Modeling Differentiated Quality Standards in the Agri-Food Sector: The Case of Meat Trade in the EU

This paper looks at trade impacts of quality related standards from the supply side of the exporting country. We argue that food quality standards imposed by an importing country have profound effects on the market structure of the exporting industry, and hence a significant impact on the supply response. For our analysis, we develop a stylized oligopoly model that allows for the co-existence of complying and non-complying suppliers. The model is applied to two alternative policy options to explore different mechanisms an importing county may use to enhance the quality of its imports. We take the Polish meat sector as an empirical example, since after Poland's accession to the EU the tight EU food quality standards indeed apply but the process of adjusting to them is far from complete - particularly in Polish meat production/processing. The simulations show that a subsidy scheme, such as the EU's SAPARD program in Poland, can be an effective instrument to promote the compliance with standards and to upgrade the industry in the exporting country.