Information Technology in the Food System: Identity Preservation and Traceback

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Information Technology in the Food System
Identity Preservation and Traceback

• Thomas L. Sporleder
• sporleder.1_at_osu.edu
• Prepared for E-Commerce Impacting the Way We Do
  Business Conference, Nashville, TN, October 1-2,
  2001

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Information Technology and E-Commerce

• Information technology (IT) is a broad class of
  technologies that facilitate information
  collection, processing, and dissemination
• E-Commerce is a subset of IT designed especially
  for buying and/or selling

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The Dynamics

• New agricultural and food supply chain
• Emergence of coordinated systems
• Differentiation of products and services
• Rise of intangible social attributes

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Specific Dynamics of Global Food System

• Genetic engineering (biotechnology)
• Food safety
• Animal welfare

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Genetic Engineering

• Creates small specialized niche markets
• Identity preservation and traceback necessary
  component of these markets

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Food Safety Events

• Foot-and-mouth disease (FMD)
• Bovine spongiform encephalopathy (BSE)
• StarLink? Cry9C protein in Bt corn

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Foodborne Illness The Big Four
Salmonella
E. Coli
Listeria
Campylobacter jejuni
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Animal Welfare

• Animal welfare is defined as ensuring improved
  protection and respect for the welfare of animals
  across all species of meat animals
• Areas under development pen size, slaughter
  conditions, treatment during transport

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Animal Welfare

• Current concerns relative to meat animals are
  similar to the development of dolphin-safe tuna
  some time ago
• Federal regulations were developed for
  dolphin-safe tuna

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Specific Examples of Information Requirements

• What were the slaughter conditions for this meat
  animal?
• How much pen space did the layer have that
  produced this egg?
• Was this corn genetically enhanced?
• Is this soybean oil GM-free?

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Problem for the Current Food System

• This information is NOT usually collected or
  processed at various points in the marketing
  channel
• This information is NOT usually passed along
  downstream as the product moves toward the final
  consumer

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Dynamics Relative to IT

• All these events lead to the same requirement
  of the food system enhanced vertical information
  flow
• How will this get done and who will do it?
• Complex problem with multiple solutions

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Consequences of the Dynamics

• Rapid consolidation in the global food system
• Less commingling of commodities but more and
  higher cost segregation and vertical tracking

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Consequences of the Dynamics

• Food system becomes more globalized
• Need for increased vertical information flow and
  cooperation

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Nomenclature by Agricultural Commodity

• Meat animals Traceback, transparency, and
  assurance (TTA)
• Food and Feed Grains Identity preservation (IP)

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TTA

• Traceback is the ability to know specific
  information on various characteristics of the
  product (i.e. feeding protocols, genetic
  background, production origin)

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TTA

• Transparency is
• The extent of coverage from upstream industries
  to downstream industries within the supply chain
• How apparent the information is to downstream
  industries

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TTA

• Assurance is
• Quality (is it palatable or nutritious?)
• Food safety (is it safe to eat?)

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Identity Preservation

• The ability to know specific information on
  various characteristics of the commodity and
  value added product produced from the commodity
• For example genetic modification, production
  origin, production protocols (e.g. organic or
  natural)

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Alternatives for Who Might Collect, Process, and
Disseminate Information

• Private firms
• Individual firms in the supply chain
• Third party firms
• Government

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Firm Strategy Problem

• Signaling issue how to accomplish?
• Build trust
• Bi-directional
• Firm Consumer
• Society Firm

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Evaluating Alternative Signaling Mechanisms

• How can firms decide among the alternatives?
• Question of Trust
• Question of Efficiency
• Question of Risk Sharing
• Question of Manageability

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Four Broad Managerial Alternatives

• Third Party
• Government
• Unilateral
• Multilateral
• Private

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Four Broad Managerial Alternatives

• Branding
• Intermediation
• Direct (certification)
• Vertical
• Co-branding
• Reputation
• Warranties
• Advertising

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Four Broad Managerial Alternatives

• Insurance and/or Bonding
• Passive firm strategy
• Assures in a legal sense minimizes financial
  culpability, especially regarding food safety
• Does nothing relative to TTA or IP

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Four Broad Managerial Alternatives

• Supply Chain Coordination
• Vertical Integration
• Strategic Alliance
• Contracting

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TTA Example The Swine-Pork Subsector

• Where in the system and how can information be
  collected?
• Who will collect it?
• How will it be processed?
• How will it be disseminated?

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Schematic of Swine-Pork Marketing Channel
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TTA What Information?
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TTA Where and What Information?
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TTA in the Global Food System

• Comparative analysis by country indicates some
  countries are more advanced than the United States

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Conclusions and Implications for the Global Food
System
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Conclusions

• IP And TTA are core IT and E-Commerce issues
• E-Commerce trend is consistent with the
  information need if IP and TTA
• Firm strategy relative to IP and TTA is as a
  tactical question as well as a policy question
• Obsolescence of U.S. Government Role

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Conclusions

• Obsolescence of USDA Government Role
• Slow
• Best at setting minimums for standards
• Current pattern is relative to commodities, not
  food products
• FDA more modern but centered on safety

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Conclusions

• U.S. government compartmentalized and
  consequently specialized
• USDA
• FDA
• EPA
• Makes it difficult to take aggregate supply chain
  approach for regulation and standards setting

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Conclusions

• Broad-Based Third Party Limited in the Long-Term
• High transaction costs
• Conducive to commoditization of Attributes, not
  specialized attributes
• Inconsistent with rent seeking and innovation

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Key Implications

• Food production and processing will generate more
  information
• TTA and IP will be more expensive than the
  current system
• Consumers right-to-know will dramatically
  influence IT and E-Commerce in the global food
  system

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Agribusiness and Farm Income Enhancement
Programs