Recall information heterogeneity and perceived health risk: The impact of food recall on fresh meat market in the U.S.

Abstract

This paper examines the heterogeneous impact of various recall information on consumers’ perceived health risks and quantifies the overall impact of food recalls on demand. Using the fresh meat market as a case study, this paper formulates a structural random coefficient discrete choice model of consumer demand. Among various characteristics of food recalls, our focuses are the number of recalls and the volume of food recalled. In addition to the latest recall information, the historical recall information may also change consumers’ perception of health risks and we include the interaction terms of the historical recall information and the latest recall information into the model. Results show that both the number of recalls and the volume of food recalled have negative and significant effects on the demand. Historical recalls are also important to mitigate the negative impact of the latest recalls on the market. To minimize the negative impact of recalls, the highest priority should be given to preventing large-scale recalls, Class I recalls, product contamination recalls, and recalls due to being produced without benefit of inspection or import violation. Food companies should take the initiative to recall when problems arise. Further, simulation results imply that the number of recalls plays a much larger role than the volume of food recalled in meat demand.