What are the potential benefits of traceability systems beyond consumer willingness-to-pay

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What are the potential benefits of traceability
systems beyond consumer willingness-to-pay

• Eluned Jones
• Texas AM University
• Eluned_at_tamu.edu

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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 2000
Internet
PCs
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Where is the weakest link in the food
ingredients supply chain?
Customer
Retailer/Service
Manufacturer
Processor
1st handler/elevator
Greatest potential for breakdown in Ensuring
integrity
Producer
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US Grain Infrastructurenumber of grain handling
facilities by state and export location
Location Number of Elevators by Storage Capacity (NASS, 2002) Number of Elevators by Storage Capacity (NASS, 2002)
lt 1 million bu (lt 25,500 mt) gt 1 million bu (gt 25,500 mt)
Illinois Iowa Kansas Minnesota Nebraska Gulf Terminal Atlantic Terminal Pacific Northwest Great Lakes 534 373 656 134 339 - - - - 357 293 160 100 204 12 4 9 18
Account for 53 of US on-farm storage capacity
Total US off-farm storage capacity 8.5 bill bu
(215 mill mt) Total US on-farm storage capacity
11 bill bu (285 mill mt)
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Economic incentives in grains oilseeds to
segregate

• Extraction science vs. art
• Grain/oilseed condition environment
• Extraction yield
• Starch, oil release
• Rate of flow
• Output quality processing performance
• Consistency in performance
• Known performance parameters
• Risk reduction
• Predict output, forecast plan sales
• Logistics planning scheduling
• Supply Chain Management

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Cleaning Cracking Dehulling
Hulls
Soybeans from storage
Toasting grinding
Conditioning Flaking
Crude SB oil
SBM 44 protein
Solvent Extraction
Solvent Removal
Toasting
Process flow for Crushing SB Using solvent
extraction

SBM 48 protein
Grinding sizing
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Corn for Food and Industrial

• 2 bill bu/annum
• 76 - wet milling
• 12 dry-milled alcohol
• 11 dry milling and masa
• Wet milling 5 components
• Starch
• Germ
• Gluten
• Fiber
• Steep liquor

• Differences in desired attributes
• value in end-use
• processing efficiency
• Ratio of allocation
• of storage

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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 (strategic) competitive advantage

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Transparency

• Role of information in market efficiency
  evolution of what constitutes descriptive
  information and meets buyers definition of
  property rights.
• Evolution of public vs. private role in
  facilitating markets

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Trust
food ingredients
cognitive
emotional
Property rights
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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

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Transparency

• Disclosure of all rules, management practices
  relating to the production, processing and
  handling of food ingredients at each level of the
  supply chain up to the point of retail sale
  (store or service location)
• Imbues buyer at any point of exchange in the
  chain with a right to know about the property
  that is the subject of the transaction.

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Key factors w.r.t. the motivations for
implementing TA protocols

• Value/costs/customer
• Economic signaling what serves as a signal,
  how should the signal be interpreted
• Customer (derived signal)
• Government regulations (imposed signal)
• Industry (generated signal)

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• Costs of TA protocols allocation of the costs
  of implementation maintenance
• Short run variable costs
• Fixed/overhead costs
• Customer service
• Market access
• Costs of gaining competitive advantage
  strategic positioning investment
• Risk/liability management

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• Value (of TA protocols)
• How is this determined, and does this depend on
  whether firm is buyer or seller?
• Identification of cost-saving efficiencies
  (decreased shrink loss)
• Comparative advantage geographic proximity
• Competitive advantage first mover
• Brand/reputation private label brands
• What is the likelihood that implementing TA
  protocols highlights factors that were previously
  overlooked in the business relationship?

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• Risk and Liability who assumes liability? What
  are the risks if TA protocols are not in place?
• Potential loss of customers
• Export market loss
• Market access
• Contract specification error
• Recall
• What if TA protocols are in place and a
  contamination event occurs (doesnt meet contract
  specs, safety factor, biosecurity incursion)?

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• 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 in place/not in place
• Information technology used for sharing
  information (EDI)
• Compatibility of computer/IT architecture

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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

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TA as an investment

• Is the process control system adopted faster if
  there are prior investments?
• (a) physical, i.e. hardware and software
• (b) soft, i.e. training programs, human
  capital, and quality management protocols
• What is the relationship of process control to
  regulatory inspection HACCP, ISO, SQF, other?
• How is the value of process control related to
  other IT infrastructure in the firm?
• What would it take to initiate a process control
  system within the firm?
• Why did the firm invest? (where a TA system is
  in place)
• What would motivate the firm to invest?

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Steps in ensuring integrity of farm level supply
chain
Chemical storage
30 Residue left on field soil test
Follow Rotation Of SB
Analyze Hybrid performance
Seed Depth spacing
Fertilizer pesticide application
IPM-based Pest mgt
Combine settings
Quality Grain Mgt
On-farm handling storage
Land selection
Seed selection
Spring tillage
Fall tillage
seeding
growing
harvesting
Clean conveyors Dryers bins
Pollen drift check
Previous GM crop use
Non-GM seed purity
Quality Grain Sample check
delivery
Clean planter boxed
Non-GM sample check
Clean combines trucks
Basic production steps
Best production practices
Pts requiring SOPs
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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)
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Farmers Coop, Iowa www.fccoop.com

• Source verification divided into 9 areas
• Raw materials
• Process control
• Process verification statistics
• Finished product acceptability
• Storage shipping
• Instrument accuracy and calibration
• Personnel training
• Plant programs (safety, etc)
• Quality policies (mgt commitment)

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Cost-Benefit Summary for QMS at a Farmers
Cooperative Elevator, Iowa.
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 21
Source Iowa State Univ. and Farmers Cooperative,
2002
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QMS development

• General manager
• Grain dept. manager
• Regional grain superintendent
• Elevator superintendent
• Location manager
• Elevator operator
• Railcar mover operator
• Truck scale, sampling, and grading operator
• Grain accounting manager
• Grain clerk
• MIS Dept. Manager
• Computer programmer

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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 1990s, e.g. tofu soybeans to Japan
• AIB QSE- ISO 9000(2000) basedFarmers
  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
• USDA GIPSA certification (ISO 9001 based)

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GIPSA, 2002

• 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.
• AMS-USDA already provides similar process
  verification for fruits, vegetables and for
  livestock products (e.g. Premium Standard Farms
  pork products are certified under the AMS-USDA
  certification process

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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.

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Trends of note associated with the grains and
oilseeds sector

• ConAgra divesting animal protein activities
  strategic focus
• Cargill, DuPont new corporate Centers of
  Expertise with focus on SCM and product
  assurance
• Monsanto consistent strategic activity despite
  market response (RR wheat)
• EU reaction to US petition to WTO
• Antitrust concerns w.r.t. multinational MAs,
  and to category mgt activity implications for
  further coordination in the food supply chains.
• Intellectual Property protection ADM vs. DuPont
  w.r.t. Solae new venture between DuPont and Bunge

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Top Global Supermarket Companies
Company Stores owned Sales ( bill.) Countries of Operation
Wal-Mart Stores (US) 4,190 195.3 US, Puerto Rico, Canada, Mexico, UK, Germany, Argentina, Brazil, China, S. Korea
Carrefour (France) 8,926 55.3 France, Belgium, Czech Rep., Slovakia, Switzerland, Spain,Greece,Portugal, Turkey, Italy, Poland, Brazil, Argentina, Mexico, Colombia, Chile, Singapore, Indonesia, Japan, Taiwan, Malaysia, China, Thailand, S. Korea
Kroger (US) 2,354 49.0 US
Ahold (Netherlands 8,062 44.8 US, The Netherlands, Sweden, Norway, Denmark, Latvia, Lithuania, Estonia, Portugal, Spain, Czech Rep., Poland, Brazil, Argentina, Chile, Guatemala, Thailand, Malaysia
Metro (Germany) 2,169 40.1 Germany, Austria, Belgium,Bulgaria, China, Czech Rep., Denmark, France, UK, Greece, Hungary, Italy, Luxembourg, Morocco, Netherlands, Poland, Portugal, Romania, Slovakia, Spain, Switzerland, Turkey
Albertsons 2,533 36.8 US
Tesco (UK) 907 32.4 UK, Ireland, Hungary, Poland, Czech Rep., Slovakia, Thailand, S. Korea, Taiwan
Safeway (US) 1,688 32.0 US, Canada
Rewe Zentrale (Germany) 11,788 31.9 Germany, Austria, Italy, France, Poland, Hungary, Czech Rep., Slovakia, Croatia, Romania, Ukraine, Bulgaria
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