Open Journal of Political Science
2013. Vol.3, No.2, 76-84
Published Online April 2013 in SciRes (
Copyright © 2013 SciRes.
Controlling Avoidance of Food Safety Regulations in
Meat Packing Industry
Dragan Miljkovic1, Dane Braun2
1Department of Agribusiness & Applied Economics, North Dak ota State University, Fargo, USA
2Department of Agriculture, State of North Dakota, Bismarck, USA
Email: Danebraun@nd .gov,
Received February 21st, 2013; revised March 22nd, 2013; accepted March 31st, 2013
Copyright © 2013 Dragan Miljkovic, Dane Braun. This is an open access article distributed under the Creative
Commons Attribution License, which permits unrestricted use, distribution, and reproduction in any medium,
provided the origina l w o rk is properly cited.
The sale of meat and poultry contains asymmetric information dealing with food safety. Since pathogens
in most cases are invisible, consumers lack information on the safety of meat and poultry. Government
interaction through the Food Safety and Inspection Service (FSIS) in the meat and poultry industry is ne-
cessary to regulate the safety of meat and poultry products. Inevitably, any rules in society are likely to
include violators. The cost of perfectly safe food is far too great for the industry to bear. The marginal
gain in revenue from violating a regulation may be greater than the marginal cost. Violators of rules may
resort to sophisticated means to avoid detection of the original violations. The means used to avoid detec-
tion may be legal or illegal. Effective regulation of avoidance activities will lead to lower violations of the
original crime. Such regulations may be ex-ante or ex-post. This paper discusses potential effectiveness of
ex-ante or ex-post regulations on avoidance activities of food safety regulations in the meat and poultry
industry. The use of ex-ante measures such as contracting external service providers coupled with the
threat of ex-post punishment on service providers would potentially decrease the number of avoidance ac-
tivities and their associated original crime in the meat and poultry industry.
Keywords: Food Safety; Regulation; Avoidance Control; US Meat Packing Industry
In general, the sale of meat and poultry contains asymmetric
information dealing with safety. Asymmetric information is a
characteristic of many business situations in which a producer
or a seller of a product knows more about its quality than the
buyer does (Pindyck & Rubinfeld, 1992). Since pathogens in
most cases are invisible, consumers lack information on the
safety of meat and poultry. Government interaction through the
Food Safety and Inspection Service (FSIS) in the meat and
poultry industry is necessary to regulate the safety of meat and
poultry products. Inevitably, any rules in society are likely to
include violators. In the meat and poultry industry, violators of
the regulations may see economic benefit to do so. The cost of
perfectly safe food is far too great for the industry to bear. The
marginal gain in revenue from violating a regulation may be
greater than the marginal cost. Violators of rules may resort to
sophisticated means to avoid detection of the original violations.
The means used to avoid detection may be legal or illegal in
and of themselves. Effective regulation of avoidance activities
will lead to lower violations of the original crime. Such regula-
tions may be ex-ante or ex-post. The paper will examine poten-
tial effectiveness of ex-ante or ex-post regulations on avoidance
activities of food safety regulations in the meat and poultry
History of FSIS
The beginning of federal inspection in the meat and poultry
industry stems from the development of the United States De-
partment of Agriculture (USDA) in 1862. The expansion of the
railroad, along with the development of refrigeration, enabled
packers to process year round and ship farther distances. The
Bureau of Animal Industry (BAI) was created in 1884 to pre-
vent diseased animals from making their way in to human food
(USDA, 2007). Upton Sinclair published a book titled “The
Jungle” (Sinclair, 1906), which exposed the unsanitary condi-
tions at meat packinghouses in Chicago in the early 20th cen-
tury. The book pressured congress and then president, Theodore
Roosevelt, to pass both the Food and Drug Act along with the
Meat Inspection Act. Both acts were passed in 1906 (USDA,
2007). BAI’s inspection responsibilities grew immensely after
the passing of the Meat Inspection Act. In 1953, the BAI’s
responsibilities were transferred to the newly created Agricul-
ture Research Service (ARS) and BAI was terminated (USDA,
2007). The Poultry Products Inspection Act was passed in 1957
after an enormous jump in demand for poultry products post
World War II. The growing meat packing industry became
difficult to regulate and by 1967 the Federal Meat Inspection
Act was amended as the Wholesome Meat Act (USDA, 2007).
The Whlesome Meat Act increased the individual stateinspec-
tion responsibilities. The Poultry Products Inspection Act fol-
lowed suit in 1968 and was amended under the original name.
During the late 1960’s both the meat and the poultryinspection
programs were combined into the Consumer and Marketing
Service of USDA’s Agricultural Research Service. The Animal
and Plant Health Service created in 1971, latter named the An-
imal and Plant Health Inspection Service (APHIS), became
responsible for meat and poultry inspection (USDA, 2007). The
inspection responsibilities changed hands once again in 1977,
when the Food Safety and Quality Service division was created.
The division changed their name one last time in 1981 to the
Food Safety and Inspection Service (FSIS). Currently the FSIS
is responsible for the inspection of meat and poultry during
slaughter and processing in the United States. Some states take
responsibility for inspection of plants but they use the same
standards, or greater, than the FSIS (USDA, 2007). The FSIS,
more specifically, is responsible for inspecting meat and poul-
try from the time it enters the slaughterhouse to the time it
reaches the retail level. Inspectors at a slaughterhouse will ex-
amine every animal before (ante mortem) and after death (post
mortem) looking for signs of disease. The inspector is also
responsible for monitoring sanitation and pathogen levels,
along with verifying proper labeling and recordkeeping. With
respect to meat and poultry processing plants, the USDA in-
spectors are not required to inspect every item on the produc-
tion line. Per product inspection, is less at processing plants
since their input of meat or poultry has already been inspected
and passed. The inspectors are responsible for monitoring sani-
tation levels, product ingredients, and recordkeeping along with
random testing of products. Processing plants may be inspected
daily. However, the USDA does not disclose how often in-
spectors visit the facilities. USDA inspectors check both
slaughter and processing plants records to verify their compli-
ance. FSIS is also responsible for inspecting meat and poultry
during storage and transportation, where they inspect for proper
product handling procedures along with sanitation levels.
USDA inspectors may use a variety of enforcement tools to
keep adulterated product from reaching consumers. The in-
spector may halt operation by refusing to perform inspection
until the problem is fixed. The FSIS can seize adulterated or
contaminated products on the processing line. The FSIS’s pow-
er is limited, because they are unable to recall meat after it has
left the plant and entered the retail market. Recalls in the US
are in most cases voluntary by the company. The FSIS may
refer the case to a federal attorney in serious cases (Rawson,
Meat and poultry products sold as adulterated, mislabeled, or
misbranded can be produced at a lower cost and in turn be sold
at a lower price compared to safe food. Consumers suffer the
consequences of the unwholesome food. According to the Fed-
eral Meat Inspection Act, title 21, chapter 12, subchapter 1, no
official USDA device, mark, label, or certificate can be forged.
No business can knowingly label their product as inspected and
passed when in fact, the product has not been inspected or the
product was inspected and condemned. The act defines mis-
branded as any label containing misleading information, fails to
mention all ingredients in the product, or if the product fails to
bear the official inspection legend. Labels must be positioned
on the outermost package layer and visible to consumers. An
official inspection legend is any symbol that represents the
product as being inspected and passed by the USDA. The sale
of adulterated and uninspected meat and poultry benefits the
violators and is harmful to consumers. The FSIS detains every
year millions of pounds of uninspected and/or adulterated meat
and poultry (see the following website for the current and ar-
chived recall and detention cases:
Fsis_Recalls/index.asp). For instance, only in 2005 there were
more than 600 detention cases totaling almost 83 million of
pounds of uninspected or adulterated meat.
Meat Packing Industry
The meat packing industry consists of three main types of
plants: poultry processing, animal (except poultry) slaughtering,
and meat (except poultry) processing. Poultry processing plants
includes all slaughter houses and processors. In 2002, there
were 536 poultry processing plants, which were owned by 311
companies. Of the total 536 poultry processing plants, there
were 50% (268) of plants operating with 250 or more employ-
ees. The same 250 or more employee plants contributed 91% of
the total value of shipments for 2002. In 2002 there were 1870
animals (except poultry) slaughtering plants, which were owned
by 1776 companies. Six percent or 113 of animal (except poul-
try) slaughtering plants had 250 or more employees and con-
tributed 88% of the total value of shipments. Meat processing
plants usually engage in assembly, packing, and cooking of
meat (except poultry) products. As of 2002 there were 1338
meat-processing plants owned by 1193 companies. Nine per-
cent or 121 of meat-processing plants had 250 or more em-
ployees and contributed 56% of the total value of shipments.
(US Census Bureau) In both the poultry processing and animal
(except poultry) slaughter plants, the larger less numerous
plants produced the majority of the products sold. Economies
of scale come into effect to generate lower costs and higher
profits per pound. This fact is further exacerbated especially in
the animal slaughter plants with their total number decreasing
by almost 15 percent between 2002 and 2007 suggesting that
many small plants could not survive the competition with eco-
nomically more efficient large-scale plants. The exception to
this trend is the meat processing sector where small plants still
hold a good portion of the total production as seen in the Ta-
bles 1 and 2.
Food Safety Regulations—PR/HACCP
An outbreak of E. coli O157:H7 infections in 1993, which
left 400 ill and four dead, led to the demand for stricter stan-
dards in the meat packing industry. Officials insisted inspection
should become more “science based” compared to past inspec-
tions where only sight, touch, and smell were used. FSIS intro-
duced a proposal on February 3, 1995, to satisfy the demand for
stricter standards called the Pathogen Reduction and Hazard
Analysis Critical Control Points (PR/HACCP). After many
comments and a review of the proposal, the final rule was in-
troduced on July 25, 1996. The PR/HACCP final rule included
seven principles plants needed to follow during their transition:
1) hazard analysis, 2) critical control point identification, 3)
establishment of critical limits, 4) monitoring procedures, 5)
corrective actions, 6) recordkeeping, and 7) verification proce-
dures. Critical control points of food safety are found and plans
are developed to reduce and prevent contamination. The plant
monitors the critical control points for contamination, and when
a contaminated product is found they locate and fix the source
of the problem. Along with implementing the HACCP, the
plants are required to randomly test for general E. coli in their
production. Generic E. coli is found in the digestive tract of
attle and the testing ensures there is no fecal matter on meat or c
Copyright © 2013 SciRes. 77
Copyright © 2013 SciRes.
Table 1.
The number and the size of p l a n t s i n t h e meat and poultry processing industry.
Plants Companies
250+ Employee
250+ Employee
Percent of Total
Poultry Processing
1997 473 257
2002 536 311 268 50%
2007 557 324
Animal (Exc ept Poultry) Slaughter
1997 1391 1307
2002 1870 1776 113 6%
2007 1603 1523
Meat (Except Poultry) Processing
1997 1295 1163
2002 1338 1193 121 9%
2007 1381 1237
Note: US Census Bureau, 20 02, 2007.
Table 2.
The value of shipments in the meat and poultry proc e s s i n g in d u s t ry.
2002 Total Value of
Shipments 250+ Employees Establishme n t
Value of Shipments Percent Value of
Shipments for 250+
Poultry Processing $37634609000.00 $34309124000.00 91%
Animal (Exce pt
Poultry) Slaughter $56481035000.00 $49430081000.00 88%
Meat (Except Poultry)
Processing $25882439000.00 $14467670000.00 56%
Note: US Census B ureau, 2002.
poultry. The results of the microbial testing are being used to
verify the HACCP plan is working effectively. FSIS also con-
ducts random tests for Salmonella during production and at the
retail level. Salmonella was chosen to verify that the PR/
HACCP plan is working effectively because it is one of the
leading causes of food borne illnesses. Plants also need to im-
plement Sanitation Standard Operating Procedures (SSOP),
where plants develop procedures to maintain proper sanitation.
SSOP records stating when procedures are completed and when
corrective action has taken place must be kept. Recordkeeping
is used to help inspectors verify the PR/HACCP regulations are
being followed (USDA, 1996). Dates of compliance are deter-
mined by the size of the plant. Plants with 500 or more em-
ployees had a compliance deadline of January 1998. Small
plants with the number of employees ranging from 10 to 499
had to comply by January 1999, and very small plants with less
than ten employees or less than $2.5 million in annual sales had
a deadline of January 2000. The latter deadline for small plants
was made out of fairness, since small plants may incur higher
costs per pound to implement the PR/HACCP plan compared to
large plants (Muth et al., 2007).
The PR/HACCP regulation consists of two different food
safety standards. The E. coli and Salmonella testing are consid-
ered performance standards in which a plant can use any means
to reach the standards. Performance standards tend to be less
costly compared to process standards in which the process of
producing a product is regulated. Sanitation Standard Operating
Procedures (SSOP) and HACCP plans are considered process
standards. Process standards tend to be less efficient at achiev-
ing proper food safety because of unnecessary steps they may
add to the process. With performance standards, a plant can use
any means to achieve the standard, which is usually the most
cost effective method (Ollinger et al., 2004).
Cost and Benefits of Compliance
The PR/HACCP rule has been the center of numerous studies,
which analyze the costs and benefits of the regulation (e.g.,
Antle, 2000; Muth et al., 2002; Nganje & Mazzocco, 2000).
The actual number of foodborne illnesses is difficult to achieve
since most cases are not reported or are misreported as a dif-
ferent illness. Also, the effect of offsetting behavior can skew
the cost and benefit results of a regulation. Many safety and
health policies are adopted to reduce harm to potential victims
from accidents and other harmful events. Decreased care by
potential victims in response to the implemented policies is
what has been termed offsetting behavior (OB) (Miljkovic,
Nganje, & Onyango, 2009). Economists have (Peltzman, 1975;
Hause, 2006) recognized attenuation and sometimes even re-
versal of the direct policy effect on expected harm may occur
because of OB by potential victims as the victims reduce their
level of care in response to the policy. When policy makers
ignore OB, where it is significant, the predicted policy effect
will be overstated. An example of offsetting behavior is no-
ticeable when a consumer believes the meat or poultry product
they purchased is safer because of the regulations, and the con-
sumer may not cook it as thoroughly. This increases the likeli-
hood of getting infected with some pathogen bacteria found in
meats. Nganje et al. (2007) show how offsetting behavior plays
a role in the increasing gap between decreasing pathogen levels
in processing plants and the frequency of food borne illness
reported in the US. Ollinger et al. (2004) conducted a survey
which included some benefits of the PR/HACCP regulation and
one of them was product shelf life. Of the plants that were sur-
veyed and responded, 9% reported their products shelf life in-
creased by more than one week, 21% reported an increase in
product shelf life by less than one week, 1% reported a decrease
in shelf life, and rest of the plants reported their product shelf
life as unchanged. The increase in shelf life is believed to be
from the decrease in bacteria and pathogens that spoil the meat
or poultry product (Ollinger et al., 2004).
As seen before, the meat and poultry industry consists of
very few large plants, which process most of the products sold.
This is evidence of economies of scale and can be carried over
into the cost of compliance for the PR/HACCP regulation. The
introduction of the PR/HACCP rule did not require any capital
investments; however, plants not up to FSIS standards may
have needed to invest in capital and/or labor. According to
Table 3, summarizing the cost of compliance, the average va-
riable cost per pound of slaughtered meat ranged from ap-
proximately 1.5 cents to 2.5 cents for cattle and hogs. Variable
costs of compliance for hog and cattle slaughterhouses are ap-
proximately 3 times larger for the smaller (0 - 19 percentile)
plants compared to the larger (80 - 99 percentile) plants. Fixed
costs of compliance for hog and cattle slaughterhouses are over
6 times larger for smaller plants compared to larger plants.
Economies of scale allow larger plants to spread the costs of
labor and capital investments over a greater amount of product
reducing the per pound cost of compliance. In each specific
meat industry, the large processors had less cost per pound
compared to small processors. The unweighted average finds
the meat cost per pound of all plants in a percentile range while
the weighted average gives weights to the individual plants
using their amount of output (Ollinger et al., 2004).
Small plants are unable to bear the cost of the labor and cap-
ital investments needed to meet the PR/HACCP standards and
satisfy their customers. Plants may not have needed capital
investments if they were already operating at FSIS standards.
(Ollinger & Moore, 2008) Numerous small plants produce a
wide range of specialty products in which each product needs a
PR/HACCP plan. The development of each PR/HACCP plan-
increases cost per pound for meat processing plants. There
cordkeeping needed with each PR/HACCP plan also increases
the cost for small plants. Small plants that produce commodity
Table 3.
The cost of compliance.
Unwelghted Mean Cost Per Pound2 Industry Welghted Mean Cost Per Pound3
Size Percentile Size Percentile
Plant Type
0 - 19 80 - 99 Mean 0 - 19 80 - 9 9 Mean
Dollars per pound
Cattle Slaughter:
Variable Costs 0.023 0.008 0.022 0.010 0.003 0.0033
Fixed Costs 0.055 0.009 0.022 0.020 0.004 0.0045
Number of Plants 17 27 135 17 27 135
Hog Slaughter:
Variable Costs 0.016 0.05 0.014 0.008 0.001 0.0020
Fixed Costs 0.050 0.008 0.026 0.022 0.003 0.0043
Number of Plants 23 22 96 17 22 96
Poultry Slaughter:
Variable 0.025 0.004 0.010 0.023 0.004 0.0037
Fixed Costs 03013 03004 03008 03012 03003 03047
Number of Plants 14 9 58 14 11 58
Cooked Meat Processing/No Slaughrer4:
Variable Costs 0.018 0.005 0.016 0.015 0.005 0.007
Fixed Costs 0.019 0.019 0.036 0.057 0.015 0.018
Number of Plants 50 37 198 50 37 198
Raw Meat Processing/No Slaughter5:
Variable Costs 0.020 0.005 0.013 0.006 0.003 0.0046
Fixed Costs 0.027 0.012 0.017 0.006 0.005 0.0080
Number of Plants 25 26 139 25 26 139
Note: “Meat and Poultry Pl ants’ Food Safety Investments: Survey Findings” by Michael Ollinger, Danna Moore, and Ram Chandran (2004).
Copyright © 2013 SciRes. 79
products are unable to compete against the large processing
plants and are faced to specialize or exit the industry. The de-
velopment of the PR/HACCP regulations in 1996 also in-
creased production downtime and decreased production yield
throughout the industry. During regular daytime hours, the
actual cost of inspection is free; however, cost of compliance
may be far too great for so me plants to manage.
The implementation of a regulation to better food safety may
cause a variety of effects on different plants. For example,
Muth et al. (2007) discovered that very small and small slaugh-
ter plants of any kind were more likely to exit because of the
PR/HACCP regulation. The effectiveness of a food safety reg-
ulation needs to be measured by both their benefits and costs.
There are numerous differences in slaughter plants and these
cause different exit rates and regulation effects. These differ-
ences are evident when examining exit rates: older meat
slaughter plants are more likely to exit than younger plants;
plants in states with higher minimum wages are less likely to
exit; and meat slaughter plants that slaughter cattle, along with
poultry slaughter plants that slaughter turkeys, are less likely to
Muth et al. (2007) analyzed the rates of entry and exit, before,
during, and after the implementation of the PR/HACCP regula-
tion. The adoption of the PR/HACCP may have caused small
and very small meat slaughter plants to exit. According to the
results, very small meat slaughter plants were 11.1% more
likely to exit during the implementation period compared to
before implementation of the PR/HACCP regulation. Small
meat slaughter plants were also more likely to exit during the
implementation period by 8.4%. When comparing the period
after implementation of the regulation to before implementation,
very small meat slaughter plants were 6.6% and small meat
slaughter plants were 7.3% more likely to exit. After reviewing
the results, the authors suggested that very small and small
meat slaughter plants were more likely to exit because of the
PR/HACCP regulations. The authors also suggested that the
exit rate because of the PR/HACCP regulations decreases with
time. Large meat slaughter plants likelihood of exiting did not
change during and after implementation compared to before the
PR/HACCP regulation. When reviewing the data for poultry
slaughter plants, very small and small plants were no more
likely to exit during implementation compared to before im-
plementation of the PR/HACCP regulation. However, very
small poultry slaughter plants were 11.1% and small poultry
slaughter plants were 8% more likely to exit after implementa-
tion of the regulation compared to before implementation.
Large poultry slaughter plants likelihood to exit did not change
because of the PR/HACCP regulation. Very small and small
poultry slaughter plants exited the industry latter compared to
their meat slaughter plant counterparts. The results suggest very
small and small meat slaughter plants were more likely to exit
because of the PR/HACCP regulation but the rate decreased
over time. The decrease in rate could be caused by the exit of
inefficient plants in the beginning leaving the more efficient
plants to survive.
The cost of compliance depended on many variables. For
example, plants which had contracts that included food safety
standards, produced products under brand names, or exported
their product to countries who then inspect their product, were
subject to a lower fixed cost of compliance for the PR/HACCP
regulation. The plants experienced lower costs because they
were achieving higher food safety standards before the imple-
mentation of the PR/HACCP regulation compared to other
plants. The survey also found plants that utilized a process con-
trol program before implementation of the regulation had less
or the same costs compared to other plants. Process control
programs consist of monitoring critical control points similar to
the PR/HACCP plan (Ollinger et al., 2004).
In addition to the cost of compliance, there is a loss of possi-
ble revenue for rejected meat or poultry. The loss of revenue is
an opportunity cost for the plant. When a plant incurs a non-
compliance issue, they must dispose of their contaminated
product, which is accompanied by a cost to the plant. The dis-
posal of their input is an opportunity cost, since they cannot use
that particular input to produce a desirable output. In general,
contaminated meat or poultry is used in other non-food prod-
ucts; however, their value decreases substantially with the con-
tamination (Cho & Hooker, 2004).
The loss of sales along with the cost of compliance compels
some businesses to participate in illegal activities. Violating a
regulation may be costly if caught; however, the violation may
also increase a plant’s profit substantially. When a plant vio-
lates a regulation, they are able to produce items at lower cost.
The plant has less opportunity cost, since they do not need to
dispose the defective products or inputs. If a plant is risk neutral,
they will violate the regulations up to the point where marginal
cost equals marginal revenue. In addition to violating the first
regulation, businesses will naturally participate in other illegal
acts to avoid detection. The act of committing an avoidance
behavior may be a crime in itself; such acts in the meat industry
include mislabeling, counterfeiting official inspection docu-
ments, illegal record keeping, or mail fraud, etc. Other acts of
avoidance, such as the use of sophisticated means to prevent
detection, may not be a crime by themselves, but their use may
increase the punishment for the original crime (Nussim & Tub-
bach, 2008). A couple of cases serve as examples to illustrate
the ex-post punishment of the violators.
Sale of Uninspected Meat
The sale of uninspected meat and poultry is in violation of
the Federal Meat Inspection Act and businesses may perform
other illegal activities to reduce their risk of detection. Such
avoidance activities include mislabeling, misbranding, mail
fraud, and/or illegal record keeping. In the case of the Queen’s
Market grocery store from Kansas City, MO, along with the
Kingsville Hog Market, the avoidance was mislabeling their
meat as passing USDA inspection and the initial violation was
the sale of uninspected meat. Kingsville Hog Market delivered
the swine to Parmley’s Holden locker, a USDA non-inspected
facility, where it was slaughtered and processed. Queen’s Mar-
ket knowingly purchased the uninspected meat and sold it as
USDA inspected meat. In total 9057 pounds of swine product
was offered for sale or sold to customers between November 29,
2002 and March 6, 2003. Kim Huynh, Nham Pham, and their
business Queen’s Market along with Rick Anstine, owner of
Anstine Enterprises and Kingsville Hog Market were sentenced
on December 6, 2007. According to John F. Wood, United
States Attorney for the Western District of Missouri, “The court
ordered Queen’s Market to pay a $2000 fine following its guilty
plea to aiding and abetting the sale to the public of adulterated
food that was unfit for human consumption. Anstine, Huynh
and Pham were each sentenced to one year of probation after
Copyright © 2013 SciRes.
pleading guilty to aiding and abetting the misbranding of food.
On Aug. 7, 2007, the court also ordered Anstine Enterprises to
pay a $10,000 fine after pleading guilty to aiding and Abetting
the misbranding of food” (
w/news-2007/anstine.sen.htm). Selling uninspected meat is
harmful to consumers and socially wasteful. The effective use
of ex-ante and/or ex-post regulations on avoidance activities
may lower the probability of the occurrence of such an act.
Sale of Adulterated Meat
In general, the inspection of wholesale, storage, and trans-
portation businesses in the meat industry is lower than slaugh-
terhouses and processing plants. Substantial amounts of crimes
committed in the meat industry occur in the meat-handling
sector. One of the most common crimes committed is the sale
or transportation of adulterated meat or poultry. Adulterated
meat or poultry is defined using such terms as unhealthy, un-
wholesome, inedible, or filthy, etc. Meat or poultry can become
adulterated when stored, transported, or processed in unsanitary
conditions. A misdemeanor is charged to the company and/or
individual who unknowingly sold or transported the adulterated
product. The punishment of this crime may increase to a felony,
if the violator knowingly sold or transported the adulterated
product. When a violator of this crime intends to defraud cus-
tomers and/or the government, the punishment for such an act
increases. The intent to defraud can be interpreted as an avoid-
ance activity, which may or may not be a crime in itself (Food
Processing, 2002).
When a business recognizes their meat or poultry products
have become adulterated they may decide to continue opera-
tions as normal and knowingly sell the adulterated meat or
poultry to their customers. The act of knowingly selling adul-
terated meat or poultry is the original crime committed. To
avoid detection, the violator may participate in other legal or
illegal activities. The decision to sell the adulterated meat de-
pends on the cost of disposing of the product, which includes
the potential loss of sales also known as opportunity cost. If the
costs are far too great, then the decision to participate in illegal
activities may become more economical for the business. The
decision to sell adulterated meat also depends on several factors
such as what kind of risk taker the business is along with the
amount of punishment incurred for detection. The business in
either case may or may not fix the source of the adulterated
In the case of LaGrou distribution systems, the crime was the
sale of adulterated meat and using multiple avoidance activities
to prevent detection. LaGrou distribution systems operated a
cold storage warehouse in Chicago. The warehouse stored both
meat and poultry products for their customers. On occasion, the
total amount of product coming in and going out in a day would
reach two million pounds. Along with storing meat and poultry
products, the warehouse was a perfect habitat for rodents. The
rodents created unsanitary conditions at the warehouse, which
allowed meat and poultry products to become adulterated. The
beginning of the rodent problem is unknown, but the company
knew about the problem since 1999, based off the testimony by
their manager David Smith. Smith found the problem soon after
he began working in January of 1999, and he promptly told
LaGrou president, Jack Stewart. Stewart and Smith would have
frequent meetings about the rodent problem, approximately
three times a week. The rodent problem only worsened over
time according to Smith’s testimony. According to Smith by
late 2001 or early 2002, employees were catching at least one
or two rats a day. LaGrou employees would destroy products in
which the rodent damage was visible by the naked eye. How-
ever, LaGrou did not conduct any tests to ensure other products
were not adulterated. As the problem worsened, employees
were instructed to participate in so-called “Rat Patrols”, where
at one point 50 rats were captured. These patrols were not ef-
fective in controlling the rodent problem, and LaGrou’s pest
control company recommended steps to alleviate the problem.
The steps recommended were to: cement holes in the walls, seal
sewer lids, and rodent proof their doors. Stewart believed the
costs were too great and he never gave Smith the authority to
follow through with the recommendations. On many occasions,
customers would make claims for damaged product. On one
occasion a customer made a claim that their product was dam-
aged by rodents. After hearing the claim, Stewart sent them a
letter stating they have a small rodent problem in their base-
ment freezer and that the customer’s product would be moved.
The customer’s product was never moved, and the rodent prob-
lem was not isolated to one area. LaGrou did note product
damage on customer’s bills, however they would never report it
as rodent damage. They would use such terms as damaged by
the forklift etc. instead. In the spring of 2001, a quality assur-
ance manager for a LaGrou customer, Aura Foods, came to
inspect their product. The manger found a severe rodent prob-
lem, along with mold, ceiling and wall damage, and other un-
sanitary conditions. When the problem was brought to the at-
tention of Stewart through a claim of product damage by
Aurora Food, he quickly downplayed the situation. Stewart
refused to pay the claim and lied to Aurora Foods, by stating a
recent American Sanitation Institute inspection found no prob-
lems, and their pest control company only found “two totes
with old mouse droppings”. Testimony by both the pest control
company and the American Sanitation institute reinforced the
claim that there was a severe rodent problem. On May 25, 2002,
a USDA inspector visited the facility and found employees
processing ham to be frozen without proper USDA inspection.
A return visit by another inspector on May 29, 2002, yielded a
detention of the ham after examining the unsanitary conditions
the ham was being processed and stored. That same day both
inspectors examined the warehouse more thoroughly. The in-
spectors found adulterated meat products, fresh rodent drop-
pings, along with many other sanitation violations. The inspec-
tors told Smith they would return the next day to inspect the
entire facility and that no product should enter or leave the
downstairs freezer of the warehouse. With the knowledge of
inspectors returning the next day, Stewart told LaGrou em-
ployees to clean up the warehouse and remove damaged prod-
uct. A total of fourteen USDA inspectors, along with inspectors
from other agencies, such as the FDA, arrived at the facility the
following morning. The damaged product was found by in-
spectors in dumpsters. Samples of the products were tested and
were found to be contaminated with rodent hair and fecal mat-
ter. The food product stored at LaGrou was adulterated by ro-
dents and other unsanitary conditions. All the food products
stored at the facility, a total of 22 million pounds, were detained
on May 30, 2002. The detained products were either destroyed
or decontaminated. Customers of LaGrou along with the USDA
were able to develop a decontamination system to save over 12
million pounds of product. The cost of decontaminating was
$2.7 million. LaGrou was ordered to pay restitution to their
Copyright © 2013 SciRes. 81
customers in the amount of $8.2 million ($2.7 million for de-
contamination and $5.5 million for destroyed product). The
company was convicted with knowingly storing meat and poul-
try products in unsanitary conditions. A $2 million fine was
imposed on LaGrou along with a 5-year probation. Jack Stewart
was convicted of five felonies and sentenced to pay part of the
$8.2 million in restitution and 33 months of prison (United
States of America vs. LaGrou Distribution Systems, Incorpo-
Avoidance Control
Detection of the avoidance activity and the original crime are
correlated. Generally, when a crime is detected the underlying
avoidance activities are also detected. Avoidance activity can
be controlled using either price or quantity methods. When
using price control, the avoidance activity becomes more costly
and decreases the likelihood of the business participating in the
original crime. Decreasing the benefit from an avoidance activ-
ity is also considered price control. Price control may use taxes
to increase the cost of an avoidance activity. In the meat indus-
try, the benefit and or cost of avoidance activity may be
changed to limit the occurrence of crimes such as the sale of
adulterated meat and the sale of uninspected meat. Quantity
control reduces the occurrence of avoidance activity by limiting
the use of an activity. Requiring licensing for label makers in
the meat industry may reduce the occurrence of a business mis-
labeling their product. Another example of quantity control
would be prohibiting or limiting the sale and possession of
avoidance devices (Nussim & Tubbach, 2008).
Two other options of avoidance control include ex-ante reg-
ulations, and ex-post punishment. Both options can be used
with price or quantity control. However, price control tends to
be used with ex-post punishment and quantity control tends to
be used with ex-ante regulations. Ex-post punishment is used
after the avoidance activity has been detected, while ex-ante
regulations are used to prevent the avoidance activity. With the
avoidance activity such as mislabeling, an ex-ante regulation
could be additional labeling and record keeping requirements of
businesses, set forth by the USDA. Ex-post punishment may
increase crime because it increases the marginal cost and mar-
ginal revenue of committing the crime. Ex-ante regulations,
however, increases the cost of avoidance decreasing the likeli-
hood of a business participating in avoidance activities and the
original crimes. Control of avoidance before detection using
ex-ante measures is difficult, since the regulations may hit the
wrong target and have no affect on the original crime. Ex-ante
regulations may also be targeted at activities that are legal when
used properly which can affect non-violators of the crime.
Ex-ante quantity control regulations are hard to implement in
cases where detection is necessary (Nussim & Tubbach, 2008).
Private action and government regulations both contribute to
food safety. When a business increases their food safety to
satisfy their customers, it is called private action. Contracts
between the meat or poultry processor and their customer may
include limits on pathogens and sanitation control. The meat
and poultry processor benefits from higher prices and a guaran-
teed buyer, when they adhere to the contract’s safety require-
ments. The customer yields benefits from the contract since
there is greater control of food safety and less recalls or oppor-
tunity cost. Branding of products is also included in private
action. When a product is branded, a consumer can recognize
the product and its history. The consumer may determine the
branded product is unsafe because of recent recalls and not
purchase the product. Along with the potential loss of sales
with branding, there are also benefits for the meat or poultry
processor. If meat or poultry processor is able to produce safe
food without recalls, than they may charge a premium for their
product. The most effective and efficient method of controlling
food safety processes are a variety of government regulations
and private actions that include all food safety concerns. An
increase in FSIS product testing along with reporting their
findings to the public would help increase private action and
food safety. Reporting PR/HACCP and SSOP compliance in-
spections to consumers will increase the demand for safe food
and in turn private action in the meat industry (Ollinger &
Moore, 2008). When consumers are effectively informed on the
food safety of the products than an efficient degree of food
safety is attainable (Antle, 1996).
Avoidance Control through Service Providers
Control of pests such as rodents, insects, and birds are crucial
in the effort to produce safe meat and poultry for consumers.
Cockroaches are one of the common pests found in processing
plants (Keener, 2007). Cockroaches harbor bacteria such as
salmonella, which can have a harmful effect to humans. To
control cockroaches their habitat must be removed, there must
be inspection of incoming shipments, and possible use of a food
plant permitted insecticides. Houseflies are another potential
pest that can contaminate meat or poultry (Keener, 2007). Con-
trol of houseflies can be done by removing breeding sites, pre-
venting entry of flies into the plant, and the use of flytraps.
Birds, such as pigeons, sparrows, and starlings are the most
common when it comes to food contamination in plants
(Keener, 2007). Birds carry diseases and can contaminate meat
or poultry products with their feathers, parasites such as mites,
and their droppings. Preventing the birds from entering the
plant is one method of control along with traps and poisons.
Eliminating nesting places for birds is also an effective tech-
nique to prevent bird-food contamination. Rats and mice are
also a problem in the food industry. Rodents can contaminate
products by the disease they carry, and can damage product
physically by gnawing, etc. Eliminating the rodent’s habitat and
food source is one example of control. The proper use of traps
and other devices can be effective in controlling the number of
rodents (Keener, 2007).
In the case of LaGrou Distribution Systems, they found no
need to control the overwhelming population of rodents. The
company deemed proper control of the rodents by a pest control
company would be too costly. The ignorance of the company
on the seriousness of the problem inevitably brought it to the
attention of inspectors, and the company was punished by a
substantial fine. Inspectors however were unable to recognize
the problem until a numerous amount of product was sold
adulterated. A proper use of an ex-ante measure to control
avoidance activity would prevent the sale of adulterated meat
like in the case of LaGrou Distribution System.
Nussim and Tubbach (2008) explain an ex-ante measure to
control avoidance activity could be increasing the liability to
service providers such as accountants, lawyers, and financial
advisors who contribute to the avoidance activity. The increase
Copyright © 2013 SciRes.
in liability to service providers will increase the price of their
service, which will increase the cost to the principle violator of
the crime. The avoidance activity invested by service providers
for their own benefit is assumed nonexistent or unrelated to the
principle crime .
An effective control method of the sale of adulterated meat
would be to eliminate avoidance activity through pest control
companies. Pest control companies are considered a service
provider and the use of Nussim and Tubbach (2008) ex-ante
measures can be adopted. Contracts between meat or poultry
processors and pest control companies are necessary to elimi-
nate products being sold that are contaminated by pests. The
contracts would have to be forced onto the processors; other-
wise, they may not find it economical to comply. The relation-
ship between the processor and their pest control company must
be transparent. Actions taken by the pest control company must
be well documented and accessible to inspectors. The contracts
are developed so that the pest control companies become liable
for the work they have done at the processor’s facility. The pest
control company is forced to control all pests at the processing
facility because of the potential fine to them if the meat or
poultry is found adulterated. Two situations are plausible with
the case of a contract between processors and pest control
companies: 1) The pest control company controls all pests and
inspectors find no serious contamination of product. The pest
control company pays no fine and generates revenue from their
services. Meat and poultry processors only have to pay for the
services of the pest control company according to their contract.
2) The pest control company is unable to control all pests and
product becomes adulterated. Inspectors at the meat or poultry
processing plant notice the pests and charge the plant with the
sale of adulterated meat. The pest control company is liable for
the sale of adulterated meat or poultry and is issued a fine. The
yearly contract fee remains intact, and the fee is paid by the
processors. The yearly contract fee must remain intact; other-
wise, processors may find it economical to contaminate their
product by rodents to avoid the service fee.
The use of contracts with other service providers can reduce
avoidance activity and the original crime. The contracts can be
set up with accountants, lawyers, and financial advisors. The
contracts would resemble the pest control example by increas-
ing the liability of the service provider. Rules and regulations
already exist for accountants and lawyers, so the regulations
associated fine’s amount would be increased to limit avoidance
activity. The increase in the fine’s amount will also increase the
amount of money a service provider will charge to processors
to participate in avo id ance activit i es.
The service providers fine and/or restitution cost would have
to be greater than the sum of the contract fee and the economic
benefit their customer may receive for their participation in the
original crime and avoidance activity. The sale of uninspected
meat and tax evasion of an “x” amount would be an example of
the economic benefit a service provider may receive from ille-
gal activity. The service provider and processor would have no
economic gain from avoidance activity. The amount of contract
fees that will be transferred to consumers is undetermined at
this point. The marginal cost to processors for the contracts
could be greater for small plants compared to large plants as in
the example of the findings by Ollinger et al. (2004) presented
The sale of meat and poultry contains asymmetric informa-
tion dealing with food safety. Since pathogens in most cases are
invisible, consumers lack information on the safety of meat and
poultry. Government interaction through the Food Safety and
Inspection Service (FSIS) in the meat and poultry industry is
necessary to regulate the safety of meat and poultry products.
Inevitably, any rules in society are likely to include violators. In
the meat and poultry industry, violators of the regulations may
see economic benefit to do so. The cost of perfectly safe food is
far too great for the industry to bear. The marginal gain in rev-
enue from violating a regulation may be greater than the mar-
ginal cost. Violators of rules may resort to sophisticated means
to avoid detection of the original violations. The means used to
avoid detection may be legal or illegal in and of themselves.
Effective regulation of avoidance activities will lead to lower
violations of the original crime. Such regulations may be
ex-ante or ex-post. This paper discusses potential effectiveness
of ex-ante or ex-post regulations on avoidance activities of food
safety regulations in the meat and poultry industry. The use of
ex-ante measures such as contracting external service providers
coupled with the threat of ex-post punishment on service pro-
viders would potentially decrease the number of avoidance
activities and their associated original crime in the meat and
poultry industry. Utilizing such an ex-ante measure would re-
duce the amount of cases such as the LaGrou Distribution Sys-
tem example and the Kingsville Hog market example. The cas-
es mentioned are examples where the crime was detected;
however there may be multiple cases where the crime goes
undetected. The use of ex-ante measures on service providers
would likely reduce the total number of processors noncom-
plying with food safety regulations. To conclude, the paper is
intended to raise the awareness of the existence of the problem
of avoidance of food safety regulations in meat packing indus-
try, its potential legal and economic consequences, and poten-
tial for further legal actions, ex-ante and ex-post, against the
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United States of America vs. LaGrou Distribution Systems, Incorpo-
rated. United States Court of Appeals for the Seventh District Court.
Decided 20 October 2006.