Policy in Action: AMS
Involvement in
Differentiating Food and
Agricultural Markets
Kenneth C. Clayton
Agricultural Marketing Service
United States Department of Agriculture
Issue as Framed
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“. . . problems of asymmetric information can be
solved either by private sector initiative . . . or by
government intervention . . .”
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“A government solution may fail . . . Even a wellmeaning government may not be able to figure out
‘true’ consumer preferences.”
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“. . . the government-backed standard may be
difficult to adapt to a new situation.”
Agricultural Standards Context
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Agricultural commodity standards and their
application are distinctly different things
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Standards in contemporary context include both
traditional agricultural product commodity
standards and agricultural production process
standards
Agricultural Commodity
Standards
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Relate to “search” attributes
Simply language for commercial trade
Primarily used by private sector to facilitate commerce
Reduce transactions costs
Usage may promote fairness and equity
Benchmark for differentiated, branded products
Agricultural Commodity Standards Federal Government Application
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Find wide application in voluntary, user-pays grading
services offered by Federal government
Find application in private marketing claims, some of
which are certified by Federal government through
voluntary, user-pays certification services
Find application in certain Federal government
regulatory programs intended to 1) support cooperative
marketing and 2) protect market participants from
fraudulent and deceptive practices
Agricultural Production Process
Standards
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Relate to “credence” attributes
Private sector marketing claims increasingly
based on verification of agricultural production
processes
Federal government verification sought in some
cases
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Regulatory in certain cases
Voluntary, user-pays verification service in most cases
Re-Framing the Issue
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What role ought government play in
differentiating food products?
Private market
 Government regulatory intervention
 Private market with government facilitation (nonregulatory)
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Re-Framing the Issue
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What role ought government play in
development of commodity and/or production
process standards?
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What role ought government play in the
application of commodity and/or production
process standards?
Current Situation - USDA
Commodity Grade Standards
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600 product descriptions - basis for quality
differentiation
Developed and modified at producer, processor,
retailer, consumer request
Some use at retail; widest application earlier in
marketing chain
Use not mandated by Federal government
Mandatory application per some Federal fruit &
vegetable marketing order regulations
AMS Maintains Standards for
600 Commodities
Broadening Government Role in
Commodity Standards
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Industry-led consensus standards
International standards organizations
Development of open, digital standards
Current Situation - USDA
Grading Services
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Continued extensive use
Innovations in service delivery
Instrumentation
 Automation
 Electronic certificates
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Demand for grading services as quality control
by large firms
Current Situation - Certification
Programs
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Rely on end product examination
Voluntary, user-pays funded
Specifications developed by private companies often benchmark on USDA grade standards
AMS Certification Programs
Benefits of USDA Grading and
Certification
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Private
Mechanism to differentiate products
 Reduced development costs
 Low cost, trained nationwide work force
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Public
Reduced cumulative development costs
 Efficient allocation of labor resources
 Reduced entry barriers in consolidated industries
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Current Situation - Production
Process Standards
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Relate to “credence” attributes
Audit of production processes rather than inspection
of end products
Prescriptive in 3 cases: 1) organic standards, 2) certain
livestock marketing claims (e.g., no antibiotics, free
range, grain fed), and 3) foreign government
requirements (e.g, BEV for Canada, Mexico, Japan)
Mainly, USDA assists industry in supporting their
claims - based on adherence to ISO quality system
protocols
AMS Process Verification Programs
Benefits of USDA Process
Verification Programs
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Maintains ISO principle of separation of
program design and verification
Private entities develop verifiable programs to
support marketing claims
 USDA audits programs to verify compliance
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Provides marketing cachet of USDA seal
Provides mechanism for product differentiation
according to credence attributes
What Role Ought Government Play in
Development of Commodity and/or
Production Process Standards?
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USDA standards are either useful or not
USDA standards can be reflective of “true” consumer
preferences
USDA standards provide a basis for product
differentiation
USDA standards can address market failure due to
asymmetric information and reduce transactions costs
depending on use
What Role Ought Government Play in
Application of Commodity and/or
Production Process Standards?
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This is the more pertinent question
Regulatory or prescriptive applications fair game
as to whether market failure (asymmetric
information, public good) or social welfare bases
justified
Voluntary, user-pays applications reduce
transactions costs and facilitate marketing