WHO and the Food and Agriculture Organization of the United Nations (FAO) prohibit the trade of foods beneath safety standards. In this paper, we call such food, false food. However, concrete standards differ among countries. To make matters worse, checking the safety of foods produced abroad is difficult. If standards don’t satisfy safety concerns, health damage can occur. Problems include the underestimation of risks due to demands that stem from preferences and time lags. In such cases, health damage can spread.
On one hand, contamination of false food can occur in spite of a foreign industry’s efforts. On the other hand, reducing the extent of efforts to prevent contaminations can cut production costs for foreign industries, and provide an incentive for an industry to allow the mix rate to rise. This paper shows that the mix rate can not only be manipulated by a foreign industry but fluctuates because of exogenous causes. Considering this, we discuss how a fine policy or equivalent policy for importing countries can protect domestic consumers and domestic industries in the context of food trade under quality differences.
In conclusion, under a manipulated mix rate, when the importing government switches the fine policy to an optimal policy, it must pay attention to sudden complications in a relationship between qualities and mix rates. The results also suggest that the extent of an increase in the level of the fine policy depends on whether the mix rate is manipulated or not, when the extent of the health damage deteriorates.
In addition, with respect to imported food that is less attractive but less hazardous, it is desirable that the importing government implements a fine policy and an inspection policy at the same time. However, with respect to attractive but more harmful imported food, one policy should be regarded as an alternative policy. Accordingly, the more the imported food becomes unsafe and problematic, the more appropriate it becomes to depart from the complementary and multiple policies and place emphasis on a policy between the fine policy and the inspection policy.
JEL Classification: D52, F12, F13