Differentiated Product Marketing. SYSTEMS OF PRODUCT IDENTIFICATION Government-Mandated Traceability –Motivations: 1.Facilitate and monitor traceback

Differentiated Product Marketing

SYSTEMS OF PRODUCT IDENTIFICATION

• Government-Mandated Traceability

– Motivations:1. Facilitate and monitor

traceback to enhance food safety

2. Enhance consumer information about food safety and quality

3. Protect consumers from fraud and producers from unfair competition

4. Protect domestic producers

• Voluntary Traceability

– Motivations:1. Differentiate and market

foods with subtle or undetectable quality attributes

2. Facilitate traceback for food safety and quality

3. Improve supply-side management


• Motivations for Voluntary Traceability1. Differentiate and market foods with subtle or

undetectable quality attributes• “Credence” attributes: Characteristics that consumers

cannot discern even after consumption– Content attributes: Affect actual physical properties of

product, but difficult for consumers to perceive

– Process attributes: Concerned with production process, usually cannot be detected even with specialized testing equipment



undetectable quality attributes• Firms sometimes resort to third-party entities to validate

claims about quality attributes– Examples:

» Good Housekeeping Institute

» American National Standards Institute (ANSI),

» Underwriters Laboratories (UL)

» Council of Better Business Bureaus

» International Organization for Standardization (ISO)

» Government inspectors



undetectable quality attributes

2. Facilitate traceback for food safety and quality• Traceability helps producers reduce time to

identify and remove contaminated foods from production lines and/or from market, before food item reaches consumers



undetectable quality attributes

2. Facilitate traceback for food safety and quality

3. Improve supply-side management• Traceability helps manage product flows and track

retail activity


• Motivations for Mandatory Traceability1. Facilitate and monitor traceback to enhance

food safety• Mandatory traceability enables authorities to identify

sources of food contamination/hazards and contain risks faster


• Motivations for Mandatory Traceability1. Facilitate and monitor traceback to enhance

food safety

2. Enhance consumer information about food safety and quality• If producers are not providing as much information

about safety/quality as consumers desire, mandated traceability may allow consumers to choose food products better matching their preferences


• Motivations of Mandatory Traceability1. Facilitate and monitor traceback to enhance

food safety


3. Protect consumers from fraud and producers from unfair competition• By enforcing traceability, the government may assure

consumers and competitors that firms claiming to sell products with credence attributes can substantiate their claims


• Motivations of Mandatory Traceability1. Facilitate and monitor traceback to enhance

food safety


3. Protect consumers from fraud and producers from unfair competition

4. Protect domestic producers• Mandatory traceability to identify domestically

produced vs. imported foods may allow domestic producers to command a premium


• Examples of Mandatory Traceability Certified Organic Country-of-Origin Labeling (COOL) Age verification for Japan Grass-fed beef Naturally raised livestock


• Examples of Mandatory Traceability Certified Organic Products

o Products grown and processed according to USDA’s national organic standards and certified by USDA-accredited State and private certification organizations

o Organic Foods Act of 1990 established national standards for organically produced commodities Organic growers must have to be certified under

USDA’s National Organic Program A person may sell or label an agricultural product as

organically produced only if product has been produced and handled in accordance with National Organic Program






Country-of-Origin Labeling (COOL)o 2002 Farm Act

Retailers must ensure verifiable audit trail COOL not required for foods that are ingredients of

processed food items Foodservice establishments exempt from COOL “Unknown origin” label not allowed 2002 Farm Act

o Was to become mandatory Sept 30, 2004

o Delayed until Sept 30, 2006

o Delayed again until Sept 30, 2008


Country-of-Origin Labeling (COOL) Disagreement on how to implement Presumed US

Make importers label Anything not labeled is presumed to be US

Verifiable audit trail Move the product with a signed affidavit Keep records to back up claim if audited

Regardless of cost at farm level there is a cost beyond the farm gate to segregate and document

NAIS is NOT COOL

• COOL is an amendment to the 1946 Agricultural Marketing Act– Retailers inform all consumers– Sec of Ag cannot implement traceback

• NAIS (National Animal Identification System)– Animal health surveillance– Confidential system, only federal veterinarians

The Proposed NAIS SystemNational Database

USDA Required

Third Party

Database

Potential Industry Use

Feedlot PackerAuction

BarnCow/Calf Producer


• ISO, Greek for “equal”

• International standard for quality systems

• In a nutshell:– Say what you do– Do what you say– Document it with records


Age verification for Japan– Japan will accept 20 months or less– Two methods to confirm age

• Physiological maturity A40• Production records

– Need records to export variety meat

Based on ISO principles

Age verification for Japan

• Signed affidavits alone are not sufficient to qualify cattle for the EV Program for Japan.

• Cattle must be approved either through an approved USDA Process Verified Program or QSA Program. These Programs require supplier evaluations and re-evaluations.

Age verification for JapanQuality Management System

• A written management system that must address:– Documentation Requirements– Management Responsibility– Resource Management: – Production of Product– Measurement, Analysis and Improvement:– Record Requirements

Age verification for JapanProducer Requirements

• Records to validate age

• Procedures – Farm or Ranch Plan– Written management plan

• Records to validate activities

• Must be repeatable

Producer is evaluated by company and/or USDA to verify conformance.

Age verification for JapanManagement Plan

• Describe operation/farm

• Define practice– What is done– Who does it and how are they trained– How is it recorded– Where are the records

Seed Stock / Cow Calf

Stocker / Backgrounder Preconditioning /Feedlot

Provide enough information for an auditor to verify the origin and ownership of the animals identified and to verify the stated designation. Properly identify and record all animals according to the designation

Identify and segregate animals as to the origin designation. Properly identify all animals sold. Maintain the integrity of the identification. Maintain ownership transfer.

Upon receipt properly identify animals according to their designation. Segregate and control animals. Properly identify all animals sold. Maintain ownership records.

Birth records Transportation records Transportation records Receiving records Receiving Records Receiving Records Purchase records Purchase Records Purchase Records Cow/Calf tag ID system ID system ID system Sales receipts Sales Receipts Sales Receipts Feed bills Feed bills Feed bills Feeding records Transfer of ID System Pen records Animal inventory Feeding records Feeding Records Acreage inventory Declaration documents Shipping records Site maps Preconditioning Records Rate of gain records –Yield records APHIS VS Forms APHIS requirements APHIS requirements Production estimates VS Forms and Records VS Forms and Records Health records Health Records Ownership records Segregation plan Segregation plan Segregation plan State Brand requirements State Brand requirements State Brand requirements Replacement activities Replacement activities Accounting process for inbound

animals Beef Quality Program Beef Quality Program Beef Quality Program

Product v. Process Certification

• Tighter product specification– Sorted by processor

• Process specification– How it is produced

• Role of and return to producer????

Commodity v. Product• Commodity

– Undifferentiated– Perfectly competitive markets

• Products– Differentiated– Monopoly - Workable competition– Niche Market, branded, labeled, etc

Motivation• Commodity market

– Price takers– Cost driven– Long-run P=minimum ATC

• Product markets– Price makers– Costs not as important– Potential for sustained higher profit

margins

Commodity system

• Extremely efficient• Challenges

– Co-mingling from many sources– Consumers signals not transmitted– Little incentive to improve because benefits not

passed through to producer– Expand to capture economies of size

Product system

• How to differentiate?

• Managed supply chain– Allows traceback to producer– Restricts production– Focus on quality

Procedures• Why is the product different?

– How it is produced– Where it is produced– What is produced– What it includes– What it doesn’t include

• Develop marketing around the difference

Procedures

• Limit production and access to control supply– Can’t look like price fixing to regulators– Geographical restrictions

• Swiss cheese• Champaign

– Trade secret– Emphasis on quality

• Traceability to verify

Farmer-Owned BrandsHayes and Lence

• Parma Ham– Restricts area where ham can be cured– Claim unique climate and winds– Restricts breeds and regions where hogs can be

produced– Italian hog prices averaged $7.44 more than

German hogs 1999-2001

Farmer-Owned BrandsHayes and Lence

• Vidalia Onions– Selected region in south Georgia– Used existing state law to restrict area– State-owned trademark– Premiums of $.30-$.34 per pound– First spring sales are 30-50% higher

Iowa 80 Beef• Minimum Certification Requirements

– Verified to be sired by a 100% Angus bull. – Source verified to the farm of birth using an

identification system– Fed in an Iowa feedlot for a minimum of 180 days. – Fed a high-concentrate ration that totals at least 75

percent corn or corn co-products over the feeding period.

– Age verified and processed at 18 months of age or less.

– USDA grades upper one-third Choice or Prime.

Commodity v. Product

Commodity• Minimum requirements• Anonymous

• No product or price differentiation

• Profits tied to low cost of production

Product• Product specifications• Traceback and

accountable• Product and price

differentiation• Profit tied to costs

and ability to protect higher prices

Documents

Differentiated Product Marketing. SYSTEMS OF PRODUCT IDENTIFICATION Government-Mandated Traceability –Motivations: 1.Facilitate and monitor traceback