Economics and Agroterrorism

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Economics and Agroterrorism

• Calum G. Turvey
• Dept of agricultural, Food and Resource Economics
• Food Policy Institute
• Rutgers University
• September 2003

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New Concerns Over Food Safety and Security

• New focus on food system security following
  September 11th attacks and anthrax mailings
• Heightened concerns about deliberate and
  purposeful contamination of food and water
  supplies
• Evidence that terrorists were considering use of
  aerial dusters (crop dusters)
• Purpose unclear contaminate agricultural and
  water systems?
• Considerable concern about use of Weapons of Mass
  Destruction (WMD), including biological and
  chemical weapons
• Many state-sponsored programs have focused on
  anti-crop and anti-livestock weapons

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Food Safety and Security

• Osama Bin Laden
• It is very important to concentrate on hitting
  the American economy with every available
  toolthe economy is the base of its military
  powerThe United States has a great economy but
  it is fragile
• Dr. Rhona Applebaum of the National Food
  Processors Association stated
• The potential for the food supply being a target
  or tool of terrorism can no longer be viewed in
  hypothetical terms

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Homeland Security

• Homeland Security and Bioterrorism Act designed
  to protect adulteration against food system
• Shifting in focus from food safety to food system
  security
• Section 303 Administrative Detention
• FDA can inspect and detail suspected foods
• Section 304 Registration of Food Facilities
• All foreign and domestic food facilities must
  register with FDA
• Section 306 Maintenance and Inspection of Records
  for Food
• All firms (except farms, retail, and restaurants)
• Maintain records 1 step back and 1 step forward
• Section 307 Prior Notice of Imported Food
  Shipments
• All food destined for US consumers must notify
  FDA of contents no more than 5 days and no less
  than 12pm on day prior to arrival at border point

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Changing Face of Terrorism

• Terrorist activity is being characterized by
  increasing lethality and efforts to obtain WMD
• Increasing incidence of sub-national terrorist
  activity
• Economic and political conditions have made
  documentation of nuclear/biological/chemical
  inventories more difficult
• i.e., dissolution of USSR and its Biopreparat
  program
• At its peak the Biopreparat program had 40
  research and production facilities/40-50,000
  workers
• Technical expertise and materials not all
  accounted for
• Engaged in anti-personnel, anti-crop, and
  anti-livestock bioweapons

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Potential Threats to the Food System

• Use of food/water as delivery mechanism for
  pathogens, chemicals, and/or other harmful
  substances for purpose of causing human death or
  illness
• Introduction of anti-crop/anti-livestock agents
  into agricultural systems
• Physical disruption of the flow of food/water
  (i.e, destruction of transportation/distribution
  infrastructure or water distribution systems)
• Use of agricultural inputs as weapons or weapon
  delivery systems (i.e., crop dusters,
  agricultural fertilizers, etc.)

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The Meaning of Hysteresis in the Context of Fear
and Terrorism

• Consumer hysteresis is a phenomenon that causes
  consumers to fail to reverse their consumption
  habits when the underlying source of uncertainty
  or ambiguity has reversed itself.
• There is a time-dependency between what has
  occurred in the past and what is observed in the
  present
• Risk perception relates to the cognitive ability
  of humans to perceive and judge risks (Arrow)
• individuals judge future events by the similarity
  of the present evidence to it (Tversky and
  Kahneman) .

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Hysteresis and the Economics of Fear

• Basic Principles of Economic Model and Hysteresis
• Fear of attack shifts and twists supply curve
• Shift due to increased marginal costs of
  diligence
• Twist due to hysteresis effect of ambiguity and
  uncertainty (more inelastic)
• Uncertainty over safe food shifts and twists
  demand curve (more inelastic)
• Combined effect leads to social welfare loss
• Terrorist objective Maximize Social Welfare Loss

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Evidence of Hysteresis 1?
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Evidence of Hysteresis 2?
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Evidence of Hysteresis 3

• The Food System
• Bocker and Hanf (2000)
• that after a food scare demand drops, but then
  slowly builds as probabilistic assessments of
  food safety from the supplier increases
• Liu et al (1998)
• simply removing the source of uncertainty is not
  sufficient to regain consumer confidence and a
  return to initial demand
• Caswell and Mojduska (1996)
• food safety has a strong credence component due
  to the ambiguous causality between eating a food
  product and getting sick
• personal experience is insufficient to judge food
  safety

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Evidence of Hysteresis 4

• Agricultural Products and Markets
• 2.4 billion lost exports as the price of beef
  went to zero in the U.K. when the link between
  BSE and CJD was discovered
• BSE in Canada, 2003 Canadian prices fall by as
  much as half of U.S prices
• In 2001/2 three cases of BSE in Japan caused a
  50 drop in beef sales
• After the lacing of grapes with cyanide,
  consumers refused to buy all types of Chilean
  fruit. Markets never recovered

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What are We Learning?

• How can economics be used to combat terrorism?
• The intelligent terrorist model
• Terrorists will seek to optimize economic damage
• Principles of hysteresis and risk perceptions
  provide some guidance
• Susceptibility driven by demand and supply
  elasticities
• More inelastic, the greater the impact
• First line of defense from an economic
  perspective
• is to identify key sources of risk and use first
  principles of marginal analyses and investment
  under uncertainty to examine impacts
• Regional and international trade modeling
• shows important impacts and welfare losses for
  the US and its trading partners

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The Next Steps

• We need to measure detailed trade impacts
• We need to engage greater and more sophisticated
  models e.g. game theory
• We need to address key policy issues
• Should policy be based on the precautionary
  principle? Or
• Should policy be based probabilities costs to
  expected benefits
• We need to incorporate economics into mitigation
  and damage assessment
• But there is a role for agricultural economists
  to develop new models and frameworks to examine
  issues in agroterrorism