Economics and
Agroterrorism
Calum G. Turvey
Dept of agricultural, Food and Resource Economics
Food Policy Institute
Rutgers University
September 2003
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
Food Safety and Security
Osama Bin Laden
• “It is very important to concentrate on hitting the
American economy with every available tool…the
economy is the base of its military power…The 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
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
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
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.)
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) .
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
Evidence of Hysteresis 1?
Index of Direct and Indirect Tourism-related Sales
140.00
September 11,
2001
120.00
Q2000:III = 100
100.00
Hotels and lodging places
Eating and drinking places
Air transportation
Motion pictures and other entertainment
All tourism industries
80.00
60.00
40.00
20.00
0.00
Q2000: III Q2000: IV Q2001: I
Q2001: II Q2001: III Q2001: IV Q2002: I
Q2002: II Q2002: III
Qarter
Figure 3: Index of Direct and Indirect Tourism-related Sales 2000 Q:III – 2002 Q:III
Evidence of Hysteresis 2?
University of Michigan Consumer Confidence Index: U.S. and Mid Eastern States
120
Consumer confidence index
110
100
Hysteresis band
North East
National
90
80
September , 2001
70
2000
2000
2000
2000
2000
2000
2000
2000
2000
2001
2001
2001
2001
2001
2001
2001
2001
2001
2001
2001
2002
2002
2002
2002
2002
2002
2002
2002
2001
2000
2000
2000
60
1
2
3
4
5
6
7
8
9
10 11 12
1
2
3
4
5
6
7
8
9
10 11 12
1
2
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7
8
Year and month
Figure 4: University of Michigan Consumer Confidence Index
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
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
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
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