Traceability, Assurance and Biosecurity in the (Global) Food

System

Eluned Jones, Texas A&M UniversityDeeVon Bailey, Utah State UniversityJohn Wiemers, USDA-APHISDavid 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

1960 1970 1980 1990 2000

Total Quality ManagementJust-in-time Inventory Mgt

Efficient Consumer Response

Supply Chain Mgt

Channel and Category Mgt

ISO 9000ISO 14000

PC’s Internet

1980 1990 2000 2010

Just-in-time Inventory MgtTotal Quality Management

Efficient Consumer Response

Supply Chain Mgt

Channel and Category Mgt/Private LabelProtocols of Strategic Industry Mgt

Genetic Engineering – evolution of Life Science Companies

Market introduction of GMO’s into food system

Evolution of food product netchains

Market introduction ??

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

1st handler/elevator

Producer

Greatest potentialfor breakdown in Ensuring integrity

FollowRotationOf SB

30%Residue left onfield & soil test

Analyze Hybrid performance

Chemicalstorage

Seed Depth &spacing

Fertilizer & pesticide application

IPM-based Pest mgt

Combine settings

QualityGrain Mgt

Land

selectionFalltillage

Seed selection

Spring tillage seeding growing harvesting

On-farm handling & storage

delivery

PreviousGM crop

useNon-GMseed purity

Clean planterboxed

Pollendriftcheck

Cleancombines& trucks

QualityGrainSamplecheck

Clean conveyors

Dryers & bins

Non-GMsamplecheck

Basic production steps

Best production practices

Pts requiring SOP’s

Steps in ensuring integrity of farm level supply chain

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

timeline

Quasi-rentsin

nova

tion exploitation

Rival entry

– erosion of market pow

er

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

88 13 50 88 50

Tofu SB 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 costs

Harvesting & marketing costs

Total producer costs

Total handler 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 Cost Savings ($)

Grading 1,085

Inventory Control 10,675

Operations efficiency 2,180

Regulatory compliance 5,300

Employee development 3,400

Total 22,640

Costs of QMS 11,250

Ratio 2:1

Source: Iowa State Univ. and Farmers Cooperative, 2002

Top Global Supermarket Companies Company Stores

ownedSales ($ bill.)

Countries of Operation

Wal-Mart Stores (US)

5,164 244 Argentina, Brazil, Canada, China, Germany, Japan, Mexico, Singapore, S. Korea, UK, US, Vietnam

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) 400 38 Canada, Japan, Mexico, S. Korea, Taiwan, UK, US

Albertsons (US)

1,688 36 US

Rewe Zentrale (Germany)

Germany, Austria, Italy, France, Poland, Hungary, Czech Rep., Slovakia, Croatia, Romania, Ukraine, Bulgaria

1980 1990 2000 2010

BSE – peak epidemic ’92/93

Just-in-time Inventory MgtTotal Quality Management

Efficient Consumer Response

Supply Chain Mgt

Channel and Category Mgt/ Private LabelProtocols of Strategic Industry Mgt

4.5 mill cattle slaughtered in UK £2B

vCJD identified since when 120 died

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

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

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

Trust

Property rights of market participants at all points along supply chain (netchain)

food ingredients

cognitiveemotional

EU Actions w.r.t. Meat Quality and GMO’sDistributor Action relative to meat Action relative to GMO Labeling policy

Auchan (F) 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

Eliminated all GM ingredients from own brands Labels over 100 products containing GM derivatives

Safeway (UK) Consortium with Sainsbury, Marks & Spencer and Northern Foods to eliminate GM feed

Labels all own products containing GM ingredients

Sainsbury (UK) Contract with Anglo Beef Producers – last 60 days no GM feed

Eliminated all GM ingredients from own brand. Efforts to establish reliable sources of non-GM.

Products not labeled

Tesco (UK) Eliminated all animal products fed with GM feed

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