Alternative Firm Strategies for Signaling Quality in the Food System

Abstract

Dynamics in the global food system, coupled with rapid advance in agricultural biotechnology, have resulted in additional demands for capturing information and sharing information vertically within the supply chain. Food safety and quality characteristics are a cornerstone of this information demand. Events such as foot‐and‐mouth disease (FMD) and bovine spongiform encephalopathy (BSE), genetic engineering and animal welfare concerns have laid the foundation for additional information need. Managers of private firms within the food supply chain must decide how to respond to the situation. A crucial component of the problem is what and how to provide information to downstream customers as well as stipulate what and how information is received from upstream suppliers. Alternative signaling mechanisms abound. The choice among these alternative signals, or combination of alternatives, has both short‐ and long‐run implications for the reputation of the firm, its products or services, and the efficiency with which it conducts its business. The signaling problem in the supply chain is bidirectional and has three critical dimensions: information asymmetry, incentive asymmetry, and arduous measurability. From a broad perspective, the choice set for signaling includes: strategies that rely on third‐party protocols and procedures; differentiation through branding and reputation; indemnification strategies such as insurance, warranties, and bonding; and coordination strategies such as strategic alliances and vertical integration (intemalization). Each mechanism for signaling differentially influences the three dimensions of the signaling problem. No globally optimal strategy solution exists. Differentiation through branding and reputation mitigate the signaling problem relatively well compared with the other alternatives.

Third-party certification in the global agrifood system

“…Moreover, the rapid pace of product diVerentiation, and the concurrent expansion of quality attributes, has placed considerable strain on government regulatory bodies. The eVect is that government regulations are increasingly unable to keep pace with new developments and changing production practices (Sporleder and Goldsmith, 2001;Reardon and Berdegue, 2002). Both retailers and governments recognize that within this context regulations need to be transnational in scope and applicability if they are to be eVective (Marsden et al, 2000).…”

“…Private standards increasingly encompass a variety of quality attributes that public standards do not (Farina and Reardon, 2000;Reardon and Berdegue, 2002;Sporleder and Goldsmith, 2001). Various actors in the agrifood system, including retailers, consumers, and social activists, seek products that are diVerentiated not only by that product's physical characteristics but also by its production practices (Deaton et al, forthcoming).…”

The Reliability of Certification: Quality Labels as a Consumer Policy Tool

“…) have shaken the European food sector over the past few years. In spite of far-reaching regulations and governmental control, most of the causes were not detected until after the crises had occurred, leading to a decline in consumer confidence in the safety and quality of many food products (Hobbs, Fearne, & Spriggs, 2002;Sporleder & Goldsmith, 2001). As a consequence, many EU countries developed consumer protection strategies such as new quality labels based on neutral control throughout the whole value chain.…”

Semi-quantitative study to evaluate the performance of a HACCP-based food safety management system in Japanese milk processing plants

“…Assurance activities are more long term based (Sporleder & Goldsmith, 2001) and companies encounter these as difficult to implement as well as time-consuming (Jacxsens et al, in press). However, it should be an objective to enforce a sustainable FSMS, as validation and verification, sampling plans and documentation are important to assure food safety Taylor & Kane, 2005).…”