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What are the potential benefits of traceability systems beyond consumer willingness-to-pay
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Transcript of What are the potential benefits of traceability systems beyond consumer willingness-to-pay
What are the potential benefits of traceability systems beyond consumer
willingness-to-pay
Eluned Jones
Texas A&M University
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
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
US Grain Infrastructure:number of grain handling facilities by state and export location
Location Number of Elevators by Storage Capacity (NASS, 2002)
< 1 million bu
(< 25,500 mt)
>= 1 million bu
(> 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
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)
Acc
oun
t fo
r 53
% o
f U
S o
n-fa
rm s
tora
ge c
apac
ity
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
CleaningCracking& Dehulling
Conditioning& Flaking
SolventExtraction
SolventRemoval
Toasting
Grinding& sizing
Soybeansfrom storage
Toasting& grinding
CrudeSB oil
Hulls
SBM44% protein
SBM48% protein
Process flow forCrushing SBUsing solvent extraction
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 efficiencyRatio of allocation of storage
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
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
Trust
Property rights
food ingredients
cognitive
emotional
‘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
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.
Key factors w.r.t. the motivations for implementing T&A protocols
1. 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)
• Costs of T&A 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
• Value (of T&A 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 T&A protocols highlights factors that were previously overlooked in the business relationship?
2. 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)?
3. 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
4. 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
T&A 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 T&A system is in place)
• What would motivate the firm to invest?
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
Average Additional Production Costs ($/bu) for selected crops in Illinois
Value added crop Production costs
Harvesting & marketing costs
Total producer costs
Total handler costs
White food grade corn 0.03 0.46 0.49 0.15
Yellow food grade corn
0.40 1.21 1.61 0.11
Tofu soybeans 0.48 2.54 3.02 0.06
Non-gm soybeans 0.07 0.10 0.17 0.10
Source: Bender, Hill, Good (2000, 2001)
Farmers Coop, Iowa www.fccoop.com
Source verification divided into 9 areas:• Raw materials• Process control• Process verification – statistics• Finished product acceptability• Storage & shipping• Instrument accuracy and calibration• Personnel training• Plant programs (safety, etc)• Quality policies (mgt commitment)
Cost-Benefit Summary for QMS at a Farmers Cooperative Elevator, Iowa.
Operation Cost Savings ($)
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 2:1
Source: Iowa State Univ. and Farmers Cooperative, 2002
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
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
• USDA – GIPSA certification (ISO 9001 based)
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
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.”
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 M&A’s, 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
Top Global Supermarket Companies Company Stores
ownedSales ($ 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
Albertson’s 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