TRACEABILITY AND IDENTITY PRESERVATION POLICY: PRIVATE INITIATIVES VS. PUBLIC INTERVENTION

Firms within the food supply chain must decide what information to provide and how to provide it. This applies to collecting information from upstream suppliers as well as to supplying information to downstream customers. Components of this vertical information situation include farmer supplier identity preservation to capture value and the buyer information needs concerning geographic location of production or seller identity in order to manage risk. A policy question is raised as to how vertical information flow; in the form of segregation, traceability, or identity preservation, should be accomplished. This question has recently come to the policy forefront through European labeling/traceability issues, the Canadian BSE incident, Country of Origin Labeling legislation, and biosecurity concerns. The US food industry often contends that mandated macro government systems (e.g. full traceability systems, animal passports, ISO 9000) would be misplaced and ineffective. They point to the tremendous private quality control systems, already in place in the industry. Though the industry's quality systems may not be in the public domain as in Europe, they are nonetheless present. The argument continues that proprietary systems contribute to a firm's competitive advantage and mandating a system would distort investment and incentives. Within this classic debate about public policy versus private strategies is a fundamental question about the role of commodities in the economy. Are they an inferior form of market development whereby the natural and preferred tendency is for supply to differentiate? Put another way is the economy better off with differentiated or undifferentiated (commodity) basic inputs? This article contributes to the policy debate by discussing why and how commodities many times are preferred by end users and thereby a signal of a properly performing economy not a market "failure." The discussion will also shed light on why farmer premiums remain low and how greater value can be created at the production stage.