Aflatoxin Contamination and Regulation Policy Interventions: Economic Implications for Peanut Market Participants

Abstract

This dissertation is composed of three chapters covering topics about the impact of aflatoxin regulation policies on peanut suppliers and consumers. Chapter One evaluates welfare implications of aflatoxin standards imposed on peanut imported into the European Union (EU) market. Price and quantity effects on peanut suppliers and consumers are determined. The equilibrium displacement modeling (EDM) approach is applied on a source-differentiated market; where standards compliance costs are modeled as import tax to understand the distribution of economic incidence. Findings show that aflatoxin regulation tightening leads to price and quantity drop for the United States and other exporters, while China benefits owing to price and quantity increases. This result contradicts popular belief that strict aflatoxin regulations hurt all exporters in terms of lost revenues. Also, import suppliers and consumers share in the costs from the policy although consumers pay much of the costs. Chapter Two isolates the peanut industry in Ghana as a specific-country case and examines the distribution of economic impacts on domestic producers and consumers after incorporating important market features; namely trade status, and consumer demand for quality peanut. The EDM technique is employed in three nested models; autarkic peanut sector, small exporter with supply shift, and small exporter with both supply and demand shifts. Results from the autarkic model shows that domestic consumers experience greater economic loss. In the export model with supply shift only, producers bear the full economic burden due to Ghana’s status as a small peanut trader. However, the third and more generalized model reveals that although producers bear the entire cost of the intervention, they could actually gain if consumer demand for quality peanut is incorporated into the analyses. Although Chapter Two incorporates demand for quality peanut, the analysis is based on strong assumptions about consumer preference for safer peanut. Therefore, Chapter Three provides empirical evidence of consumers’ willingness to pay (WTP) for quality peanut. Contingent Valuation survey was carried out on 652 individuals in Ghana. The study employs a semi-double-bounded dichotomous choice method based on random utility theory. Results indicate that 79% of consumers are willing to pay more for peanut with reduced aflatoxin levels; premiums range from 13% to 66%. Also, high income households, smaller family sizes, and younger people are more willing to pay for aflatoxin-free peanut than their counterparts. Interestingly, consumer characteristics such as region of residence, aflatoxin awareness, and one’s level of formal education are found to have no influence on WTP. These findings are important to the research community and regulatory bodies regarding holistic assessments of aflatoxin interventions.