Traceability and Information Completeness

Traceability is the system used to describe the production history of the product and any further processes that the food may undergo along the way from the primary producer to the consumer (Tuncer, 2001). The aim is to transfer complete and reliable information to the supply chain agents who should have the possibility to verify and trace product information related to the origin and characteristics of the production process (Theuvesen, 2005). Despite traceability implemented through modern technology (software and IT systems), the risk of coordination problems and principle agent dilemma (Arrow, 1985) in highly interdependent supply chains may instigate opportunistic behaviour that motivates actors to reduce their effort in sharing accurate information, jeopardizing the identification of assured produce from those which are not assured. If we make the assumption that third-party certification systems are structured along an information chain (see Figure 4), we could likewise assume that information regarding certification flows is distributed through different actors of this chain. Each one of these actors has the responsibility to transfer and communicate the certification information as adequately and transparently as possible. Failure to do so denotes the reduction of both efficiency and effectiveness in the whole certification system.

Figure 4: Certification information chain (modified from FoodPLUS GmbH, 2007)

Certification information consists in a series of elements, which together build the scope of certification that has been defined by the scheme rules. The scope of certification varies

Standard Owner (Database Structure)

Certification Body (Data Carrier)

Farmer/Manufacturer (Data Source)

according to the objectives and structure of each one of the private schemes. In agribusiness, food certification is divided into two main areas: pre-farm gate and post farm gate. The former gathers the certification of farms and activities related to primary production and certification can cover product certification (e.g. product tests), process certification (e.g. organic farming) or both (e.g. good agricultural practices). In addition pre-farm gate certification could be specific for inputs (e.g. feed, propagation material, etc.) as well as for services (e.g. application of pesticides, harvesting etc.). On the other hand, post-farm gate certification gathers certification of manufacturers (e.g. packing or processing) transport (e.g. ground or marine) or distribution, it includes controls for good manufacturing practices, HACCP or process quality (e.g. ISO 9000 series). Certification scope can also be granted for one single product (e.g. tomato, tomato juice) or a group of products (e.g. fruit and vegetables, fruit juice, etc.). In addition to this, the scope could cover the certification of individual companies or to be granted to a group of companies.

From the above you can expect a quite detailed collection of data, which will reflect the information that is behind a scheme certificate and brand. For this reason it is important that the data is accurate enough to guarantee that products linked to the certification are really coming from sites that have been inspected and have certified compliance with the private scheme rules and standards. In addition to this, the relevant information gathered at the audit must be transparently transferred through the certification chain and to the food supply chain. Some private schemes whose scope covers food safety elements are requiring companies to implement basic traceability systems (one step forward - one step backwards) for tracking and tracing their certified products. Traceability is meant not only to trace the origin of products and identify the certified company but also to transfer complete and reliable information about the product and process characteristics throughout the value chain. Furthermore, certification bodies are required to collect company data in a centralized database from where the scheme owner can validate the certificate content and communicate into the food supply chain.

Theuvsen (2005) highlighted the fact that although there is currently modern information technology for collecting and transferring certification data, due to coordination and motivational problems the correctness and completeness information can still not be granted. Most food supply chains present interdependencies between different actors (Thompson 1967), and coordination problems in completing and transferring reliable information through

the chain raise when the number of these interdependencies increases. On the other hand information asymmetries between principles and agents (Eisenhardt, 1989) could potentially occur along with opportunistic behaviour by agents known as hidden actions (Arrow, 1985). When agents reduce effort and thereby jeopardize the completeness of the information or try to disguise actions which are not in the best interest of the principles, the question of correctness and the credibility of the information is raised. Likewise within the certification chain there are input-output relationships and therefore interdependencies between the actors, so it could be assumed that coordination problems and principle-agent dilemmas are also present and affect the credibility of the certification information.

In order to improve transparency and traceability, it is suggested that the food industry should strengthen the cultural value of storing and transferring correct and complete information, but this would be very difficult without an economic incentive. Theuvsen (2005) also emphasizes that to overcome the motivational barriers related to track and tracing, it is important that changes in the organization of food production is oriented towards reducing transactions either by vertical integration strategies within a food sector, or by strengthening the industry culture towards improving transparency and the transfer of information. In addition to screening good actors from bad actors through third party certification or by improving monitoring systems, there should be investments in signalling devices (e.g. branding), to generate responsibilities and trust in the value chain. However, branding strategies do not always ensure adequate information provision and could even be insufficient to alleviate market failures.

The high number and great variety of existing schemes could imply a lower level of transparency and the possibility of confusion for consumers, with a consequent possible loss of faith in the system itself (JRC, 2005). Under these conditions, the system could “fail” in the objective of communicating quality and valorising products and/or firms (JRC, 2005). For example, some studies reveals that eco-labels like “environmental friendly” and “organic” fail to communicate adequately, thus could not efficiently diminish information asymmetries (Amstel et al., 2007). According to Giannakas (2002), with the introduction of certification activities, there are clear incentives for mislabelling and fraudulent behaviour, especially when consumers are not able to identify the certified characteristics even after purchase experience and use of the products. Incentives of mislabelling will be stronger in markets where the certified products are more profitable or generate other attractive commercial

benefits to suppliers. Cases of mislabelling have been reported in organic product markets where conventional food counted between 15% and 40% of organic labelling produce. Consumer deception due to mislabelling affects consumer trust in the labelling process and can have detrimental consequences for market acceptance of certified products. When extensive mislabelling occurs, the value of labelling is undermined and the certified food market fails.