Trade barriers and functional foods — what are the forgone benefits?

Abstract

Functional foods provide positive externality benefits to society through the promotion of health benefits that lower the potential of illness for individual consumer and reduce the health care costs that are borne by governments. With strong market growth and considerable potential social benefits, functional foods appear to be an important area for future expansion in the global food market. However, pre-existing trade barriers to international commence reduce, or sometimes eliminate, trade in functional foods. Given that there are benefits associated with health-giving attributes from functional foods, retaining trade restrictions on functional foods may lead to additional forgone benefits.

To examine the effects of the positive health benefits arising from functional foods when pre-existing trade restrictions are in place, a comparative-static partial equilibrium trade model is modified. Four cases pertaining to import restrictions on functional foods are examined in the trade model based on two categories: trade policies and ability to produce. The theoretical framework provides an illustration of the potential welfare benefits forgone from the existence of trade barriers when a traditional food becomes a functional food.

Empirical case studies examined canola oil as a functional food. The value of the benefits foregone from maintaining trade barriers to canola oil in two countries: China and United Kingdom were estimated. In addition, a cost of illness model was used to estimate health care savings. The final ratio suggests that existing trade policies directly result in non-trivial costs to society. . As a result, current trade regulations might be re-evaluated by policy makers to better reflect the evolving markets for functional foods.