Geographical
Indicators
Daniel Pick
Economic Research Service
What is Champagne?
Champagne, a sparkling wine,
comes from the Champagne region
of France. Champagne has produced
sparkling wine since the days of the
Roman empire, and still bottles some
of the best vintages in the world.
(www.cnn.com/FOOD/specials/1999/champagne)
What is feta cheese?
Feta is a classic and famous Greek
curd cheese whose tradition dates
back thousands of years. Strictly
speaking, real feta cheese is
produced exclusively in Greece.
(www.greekproducts.com).
What do these commodities
have in common?
• Both are associated with a
particular region or country…
but, these products are produced
in other countries as well
• Each has a generic name
• The EU proposed a list of GIs
to be protected in the WTO trade
negotiations
Today’s discussion
• A closer look at GIs
• The economics around GIs
• Policies used
• Existing studies
• Governments’ role
What is a Geographical
Indicator (GI)?
“Indicators which identify a
good as originating in the territory
of a Member, or a region or locality
in that Territory, where a given
quality, reputation, or other characteristic of the good is essentially
attributable to its geographical
origin”
--Article 22 of the TRIP Agreement
Why the interest in GI?
Geographical indicators
provide the opportunity to:
• Differentiate a product
• Create market power (financial
opportunity)
• Have government policy intervention
• Transfer income (rural development)
What is the economic
‘justification’ for GI?
The rationale behind GI is:
• Market failure: Consumers can't
distinguish between qualities
• Information failure: Consumers are
not informed. Suboptimal equilibrium
resulting from information failure may
be improved through various
institutions:
•Warranties
•Certification
•Signaling and reputation
Three types of goods:
The economic literature
differentiates between three
types of goods depending on
how their quality characteristics
are identified:
–Search goods
–Experience goods
–Credence goods
Types of policies
Policies instituted to help
consumers identify the quality
characteristics of a product:
– U.S. Certification
– EU PDO and PGI
•Protection of Designations of
Origin (PDO)
•Protection of Geographical
Indication (PGI)
Types of policies, cont’d
•EU policy to protect specific
agricultural commodities
•Protection is based on geographical
origin
•Regulation No. 2081/92 on the
protection of PGI and PDO
Purpose of Regulation
No. 2081/92
• To recognize, protect, and foster
trade among Member States of PGI
and PDO products to secure higher
income for farmers in return for
improved quality
• Hundreds of products are covered
under this regulation
PDO and PGI brand
names by product class
Product type
No.
Cheese
148
25
Meat products
147
25
Fruits, vegetables & cereals
130
22
Fats & olive oils
72
12
Mineral waters
31
5
Beer
15
3
Breads
12
2
6
1
34
6
595
100
Fish
Other products
Total
%
Source: Hayes, Lence, and Stoppa, Agribusiness, Vol 20(3): 269-285 (2001)
Approved PDO and PGI
brand names in the EU
UK & Other
10%
France
22%
Spain
11%
Portugal
13%
Germany
11%
Italy
20%
Greece
13%
Source: Hayes, Lence, and Stoppa "Farmer-Owned Brands? " Agribusiness , Vol. 20(3): 269-285 (2004).
Existing studies
• Loureiro & McCluskey (2000)
– Consumers’ willingness to pay for
PGI labeling
– Galician veal in Spain
– PGI label effective in high quality meat only
• Bonnet & Simioni (2001)
– Consumer response to PDO labeling
– Camembert cheese
– Consumers do not seem to value
PDO label
Existing studies, cont’d
• Zago & Pick (2004)
– The regulation creates two goods
– High quality good under the
regulation
– Low quality good not included in
the program
Existing studies, cont’d
Results from Zago & Pick:
• If administrative costs are high, quality
differences small, and costs differences
high then we can obtain negative
welfare effects
• With supply restrictions, after the
regulation, the higher the quality
differences, the larger the negative
impact on consumers’ surplus and the
larger positive impact on high-quality
producers
Existing studies, cont’d
Results from Zago & Pick (cont’d):
• Effects of the regulation depend on:
– Difference in quality
– Costs of producing the quality
– Cost of administration
What is the government
role?
Several costs and benefits are
associated with labeling policies
(Gardner 2003):
• Benefits:
– Protection of consumers from low
quality products
– Reducing consumers’ search costs
– Reduction of sellers’ costs by having
uniform labeling requirements
– Gains to producers of ‘high quality’
products
What is the government
role? cont’d
• Costs:
–
–
–
–
–
Exclusion of ‘low quality’ products
Possible barrier to food innovation
Sellers’ increased costs of labeling
Government costs of implementation
Creation of market power
The bottom line
• The welfare effects of PDO
and PGI must be evaluated on
a case-by-case
• Providing blanket policy is not
necessarily optimal
• Market distortions may be
created by the policy