Traceability, Assurance and
Biosecurity in the (Global) Food
System
Eluned Jones, Texas A&M University
DeeVon Bailey, Utah State University
John Wiemers, USDA-APHIS
David Anderson, Texas A&M University
Traceability, Assurance and
Biosecurity in the (Global) Food
System:
cereals and oilseeds sector issues
Eluned Jones
Texas A&M University
Eluned@tamu.edu
‘Grey’ areas in transparency
Lack of transparency in:
• Market structures – competitive vs.
coordinated (economic signals – price)
• Institutional governance – role of public
(agencies) vs. private oversight
• (understanding of) legal interpretation of
‘rights’ of the customer/buyer in the exchange
relationship – source of trade policy conflict
Evolution in the past 2 decades:
• Science vs. art: food processing & manufacturing
• Evolution of technology with assoc. intellectual
property rights eg seed genetics (formerly public good)
• JIT, TQM, ECR, SCM, CPFR in concert with SPC
and evolution of IT (coordination/consolidation)
• Asset specificity as a source of differentiation
• Evolution of market economies & global food markets
• Increasing DPI: food convenience & entertainment
• Culture & consumer perception of ‘property rights’
• Liability (due diligence), market access, market share
• Focus on core competencies as a means of increasing
efficiency and effectiveness
Protocols of industry management
Total Quality Management
Just-in-time Inventory Mgt
Efficient Consumer Response
Supply Chain Mgt
Channel and
Category Mgt
ISO 9000
ISO 14000
1960
1970
1980
1990
PC’s
2000
Internet
Genetic Engineering
– evolution of Life Science Companies
Market introduction of GMO’s into food system
Evolution of food
product netchains
Market introduction ??
Just-in-time Inventory Mgt
Total Quality Management
Efficient Consumer Response
Supply Chain Mgt
Channel and Category Mgt/Private Label
Protocols of Strategic Industry Mgt
1980
1990
2000
2010
The coordinated/systems model
• Use of industrial and process engineering
concepts
• Emphasis on logistics of physical product and
information flow
• Considers costs of variability, chain reactions in
supply flow
• Considers probability of non-desirable events
occurring (risk of negative ROI)
• Considers culture, attitude, and behavioral
influence
• Focus on competitive advantage
Economic incentives in grains
& oilseeds for supply chain coordination
• Focus on specific trait and maintaining integrity of the
trait, e.g. high oil corn, food use SB’s, wheat variety
with known milling/baking performance, cereals with
functional attributes (health).
– Less economic incentive in feed grains than in food use
• Known performance parameters - science vs. art
– Risk reduction
• Grain/oilseed condition – environment
• Output quality – processing performance
• Consistency in performance
– Predict output, forecast & plan sales
• Extraction yield
• Starch, oil release
– Logistics planning – scheduling
• Rate of flow
Where is the weakest link in the
food ingredients supply chain?
Customer
Retailer/Service
Manufacturer
Processor
Greatest potential
for breakdown in
Ensuring integrity
1st handler/elevator
Producer
Follow
Rotation
Of SB
Land
selection
Previous
GM crop
use
30%
Residue
left on
field &
soil test
Steps in ensuring integrity of
farm level supply chain
Chemical
storage
Analyze
Hybrid
performance
Fall
tillage
Seed
selection
Fertilizer
& pesticide
application
Spring
tillage
Seed
Depth &
spacing
seeding
Best production practices
Pts requiring SOP’s
growing
Clean
planter
boxed
Combine
settings
harvesting
Quality
Grain Mgt
On-farm
handling
& storage
Clean
conveyors
Dryers & bins
Pollen
drift
check
Non-GM
seed purity
Basic production steps
IPM-based
Pest mgt
Quality
Grain
Sample
check
Clean
combines
& trucks
delivery
Non-GM
sample
check
Role of core competencies in locating
opportunities for efficiency and effectiveness
• Implied threat of coordination – that producers
must either engage in chain integration or
diversify by incorporating downstream
activities.
• Efficiency gains more probable when focus is
on exploitation of existing core competencies
Antitrust Legislation: a help or a hindrance?
Economic incentives for alternative governance
structures
–
–
–
–
maintaining market share
gaining/retaining market access
decreasing information asymmetry
reducing transactions costs of discovering value of asset
specificity and/or core competencies.
• Antitrust historically focused on barriers to entry as
indication of market power
• Increased coordination within chain raises barriers to
entry
Innovation and quasi-rents
Quasi-rents
exploitation
timeline
Mean % of producers surveyed
contracting production
Source: Bender and Good
White food grade corn
79
Yellow food grade corn
38
Tofu SB
63
Non-GM SB
85
Contract specification - % of respondents
Variety
Prod.
mgt
Quality
testing
Delivery
location
On-farm
storage
White food grade
corn
46
36
55
82
73
Yellow food grade
corn
Tofu SB
88
13
50
88
50
93
47
27
93
33
Non-GM SB
50
50
63
100
44
Source: Bender and Good
Average Additional Production Costs ($/bu)
for selected crops in Illinois
Value added crop
Production Harvesting
Total
Total
costs
& marketing producer handler
costs
costs
costs
White food grade corn
0.03
0.46
0.49
0.15
Yellow food grade
corn
0.40
1.21
1.61
0.11
Tofu soybeans
0.48
2.54
3.02
0.06
Non-gm soybeans
0.07
0.10
0.17
0.10
Source: Bender, Hill, Good (2000, 2001)
Cost-Benefit Summary for Quality Mgt System
(QMS) at a Farmers Cooperative Elevator, IA.
Operation
Grading
Inventory Control
Operations efficiency
Regulatory compliance
Employee development
Total
Costs of QMS
Ratio
Cost Savings
($)
1,085
10,675
2,180
5,300
3,400
22,640
11,250
2:1
Source: Iowa State Univ. and Farmers Cooperative, 2002
Top Global Supermarket Companies
Company
Stores
owned
Sales
($ bill.)
Countries of Operation
Argentina, Brazil, Canada, China, Germany, Japan, Mexico,
Singapore, S. Korea, UK, US, Vietnam
Wal-Mart
Stores (US)
5,164
244
Carrefour
(France)
10,704
65
Argentina, Belgium, Brazil, Chile, China, Colombia, Czech Rep.,
Dominican Rep., Egypt, France, Greece, Indonesia, Italy,
Japan, Malaysia, Mexico, Oman, Poland, Portugal, Qatar,
Romania, Singapore, Slovakia, S. Korea, Spain, Switzerland,
Taiwan, Thailand, Tunisia, Turkey, US.
Ahold
(Netherlands
9,407
59
Argentina, Brazil, Chile, Costa Rica, Czech Rep., Denmark,
Ecuador, El Salvador, Estonia, Guatemala, Honduras,
Indonesia, Latvia, Lithuania, Malaysia, Netherlands,
Nicaragua, Norway, Paraguay, Peru, Poland, Portugal,
Slovakia, Spain, Sweden, Thailand, US
Kroger (US)
3,667
52 US
Metro
(Germany)
2,411
49
Austria, Belgium,Bulgaria, China, Croatia, Czech Rep.,
Denmark, France, Germany, Greece, Hungary, India, Italy,
Japan, Luxembourg, Morocco, Netherlands, Poland,
Portugal, Romania, Russia, Slovakia, Spain, Switzerland,
Turkey, UK, Ukraine, Vietnam
Tesco (UK)
2,294
40
Czech Rep., Hungary, Ireland, Malaysia, Poland, Slovakia, S.
Korea, Taiwan, Thailand, UK, US
Costco (US)
Albertsons
(US)
400
1,688
38 Canada, Japan, Mexico, S. Korea, Taiwan, UK, US
36 US
BSE – peak epidemic ’92/93
vCJD identified since when 120 died
4.5 mill cattle slaughtered in UK £2B
BSE diagnosed in 2 cases: Germany,
subsequently Spain, France, & all
other EU except Luxembourg
BSE identified in Japan
Canadian death vCJD
DIOXIN – Belgium – animal feed Tests
reveal high levels thro’out poultry/egg SC
Just-in-time Inventory Mgt
Total Quality Management
Efficient Consumer Response
Supply Chain Mgt
Channel and Category Mgt/ Private Label
Protocols of Strategic Industry Mgt
1980
1990
2000
2010
EU General Food Law Reg. EC No. 178/2002
Traceability defined as:
“the ability to trace and follow a food, feed, food-producing
animal or substance intended to be or expected to be
incorporated into a food or feed, through all stages of
production, processing and distribution.”
The regulation further specifies under Article 18:
“Food and feed business operators shall be able to identify any
person from whom they have been supplied with a food, a
feed, a food-producing animal, or any substance intended to
be, or expected to be, incorporated into a food or feed. To this
end, such operators shall have in place systems and
procedures which allow for this information to be made
available to the competent authorities on demand.”
Consumers and Public Risk Perceptions
• Decline in public trust in science has passed ‘threshold
point’ where legitimacy of scientific judgement is
questioned.
• Rise of the ‘consumer citizen’ and informed choice
• Diminished role of the ‘expert’
• Wide availability of specialist information
• Broad shifts in national (international) political culture
towards more transparent risk mgt practices
• Public risk perception driven by failure to provide
information relevant to actual concerns of consumers
• Information based on technical risk assessments, ignoring
key issues of public concern
– Animal welfare
– Uncertainty and unintended consequences
– Animal feed and veterinary practices
Trust
cognitive
food
ingredients emotional
Property rights of market
participants at all points
along supply chain (netchain)
EU consumer research summary:
Regulation has been driven by rationalist interpretations of
scientific evidence, which has encouraged elite groups to
dismiss such public reactions as inappropriate and irrelevant.
L. Frewer, U. of Wageningen
EU Actions w.r.t. Meat Quality and GMO’s
Distributor
Action relative to meat
Auchan (F)
Action relative to GMO
Labeling policy
GM free own brands, also propose to eliminate
GM from additives
Information provision
to consumers
Carrefour (F)
Traceability
Guaranteed by TTA, grain suppliers GM-free –
Brazil
Filiere Qualite
Certificate
Leclerc (F)
Traceability
Guaranteed by TTA
Marque Repere Brand
M & S (F)
Removed all meat from animal
feed with GM crops
All own brands are GM free
Asda/WalMart
(UK)
All beef or milk are free of GM
based feed
All own brands GM free. Link with Brazilian
SB growers, UK distributors & labs to create a
quality network
Iceland (UK)
All products are GM free since 1998.
Investments to support farmers to develop
environmentally responsible practices.
Marks & Spencer
(UK)
Traceability on beef products
sold under own brand. Will
eliminate all animal products
fed with GMO
Safeway (UK)
Consortium with Sainsbury,
Marks & Spencer and
Northern Foods to eliminate
GM feed
Sainsbury (UK)
Contract with Anglo Beef
Producers – last 60 days no
GM feed
Tesco (UK)
Eliminated all animal products
fed with GM feed
Eliminated all GM ingredients from own brands
Labels over 100
products containing
GM derivatives
Labels all own
products containing
GM ingredients
Eliminated all GM ingredients from own brand.
Efforts to establish reliable sources of non-GM.
Products not labeled
Identifies products
containing GM
ingredients
Key factors w.r.t. the motivations for
implementing T&A protocols
1. Value of T & A Protocols
• what serves as the economic signal
• how is value determined, and does this
depend on whether firm is buyer or seller?
• Identification of costs saving efficiencies
(decreased ‘shrink’ loss)
• Comparative advantage – geographic
proximity
• Competitive advantage – first mover
• Brand/reputation – private label brands
2. Costs of T&A protocols
– Short run variable costs
– Fixed/overhead costs
– Customer service
– Market access
– Identification of cost saving efficiencies
– Costs of gaining competitive advantage –
strategic positioning investment
– Risk/liability management
3. Risk and Liability – who assumes liability?
What are the risks if T&A protocols are not in
place?
• Potential loss of customers
• Export market loss
• Market access
• Contract specification error
• Recall
• What if T&A protocols are in place and a
contamination event occurs (doesn’t meet contract
specs, safety factor, biosecurity incursion)?
4. Influence of Firm/Corporate Structure
• Organization
–
–
–
–
•
•
•
Public or Private
Local/Regional/National/Multinational
Alliances with partners
• Upstream, downstream
• Equity vs. non-equity
Merged, acquired entities
• Upstream, downstream
Supply chain protocols
Information technology – information sharing (EDI)
Compatibility of computer/IT architecture
Trends of note associated with the grains and
oilseeds sector:
• ConAgra divesting animal protein activities –
strategic focus
• Cargill, DuPont, John Deere new corporate “Centers
of Expertise” with focus on SCM and product
assurance
• EU reaction to US petition to WTO w.r.t. GMO’s,
products of geographic indication (COOL?)
• Antitrust concerns w.r.t. multinational M&A’s, and to
category management activity – implications for
further coordination in the food supply chains (US
Tobacco) – increasing interest in private labeling.
• Intellectual Property protection – ADM vs. DuPont
w.r.t. Solae new venture between DuPont and Bunge
3rd Party Assurance -Global recognition
(particularly EU, Mideast, Mexico, Japan)
• AOSCA – Assoc. of Official Seed Certification Agencies.
State associations responded quickly to the market need for
certification supporting export of niche grains and oilseeds in late
1990’s, e.g. tofu soybeans to Japan
• AIB – QSE- ISO 9000(2000) based:Farmers Cooperative Elevator
Company, Farmland Industries, InnovaSure –Cargill, Inc.
• ISO certified: Colusa Elevator Company, Consolidated Grain and
Barge, Inc.
• SQF – Safe Quality Food; protocols based on both HACCP and ISO
– United Fresh Fruit and Veg (UFFV) adoption of SQF
• USDA – GIPSA certification (ISO 9001 based)
• Food Marketing Institute (FMI) has purchased the IP rights of
SQF, founder/developer Paul Ryan (Australian) moving to DC this
month to head program.
Location of responsibility: Public
(Government) vs. Private (industry)
• At what level should there be regulation or
oversight?
• What form should the oversight take?
• Who should provide oversight? 3rd party,
autonomous industry or government?
• Credibility? Accessibility, transparency,
internal/external audit, documentation
Role of Government
Market regulation vs. oversight (restriction vs. enable)
• Product vs. process
• Institution (industry) vs. firm governance
• Sector or subsector vs. netchain
e.g. 1990 UK Food Safety Act increased liability for safety
of food products downstream (retail). Retail could be
held liable for practices upstream. Alternative
governance structures/organization protocols adopted to
reduce risk exposure – process vs. product added as a
coordinating mechanism.
Oversight: USDA-AMS & GIPSA
•
Global and diverse sources of carbohydrate/starch, oils,
gluten change competitive and comparative advantage –
change role of economic signals previously supported by
grades and standards.
•
Recognition of more expansive role in facilitation lead to
GIPSA’s process verification program conforming to ISO
9001 (USDA Certification)
“The program will provide verification services for grains,
rice, pulses and products derived from these products. It
will be designed for both export and domestic shipments.
The process verification designation verifies the process not
the final product. The full range of processes could be
verified from seed purchase to final product on grocery
shelves.” GIPSA, 2002
Public Role as Facilitator
• Institutional framework that generates economic
signals reflecting both efficiency and effectiveness
• Redefine or clarification monopolistic competition
(negative connotation) vs. (SR) ROI
• Support/generate awareness of contribution of
core competencies across supply chain/netchain