The Economic Side of Explosive Diarrhea

We formally heard about an iceberg lettuce recall on July 17th when Taylor Farms de Mexico provided a list of the products they were removing from the U.S. market. Then, recently, after adding more states and cases, the FDA noted that the Cyclospora infections began before the original recall date. Although on August 5th, there were 6.358 recorded illnesses in 15 states, they believed their numbers were low.

While the grower, Taylor Farms, has been affected, there is much more.

Lettuce Recall Costs

We can start with the FDA’s case and state counts.

The Case Count:

Product Distribution

The Corporate Impact

At first, hearing that the lettuce we ate at Taco Bell could cause “explosive diarrhea,” most of us paid attention. As a result, Taco Bell’s foot traffic initially plunged by 18.9% and its owner, YUM Brands saw its stock slip, losing as much as $6 billion in shareholder value.

Whereas typically we have the fresh produce supply chain starting with the farm, then to a processor, a refrigerated truck, a warehouse distributor and to fast food restaurants or to you and me, with a recall, we have reverse logistics:

Firms implementing the reversal have to “securely” destroy the lettuce, and sanitize all surfaces it touched. Meanwhile, Taco Bell needs to hit the spot market for available lettuce.

The Consumer Impact

The individuals that become ill need a diagnosis. Too small to be found with traditional tests, the Cyclospora parasite requires special testing and extra expense. Then, we also have the cost of missed work.

The Macro impact

Adding it all together, we have a massive hit to the entire economy:

Our Bottom Line: the Spillover

Defined as the positive or negative impact on unrelated third parties, the spillover from a lettuce recall can ripple far from its source. Although we’ve begun with a parasite affecting the lettuce supply, its economic spillover creates a host of externalities for millions of people. According to a recent paper, producers and processors absorb the biggest expense:

Then, below, you can see where the spillover travels:

My sources and more: For our recall timeline, the FDA had the facts. From there, this paper focused on recall costs. (Please note the paper lacked the academic credentials I would have liked to see.) And finally, for a quickie costs summary, you also might want to look at this video, “The Economics of Explosive Diarrhea.”