larger firms so that they may not be fully representative of the industry. Also, FDA does not know whether or not these firms would necessarily be in full compliance with the proposed regulations so that additional costs might have to be expended. I.B.2. Costs: MSSP study The MSSP study provides FDA with survey data from which detailed cost estimates have been made in the PRIA, subject to numerous uncertainties. As this is the largest and only randomly selected database available to FDA, the PRIA relied primarily on estimates based on these data. The contractor in the MSSP study sent teams into 130 processing plants, none of which were operating under HACCP systems, to project the costs to each plant to implement and operate a form of HACCP chosen for that study. In areas where FDA had better data than that used in the contractor reports, the agency has used information available from its field surveys on current practices or conditions in the industry in general, and it has substituted that information for the information gathered from the sample plants in the contractor reports. Where gaps in the contractor estimates exist that could not be filled in by information from FDA field surveys, a number of assumptions have been made for the purposes of this economic assessment. FDA views the cost estimates extrapolated from the contractor reports and other sources as preliminary and requests comments on them. From FDA's 1992 official establishment inventory, FDA has estimated that there are 4846 domestic seafood manufacturing plants that will be affected by the proposed rule. Thirty-three percent of the first year costs can be attributed to expenditures necessary to comply with the HACCP-based sanitation provisions of the proposed rule. Another 36% are attributable to monitoring and recordkeeping requirements. In addition, approximately 31% of the first year costs are for equipment; such as temperature indicators, temperature recorders, and can seam tear-down machines; HACCP training; consulting by processing authorities; writing HACCP plans; instituting operational changes; responding to critical limit deviations; and analytical testing. The average expected cost of the proposed rule per domestic manufacturing plant is estimated to be $23,900 in the first year ($24,000 for small plants, $23,400 for large plants) and $15,000 in the following years ($14,700 for small plants and $15,700 for large plants). Total costs of the proposed rule for domestic manufacturers are estimated to be $117 million in the first year and $65 million in the following years. In addition, FDA estimates that 924 importers will bear start-up costs of approximately $8 million and 1,571 repackers and warehouses will bear annual recurring costs of $14 million. Therefore, based on these data, FDA estimates domestic costs for this rule to be $139 million in the first year and $79 million in succeeding years. Discounted domestic costs are estimated to be $676 million over 10 years (6%). FDA also estimates that 8,125 foreign processors will have initial costs of $96 million and recurring costs of $44 million. These estimates are considerably higher than the estimates from data submitted to FDA from seafood plants as discussed above. These differences may be attributable several factors. For example, the MSSP-based estimates also include estimated costs of compliance by processors with preexisting sanitation requirements in 21 CFR, Part 110 and costs of complying with guidelines that are appended to these proposed regulations. Although these costs are not inherent to the operation of a HACCP system, they represent one-third of the total MSSP-based estimates. As indicated earlier in the preamble, compliance with good manufacturing practices for sanitation has been a continuing problem across the industry. For this reason, FDA is proposing specific sanitation requirements in Subpart A of Part 123. Moreover, the estimate of costs associated with complying with guidelines in the appendices may be overstated because, in actuality, FDA may find industry practices other than those stated in the guidelines to be acceptable. The guidelines are intended to provide the industry with information on how it could implement HACCP, not how it must do so. Costs to importers and to foreign processors that ship to the U.S. were also estimated. In the absence of reliable data for estimating costs to foreign processors, FDA estimated the number of plants that export seafood to the U.S. and based their costs of implementing HACCP on MSSP-generated data on the costs to U.S. plants. It is important to recognize that many of the U.S.' major seafood trading partners are using, or have opted for, HACCP programs. For example, the European Community will soon require HACCP or an equivalent system from over 100 nations that export to it. Consequently, with the current trend toward HACCP worldwide, the costs to many foreign processors of implementing HACCP may be incurred regardless of whether FDA issued these proposed regulations. Moreover, in the near future, U.S. importers subject to this proposed rule should have little difficulty finding products produced under HACCP. FDA specifically invites comment on the estimated costs of the proposed regulations to importers and foreign processors, e.g., whether they are high due to the worldwide move toward HACCP or whether they are low due to other factors that have not been considered, and the potential effect on U.S. consumers of requiring that imports be produced under HACCP systems. The PRIA presumes that most of the cost of compliance of the proposed regulations will be passed on to consumers. Estimating the magnitude of these price increases is difficult. U.S. consumers spent about $16.5 billion on domestically produced seafood in 1991 (NMFS, NOAA, U.S. Department of Commerce, "Fisheries of the United States, 1991," Silver Spring, MD, 1992). If the domestic industry passed all of the estimated annual costs to consumers, prices for domestically produced seafood would increase by less than one percent in the first year and less than one half of one percent in succeeding years. Price changes of such magnitude are unlikely to have a major impact on general seafood purchases. However, some regional price increases may considerably exceed this. In addition, this estimation of change in price does not address potential concentration effects. It is worth noting that the contractor that performed the MSSP study estimated a range of cost increases from negligible to 1.3 percent, depending on the type of product. The effect on prices of imported products is impossible to estimate. While the PRIA uses MSSP data and a number of assumptions to estimate possible costs to foreign processors of complying with the proposed regulations, those costs will be spread among the consumers from all nations to which these processors export. FDA is unable to estimate what percentage of these costs would be passed on to U.S. consumers. On the other side of the ledger, the MSSP-based estimates were not able to include costs associated with some features of the proposed rules because data were lacking. An inventory of these features is provided in the PRIA and FDA invites comment on possible costs associated with them. They include prevention of cross contamination by the separation of food contact surfaces, storage at 40F of cooked, ready-to-eat products and products that are made in whole or in part of scombroid toxin forming species, and the costs of following the approach presented in the guidelines at Appendix B for scombroid toxin forming species. I.C. Benefits This proposed action will reduce the amount of illness that derives from consumption of seafood (safety benefits) and may have significant nutrition benefits that result from increased consumption of seafood. The increased consumption will result from a decrease in consumer anxiety associated with the consumption of seafood. In addition, there may be significant cost savings (benefits) in other areas as a result of adoption of this proposed rule. The existence of a national, mandatory, HACCP-based inspection system for seafood should have a beneficial, although non- quantifiable effect on both the industry and the Federal government. FDA knows from experience that continuing concerns about the adequacy of the current Federal regulatory system for seafood place a financial stress on industry, which must constantly defend itself from criticism, and on regulatory agencies such as FDA, which must divert resources in order to respond to the Congress and the media. While public interest in food safety is healthy and desirable, the extreme interest in seafood safety, which has manifested itself in over 10 congressional hearings and over 20 pieces of legislation in the past 5 years, demonstrates how a system that is less than fully adequate from the public's standpoint can cause a steady diversion of both public and private resources that is likely to continue in the absence of a system that overcomes current inefficiencies and shortcomings. Finally, there will be an additional benefit to firms wishing to export seafood to those countries which require federally monitored HACCP. The latter two benefits have not be quantified and FDA requests comments on how this might be done. The agency followed three steps to quantify the safety benefits of HACCP for processors: 1) identify all significant hazards associated with seafood safety and establish the baseline number of incidents of each hazard in the U.S. population; 2) estimate the reduction in the number of incidents of each hazard that HACCP is expected to accomplish, and 3) quantify the benefit of the reduced illnesses and deaths. In all three steps, FDA acknowledges that there is substantial uncertainty. First, to establish a baseline number of illnesses, FDA reviewed both reported data to the Centers for Disease Control and Prevention (CDC), which provides a lower bound on the actual number of cases, and an earlier FDA risk assessment that estimated an upper bound number of cases. Using information about the probable amount of underreporting for each type of illness, FDA constructed a likely baseline number for each type of illness by inflating these numbers between 0 and 1,000 times the amount reported. Thus, for example, while it is likely that nearly all cases of Neurotoxic Shellfish Poisoning (NSP) are reported to CDC, it is likely that Campylobacter jejuni is underreported by approximately 100 times the actual number of cases. This approach for estimating cases yielded an estimated 33,000 cases of illness from seafood per year. However, FDA acknowledges that even a reasonably precise estimate of the number of illnesses cannot be determined with the existing foodborne disease reporting mechanisms in this country. In the second step, FDA used a panel of internal experts to determine the number of illnesses the proposed regulations are likely to reduce (Memorandum to Richard A. Williams, Jr., Nov. 17, 1993. On display in Dockets Management Branch, FDA, rm. 1-23, 12420 Parklawn Dr., Rockville, MD). For example, the regulations are not likely to reduce any cases of NSP, because they are primarily associated with recreational fishing. On the other hand, it is likely to reduce over 50% of scombroid poisoning as most of the mishandling of seafood comes either at the catch or processing stages. This action will not reduce any cases that are a result of consumer or retailer mishandling but, as explained earlier in the preamble, problems at the retail level are addressed through mechanisms outside of this proposed regulation. FDA has estimated that between 5,000 and 19,000 cases of seafood illness and death will be reduced by the proposed action annually. In the third step FDA used economic valuation techniques to quantify the effect of reducing the range of cases of seafood illness. This technique combines costs of illness, such as hospital costs, with the costs of pain and suffering in a reduced health state to estimate the cost of each hazard. Thus, for example, NSP, with very mild symptoms, has a low cost per case ($270), whereas Vibrio vulnificus, with a high probability of death, has a very high cost ($1.3 million per case). Using this methodology, the total safety benefits of the proposed option are valued between $15 and $75 million per year. FDA has also evaluated the potential health benefits associated with increased consumption of seafood. Because of the negative publicity concerning water pollution and seafood safety, consumer perception of seafood safety may overestimate actual risk. In addition, contamination scares cause drastic short-term drops in consumer demand for seafood products, and undoubtedly contribute to the chronic level of consumer concern about seafood safety. Thus, safety concerns about seafood are a likely factor preventing wider consumer acceptance of seafood as part of the U.S. diet. If this proposal is finalized, consumer concerns about seafood safety may be reduced which may, in turn, lead to increased consumption of seafood. FDA has evaluated the possibility that consumers may switch from higher fat flesh protein such as meat and poultry to seafood. The resulting reduced dietary fat in the diet of the general population would result in reduced incidents of coronary heart disease (CHD) and cancer. Using the same methodology employed in an earlier analysis of the Nutrition Labeling and Education Act, FDA analyzed the benefits of a 1 and 5 pound per capita increase in consumption of seafood. These were estimated to decrease deaths by 673 and 2,782, respectively, over a ten year period. The resulting benefits are valued at $3 and $14 billion. I.D. Small Business Impact The proposed rule will have a substantial impact on small seafood processors as defined by the Regulatory Flexibility Act. Eighty percent of the seafood processors covered by this proposed regulation are small, where small is defined for non-shrimp firms as less than $1 million in annual gross revenue and less than $2 million for shrimp firms. The provisions of this rule, such as recordkeeping, are largely fixed costs (costs which do not vary with the amount of the product produced) which will impose larger per unit costs on small businesses than large. In addition, small firms may have as many critical control points as large firms as critical control points tend to be related to the complexity of the operation, not the size of the business. However, it may be that smaller firms are less complex than large firms although the agency does not have sufficient data to determine if this is so. In some cases the increase in cost will be large enough to cause some firms to go out of business. For example, estimates of firm failure have been as low as 2% (96 firms) of all firms (from the Canadian experience) to 334 firms (estimated for compliance with the MSSP). However, FDA does not have enough information to estimate the number of firms that will close if the proposed rule becomes final. There are several factors that affect the ability of small processors to comply with the proposed regulations. First, the basic HACCP requirements proposed in subpart A of part 123 deliberately include only the essentials of HACCP in order to keep fixed costs to a minimum. Second, FDA is developing considerable guidance in the form of a hazard guide and model HACCP plans to enable small processors to implement an effective HACCP system at the lowest possible cost. Second, FDA is also aware that academia and trade associations are available to assist processors to implement HACCP. Finally, for those small processors that have very simple operations requiring few critical control points, an inherent feature of HACCP is that it adjusts to the complexity and risks of an operation. While any closure is regrettable, the agency strongly believes that firms that are unable to identify the likely hazards associated with their products and take reasonable preventive controls to prevent those hazards from occurring should not be selling food in interstate commerce. As described in the preamble, FDA is keenly interested in keeping the costs of implementing HACCP to a minimum and is issuing guidance documents and model HACCP plans to facilitate such implementation. FULL REPORT FDA has examined the economic implications of this proposed rule to amend 21 CFR Part 123 as required by Executive Order 12291. Executive Order 12291 requires agencies to use cost-benefit analysis as a component of decision-making. The Regulatory Flexibility Act (P.L. 96-354) requires analyzing options for regulatory relief for small businesses. FDA finds that this proposed rule constitutes a major rule under both the Executive Order and the Regulatory Flexibility Act. The economic justification for government regulation requires the satisfaction of a three-part test: 1) demonstrate that there is a failure of the existing combined regime of private market activity; common law restraints; and federal, state, and local regulation to address a problem of public concern, 2) define options to address the problem including a government regulation that will correct for the failure of the existing regime, and 3) demonstrate that the chosen option will increase net social welfare (i.e., that the option chosen generates benefits in excess of costs). This economic analysis along with the preamble to the proposed rule seeks to satisfy this three-part test. Specifically, this analysis will describe the failure of the existing regime and evaluate the costs and benefits of the options identified. The preamble also discusses the options to address the problem. II. Failure of the Existing Regime Private markets operate within the framework of legal institutions. The tort system of the common law evolved, in part, to provide remedies to injuries suffered in transactions in private markets. For instance, under this system, if someone is injured by a defective product, then the injured person may recover damages from the producer of the defective product. The recovery of damages requires the injured person to prove that his injuries were caused by the producer's product. Regardless of the legal standard chosen (negligence, warranty, or strict liability) the injured person must be able to link his injury to the specific product of a specific producer. In most instances, consumers experiencing illness from food consumption are unable to link the illness to consumption of a particular food. This is because many symptoms do not occur immediately after consumption of the product. Delayed effects may vary from hours to months. To the extent that any illness is actually caused by man-made or natural contaminants in seafood, the lag may exceed 10 years. Even where consumers link consumption of seafood to a particular illness, they may be unable to readily link their illness to a particular firm. The seafood industry differs from a large part of the food industry in that, except for certain branded fish products, almost all fresh and a large portion of frozen seafood is sold to the public unbranded or under brands that are not widely advertised and not generally recognized. Often, when fish or shellfish is offered for sale by a supermarket or restaurant, that product has been sourced from several suppliers in order to obtain a large enough quantity to meet consumer demand. Each supplier, in turn, may source from several processors for much the same reason. Likewise, each processor may receive raw material from several harvesters and possibly import it from one or more countries. For these reasons, these products lose their source identity and are marketed generically (exceptions being canned, frozen, and branded seafood). This subsequently makes it difficult for a supermarket or restaurant to discern the source of the product involved in a consumer complaint. As a result, some firms may not be adequately motivated to provide sufficient levels of safety. Thus, it may be argued that, for the most part, the tort system does not adequately compensate consumers for illnesses derived from the consumption of seafood. The private seafood market is currently regulated at the federal level by the FDA and by relevant state and local government agencies. These regulatory bodies set a minimum standard of safety which seafood processors are required to meet. Some processors produce seafood that is safer (i.e., greater assurances or margins of safety) than this minimum standard and charge consumers higher prices to cover the costs of producing the seafood that is safer than the minimum standard. Consumers then choose among products that vary in a number of characteristics including price and level of safety assurance. However, this may place some consumers in a dilemma which they wish to avoid. In making their seafood purchases, some consumers may not want to be faced with the choice of a spectrum of differently priced products with different probabilities of illness. Instead, they may prefer that regulatory bodies set a minimum standard of safety that is high enough such that consumers no longer consider the risk relevant to their purchase decisions. Consumers may then take safety as given and base their purchases on other product characteristics such as price and taste. As is argued in the preamble, countless public arguments and attempts at legislation imply that the current system of federal regulatory control (periodic inspection plus sampling of a small proportion of seafood) does not provide consumers with enough assurance that seafood is safe. Also because of the difficulties in identifying, tracing, and measuring seafood-related illnesses, the agency is unable to point to reduced seafood related illnesses to convince consumers that effective control has been established to set a minimum standard of safety that is high enough to make the risk of illness a non-issue in their seafood purchasing decisions. Thus, this proposal seeks to make regulatory oversight for producing safe seafood more robust. III. Regulatory Options FDA has considered a wide range of regulatory options, some of which are more and some less costly than the option being currently proposed. A major goal of this proposal is to adopt, through a system of preventive controls, the most effective and efficient way of ensuring safety by design. All options discussed in this analysis other than the one proposed either involve higher cost or less benefits, or both. FDA requests comments on all options listed below or any additional options interested parties may supply. One way to rank the options is to go from the existing program to the most comprehensive form of HACCP, Hazard Analysis Critical Control Points. (HACCP involves the identification of the likely hazards that can cause the product to be unsafe to consumers; identification of "critical control points" in the production process where a failure could cause the hazard to occur; the establishment of "critical limits" or operating parameters for each critical control point; and the establishment of procedures for monitoring the critical control points and recording the results of the monitoring. All of these are stated in a HACCP plan, developed by the plant, that is tailored to each operation.) These options would then be ranked as follows: Table 1 1. Maintain current procedures - "snapshot" inspections and sampling. 2. Significantly increase the frequency of both snapshot inspections and sampling under current procedures. 3. Begin a voluntary HACCP program in addition to current procedures. 4. Begin mandatory HACCP for high risk products only, in addition to current procedures. 5. Begin mandatory HACCP for all seafood as required by proposed Part 123, in addition to the current procedures. 6. Begin a more comprehensive mandatory HACCP program than that proposed, similar to the Model Seafood Surveillance Project, which would include Good Manufacturing Practices (GMPs), quality and fraud as critical control points. 7. Begin a mandatory water to table HACCP program which would include all vessels, carriers and retail food operators. Discussion of these options begins below: Option 1. Maintain current procedures Currently, FDA's surveillance program relies primarily on periodic plant inspections and end-product sampling to ensure safety. Current plant inspections are not as effective as plant inspections would be under a HACCP system, because under a HACCP system, FDA inspectors will have access to safety records that will allow them to evaluate past performance and to spot trends toward hazards that might occur in the future. Essentially, testing is an ex post type of regulatory strategy. This mechanism, as well as any successful regulatory mechanism, both detects violative products and deters them from being produced in the first place. However, in general, end product sampling infrequently detects rare events because of the small number of samples taken relative to the size of the population and the small percentage of defects. This short-coming becomes critical when the rare events, i.e., the product defects, are potentially lethal. In addition, reliance entirely on end product sampling for deterrence will not be as effective as HACCP because of the increased cost to determine the source of the processing failure. Even if FDA resources were to expand significantly to do more testing, only a small fraction of the total output of both domestic production and foreign imports could be examined. The National Academy of Sciences criticized the shortcomings of the current system and recommended the HACCP approach for inspection. (Seafood Safety: Committee on Evaluation of the Safety of Fishery Products, Farid E. Ahmed, Editor, Food & Nutrition Board, Institute of Medicine; National Academy Press, Washington, DC, 1991, p. 283.) Option 2. Increasing current activities up to continuous inspection by in- plant federal employees and substantial end product testing This option requires a large increase in federal resources and is unlikely to produce benefits equal to that of HACCP. This would increase the burden on taxpayers for seafood safety as well as to actually decrease producer incentives to ensure safety. In addition, this would not alter the way that safety of imports is assured. Continuous visual inspection is not as effective as HACCP for seafood because most hazards associated with seafood are not detectable through visual inspection. In addition, the costs for such a system, including end product testing, may exceed the nearly half-billion-dollar annual federal outlay now required to operate this kind of system for meat and poultry. Option 3. Make HACCP voluntary for all processors Such a program currently exists under the National Oceanic and Atmospheric Administration (NOAA). NOAA operates a fee-for-service inspection program that awards a federal inspection mark to participants in good standing. Products produced under this program may bear the "Packed Under Federal Inspection" (PUFI) seal. After 40 years of operation, approximately 10 percent of domestic processors participate in the program. After one year, less than 20 plants are participating in the new HACCP component of NOAA's voluntary program, out of 4,846 domestic processors. It is likely that firms that are participating in this program are those firms that are producing a safer product in the first place. Any activity that adds costs to the production of a product is not undertaken voluntarily unless the product can be differentiated from others on the market in such a way that the additional revenue earned by the differentiation can cover the additional cost. Otherwise, the firm cannot pass the costs along and its profits will decrease. If the PUFI mark had sufficiently differentiated the product to consumers, then a greater percentage of producers should have entered the program to prevent loss of market share. FDA invites comment on whether this option would enhance consumer confidence in the safety of seafood. Commenters should specifically address the following issues. If only a few firms that are already making safe products volunteer for the program, this would not change consumer perceptions of the entire seafood supply. Furthermore, it is not clear to FDA what a mark would signify to consumers as to the relative risk of products bearing the mark versus those that do not. FDA and NOAA raised this question in an advanced notice of proposed rulemaking (Federal Register Vol. 55 No. 124, June 27, 1990, pp. 26334-26338). Most commenters responding to this notice favored a mandatory universal approach to HACCP over a voluntary, fee-for-service approach. In addition, a voluntary approach for imports is unlikely to attract a higher percentage of foreign than domestic participants. If there are few participants, FDA must continue to rely primarily on sampling to ensure product safety. As the preamble to proposed Part 123 explains, FDA is able to physically examine less than 5 percent of the approximately 200,000 shipments of seafood that are offered for entry into the United States. Considerable additional resources would be needed to increase this percentage to statistically significant levels. Such resources are not realistically available. FDA is proposing HACCP requirements for all imports as one solution to this problem. Given this approach, failure to propose HACCP requirements for all domestic processors as well, would establish a non-tariff trade barrier. Option 4. Risk-based HACCP implementation The proposed approach, discussed in option 5, to control risk in all seafood products evaluates potential risks in all seafood products based on likely failure points, essentially an engineering approach. This approach is similar to that used in nuclear power plants where risk is determined by examining the production process for potential failure points and installing controls to prevent those failures. Since all products fail at some level of probability, this approach would mandate some level of control for any product. Alternatively, the agency could examine products and processes to determine those which historically produce the most reported illness and only apply controls to those segments of the industry. There are several ways the agency could approach regulation of seafood products under this kind of approach. One method of regulating by an historical risk approach would be to only require HACCP for species related hazards (require that products delivered to processors be tested or be from approved waters) and eliminate the requirements for processing hazards. Another option, based on historical risk, would focus on the species with the highest risk over which processors are likely to have some control. This could be accomplished by selecting products on the basis of the combination of frequency and severity of seafood-related illnesses. The most frequently reported illnesses are associated with the consumption of raw molluscan shellfish, scombrotoxin forming species, and tropical reef species prone to ciguatera. For example, based on current reporting systems and on the valuation of health effects shown in the analysis below, the focus of a high risk approach might concentrate on reef fish that can cause ciguatera poisoning. This approach, however, may not reduce societal loss by the largest amount due to the limited control processors have over the presence of ciguatera poison. There is no rapid, inexpensive, reliable test for ciquatera for raw materials. Therefore, this type of regulatory option would focus exclusively on molluscan shellfish and scombroid species, over which FDA believes processors have substantial control. Utilizing the societal losses associated with seafood hazards estimated in the charts which appear later in this analysis, FDA has estimated the benefits of focusing on molluscan shellfish. Assuming that 100% of all illness associated with Neurotoxic Shellfish Poisoning (NSP), Paralytic Shellfish Poisoning (PSP), Hepatitis A virus, Norwalk virus, Vibrio vulnificus and other Vibrio species are associated with shellfish and 90% (lowerbound estimate 60%) of all seafood related Campylobacter, Salmonella non- typhi, and Shigella-caused illness are associated with shellfish, safety benefits for this option would be between $1.5 and $55 million ($1.0 AND $44 million lowerbound estimate) or between $14% and 75% of the benefits (see discussion below). The costs of this option would be approximately $46.8 million for domestic manufacturers. However, one problem with using historical epidemiological risk is that, due to underreporting and other confounding factors, the CDC data are unreliable indicators of comparative risk in most instances. In addition, risk is not always static. In recent years, for example, certain natural toxins harmful to humans have appeared in species of finfish and shellfish in the Pacific that have not previously been associated with such toxins. They became high-risk products very quickly. Another potential problem is that it is not clear which approach to high risk, i.e., potential catastrophic risk or historical epidemiological risk, is the more appropriate approach to take. The former approach is discussed below. One high-risk version of the engineering approach to a high-risk option would be to only apply controls to products with a potential "catastrophic" risk. There are two factors that are part of a catastrophe, a severe consequence (e.g., botulism) and a large number of people affected by an event (as would be the case with larger plants producing large batches). Using this approach, candidates for inclusion would be: (a) hot-process smoked and hot process smoke-flavored fish (botulism); (b) cold-process smoked and cold process smoke-flavored fish and salted fish (botulism and listeria); (c) low acid canned foods (botulism); and (d) species that require a judgement as to where they should be harvested (cancer from pesticide risk). Other products that could be high- risk under this type of approach are products that are not further processed after leaving the manufacturer such that processing errors would potentially lead to outbreaks. These products are cooked (microbiological hazards) or raw (parasites), ready-to-eat products. Benefits from this approach are difficult to estimate because of the focus on low probability, high consequence events. However, under the proposed option FDA will encourage firms to base their frequency of monitoring on the level of risk for some critical control points. For example, while a temperature record is required for every retort batch (to destroy pathogens), the analyses for chemical contaminants in many species of marine fish, even in the absence of supplier's harvest area records or other information, could be as few as several times per year. In addition, HACCP is a dynamic concept and critical control points may be added or subtracted as detailed, accurate knowledge of both the functioning of the critical control points and better analyses of hazards are obtained. Thus, HACCP systems will make use of risk information in this fashion. Finally, FDA invites comment on whether a high risk approach to HACCP, while maintaining the existing approach for all other products, could achieve an appropriate mix of industry and government responsibilities for all seafood in interstate commerce. Option 5. Require mandatory HACCP for seafood as required in proposed Part 123 The costs and benefits of this option are discussed in the text below. This proposed approach would require all domestic seafood processors, importers, and foreign processors that export to the United States adopt HACCP for the control of safety hazards. It would not require HACCP of fishing vessels, distributors, or retailers although there may be indirect effects on these entities. FDA has not attempted to estimate costs of these indirect effects and requests comments on such possible effects. FDA would determine the adequacy of firms' preventive controls as part of its mandatory inspection program. Another possibility under this option is to exempt very small firms. This is discussed in detail in the section below on the small business impact of this regulation. In addition, FDA could initiate a staggered phase-in for seafood products. This option could be either by firm size or by risk. In the former case, it would reduce costs by allowing small firms to finance the costs of HACCP out of retained earnings, potentially reducing the number of firm closures. Most small firms are unlikely to be able to obtain loans for HACCP and, in some cases, their inability to profitably comply with the regulation may cause them to close. In addition, any kind of phase-in of HACCP will reduce the discounted costs of HACCP. This follows because costs expended in the future are considered less burdensome than costs expended today. That is, people would rather have a dollar today than one year from now, and the real interest (discount) rate represents that preference. Option 6. Adopt the approach recommended by the Model Seafood Surveillance Project NOAA's Model Seafood Surveillance Project (MSSP) developed model HACCP plans for various segments of the seafood manufacturing sector. The MSSP HACCP system has different requirements from the proposed rule. In addition to the requirements in this proposed rule, the MSSP HACCP plans (1) specifically incorporate and mandate all of the provisions of 21 CFR Part 110, (2) include and mandate numerous controls for economic fraud (e.g., overbreading, species substitution, etc.) and quality not related to safety, (3) require significant end product testing and, (4) require only negative records (records kept only when there is a processing failure and subsequent remedy). With respect to the last requirement, requiring records only of violations of critical limits would provide less incentive to monitor the critical control points at the necessary frequency than would the requirement to keep positive records. It is likely that firms would not continually monitor critical control points under such a system. Furthermore, keeping only negative records lacks the advantages that obtain under a positive recordkeeping requirement including, 1) verifying that continual monitoring is taking place, 2) spotting trends that may lead to problems if left unchecked, and 3) furnishing FDA inspectors with a complete record of the safety monitoring of the plant. On this latter point FDA believes negative records provide little advantage over the present system of inspections and product sampling. This proposal requires positive recordkeeping. In practice, this may be more expensive than negative recordkeeping as there is less incentive to continually monitor in the latter system, although the same level of monitoring is, in fact, required. (It is the monitoring requirement common to both approaches that causes the preponderance of the costs. The actual recording of the results of that monitoring does not involve significant additional costs over the monitoring itself.) On balance, it is likely that the MSSP is more expensive to the industry than this proposal because of the above-mentioned requirements. The MSSP HACCP program has been estimated to cost the federal government $107 million, compared to the current FDA budget for seafood of $44 million. Option 7. Require HACCP from water to table This option would require numerous entities to purchase equipment, get training and keep records, as well as add massive government monitoring requirements. Firstly, there are over 100,000 domestic vessels that would have to be covered by HACCP under this type of option. Secondly, from vessel to processor and processor to retailer there are countless transportation entities that would also have to be covered by HACCP. Thirdly, there are 732,672 food service establishments (restaurants and other eating and drinking establishments) and 30,991 supermarkets (1991) and an additional 141,402 small stores (sales less than $2 million per year).(The Food Institute, Food Retailing Review: 1992 Edition, Fair Lawn, NJ, February 1992.) Costs for supermarkets would be the same types of costs as for processors. It is estimated that 49% of supermarkets and 79% of specialty seafood stores (seafood makes up more than 75% of total sales volume) cut or process seafood. (Hellevig, Bonnie, "Supermarket Survey," Seafood Business, March/April 1988, p.37.) Thus, because of the number of entities that would be covered and have to be federally monitored, this option is the most expensive of all options. It is worth noting that the proposed rule would reach vessels as necessary through processors and that retail establishments are the subject of an on-going federal/state cooperative effort that includes the development by FDA of a model retail code containing HACCP elements for state enforcement. IV. Costs and Benefits of Mandatory HACCP The approach used in this analysis to estimate costs and benefits is prescribed by DHHS guidelines that require agencies to estimate costs and benefits based on what is likely to occur in the marketplace, without regard to pre-existing legal status. (Handbook on Developing Low Burden and Low Cost Regulatory Proposals -- Regulatory Impact Analysis and Regulatory Flexibility Analysis in the Department of Health and Human Services. DHHS, February 1984.) Thus, if a proposed regulation will make enforcement of an existing tolerance easier, more uniform or more efficient, costs and benefits are estimated as a result of increased compliance. In the case of this proposal, the incremental costs of this regulation will be 1) the establishment and operation by seafood processors of HACCP systems (e.g., additional testing, monitoring, and recordkeeping) beyond that which is being done now, 2) costs associated with increased compliance with existing regulations (33% of the costs of this regulation relate to increased compliance with existing sanitation regulations and are not intrinsic to HACCP), and 3) any additional costs incurred by FDA for inspections. Conversely, a guideline which is not expected to be enforced or which is unenforceable, and causes no market disruption (i.e., compliance), has no costs and no benefits. V. Costs of the Proposed Mandatory HACCP Option Costs of the preferred FDA option for domestic manufacturers are estimated to be $103 million in the first year and $65 million in the following years. Additionally, one-time costs due to changes in plant construction and design are estimated at $13 million. However, not all costs for domestic manufacturers were quantified. Importers are estimated to incur only one-time costs of $8 million with no recurring costs. First year and recurring costs to domestic repackers and warehouses are estimated to be $14 million annually. Costs to foreign processors are estimated to be $96 million in the first year and $44 million in succeeding years. (The itemized first year domestic costs do not sum to $139 million due to rounding.) Therefore, FDA estimates domestic costs for this rule in the first year as $139 million and $79 million in succeeding years. Discounted domestic costs are estimated to be $676 million, and discounted costs for foreign processors are estimated to be $395 million over 10 years (6%). Much of the costs are expected to be passed on to U.S. consumers in the form of higher prices. In estimating the cost of this proposed rule, FDA has relied heavily on estimates and information contained in reports (the Kearney reports) prepared for the National Fisheries Education and Research Foundation, Inc. (NFERF) by A.T. Kearney, Inc. (Contract No. NA88AA-H-SK006). NFERF, which is associated with the National Fisheries Institute, commissioned the reports after receiving a grant from the National Marine Fisheries Service (NMFS) of the National Oceanic and Atmospheric Administration. (Economic Impacts of HACCP Models for Breaded, Cooked and Raw Shrimp and Raw Fish, A.T. Kearney, Inc., 1989 and Economic Impacts of HACCP Models for Blue Crab, Breaded and Specialty Products, Molluscan Shellfish, Smoked and Cured Fish, and West Coast Crab, A.T. Kearney, Inc., 1991.) These reports estimated the incremental costs beyond those now being incurred by seafood processors for implementing the specific HACCP- based system developed for the National Marine Fisheries Service's Model Seafood Surveillance Project (MSSP). The approach taken by A.T. Kearney, Inc. to furnish estimates of the costs and economic impacts of the MSSP HACCP-based program on manufacturers is based on estimates and data collected at the plant level. To perform in-plant, on-site testing, NMFS randomly selected, for field visits, a sample of 130 plants from the seafood manufacturers listed in the NMFS database. (The NMFS Database of Seafood Processors, from which the sample plants for the Kearney reports were selected, includes fewer plants than the database of plants for which NMFS provides inspection services, and even NMFS inspection database underrepresents the actual number of seafood processing plants known to FDA by more than 40%. "Plants which receive [NMFS] inspection services tend to be larger, higher volume facilities than those which do not receive these services. Therefore the number of small processing plants in particular may still be underestimated." Economic Impacts of HACCP Models for Blue Crab, Breaded and Specialty Products, Molluscan Shellfish, Smoked and Cured Fish, and West Coast Crab, Kearney/Centaur Division, A.T. Kearney, 1991, Appendix H, pp. 2, 6. This implies that the costs of the proposed rule to small firms have been underestimated by relying on the data in the Kearney reports, because plants in the NMFS databases are more likely to be operating closer to the standards set by this proposal than plants not included in the NMFS databases.) These plants were not operating under HACCP. Information on sanitation, processing and economic conditions was collected from each individual plant. Controls now in place and records currently being kept were taken into account. Estimates were then made of the costs to these firms to install and implement MSSP HACCP systems. In areas where FDA had better data than that used in the Kearney reports, the agency has used information available from its field surveys on current practices or conditions in the industry in general, and it has substituted that information for the information gathered from the sample plants in the Kearney reports. For example, NMFS estimated that there were 2800 domestic seafood processing plants in 1989, whereas FDA counted 4846 plants in 1992. Where gaps in the Kearney estimates exist that could not be filled in by information from FDA field surveys, a number of assumptions have been made for the purposes of this economic assessment. The proposed rule covers both foreign and domestic seafood manufacturers, repackers, warehouses, and U.S. importers. Establishments that might generally be described as common carriers, grocery stores, supermarkets, food service establishments, or other types of retail establishments are not covered by this proposed rule. Although distributors and harvesting vessels are also not covered directly by the proposed rule, they will be affected in those cases where processors adopt HACCP controls that ensure that proper harvesting and handling practices are carried out. An example of the adoption of such HACCP controls is a processor requiring harvesters of products that may be subject to contamination by natural toxins to provide the processor with the location of the harvest area when such toxins are known to be confined to particular areas. If harvesters of such species take fish from areas or regions with differing histories of the toxin, then the vessels may well have to identify, tag, or segregate the fish taken from differing areas in some manner beyond that already being done for conservation and management purposes as required by NOAA or the states. Harvesters would engage in such identification, tagging, or segregation if the processors that they sell to demand that this be done in lieu of analytical testing being performed by the processors State requirements, developed in accordance with the National Shellfish Sanitation Program, currently require the tagging of containers of molluscan shellfish, with information that includes the harvest area. With respect to seafood other than molluscan shellfish, harvesting by a vessel during any one trip is often limited to a single area. This would preclude the need to segregate the catch. In many other instances, it is currently the practice to segregate fish based upon the harvest area due to variations in species, size, quality, or other attributes. Such segregation is presently accomplished by placement of the fish into separate holds, compartments, or containers. In those instances when segregation would be necessary for the sole purpose of being able to provide the buyer with the location of the harvest area in order to comply with this regulation, this can be accomplished by the use of separate holds or containers, subdivision of holds with movable bulkheads, or other means in keeping with existing industry practice. FDA requests comments on the feasibility of this requirement for existing harvesting vessels, and for information and examples of the actual likelihood of such fishery conditions. These types of costs incurred by vessels and distributors are attributable to this regulation. Using information gathered from FDA's 1992-93 field survey of domestic seafood manufacturing plants and FDA's 1992 official establishment inventory, FDA has estimated that 80% of all domestic seafood manufacturing plants are small and are distributed according to Table 2. Table 2 Number of Plants Total Small Large Breaded Shrimp: 100 45 55 Breaded Finfish: 80 42 38 Cooked Crustaceans (except shrimp): 521 438 83 Cooked Shrimp: 303 136 167 Raw Finfish: 1,307 902 405 Raw Aquatic Animals: 57 39 18 Raw Shrimp, Abalone or Scallops: 122 55 67 Ready-to-Eat Salads or Cocktails: 7 4 3 Shellfish: 2,002 1,962 40 Smoked, Cured & Dried Products: 247 170 77 Stuffed Seafood Products: 16 8 8 Surimi Analog Products: 84 45 39 TOTAL: 4,846 3,846 1,000 The numbers of small and large firms were estimated using the percentages of firms in various industry segments with less than $1,000,000 in annual gross revenue ($2,000,000 in annual gross revenue for plants manufacturing breaded, cooked or raw shrimp) reported in the Kearney reports. Based on a survey of FDA's seafood establishment inventory, the 4,846 domestic plants use a total of 8,242 processes to manufacture seafood. FDA's FY 1992 official establishment inventory lists 686 repackers, and 885 warehouses. FDA has also estimated that there are 924 importers of seafood in the U.S. FDA has no information to determine the proportions of large and small firms for these segments of the industry. As stated earlier, the costs of the proposed rule to manufacturers has been estimated using the estimates and information contained in the Kearney reports with gaps in those reports being filled in with various assumptions. For example, the small firms in the survey have been assumed to be representative of all small seafood firms. The same assumption has been made with regard to large firms. The reports provide information on the current operating practices of the industry and contain information on the incremental cost to each plant in the survey. These estimates included the costs to come into compliance with the standards set by the HACCP-based plans of the MSSP from the existing level of quality control that each plant was operating under at the time at which it was inspected. The costs reported in the Kearney reports and in the analysis below include only the expenditures that firms would need to make in order to go from their existing practices to the requirements set forth in the proposed rule. Certain adjustments had to be made in order to use the costs reported in the Kearney reports, because the HACCP systems recommended by the MSSP require plants to establish non-safety related HACCP-based controls. FDA's proposed rule does not require plants to include non-safety related controls in their HACCP plans. Consequently, FDA has not included the cost estimates for issues of product integrity or of quality unrelated to safety which were included in the Kearney reports in the estimation of the costs of this proposed rule. The MSSP plans incorporate all of the provisions of the general GMP guidelines for all foods in 21 CFR Part 110. Under the MSSP, all seafood processors would be required to keep records of any deviations from any of the provisions of Part 110, even though all of those provisions would not normally be considered part of a HACCP system. The proposed rule would not replace Part 110 for seafood processors, nor does it require that all of the provisions of Part 110 be incorporated into HACCP plans because many of the provisions of Part 110 do not involve critical control points. As a consequence, the proposed rule does not require that records be kept regarding compliance with all of the provisions of Part 110. Therefore, FDA has not included the cost estimates of mandatory compliance with all of the provisions of Part 110 in HACCP plans. However, the proposed rule requires more extensive recordkeeping than does the MSSP. The proposed rule requires positive records, that is, records that are regularly kept at specified intervals regardless of the condition being observed and noted. For the most part, the MSSP requires notations of unusual occurrences and corrective actions (NUOCA records). These are negative records; that is, records are made only when there is an observed deviation from prescribed procedures. Theoretically, these two systems have only minor differences. Because the preponderance of the time, effort, and cost of monitoring and recordkeeping can be attributed to monitoring, if plants monitor to the same degree under both systems, then they would not differ significantly in terms of cost. (The Kearney Reports give separate estimates of the number of hours required for monitoring and for recordkeeping. The MSSP HACCP models require monitoring of some processes without requiring records to be kept of what was observed. FDA's economic analysis has combined its estimates for monitoring and recordkeeping because records cannot be kept without monitoring.) However, in practice the two systems differ significantly. The incentive to continually monitor under a negative recordkeeping system is significantly less than the incentive to continually monitor when positive records are kept. Less detailed recordkeeping leaves more leeway for less careful monitoring, regardless of the amount of monitoring that has been prescribed. The Kearney reports do not take into account this difference in incentives in their cost estimate of the MSSP. The estimates in the Kearney reports assumed that monitoring at critical control points would be done at the same level of effort as would occur if the MSSP had required positive records. Therefore, FDA is using the number of hours estimated for monitoring and recordkeeping in the Kearney reports for the MSSP as its estimate for the proposed rule. The MSSP also differs from the proposed rule in terms of the number of critical control points that processors will be expected to identify and control. In general, the MSSP would require the identification and monitoring of more critical control points than is expected to be the case under the proposed rule because of the non-safety requirements in MSSP. FDA has assumed in this analysis that the number of safety related critical control points is the same for this proposal as in the MSSP. There are factors that suggest that the estimates made in the following analysis may be high in some respects and low in others. One reason to believe that this estimate may be high is that, the FDA/NOAA HACCP pilot project, while involving a small number of processors compared to the MSSP, reportedly cost the participants much smaller amounts ($1,000 to $3,000 over 3 months). The pilot for domestic processors lasted for less than a year, but included some of the more expensive start-up aspects of HACCP. However, the reported costs incurred by pilot plants may not necessarily be representative of average plant expenditures. In addition, certain assumptions, which were made to fill in the gaps in the data in the Kearney reports, may err on the high or low side. For example, the Kearney reports lacked data on seafood canners. FDA has anecdotal information to suggest that the costs to Alaskan seafood canners of implementing that State's mandatory HACCP requirements have been low. This is not surprising because canners have been operating under a truncated form of HACCP in regard to the cooking time, temperature, and integrity of the can seams as required of all low acid canned foods since the 1970s. However, the following estimates include costs to canners that are much higher than the anecdotal information because FDA did not have specific information on the cost to canners. Therefore, costs have been estimated for some plants that are canneries (which should be operating under the form of HACCP set down in the low acid canned foods regulations) as though they were not canneries. FDA invites comment on this and all other aspects of the estimate. Based on these assumptions, FDA estimates that, on average, each plant will need to employ the additional annual labor hours for monitoring and recordkeeping reported in Table 3. Table 3 Additional Annual Labor Hours for Monitoring and Recordkeeping* Small Large Breaded Shrimp: 1,196 1,009 Breaded Finfish: 248 297 Cooked Crustaceans (except shrimp): 120 188 Cooked Shrimp: 1,126 955 Raw Finfish: 274 422 Raw Aquatic Animals: 274 422 Raw Shrimp, Abalone or Scallops: 804 827 Ready-to-Eat Salads or Cocktails: 992 774 Shellfish: 832 927 Smoked, Cured & Dried Products: 992 774 Stuffed Seafood Products: 313 278 Surimi Analog Products: 992 774 Avg. Additional Annual Labor Hours: 630 607 * The average labor hours may be high as canned seafood plants, already under low acid canned food regulations, were not included in this calculation. One person year is assumed to be equivalent to 2,080 labor hours. Estimates of numbers of employees were made by assuming that small seafood manufacturers have very few employees, less than fifteen workers. The variance in additional labor hours is a function of different requirements for different products and differing current level of monitoring and recordkeeping. For purposes of the economic analysis, FDA is assuming that more large firms are currently closer to practicing HACCP than are small firms. The analysis attempts to calculate the differences between what firms are doing now and what they would do under the proposed regulation. If all other things were identical, HACCP would be no more expensive for a large firm than for a small one. FDA has used the labor costs reported in Table 4 in its estimation of costs of the proposed rule. These figures include wages, benefits, and payroll related taxes in 1992 dollars. Table 4 Hourly Labor Cost* Managerial, Maintenance Technical & & Professional Production Labor Labor East & Gulf Coast Crab Manufacturers $8.76 $5.37 West Coast Crab Manufacturers $21.80 $10.52 Smoked, Cured & Dried Fish, & Stuffed, & Surimi Analog Manufacturers $16.86 $10.36 Shellfish Manufacturers $14.65 $7.92 Raw Fish Manufacturers $15.09 $8.57 Shrimp Manufacturers $10.81 $6.41 * The labor costs reported in this table do not include any adjustments for administrative overhead. A 20% administrative overhead factor was added to all first year costs once total per plant costs were determined. Taking from the information in the Kearney reports with the adjustments described above, the average expected cost of the proposed rule (in thousands of dollars) per manufacturing plant in the first year is reported in Table 5. Table 5 First Year Plant Cost* Weighted Avg. Small Large $(000) $(000) $(000) Breaded Shrimp: 21.2 17.6 24.1 Breaded Finfish: 17.5 21.2 10.6 Cooked Crustaceans (except shrimp): 20.3 20.4 19.8 Cooked Shrimp: 26.8 22.9 30.0 Raw Finfish: 19.1 19.3 18.6 Raw Aquatic Animals: 19.1 19.3 18.6 Raw Shrimp, Abalone or Scallops: 25.8 29.9 22.4 Ready-to-Eat Salads or Cocktails: 45.0 56.3 32.4 Shellfish: 23.6 23.6 26.3 Smoked, Cured & Dried Products: 48.8 56.3 32.4 Stuffed Seafood Products: 21.7 27.4 15.2 Surimi Analog Products: 45.0 56.3 32.4 Avg. Plant Cost: 23.9 24.0 23.4 * A 20% administrative overhead factor was added to all first year costs once total per plant costs were determined. Using the weighted average plant cost and the number of plants in each industry segment, the total first year cost of the provisions of this proposed rule for which costs could be estimated is approximately $103 million. (It should be noted that, while the form of HACCP recommended by the MSSP is more expensive on a per firm basis (according to FDA calculations), FDA's estimate of the cost of the proposed HACCP regulations for seafood processors in the aggregate appears to be considerably larger than was estimated by A.T. Kearney for the MSSP. There are two major reasons for this difference. First, the estimate of the number of plants affected in the Kearney reports is 2800 as opposed to 4846 in this report. Secondly, the Kearney reports amortized all costs over various asset lifetimes, the costs reported by Kearney appear lower on an annual basis than the costs in this report where costs are reported only as totals.) Approximately $34.8 million (33%) of the first year costs can be attributed to expenditures necessary to comply with the sanitation aspects of the proposed rule, and are not costs inherent to the establishment and operation of HACCP systems generally. Almost all of the expenditures needed to meet the sanitation aspects of this proposed rule could be attributed to the general food GMP guidelines of Part 110. In other words, if all of the manufacturing plants had already opted to comply with the guidelines of Part 110, the costs of this proposed rule would have been 33% lower. About $37.1 million (36%) of the first year costs are attributable to monitoring and recordkeeping requirements. Approximately $31.3 million (31%) of the first year costs are for equipment, such as temperature indicators, temperature recorders, and can seam tear-down machines; HACCP training; consulting by processing authorities; and similar activities. Appendix 1 of this analysis shows typical costs for two hypothetical plants. The costs for plants in the first year are higher than the costs for plants in the following years. Equipment that needs to be purchased and time spent designing HACCP plans and recordkeeping systems are, in large part, one time expenditures. The average yearly costs (in thousands of dollars) after the first year of compliance are reported in Table 6. Table 6 Annually Recurring Plant Costs* Weighted Avg. Small Large $(000) $(000) $(000) Breaded Shrimp: 14.6 11.9 16.9 Breaded Finfish: 9.9 10.0 9.7 Cooked Crustaceans (except shrimp): 8.4 7.7 11.6 Cooked Shrimp: 15.5 13.4 17.2 Raw Finfish: 10.9 9.8 13.4 Raw Aquatic Animals: 10.9 9.8 13.4 Raw Shrimp, Abalone or Scallops: 16.2 19.5 13.5 Ready-to-Eat Salads or Cocktails: 32.2 38.9 24.8 Shellfish: 16.1 16.0 19.3 Smoked, Cured & Dried Products: 34.5 38.9 24.8 Stuffed Seafood Products: 12.4 15.4 9.1 Surimi Analog Products: 32.2 38.9 24.8 Avg. Recurring Plant Cost: 15.0 14.7 15.7 * A 10% administrative overhead factor was added to all recurring costs once total per plant costs were determined. Using the weighted average plant cost and the number of plants in each industry segment, the total yearly recurring cost after the first year of the provisions of the proposed rule for which costs could be estimated is approximately $65 million. The State of Alaska has a state law requiring that all seafood manufacturers in the state be operating under a HACCP plan. The law is being phased in and is currently being enforced only for seafood canners. The law governing manufacturers in Alaska is somewhat less stringent than FDA's proposed rule and the guidelines appended to it in that the Alaskan law does not require manufacturers of cooked ready-to-eat products to verify the validity of their processes nor does it require the employment of a person with training in HACCP. However, the law governing Alaskan manufacturers affects the estimate of the costs of FDA's proposed rule. Firstly, to the extent that the Alaskan law and the FDA proposal are identical, the costs to Alaskan manufacturers of implementing HACCP are attributable to the Alaskan law and not to FDA's proposal because the Alaskan law will eventually apply to all Alaskan manufacturers with or without action by FDA. Secondly, however, to the extent that the Alaskan law is less stringent than the FDA proposal, the costs for training and process verification are attributable to the FDA proposal. FDA has estimated that Alaskan seafood manufacturing plants are distributed by size according to Table 7. Table 7 Number of Plants Total Small Large Breaded Shrimp: 0 0 0 Breaded Finfish: 46 24 22 Cooked Crustaceans (except shrimp): 40 34 6 Cooked Shrimp: 10 4 6 Raw Finfish: 306 211 95 Raw Aquatic Animals: 5 3 2 Raw Shrimp, Abalone or Scallops: 5 2 3 Ready-to-Eat Salads or Cocktails: 0 0 0 Shellfish: 10 10 0 Smoked, Cured & Dried Products: 65 45 20 Stuffed Seafood Products: 5 2 3 Surimi Analog Products: 5 3 2 TOTAL: 497 338 159 The numbers of small and large firms were estimated using the same percentages from the Kearney reports used in Table 2. The cost of the proposed rule to each of the 120 Alaskan manufacturers of cooked ready to eat products to verify the validity of their processes is estimated to cost $1000 in the first year and $500 in the following years. It has been assumed that all of the large manufacturing plants already employ at least one worker trained in HACCP. Only the 338 small manufacturers will bear the estimated $900 cost of training an employee in HACCP. The sum of these two cost categories yield an estimate of $509 thousand in the first year and $66 thousand in the following years (after including the overhead factors for administrative costs). In estimating the costs of the proposed rule, FDA has made a number of assumptions about the actions that processors will take. FDA has assumed that there were no costs for some provisions of the proposed rule, either because all plants are already in compliance with the proposed provisions, or because all plants could comply with the proposed provisions before the proposed effective date at no appreciable cost. For example, non-safety related controls are not required, written sanitation SOPs are not required, and product integrity controls are not required. FDA estimates that developing HACCP plans with the assistance of the guidelines provided by FDA for individual plant plans will require between 24 and 72 hours of managerial labor, depending on the complexity of the process involved. Designing and installing a consumer complaint system as well as evaluating consumer complaints will require a total of approximately 24 hours per plant of managerial labor. These estimates assume that over a ten year period the plant's HACCP plan will not need to be altered and that a total of only 24 hours is needed to design and evaluate consumer complaints over a period of ten years. FDA requests specific comments on these estimates. FDA estimates that the cost of responding to critical limit deviations is $1,000 per year per plant in terms of managerial labor, analytical tests of potentially hazardous products, hazardous products destroyed or reworked, and lost production time. This is the cost of dealing with processing deviations which will be revealed by complying with the proposed rule over and above the cost of dealing with those processing deviations that processors are recognizing prior to the finalization of the proposal. Each plant will need to have at least one employee trained in HACCP in an approved course. NMFS has a two day course provided periodically in various major U.S. port cities for the price of $295. The cost of the course to processors is more than the price. Processors will typically need to pay for travel to the site of the course, meals, lodging, and incidental expenses for the plant representative who is attending. Additionally, there is the opportunity cost to processors equal to the value of the work that the employee is not able to perform in the plant while attending the course. FDA estimates that the total cost to a processor to have one plant employee trained at an approved HACCP course is approximately $900. A number of people have been trained at HACCP courses acceptable to FDA. For the purposes of this analysis, the agency has assumed that large seafood manufacturing plants already have at least one employee trained in HACCP at a course acceptable to FDA. It has also been assumed that all of the seafood manufacturing plants with annual gross revenues of less than $1,000,000 will need to have one individual trained in an approved HACCP course. The costs to small manufacturers for HACCP training has been included in the costs to manufacturers reported above. FDA requests comments on the sufficiency of a single HACCP training programs for successfully implementing an effective HACCP system. Processors of some cooked, ready-to-eat products and some pasteurized products will need the services of processing authorities to certify that their cooking and pasteurizing processes and equipment will adequately protect consumers from microbiological hazards. If the processors of these types of foods do not engage the services of a processing authority, then they will need to find scientific articles or government advisories that specifically relate to their process, product, and type of equipment. The cost estimates in the charts above reflect the estimate that processors of cooked, ready-to-eat and pasteurized products would spend $1,000 per plant in the first year to certify that their cooking and pasteurizing processes and equipment will adequately protect consumers. Due to changes in products, processes and equipment it has been assumed that the recurring cost for such certification is one half the first year cost. FDA is uncertain of these estimates and requests comments on how often plants change their products, processes, and equipment. The in-plant testers that visited the 130 sample plants in the Kearney Reports estimated that two of the plants would need significant changes in plant construction and design in order to operate a HACCP plan. Such changes are necessary in order to successfully implement a HACCP system of preventative controls of food hazards. For example, it is not possible for a food processor to control microbiological hazards if construction changes are needed to implement HACCP to produce safe seafood products. If the 130 plant sample is representative of the industry as a whole, then 75 plants may need significant changes in plant construction and design. However, FDA's survey, which covered 73% of the firms covered by this regulation, did not report any such problems. The Kearney reports estimated total first year costs for the two plants ranging from $441,000 to $500,000. This would imply that the total cost of plant construction and design could range from $39.7 to $45 million dollars. However, FDA believes that this estimate is too high for the reason mentioned above and that the actual estimate might be only one third of this amount. This $13.2 million estimate is not included in the $103 million estimated expenditure for domestic manufacturers. These plants are likely to be some of those that close as a result of this regulation. FDA believes that food processors who must make structural changes to their facilities in order to produce a safe product, but do not or cannot make such changes, are not able to implement a system of controls that is consistent with the proposed rule to prevent hazards in food should cease operation. FDA has also estimated that processors of cooked, ready-to-eat and pasteurized products will on average spend $1,000 for temperature indicators and recorders for cookers or pasteurizers in the first year. FDA has not estimated the costs of analytical testing of raw materials because the agency is unable to estimate the number of tests that will need to be performed. Whenever the recipient of a type of raw fish that has been shown to present a hazard does not have information in regard to the harvesting area or conditions, then the processor will be expected to test several samples of raw material per supplier per year for contaminants. Tests for contaminants range from $75 per sample for sulfites to $250 per sample for methyl mercury. FDA is unable to estimate the total annual costs of testing that would be done as a result of the proposed rule. The agency requests comment on the need for and cost of analytical testing. If processors are not able to get satisfactory certification from their suppliers that the raw material has been harvested from approved waters and properly handled, then they may choose to change suppliers in order to receive the quality of raw materials that they need to comply with their HACCP plans. Changing suppliers is not costless. FDA has estimated that the administrative cost of changing suppliers is $1000. The costs described in the previous charts include a cost of one thousand dollars per processor in the first year. The agency requests comments on the potential need for and cost of changing suppliers. When all processors are requiring higher quality raw materials and are refusing to accept raw materials that do not meet the standards established in their HACCP plans, then the effective supply of raw materials is reduced. If the supply of raw seafood decreases and the demand for the raw seafood remains constant or increases, then the price of raw seafood will rise. FDA is not able to estimate the expected reduction in the supply of seafood or the change in price, however, the price rise is a potential cost of the proposed rule. The agency requests comment on the potential for the change in the supply of seafood. FDA does not have sufficient data to estimate the costs of all of the provisions of the proposed rule. The agency requests that commenters provide information on the number of affected establishments and the cost of complying with the proposed provisions in Table 8. Table 8 1) 123.10(a)(7) prevention of cross contamination by the separation of food contact surfaces; 2) 123.10(a)(14) storage at 40 degrees Fahrenheit or below; 3) Appendix A 6. cooling after cooking; 5) Appendix B Scombroid Toxin Forming Species; 6) Appendix 1 Smoked and Smoke-flavored Fishery Products; 7) Increased short term recall potential, if any, due to heightened industry awareness; 8) Increasing time spent escorting federal inspectors, particularly in the initial phases; 9) The cost of restricting catch in certain areas and seasons if processors find it necessary. FDA is interested in comments directed at new costs that would have to be expended to comply with these provisions. Approximately 55% of seafood consumed in the U.S. is imported. Estimates of the number of foreign processors that could possibly be affected by this proposed rule range from 50,000 to 80,000 plants. Of these, a maximum of half of these plants may have products that are exported to the U.S, an average of 32,500. Some foreign processors already have HACCP plans. If, for example, 75% of foreign processors who export to the U.S. also export to the EC, and those processors will be required by the EC to have HACCP, then only 25% of foreign plants exporting to the U.S. will be required to install HACCP as a consequence of this rule. Thus, this proposed rule would affect 8,125 foreign processors yearly. To some degree the costs to foreign processors to implement HACCP should approach the expenditures that domestic processors will make to implement HACCP (with some adjustments for wage differentials and the level of technology already in place). If generally lower labor costs in foreign countries reduce the average first-year foreign plant cost to half of that for domestic plants, then the estimated cost to foreign processors is $96 million. It should be expected that most of these costs will be passed on to consumers in the form of higher prices. The agency believes that the cost attributable to this regulation from this source will decline over time and estimates that recurring costs will be $44 million. Although foreign processors will pass on costs of HACCP to consumers in the form of higher prices, those costs are only attributable to this regulation to the extent that the costs are due to compliance with this regulation in the absence of other HACCP regulations. However, with the current trend toward HACCP worldwide, many foreign processors may be expected to incur costs regardless of whether FDA issues this proposed regulation. Because many of these plans are not yet in place, it is not clear whether or not they will be entirely consistent with U.S. rules. This proposed rule is substantially consistent with the recent adoption of HACCP principles by the international Codex Alimentarius Commission. FDA has estimated that there are at least 924 importers of foreign seafood. Importers often receive products from several or numerous foreign processors. (As mentioned before, there are between 50,000 and 80,000 foreign plants exporting to the U.S.) The proposed rule would require importers to have among their records the HACCP plans of every foreign seafood processor from which they import products and to take steps to determine the adequacy of the processors' HACCP plans. Such steps may include trading with processors located in countries that have agreements with the United States regarding equivalency of regulatory programs for seafood, inspections of the foreign plants by the importer or his representative, certification from the relevant foreign government that the product meets the specifications of the foreign processor's HACCP plan, or periodic end-product testing arranged for by the importer. If the start-up cost of such activities to each importer is equivalent to the average start-up cost to domestic manufacturers ($23,900 - $15,000 = $8,900), then the start-up cost of the proposed rule for importers is approximately $8 million. FDA has not estimated any recurring costs for importers. This estimate is based on the view that many of the U.S.'s major seafood trading partners are using or have opted for HACCP programs. The European Community will soon require HACCP or an equivalent system from the approximately 100 nations that export to it. Consequently, in the near future U.S. importers subject to this proposed rule should have little difficulty ensuring that the products that they are importing have been produced under HACCP. FDA specifically invites comment on the cost to importers. According to FDA's 1992 Official Establishment Inventory, there are 1,571 domestic repackers and warehouses. If the annual cost to these types of businesses to develop and implement HACCP plans is equal to the average start-up cost for manufacturers ($8,900), then the cost of the proposed rule to repackers and warehouses is approximately $14 million. VI. Benefits of the Proposed Mandatory HACCP Option This proposed action will reduce the amount of illness that results from consumption of seafood and may have significant nutrition benefits that would result from increased consumption of seafood. A related benefit is an expected decrease in any consumer anxiety associated with consumption of seafood. As discussed in the nutrition section below, evidence suggests that consumers believe that seafood is less safe than it actually is. Consumer anxiety should be reduced to the extent that consumers are convinced that FDA can confirm that the seafood industry is taking every possible step to control the safety of their product, and that a mandatory, state-of-the-art, Federal inspection program is in place. FDA believes that reduced anxiety is a real societal benefit and is potentially quantifiable in a "willingness-to-pay" context. Reduced anxiety is an ex ante benefit, that is, it is related to experience prior to consumption of the product as opposed to safety benefits, which are ex post, because illness occurs after consumption of the product. Nutrition benefits, although deriving from reduced anxiety, are also ex post benefits occurring after consumption of the product. Thus, anxiety benefits are additive benefits to the other two; double counting is not involved. For example, the benefit of reduced anxiety is the increased consumer surplus (an economic term indicating the value associated with purchasing a product at a lower price than one would be willing to pay for it) associated with consumption of seafood apart from nutrition benefits. However, FDA has no information to quantify this benefit at this time. In addition, there may be significant cost savings (benefits) in other areas as a result of adoption of this proposed rule. Recently, significant public and private resources have been expended in attempts to alter the level of regulatory effort toward seafood safety, as well as alter which federal agency should oversee the industry. These directly unproductive expenditures are termed "rent seeking" in that they only seek to transfer resources (particularly efforts to relocate responsibility for oversight), and are viewed as losses in social welfare. There will be positive societal gains to the extent that the finalization of this proposal contributes to a decrease in such expenditures. FDA is unable to quantify this benefit, but based on the rent seeking activities incurred by both public and private sources to date, this benefit has the potential to be large. Another benefit, related to exports, has not been quantified. This is the benefit to firms exporting to countries that require federal oversight and certification of HACCP programs. For example, according to an European Community (EC) directive, firms wishing to export to the EC after January 1, 1995 must have a federally approved HACCP plan or a similar type of oversight plan. The apparent alternatives for satisfying this requirement are the current NOAA voluntary HACCP-based program and the proposed mandatory HACCP regulations. However, this proposal requires fewer public and private resources than the NOAA voluntary program because it focuses on safety and not non-safety issues. Assuming that the NOAA plan also requires more monitoring by inspectors (to cover non-safety related CCPs), there will be a reduction in the cost of exporting. Costs of the NOAA program includes costs of compliance such as monitoring and recordkeeping, equipment, training and testing and payments to the federal government to cover the oversight costs of monitoring and testing. It is not yet clear, however, whether or not the EC or other countries will accept any voluntary plan purchased by industry for food exported from the U.S. The quantitative estimate of benefits is divided into two main sections, safety and nutritional effects of mandatory HACCP. Safety benefits include the reduced incidence of acute and chronic illness, whereas nutritional benefits stem from the increased consumption of seafood, which would lead to reduced incidence of coronary heart disease and cancer. The magnitude of the benefits of this action will depend on the future extent of compliance. FDA believes that the benefits that have not been quantified - reduction of consumer anxiety, reduction of rent seeking expenditures, and facilitating U.S. seafood exports may be large and requests comments both on their magnitude and how FDA might quantify them. VI.A. Safety Benefits from HACCP This section is composed of three parts, (1) identification of hazards, (2) effectiveness of HACCP at reducing hazards and, (3) valuation of safety benefits. VI.A.1. Identification of hazards. This section will identify the potential types of hazards which cause illness and death from seafood in commercial channels. It will exclude, for instance, risk associated with recreational fishing or consumer practices. For example, "One-fifth of the fish and shellfish eaten in the United States is derived from recreational and subsistence fishing." (Seafood Safety: Committee on Evaluation of the Safety of Fishery Products, Farid E. Ahmed, Food and Nutrition Board, Institute of Medicine; National Academy Press, Washington, D.C., 1991, p. 2.) Risk from seafood may be introduced at any stage from water to consumption. The source of the most significant risk varies from species to species. However, all seafood is harvested from either an aquaculture or "wild" environment. Reduction of risk at the harvest stage relies on, among other things, current identification of waters that are high risk and avoidance of fishing in those areas. Processors may exercise control at this stage by purchasing from harvesters that exercise appropriate controls, by analytical testing, or by taking advantage of federal or state monitoring activities. Risk introduced at the processor stage is controlled by process control. Finally, both consumers and retailers may introduce risk by handling and cooking errors. Of course, fish must be transported between each of these three stages and risk may be introduced at the transportation stage as well. Seafood consumption by type of process is shown in Table 9. Table 9 RECREATIONAL 20% PROCESSED Frozen 47% Canned 15% Sold raw 14% Smoked or brined 2% Cooked, not canned 2% It should be noted that canned seafood is already under truncated HACCP-type regulations, i.e., low acid canned food (LACF) regulations. Distribution is accomplished by primary wholesalers, processors, secondary wholesalers and retailers. (Richard Marasco, "Food from the Sea: an Economic Perspective of the Seafood Market," American Journal of Agricultural Economics, December, 1974, p. 1036.) Large processors may sell to either brokers or large retail chains. "In the case of frozen products, cold storage would play an important role. Inventories may be held by processor plants, cold storage plants, wholesalers and retail chain cold storage plants. (IBID.) The most significant hazards associated with seafood products are listed in the Table 10. Table 10 SIGNIFICANT HAZARDS ASSOCIATED WITH SEAFOOD (ALL SEAFOOD SOURCES COMBINED - RECREATIONAL AND COMMERCIAL) (1) (2) (3) (4) REPORTED UPPERBOUND ESTIMATED HAZARDS CASES CASES CASES (ANNUAL) (ANNUAL) (ANNUAL) Anasakis simplex 1 100 100 Campylobacter jejuni 2 200 200 Ciguatera poisoning 800 8,000 800 Clostridium botulinum 4 4 4 Clostridium perfringens 7 70 70 Diphyllobothrium latum Unknown 1,000 1,000 Giardia lamblia 3 50 30 Hepatitis A Virus 9.2 6,700 92 Neurotoxic Shellfish Poisoning 48 48 48 Norwalk Virus 12.4 30,000 12,400 Other Vibrios 43 10,000 10,000 Paralytic Shellfish Poisoning 13.4 13.4 13.4 Salmonella non-typhi 2 2,750 200 Scombrotoxin poisoning 796 21,500 7,960 Shigella 7 100 70 Vibrio vulnificus 24 48 48 Total 1,772 80,389 33,035 These hazards are discussed in some detail in Appendix 2 of this analysis. The estimates of the number of cases were calculated in a variety of ways. Some of the upper bound numbers (third column) represent "worst case" estimates for seafood hazards (i.e., Hepatitis, Norwalk Virus, Other Vibrios, Salmonella non-typhi and Scombrotoxin). These were taken from an extremely conservative FDA risk assessment that was designed to determine a rank order of risk between seafood and terrestrial flesh foods. In establishing a rank order, it was decided to give seafood no benefit of the doubt and to incorporate within the risk assessment some data and assumptions that reflect a higher risk for seafood than probably really exists. Consequently, the risk assessment reflects the extreme upper bound possibilities in terms of the true numbers of illnesses from seafood. The reported cases in the second column display the number of cases actually reported to or known to the government. The Centers for Disease Control and Prevention estimate that reported cases are typically 10 to 100 times less than the actual number of cases depending on the type of illness. For example, Roberts lists six factors which influence the likelihood of a foodborne disease being identified and reported including, "1) The more serious the disease, the more likely it will come to the attention of the medical community and the more likely it will be reported. 2) The more unusual the disease symptoms, the more clearly identifiable is the causative microorganism. 3) The more quickly the disease follows the ingestion of the contaminated food, the more likely the foodborne linkage can be made. 4) Availability of tests increases the likelihood of identification and reporting. (Viral causes of foodborne disease are exceptionally under reported due to lack of tests.) 5) 'Name recognition,' i.e., all physicians know Salmonella causes food poisoning which increases the likelihood of stool samples being taken and laboratories testing for them. 6) If a large number of people become ill at the same time, it increases the chances of food being identified as the cause. The importance of these factors and the degree of under reporting will vary dramatically by pathogen." (Tanya Roberts and Peggy M. Foegeding, "Risk Assessment for Estimating the Economic Costs of Foodborne Disease Caused by Microorganisms, published in Economics of Food Safety, Elsevier Science Publishing Co., Inc., 1991.) In order to generate a baseline number of illnesses (last column) to use for this analysis, FDA has used the CDC estimates and the logic found in the above paragraph to make crude estimates of the number of illnesses. For example, it is likely that at least half of all cases of Vibrio vulnificus are known because of the uniqueness of the disease so doubling the reported number of illnesses is appropriate. On the other hand, because of the mild symptoms associated with the illness caused by Diphyllobothrium latum (such that very few people affected would go to the hospital) and because of the difficulty of detection of the tapeworm, it is likely that underreporting may be at least 1,000 fold. Using this logic, a baseline number of illnesses was generated by FDA using 0, 10, 100 or 1,000 inflation factors applied to the reported number of illnesses (except for Vibrio vulnificus which has been doubled). It should be noted that these estimates do not constitute any kind of official estimate of the actual number of illnesses from seafood but are generated to make a reasonable estimate of the benefits of this rule. The exact risk in terms of true numbers of illness cannot be determined with the existing foodborne disease reporting mechanisms in this country. VI.A.2. Effectiveness of HACCP The number of cases that will potentially be prevented by HACCP, will be a function of (1) the baseline number of cases of illness, (2) the number of cases that seafood processors could possibly eliminate - either by not introducing the hazard themselves (e.g., bacterial contamination from humans), by eliminating the hazard through processing (e.g., cooking and freezing) or by rejecting unsuitable seafood before it is processed (e.g., temperature abused scombroid species) and, (3) the effectiveness of HACCP. The second factor, the number of cases that seafood processors have the potential to control, is difficult to estimate. One author has stated that, in general, it is likely that, "In the vast majority of cases, people are responsible for the outbreaks, by either abusing food or transmitting their disease to others via food. Basic rules of food preparation and hygienic practice are broken, and disease results. It is true that some surprises have occurred for the processed food industry, but when the cause has been identified, the industry has quickly moved to rectify the situation." (Douglas L. Archer, "The True Impact of Foodborne Infections," Food Technology, July 1988.) Problems introduced by consumer handling and cooking will not be addressed by this proposed action. For example, most cases of botulism in the U.S. come from home canning and processing. (Center for Disease Control: Botulism in the United States, 1899-1977. Handbook for Epidemiologists, Clinicians and Laboratory Workers, issued May 1979.) Also, most seafood that is "recreationally" harvested is both produced and consumed without ever coming into contact with a seafood processor. Although only twenty percent of all seafood consumed is harvested by recreational sources, it is likely that the percentage of illnesses associated with the recreational catch due to improper harvesting, handling and storage is much larger than that. (Ahmed, p. 2.) Shellfish poisoning, for example, such as Paralytic Shellfish Poisoning (PSP) and Neurotoxic Shellfish Poisoning (NSP) is largely due to "recreational" harvesting of shellfish. However, some of the recreational catch does enter into commercial processing channels. Other problems not addressed by this proposal include errors made at the retail level including processing mistakes made by supermarkets and restaurants. Finally, for those hazards that will be controlled by relying on keeping records that catches have been taken from waters that have not been closed to harvest, HACCP will only be as effective as the specification of contaminated waters (by states and localities). Other than for molluscan shellfish, where memoranda of understanding exist, it is not known how efficient foreign governments are at closing or identifying contaminated waters. In addition, even when water is closed for molluscan shellfish, it is usually because of high fecal coliform counts, which are correlated to the presence of viruses due to pollution, but are not highly correlated with the existence of natural marine pathogens (e.g., Vibrio vulnificus). Nevertheless, this proposed rule contemplates that, where appropriate, processors obtain knowledge about the location of the catch and that they obtain assurance that the catch is not from a known hazard area. For example, both foreign and domestic processors may now be receiving fish from reefs that are known to produce ciguatoxic fish. A HACCP plan developed under this regulation would be expected to stipulate that such fish are not acceptable unless otherwise shown to be nontoxic or effectively address this area in some other manner. In addition, when there are no other options to certify the safety of the product, tests, where available, for pathogens or other contaminants and records of the tests will be required. FDA, in conjunction with other federal and state agencies, will work to provide processors with the information they need to make the determination as to acceptable lots of fish. This information is a public good (to the extent that such information may not be kept secret) and, as such, is a good normally provided by government. HACCP is extraordinarily efficient at preventing hazards from being introduced through processing. For a hazardous product to be distributed by a processor undetected, one of the following must occur: (1) a critical control point, or critical limit is either misspecified or missing for the prevention or control of the hazard, or (2) simultaneously a hazard has occurred (a low probability event) and the failure of a mechanical device or human monitoring to detect the hazard (another low probability event). FDA acknowledges that the benefits estimated below may seem large in comparison to the costs of responding to critical limit deviations. Above FDA has estimated the costs of either discarding contaminated product and/or changing the processing to correct deviations to be $1,000 per firm per year. It will be these actions which will directly affect the risk of consuming seafood and which, relative to the benefits claimed, appear small. However, it is the cost of acquiring the information on the location of the introduction of the hazard which is critical to making any safety system work. Nevertheless, FDA has acknowledged above that the cost estimate may be low for these actions and has requested comment. Figure 1 illustrates a methodology for estimating the number of cases that will be reduced by HACCP for seafood processors. Boxes which are crossed out represent cases which will not be affected by the rule. In order to estimate the efficacy of HACCP, begin with the total number of cases of illness due to seafood which FDA has estimated to be 33,035. Then divide those cases into hazards which may be eliminated in the processing plant (primarily by sanitation, heating and cooling) and those which must be controlled other ways (by restrictions on harvesting, by testing, or by discarding potentially hazardous materials or products). On the right side of Figure 1, those cases that might be eliminated by sanitation (such as viruses passed on by infected workers), heating and cooling are only potentially prevented if they are introduced prior to processing. Those that are introduced by retailers, consumers or that go through only recreational channels will not be eliminated by the requirements of this HACCP proposal. Finally, even for those cases that potentially could be eliminated by HACCP, failures due to human error, machine error, or unidentified CCP's will still result in illnesses. On the other hand, better and more consistent procedures on the part of processors should reduce some consumer- caused ilnesses due to a larger margin for error on their part. On the left side of Figure 1 are those illnesses that may only be eliminated either by not harvesting from certain areas or by testing and discarding seafood which may be hazardous because it contains, for example, contaminants. Again, any seafood not going through processors will not be affected by HACCP for processors. For seafood that does go through processors, some hazards may be eliminated by testing although improper testing or false negatives will still preclude the prevention of some illnesses. Other cases potentially may be prevented by controlling harvest areas. For some hazards, such as ciguatera toxin, it not always possible to know where the organism is present. Therefore, states may fail to identify waters as being unsafe. In other cases, fisherman may illegally harvest and falsely represent their areas of harvest to processors. In such instances, HACCP may only prevent future cases after an illness outbreak has occurred. In all of these situations, there will continue to be illnesses from seafood. Because FDA does not have sufficient data to quantify each of the cells in Figure 1, FDA experts have subjectively estimated upper and lower bound cases which might be reduced through this rule (the manner in which HACCP will actually work on some of these hazards is discussed in APPENDIX 3). (Memorandum to Richard Williams, November 16, 1993.) These estimates are reported in Table 11. This was accomplished using the logic of Figure 1 and examining each seafood hazard. However, FDA acknowledges the subjectivity of these estimates; no estimate of the actual efficacy of HACCP for any processors is available at this time. (Figure 1 deleted from World-Wide Web edition. Contact authors.) TABLE 11 FDA BEST ESTIMATE NUMBER NUMBER OF THE OF CASES OF CASES NUMBER OF AVERTED AVERTED HAZARDS CASES (LOWER)* (UPPER)** Anasakis simplex 100 10 75 Campylobacter jejuni 200 100 150 Ciguatera poisoning 800 50 200 Clostridium botulinum 4 0 1 Clostridium perfringens 70 53 70 Diphyllobothrium latum 1,000 250 750 Giardia lamblia 30 0 7.5 Hepatitis A Virus 92 15 46 Neurotoxic Shellfish Poisoning 48 0 0 Norwalk Virus 12,400 1,000 6,200 Other Vibrios 10,000 1,000 5,000 Paralytic Shellfish Poisoning 13 0 0 Salmonella non-typhi 200 100 150 Scombrotoxin poisoning 7,960 3,980 5,970 Shigella 70 18 35 Vibrio vulnificus 48 0 24 Total 33,035 6,575 18,679 * Estimates by Klontz and Altekruse ** Estimates by Archer VI.A.3. Valuation of Safety Benefits Safety benefits will reflect the reduced incidence of morbidity and mortality that result from the mandatory HACCP program for processors. Costs associated with morbidity include the cost of pain and suffering, reduced productivity and medical costs. Another way to think about morbidity costs is to divide costs between those that are incurred by the affected individual and those incurred by others. For example, individuals bear only part of the loss from reduced productivity and medical costs. Medical costs covered by insurance are partially paid by the individual (deductible and higher rates) and partially paid by the insurance pool. Thus, a willingness-to-pay analysis on an individual consumer basis would reflect only part of the value of reducing morbidity. (A willingness-to-pay analysis of reduced risk is based on what individual workers or consumers are willing to pay to reduce small increments of risk or, conversely, willing to accept to incur small increments of risk.) The costs of illness include medical costs ("treatment, diagnosis, continuing care rehabilitation and terminal care") (Estimating the Value of Consumer's Loss from Foods Violating the FD&C Act, Research Triangle Institute, prepared for Dr. Richard Williams, Food & Drug Administration, FDA Contract No. 233-86-2097, September, 1988.), lost productivity, transportation, household costs, costs of liability suits (pursuit of and avoidance of) and recalls. Disutility costs are defined in this analysis to include the costs of pain and suffering borne directly by individuals as well as defensive expenditures borne by firms, individuals and governments. Defensive expenditures by individuals are included in the disutility costs associated with morbidity as it is likely that they are included in individual willingness-to-pay values associated with mortality. However, medical expenditures are estimated separately. These are borne by both individuals and insurance but it is unlikely that they are included in willingness- to-pay estimates to avoid death. This section of the economic impacts utilizes a report from Research Triangle Institute entitled "Estimating the Value of Consumer's Loss from Foods Violating the FD&C Act." (IBID.) This model had five components: 1) identify adverse health effect(s) from a violation, 2) describe impacts on health, 3) estimate changes in health status, 4) estimate utility losses, and 5) estimate dollar values of utility losses. VI.A.4. Health Status Indices (IBID.) Health status indices categorize the various states of health that may be caused by illness or injury (including death) by the level of severity that consumers may experience. Thus, they generally range between perfect health and death as the worst state. Once a set of health states has been defined, consumers or health professionals are asked to rank their relative disagreeableness, normally through surveys. In this case, that amounts to assigning a "disutility" weight. For this assessment, changes in health states will be used to assess the benefit of preventing seafood illness. Thus, the benefit of preventing an illness would be characterized by a change from a less healthy state to a more healthy state which otherwise would not occur (increased utility) multiplied by the duration of that change. It was assumed that all consumers who might potentially be made ill from seafood are returned to a perfectly healthy state. The study models changes in health states based on three factors: x the symptoms, duration and treatment of the illness; x the patient's functional status during and after treatment; and, x the probability of death from the illness. Using the changes in health states described above, the study derives the utility consumers experience, or, for the purposes of this study, the disutility they experience, when in a particular health state for one day. This disutility is then measured relative to the value of life estimates for mortality. Using economic value-of-life estimates for avoiding mortality, it is then possible to estimate the willingness to-pay to avoid the disutility of morbidity over the range of time it is experienced. An example is shown as to how this valuation will be done using a moderate case of campylobacter. First, FDA evaluated the most likely symptoms and duration of a moderate case of campylobacter. Next the symptoms were ranked on a health index scale. The health status index is one of those chosen for the RTI study, the Bush, et.al. Index. (IBID, Appendix D-5.) In this study, the authors constructed a four dimensional health state index consisting of the amount of mobility, physical activity, social activity, and the symptom/problem complex. For a moderate case of campylobacter, the first three "functional" states are described by: Mobility - Restricted to House Physical Activity States - Moved own wheel-chair without help Social Activity States - Limited in work, school Symptom/Problem - Fever of chills with aching all over and vomiting or diarrhea The Function states and Symptom/Problem states from the Bush study are shown in Table 12. (Tables 12 & 13 deleted from World-Wide Web edition. Contact authors.) Of the 100 possible combinations of the three functional states, the authors observed 42 and these were assigned equal interval utilities ranging from 0 (as bad as death) to 1 (perfect health). Combining the disutilities from the function states and the symptom problem complex gives the total disutility for a moderate case of campylobacter of .52 per day. This rate is then multiplied by the total number of days expected to be in this state, in this case, 9 days. Thus, a consumer with a moderate case of campylobacter enjoys only 48% of the utility she would enjoy if the day were spent in perfect health. FDA used the average etiologic symptoms and duration taken from various medical journals for each hazard listed. In many cases, it is likely that the symptoms listed were the most severe that could occur over the duration which would lead to higher values. The health state for each illness were normally estimated as mild, moderate, severe or death and were weighted by their probability of occurrence, given that the illness was contracted. The latter information was taken from various medical and epidemiological sources. For the Campylobacter example, 9 days of illness would amount to a total disutility of 4.65. Thus, the longer and the more severe the illness, the greater the disutility. For the purposes of chronic illness and death, it is assumed that the average case occurs to a 40 year old with a remaining lifespan of 36 years. Assuming a value-of-life of $5 million, the value of a discounted life year would be $222,222 and the value of a discounted day is $609. (Discounting of future benefits may be done by discounting estimated dollars of benefits per year or, equivalently, if the dollar benefits are equal each year, by discounting the remaining years of life.) These estimates represent the value of a perfect health day. Disutility suffered over each day for a moderate case of campylobacter would be .52 x $609 or $2850 over the nine day period. Where there are fatalities, the total life-years remaining is assumed to be 36 years or 26.6 discounted years (3%). The disutility of death is assumed to be a probabilistic outcome of a severe case and the probability of death is weighted into the disutility. For the average case of campylobacter, where the probabilities of a mild, moderate and severe case are weighted with the probability of death (zero), the total disutility per case is $1,934. In some cases, the probabilities associated with each health state were derived from various epidemiological sources and medical literature. For other pathogens, however, FDA used the results of a study performed for FDA by Research Triangle Institute which used experts to provide dose/response estimates for various microbial pathogens. (RTI, A Sampling Aid for Implementing Risk-Based Import Inspection: Final Report, September 1993.) The assumption for these probability estimates is that consumers are equally likely to be exposed to all of the possible doses that are capable of causing illness. Medical costs have been added to the disutility of having an illness associated with foodborne illness. Medical costs were derived by using an average cost for a day in the hospital ($1270) including hospital, medication and physician costs. For days spent in an emergency room this figure was doubled ($2540). (Figures are from Health Care Financing Administration, DHHS.) Values for each type of illness associated with seafood are shown in Table 14. Table 14 DISUTILITY AVERAGE PER AVERAGE DIRECT CASE MEDICAL TOTAL HAZARDS PREVENTED* EXPENDITURES COST Anasakis simplex $794 $1,344 $2,138 Campylobacter jejuni $1,934 $0 $1,934 Ciguatera poisoning $12,875 $0 $12,875 Clostridium botulinum $896,817 $45,809 $942,626 Clostridium perfringens $118,433 $508 $118,941 Diphyllobothrium latum $1,572 $0 $1,572 Giardia lamblia $3,166 $3,048 $6,214 Hepatitis A Virus $3,329 $0 $3,329 Neurotoxic Shellfish Poison $269 $0 $269 Norwalk Virus $572 $0 $572 Other Vibrios $1,416 $2,576 $4,172 Paralytic Shellfish Poisoning $89,689 $2,667 $92,356 Salmonella non-typhi $564 $1,270 $1,834 Scombrotoxin poisoning $412 $0 $412 Shigella $61,981 $8,890 $70,871 Vibrio vulnificus $1,245,093 $15,558 $1,260,651 * Includes pain and suffering and defensive expenditures Table 15 shows FDA estimates of the upper and lower bound quantitative estimates of the value of reducing illnesses with HACCP for processors. Table 15 VALUE OF LOWER UPPER PER CASE BOUND BOUND HAZARDS VERTED ESTIMATE ESTIMATE Anasakis simplex $2,138 $21,380 $160,350 Campylobacter jejuni $1,934 $193,400 $290,100 Ciguatera poisoning $12,875 $643,750 $2,575,000 Clostridium botulinum $942,626 $0 $942,626 Clostridium perfringens $118,941 $6,244,403 $8,325,870 Diphyllobothrium latum $1,572 $393,000 $1,179,000 Giardia lamblia $6,214 $0 $46,605 Hepatitis A Virus $3,329 $50,534 $153,134 Neurotoxic Shellfish Poisoning $269 $0 $0 Norwalk Virus $572 $572,034 $3,546,400 Other Vibrios $4,172 $4,172,000 $20,860,000 Paralytic Shellfish Poisoning $92,356 $0 $0 Salmonella non-typhi $1,834 $183,400 $275,100 Scombrotoxin poisoning $412 $1,639,760 $2,459,640 Shigella $70,871 $1,240,243 $2,480,485 Vibrio vulnificus $1,260,651 $0 $30,255,624 Total $15,353,904 $73,549,934 The above methodology implies that safety benefits from eliminating seafood illness yield a range of benefits between about $15 and $75 million per year. Over 10 years, discounted benefits at 6% would be between approximately $80 and $575 million. However, it should be stressed that both the baseline number of illnesses and the percentage preventable by HACCP are not to be considered precise. VI.B. Nutrition Benefits of Increased Seafood Consumption Because of the negative publicity concerning water pollution and seafood safety, consumer perception of seafood safety may not be consistent with actual risk. Contamination scares cause drastic short-term drops in consumer demand for seafood products, and undoubtedly contribute to the chronic level of consumer concern about seafood safety. (Brown, Joseph W. and W.D. Folsom. 1983. "Economic Impact of Hard Clam Associated Outbreaks of Gastroenteritis in New York State." Charleston, SC: US Department of Commerce. NOAA Technical Memorandum, NMFS-SEFC-121 and Alaska Seafood Marketing Institute, 1992 "Image Tracking Survey.") Thus, safety concerns about seafood are a likely factor preventing wider consumer acceptance of seafood as part of the U.S. diet. (Becker, Geoffrey, S. 1983. "Mandatory Federal Seafood Inspection: An Overview." Report No. 83-198 ENR, Congressional Research Service, November.) The 1993 FDA Food Safety Survey confirms much of the previous research on consumers perception of seafood safety. Consumers in this study report that they are more careful when handling seafood than when handling meat and poultry. Given that consumption levels of fish are much lower than for meat and poultry, a disproportionately larger percentage of self-reported food illness episodes in the survey are attributed by the respondents to seafood. Although by weight, seafood consumption is only 8% of the consumption of meat, poultry and seafood combined, consumers attributed 36% of their foodborne illnesses to seafood. ("The 1993 Food Safety Survey," Center for Food Safety and Applied Nutrition, FDA.) The fact that consumers handle seafood more carefully and are more likely to attribute a food related illness to seafood than other flesh proteins suggests that consumers believe that seafood is less safe than meat and poultry. At present, there is no reasonable way to quantify the likely improvement in consumer confidence or the likely increase in consumer demand for seafood that would follow mandatory HACCP. Nevertheless, most seafood professionals agree that some improvement will occur. This is particularly likely for a food with positive health benefits such as seafood. The average amount of saturated fat and total fat per pound of seafood compared to meat and poultry are shown in Table 16. Table 16 FAT CONTENT OF FLESH PROTEINS Saturated Fat Total Fat (grams) (grams) Seafood 3.14 14.67 Poultry 12.47 44.02 Meat 51.58 104.81 (Roper, N.R. Zizza, C. and J. Rourk, Nutrient Content of the U.S. Food Supply. 1909-88, USDA Home Economics Research Report #50, 1992. "Meat" includes all meats except for poultry weighted by amount consumed.) As compared to meat, seafood has only 6% of the saturated fat and 14% of the total fat per pound of food. Although there are many other factors which influence seafood consumption such as price, taste and availability, concern over safety is a likely contributor to the low per capita consumption of seafood. In addition, there is some evidence to suggest that markets respond positively to a change from a regulatory system which relies in part on recalls to a pre-market monitoring system such as HACCP. (Broder, Ivy and John Morrall, "Incentives for Firms to Provide Safety: Regulatory and Capital Market Reactions," Journal of Regulatory Economics 3:309-322 (1991).) To the extent that stock markets reflect consumer safety concerns, they (stock returns) also reflect expectations of future retail sales, i.e, increasing consumer confidence leads to increased purchases of seafood. Using the model previously employed in the benefit analysis of the Nutrition Labeling and Education Act of 1990, FDA has estimated the decreased amount of coronary heart disease and cancer that would result if consumers become more confident about the safety of seafood and if the quantity of seafood eaten increases. (Browner model.) The estimates presented in Table 17 show the result of a per capita increase in seafood consumption at the expense of a proportionate decrease in meat and poultry consumption. Table 17 Estimated Decreases in Mortality from Increased Seafood Consumption Per capita increase Percent Decrease Mortality in seafood change in (CHD and cancer) Consumption consumption (Discounted 3%) 1 pound 6.3% 673 5 pounds* 33.3% 2,782 * This is the seafood industry goal announced by National Fisheries Institute, Inc. (#90-62, December, 1990) The value of the decreased mortality at 1 pound and 5 pounds, respectively, would be $3.4 and $13.9 billion (discounted over 10 years at 3%). However, these values are upper bounds, because FDA has no way to determine to what degree price increases resulting from this regulation will offset this potential increase in demand. For example, the Kearney study estimated price increases ranging from negligible for breaded and specialty products to a 1.3% increase for molluscan shellfish products. (Economic Impacts of HACCP Models for Blue Crab, Breaded and Specialty Products, Molluscan Shellfish, Smoked and Cured Fish, and West Coast Crab: Condensed Version, A.T. Kearney for National Fisheries Education and Research Foundation, Inc., October, 1991.) Thus, if the demand curve for seafood does not shift to the right as a result of this rule, the price increase will cause seafood consumption to decrease slightly. For example, using a price elasticity of demand of - 0.37 (Reported in Marasco, Richard "Food from the Sea: An Economic Perspective of the Seafood Market," Marine Economics: Production and Marketing of Seafood Products December 1974 p. 1031.), and a price increase of 1.3%, seafood consumption could be reduced by .28% or .042 pounds. This would have a negligible mortality effect (approximately 15 lives). (This analysis has completely ignored any effects of the elasticity of supply on changes in price caused by shifts in the demand curve. Implicitly, the supply of seafood has been assumed to be perfectly elastic. Various types of research indicate that this assumption is unrealistic. Marasco, in "Food from the Sea", and several articles in Ceres: The FAO Review, No. 142 (Vol. 26, No. 4) July-August 1993, pp. 17-36, indicate that the world fisheries are currently being fished near their maximum sustainable yield and that harvesting is increasingly relying upon catches made in deeper and deeper water. This information would suggest that the supply of seafood is not perfectly elastic and may even be nearing the inelastic region of the supply curve. If this is true, increases in consumption of seafood would result in significantly higher seafood prices. However, FDA has no actual estimates of the retail price elasticity of supply for seafood and requests that commenters provide information suitable to estimating the elasticity of supply for seafood so that this factor may be taken into consideration for estimating increases in price and consumption.) VII. Small Business Impact The agency recognizes that the proposed rule will have a substantial impact on some small seafood processors. Most of the seafood processors covered by this proposed regulation are small (approximately 80%) where small is defined for non-shrimp processors as less than $1 million in annual gross revenue and less than $2 million for shrimp processors. The provisions of this rule such as monitoring and recordkeeping are largely fixed costs (costs which do not vary significantly with the amount of the product produced) which will impose larger per unit costs on small businesses than large. Small firms can have as many critical control points as large firms because the number of critical control points is determined by the complexity of the operation and not necessarily by the size of the business. The agency has evaluated options to provide regulatory relief for these businesses. By definition, smaller producers will produce smaller lots and sell smaller amounts of food such that any defect in processing will have smaller aggregate consequences. One possibility for regulatory relief would be to base HACCP requirements for small processors on the relative risk of the products produced by individual plants. HACCP may appear to be more of a design standard than a performance standard. However, design of a HACCP system is plant specific and, in fact, performed by plant managers. Those managers should be able to design their system in the most cost-efficient manner and change or modify their system to meet changing conditions. Thus, HACCP has the advantages of a performance standard. On the other hand, a classical performance standard for production of food would establish a safety tolerance that all firms must meet in a manner that suits their individual operations. In this case, the agency could choose to only require HACCP-type controls for those critical control points in individual plants that have a history of failure. Positive records would be kept until the firm demonstrates that the process is under control. Thus, small firms who had a history of safe production would be exempt from positive recordkeeping requirements. However, the above option would require FDA to become intricately involved with plants and would still require testing to determine product failure. Furthermore, new risks would only be uncovered by either FDA testing or manifestation of illness. Because small plants constitute 80% of all seafood plants, this option is not feasible given FDA's limited resources. Another option is to simply exempt very small processors from these requirements. Depending on the exact size of processors exempted under such a provision, this option could exempt up to 80% of the domestic manufacturing plants but only 52% (236 shrimp plants with a maximum gross annual revenue of $200,000 and 3,610 non-shrimp plants with a maximum gross annual revenue of $100,000 would account for at most $3,657 million worthof the $7,089 million of seafood consumed annually in the United States) of the seafood consumed in the U.S. The cost for domestic manufacturers to comply with the proposed rule amended to exclude manufacturers with gross annual sales of less than one million dollars (two million dollars for shrimp manufacturers) would be approximately $16 million. The benefits of such an option are calculated by first eliminating from the $75 million in safety benefits ($15 million for the low estimate of benefits) estimated for a proposal covering all products the $55 million in benefits ($11 million for the low estimate of benefits) associated with molluscan shellfish products, since 98% of shellfish plants would be classified as small. Then, assuming that small plants (as defined above) that are not shellfish plants are responsible for 52% of the remaining $19 million in benefits ($4 million for the low estimate of benefits), the safety benefits of the proposed rule with an exemption for small plants would be $10 million ($2 million for the low estimate). Another option would be to broaden the coverage of the risk-based option. If the proposed rule were applied to all molluscan shellfish manufacturing plants and to all large seafood plants, then the estimated first year cost for domestic manufacturers would be approximately $55 million. The safety benefits would be the $55 million in benefits ($11 million for the low estimate of benefits) associated with molluscan shellfish plus the $9 million in benefits ($2 million for the low estimate of benefits) estimated to be associated with large manufacturers of all other products for total benefits of $64 million ($13 million for the low estimate). In the proposed rule, the agency has sought to keep the requirements as simple as possible to facilitate implementation by small processors. FDA will provide processors with HACCP plan guidelines that will assist them in the development of their individual HACCP plans. The guidelines will contain a broad spectrum of species and process-related hazards and controls. Processors will be able to select those that are appropriate for the products they produce. By providing processors with HACCP guidelines, the agency will reduce the cost to processors of implementing HACCP. The agency estimates that developing a HACCP plan without guidance could require as much as approximately 240 hours of managerial labor time. However, this estimate may be high and FDA requests specific comments on this estimate. The plans that FDA provides will only be guideline plans. Individual processors will be free to adapt the guidelines to their individual plants and products so that they may comply with the proposed rule in the way that is most efficient for their operation. The agency is aware that many small firms may not have access to necessary capital to meet these requirements, particularly because this regulation will cover the entire industry and firms will not be able to generate new income from increased sales at the expense of competitor firms. Given that small firms will have larger per unit costs to pass on relative to large firms, it may be very difficult to obtain financing to meet these requirements. One possible remedy for small firms would be to allow a longer implementation period such that HACCP requirements may be phased in over a longer period of time, and costs could be financed out of retained earnings. Other options for making HACCP more feasible for small plants include providing generic HACCP plans (without mandatory control points) for certain types of operations, providing federal verification, or less frequent monitoring of critical control points. The agency requests comments on all of the options mentioned above, and any other option providing regulatory relief for small firms that interested parties wish to supply. The proposed rule will raise the costs of producing seafood products. In some cases the increase will be large enough to cause some firms to go out of business. The Kearney reports estimated that 334 (7%) domestic seafood manufacturing firms in the seven segments covered by the reports (primarily molluscan shellfish) would go out of business if the industry was required to meet the more extensive standards of the MSSP. In the past year the Canadian government has finished phasing in a stringent HACCP-based regulation for Canadian seafood processors. Since that program was implemented only 12 processors (2%) went out of business, according to one informal estimate. FDA does not have enough information to estimate the number of firms that will close if the proposed rule becomes final. Although the agency will undertake every possible action to ensure that firms do not go out of business as a result of this rule, the agency questions whether firms that are unable to identify the likely hazards associated with their products and take reasonable preventive controls to prevent those hazards from occurring should be selling food in interstate commerce. As described in the preamble, FDA is keenly interested in keeping the costs of implementing HACCP to a minimum and is issuing guidance documents and a model HACCP plan for small processors to facilitate such implementation. VIII. SUMMARY Costs of the proposed rule for domestic manufacturers are estimated to be $103 million for domestic manufacturers in the first year and $65 million in the following years. However, not all costs for domestic manufacturers were quantified. In addition, one-time costs due to changes in plant construction and design are estimated at $13 million. One-time costs to importers are estimated at $8 million, and on-going costs incurred by domestic repackers and warehouses are estimated to be $14 million. Costs to foreign processors are estimated to be $96 million in the first year and $44 million in succeeding years. However, much of the costs to foreign processors is expected to be incurred regardless of whether or not this regulation is implemented because of the worldwide movement to HACCP. Therefore, FDA estimates domestic costs for this rule in the first year as totalling $139 million and $79 million in succeeding years. The agency has not estimated all of the costs incurred by domestic processors. Discounted domestic costs are estimated to be $676 million and discounted costs for foreign processors are estimated to be $395 million over 10 years (6%). Of the latter, much of the costs are expected to be passed on to U.S. consumers in the form of higher prices. However, the incremental costs of this regulation are expected to be a small fraction of the $16.5 billion domestic market for seafood products. Estimates of firm failure have not been made. However, failure was estimated to be as low as 2% (96 firms) of all firms in the Canadian experience to as high as 334 firms (estimated for compliance with the MSSP plan). Benefits of this regulation include safety and nutritional benefits. Safety benefits are the reduced incidence of foodborne illnesses and death and are estimated to be between $15 and $75 million annually (between $81 and $574 million discounted over 10 years (6%). Some of these benefits may occur anyway as other countries who export seafood to the U.S. move to HACCP. Nutritional benefits will only be realized if consumers feel more assured that seafood is safer as a result of this rule and, in turn, increase the amount of seafood that they eat. The resulting benefits would be attributable to the decrease of both saturated fat and total fat in the diet. For example, even a one pound per consumer per year increase would lead to benefits of $3.4 billion (discounted over 10 years at 6%). FDA is unable to quantify other potential benefits of this rule. These include increased consumer confidence in the safety of seafood (reduction of anxiety), benefits to exporters who are required to have government mandated HACCP to export to countries which have this requirement, and reduction in private and public expenditures to alter both the amount of government oversight over the seafood industry and the debate over who should regulate this industry. Appendix 1. AVERAGE COSTS OF COMPLIANCE (These estimates are for illustration only. The actual cost to plants varies widely based on the current level of plant standards and the type of product being produced.) The following table indicates the types of costs of compliance estimated in this analysis for a hypothetical average small plant with a simple production process. First Year Recurring Cost Cost HACCP plan development: $350 $0 (24 hours of managerial labor @ $14.65) Consumer complaint system development: $350 $0 (24 hours of managerial labor @ $14.65) HACCP training for one employee: $900 $0 Employee training for new responsibilities: $400 $400 (2 hours per employee per year) Plant & equipment: $4,100 $0 Monitoring & recordkeeping: $7,100 $7,100 (76 hours of supervisor labor @ $14.65 plus 756 hours of production worker labor @ $7.92) Materials & utilities: $6,500 $6,500 _______ _______ TOTAL (before adding overhead): $19,700 $14,000 TOTAL (including overhead): $23,600 $15,400 The following table indicates the types of costs of compliance estimated in this analysis for a hypothetical average large plant with a simple production process. First Year Recurring Cost Cost HACCP plan development: $360 $0 (24 hours of managerial labor @ $15.09) Consumer complaint system development: $360 $0 (24 hours of managerial labor @ $15.09) HACCP training for one employee: $0 $0 Employee training for new responsibilities: $400 $400 (2 hours per employee per year) Plant & equipment: $3,700 $0 Monitoring & recordkeeping: $5,600 $5,600 (304 hours of supervisor labor @ $15.09 plus 118 hours of production worker labor @ $8.57) Materials & utilities: $5,100 $5,100 _______ _______ TOTAL (before adding overhead): $15,500 $11,100 TOTAL (including overhead): $18,600 $12,200 APPENDIX 2 DISCUSSION OF HAZARDS The marine toxins, certain marine bacteria of the vibrio group and certain parasites are unique to seafoods. Other hazards, such as most of the bacteria which cause foodborne illness, may be present in any food. Microbiological and Parasitic Exposure For Vibrio cholera 01 (El Tor), there are 25 to 100 infections for every hospitalized case. (Ahmed, p. 37.) Hospitalized cases have cholera gravis with profuse, watery diarrhea which will result in death if untreated. It may occur in raw shellfish from the Gulf Coast or as a result of fecal contamination in processing. Proper cooking will destroy it, otherwise, for seafood eaten raw it must be taken from uncontaminated waters. However, because of the low frequency in which it is found (0.9% of 790 lots tested) and because of the intra-lot variation, it will be difficult to prevent this illness from occurring sporadically from consumption of raw shellfish. (Ahmed, p. 38.) Other Vibrio's (Except Vibrio vulnificus) This group contains V. cholera Non-01, V. parahaemolyticus, V. mimicus, V. mimicus, V. hollisae and V. furnissii. In one study, non-01 V. cholera was found in 37% of U.S. oyster lots harvested in summer. (Ahmed, p. 38.) V. parahaemolyticus have been associated both with consumption of raw shellfish and with time/temperature abuse of cooked seafood. Disease incidence has been estimated to be less than .5 cases/100,000 population/year (Ahmed, p. 41). Vibrio vulnificus is capable of causing life threatening diseases for people with liver disease or who are immunocompromised. Some studies have found close to 100% contamination of oyster lots with V. vulnificus in summer months. Most diseases are associated with consumption of raw oysters. Most infections result in mild or asymptomatic illness although persons who have liver disease or are immunocompromised are at high risk for septicemia with a 50% fatality rate. Processors producing for raw consumption could control for Vibrio contamination by refusing to accept molluscan shellfish from the waters of the Gulf of Mexico from April through September. Low dose gamma irradiation has been shown to be effective in eliminating this and other Vibrio species. Salmonella can be divided into those which cause typhoid fever (S. typhi) and those which do not (S. non-typhi). There have been no cases of S. typhi in the U.S. since 1954. S. non-typhi is associated with cooked shrimp, raw lobster, raw shrimp and other seafood products. Microbial quality of harvest water does not seem to predict Salmonella contamination but proper cooking and handling will eliminate this bacteria. Campylobacter jejuni is primarily associated with consumption of poultry products although raw shellfish has been a vector. Although most of the cases are mild, lasting only 24 hours, it may lead to serious problems. It may be controlled by heat and is sensitive to sodium chloride, drying, low pH and oxygen. Clostridium botulinum cases are relatively rare in the U.S. although it is coupled with a high rate of mortality - 15% if treated, 70% if untreated. Most cases of seafood botulism are related to ethnic food preparation. Most recent cases in the United States are from homemade seafood products. Shigella illnesses occur primarily from prepared salads (tuna, potato, shrimp), milk, and poultry. It may also be associated with shellfish consumption when there is fecal contamination. In addition it can result from contamination of raw or previously cooked foods prepared under conditions of poor hygiene. S. sonnei can by readily killed by heat and low pH. Listeria monocytogenes FDA is unable to estimate the number of cases of listeria caused by seafood although it is known that listeria is ubiquitous in both salt and fresh water (81% of freshwater and 33% of marine water). (Dillon, Ronda M. and Thakor R. Patel, "Listeria in Seafoods: A Review," Journal of Food Protection Vol. 55, December 1992, pp. 1009-15.) Although oysters are generally not linked to listeria approximately 11% of shrimp sampled contained some listeria. (IBID, p. 1010.) In cooked and refrigerated or frozen crab meat 28% were found positive for listeria. (IBID.) In the same study, in a composite sample of frozen products including lobster tails, shrimp, prawn, breaded shrimp, whole fish, and fish fillets, 49% of the raw seafoods and 20% of the processed seafoods were positive for listeria. (IBID.) Thus, listeria may survive some cooking and freezing. There are an estimated 1600 to 1860 cases and 415 deaths annually in the U.S although none have ever been tied directly to seafood. (Kraemer, Donald W. "Microorganisms of Concern in Seafood Processing," FDA for the low estimate and Roberts, Tanya and Robert Pinner "Economic Impact of disease cause by Listeria Monocytogenes," NE-165 paper.) As with some other pathogens, listeria presents the greatest risk for high-risk subpopulations. Of particular note is the neonatal and post-neonatal mortality rates. Neonates are generally defined as infants under 28 days of age and the neonate mortality rate is defined as the number of deaths in this group divided by the number of live births. (48 Liu, Korbin; Moon, Marilyn; Sulvetta, Margaret; Chawla, Juhi, "International infant mortality rankings: a look behind the numbers," Health Care Financing Review, 13 (4) pp. 105-14.) Post-neonates are defined as children between the ages of 28 days and one year. Roberts defines the diseases caused by listeria in "3 well defined risk groups: (1) Pregnant women who usually have a relatively mild illness, that may be manifest as a 'flu like' syndrome or placental infection. (2) Fetuses/newborns who may be infected before or at delivery, resulting in stillbirth or neonatal infection. Clinical syndromes in neonates are sepsis (blood poisoning) and meningitis (inflammation of the tissue surrounding the brain and/or spinal cord) both serious, life threatening syndromes. A portion of those with meningitis will go on to develop neurological complications. (3) Other adults who typically develop meningitis or sepsis syndromes. Almost 90% of these adults were estimated to have one or more underlying diseases, including cancer, diabetes, renal disease, heart disease, and Acquired Immunodeficiency Syndrome (AIDS)." (Roberts and Pinner, p. 138.) Roberts estimates that there were 360 cases of fetal/newborn cases of listeriosis in the U.S. with death rates of about 28% of cases. (IBID.) This is likely to be an underestimate of the cases in newborns because mothers may have no symptoms yet still carry the disease. Naturally Occurring Fish and Shellfish Poisonings Ciguatera was responsible for half of all reported seafood intoxications in the CDC study between 1978 and 1987. It is commonly associated with island or reef fish and most cases are in Hawaii, Puerto Rico, the Virgin Islands, Guam and Florida. There are both gastrointestinal and neurological symptoms from this illness. Death from this illness is rare. One way to reduce the outbreaks associated with ciguatera is to avoid "hot spots" where it is concentrated. Scombroid (histamine) fish poisoning is caused by ingestion of a scombroid species of fish such as mahi mahi and tuna. The histamine is produced in fish flesh resulting from poor handling and storage and may be particularly prevalent in imported fish. The disease is mild and will resolve itself after a short duration. Paralytic Shellfish Poisoning (PSP) results from consumption of clams, oysters, scallops and mussels that are contaminated and occurs primarily in coastal states. The symptoms are neurological and may subside in several days or produce fatalities as the toxin is one of the most potent known (two fatalities in the last 10 years). Contamination of shellfish is caused by the blooms of toxigenic dinoflagellates which occur several times a year. Closure of the beds by the states is the only possible protection. Less than 1/6 of all outbreaks are due to commercial processing. Neurotoxic Shellfish Poisoning (NSP) is caused by shellfish feeding on the red tide organisms which occur sporadically in the Gulf of Mexico and off the coast of Florida. Helminths Diphyllobothrium latum is a cestode (tapeworm) associated with eating raw freshwater fish. Control may be accomplished either by cooking or freezing. Anisakis simplex is a nematode (parasitic cylindrical worm) found in poorly cooked, smoked or raw fish. Less than one case per year is actually reported. It can be detected visually in fish. Most cases are associated with ethnic consumption of raw or partially cooked seafood harvested from high-risk geographic areas. Viruses Hepatitis A Virus (HAV) is a serious viral disease which may cause protracted and severe disease although rarely causing mortality (0.6%). Most outbreaks are associated with molluscan shellfish. It could be controlled by vaccine as infection results in permanent immunity. Norwalk and Norwalk-like viruses are associated with viral gastroenteritis from consumption of raw or partially cooked shellfish harvested in fecally contaminated waters. It is likely that many cases of viral gastroenteritis could be due to this virus. (APPENDIX 3: HACCP Preventative Measures deleted from World-Wide Web edition. Contact authors.) Appendix 4 SUMMARY OF REQUESTS FOR COMMENT Although FDA requests comments on all aspects of the analysis in this document, the agency has specificly requested comments in numerous places throughout this document. This Appendix is a collection of all of these requests. Comments should be sent to the following address. Dr. David J. Zorn tel:(202) 205-4729 fax:(202) 260-0794 djz@fdacf.ssw.dhhs.gov FDA (HFS-726) 200 C St., SW Washington, DC 20204. FDA requests comments on ... 1. all of the seven options listed in Table 1 (described on pages 6-18) or any additional options commenters may supply. 2. whether a federally administered HACCP program with a mark for products produced by voluntary program participants (option 3 described on pages 8-10) would enhance consumer confidence in the safety of seafood. Commenters should specifically address a) how such a program would affect change consumer perceptions of seafood, and b) what would a mark signify to consumers as to the relative risk of products bearing the mark versus those that do not? 3. whether a high risk HACCP option (option 4, described on pages 10-14) while maintaining the existing approach for all other products, could achieve an appropriate mix of industry and government responsibilities for all seafood in interstate commerce. 4. any indirect effects of the proposed rule on entities including, but not limited to, fishing vessels, distributors and retailers. (pp. 14, 22-24) 5. the feasibility of the catch segregation requirement for harvesting vessels, and information on the actual likelihood of such fishery conditions. (p. 24) 6. cost estimates for canneries. (pp. 29-30) 7. the estimated costs of either discarding contaminated product and/or changing the processing to correct deviations to be $1,000 per plant per year. (pp. 37, 59) 8. the estimate that developing HACCP plans will require between 24 and 72 hours of managerial labor, depending on the complexity of the process involved and the assumption that over a ten year period the plant's HACCP plan will not need to be altered. (p. 37) 9. the estimate that a total of only 24 hours is needed to design and evaluate consumer complaints over a period of ten years. (p. 37) 10. the sufficiency of a single HACCP training program for successfully implementing an effective HACCP system. (p. 38) 11. the estimate that processors of cooked, ready-to-eat and pasteurized products would spend $1,000 per plant in the first year to certify that their cooking and pasteurizing processes and equipment will adequately protect consumers and the assumption that the recurring cost for such certification is $500. (p. 39) 12. the frequency with which plants alter their products, processes, and equipment to the extent that HACCP plans or process or equipment certifications would have to be reevaluated. (p. 39) 13. the need for and cost of analytical testing. (p. 41) 14. the potential need for and cost of changing suppliers. (p. 41) 15. the reduction in the supply of seafood or the change in price. (pp. 41- 42) 16. the costs associated with the items listed in Table 8 for which costs have not been estimated. (p. 43) 17. the cost to importers. (p. 45) 18. the magnitude of and method of quantifying the benefits that have not been quantified: reduction of consumer anxiety, reduction of rent seeking expenditures, and facilitating U.S. seafood exports. (pp. 47-49) 20. the estimate that developing a HACCP plan without guidance could require as much as 240 hours of managerial labor time. (p. 84) 21. all of the options to provide relief for small businesses (described in pages 81-86) and any other option that commenters wish to supply.