impact of HACCP on costs and product exit, The

Journal of Agricultural and Applied Economics, Apr 2002 by Hooker, Neal H, Nayga, Rodolfo M Jr, Siebert, John W

Models 5 and 6

These models were estimated using White's heteroskedastic-consistent covariance matrix to correct the estimates for an unknown form of heteroskedasticity. Similar hypotheses as those discussed for Models 3 and 4 are applied in these models.

Results and Discussion

The parameter estimates and standard errors of Models 1 and 2 are exhibited in Table 2. The R-squared values of these models are 0.253 and 0.287, respectively. These values are reasonable considering that the data used in the analysis are cross-sectional. Results are similar regardless of whether the "MIX and EMP" or "RANGE and LNSALES" variables were used in the model with the exception of RANGE being statistically significant (and positive as predicted) in Model 2. This may provide some evidence (though weak) of the existence of diseconomies of scope-the more classes of product the firm prepares, the higher are its compliance costs (about 0.25 cents per pound). Based on the other statistically significant estimates, results indicate, as suggested, that those firms that will be building a new facility due to HACCP have higher costs of implementation (1.75 cents per pound) than those firms that do not have plans to build a new facility. For these plants, the coefficient indicates that per-pound compliance costs are $0.06, larger than the overall USDA estimates which did not include such plant modification costs. Firms that stated they would expand their current facility showed a statistically significant and negative impact on compliance costs that differs from our hypothesized sign. This may be due to the relative cost of adding versus building plant capacity. Interestingly, firms in which HACCP requirements begin in January 2000 (the very small firms) and those plants choosing to become custom exempt have higher HACCP implementation costs (range from 2.8 to 4.7 cents per pound) than those firms that had already implemented HACCP However, after controlling for this difference, there is no evidence of further economies of scale as demonstrated by the lack of statistical significance for the measures of plant size (EMP or LNSALES).

The parameter estimates and standard errors for Models 3 and 4 are presented in Table 3. The McFadden R-squared values of these models are about 0.414. The prediction success tables are exhibited in Table 4, with percentage of right predictions of 85.9 percent for Model 3 and 84.5 percent for Model 4. The empirical estimates in both models are similar. The results indicate that firms that are expanding their current facility due to HACCP are more likely to discontinue some products due to HACCP.5 Similarly, firms that will hire new staff due to HACCP are more likely to discontinue some products due to HACCP This sign is the reverse of that hypothesized. Taken with the finding related to the expansion of the plant, this may provide evidence of some form of consolidation through expansion of more profitable product lines. Interestingly, the very small plants are less likely to discontinue products than small firms, as reflected in the statistically significant negative coefficients of H2000 variable. This result is contrary to our prior expectations that very small plants would incur higher levels of partial exit. It may be explained by the forecast (ex ante) nature of the data for the very small plants. The very small plants in our sample may have underestimated their need to withdraw products. This issue merits further follow-up studies.