1. Houda Ghozzi, Claudio Soregaroli, Pascal Tillie, Emilio Rodriguez-Cerezo June 28 th, 2016 Governance drivers in the EU “Non-GMO” soybean supply chain: Insights from TCE

2. 2 Outline Context TCE drivers Methodology Results and discussion 1 1 2 2 3 3 4 4

3. 3 Context EU imports 94% of soybean products Impact IP Practices JRC-IPTS survey on non- GMO supply chain shows that non-GMO will most likely increase in the future Non-GMO adoption Since end of 90s companies adopt non-GMO as a private voluntary standard -Reduce risk of food safety failures and non-GMO activists black lists -Differentiation purposes Since end of 90s companies adopt non-GMO as a private voluntary standard -Reduce risk of food safety failures and non-GMO activists black lists -Differentiation purposes Sourcing non- GMO requires IP practices In the EU, positive labeling is mandatory for GMO content above 0.9% for each ingredient

4. 4 Research Objective Provide quantitative evidence on the governance of the non-GMO supply chain and its determinants

5. 5 Transactional drivers  Dominates literature since 40 years in studying governance structure  Remains the most used approach in the supply chain area (Defee et al., 2010, Chicksand et al., 2012)  In non-GMO studies: qualitative research uses TCE determinants to explain greater degree of vertical coordination (Passuello et al. 2015, Varacca et al. 2014)  Dominates literature since 40 years in studying governance structure  Remains the most used approach in the supply chain area (Defee et al., 2010, Chicksand et al., 2012)  In non-GMO studies: qualitative research uses TCE determinants to explain greater degree of vertical coordination (Passuello et al. 2015, Varacca et al. 2014)  3 generic governance forms are correlated to the level of Transaction Costs:  Markets  Hybrids  Hierarchies  3 generic governance forms are correlated to the level of Transaction Costs:  Markets  Hybrids  Hierarchies  3 dimensions:  Specificity  Uncertainty  Frequency  3 dimensions:  Specificity  Uncertainty  Frequency  « Discrete alignment principle » based on « Economizing »;  Facing high specificity, uncertainty, and frequency transaction, vertical integration should be adopted;  « Discrete alignment principle » based on « Economizing »;  Facing high specificity, uncertainty, and frequency transaction, vertical integration should be adopted;

6. 6 Main predictions Prediction 1: The greater the degree of specificity, the more likely a firm is to select a higher degree of vertical integration Prediction 2: The greater the degree of uncertainty, the more likely a firm is to select a higher degree of vertical integration Prediction 3: The greater the asset specificity, the more the uncertainty surrounding a transaction is likely to induce the firm to select a higher degree of vertical integration

7. 7 Methodology-Sample Retailers Processors Non-GMO Feed manufacturers International Trader Domestic Crusher  A soybean supply chain survey was conducted by JRC-IPTS from April to June 2014 in 15 UE countries that represent 90% of total UE demand  The sample is representative of the non-GMO supply chain including 202 actors  Questions related to governance and transactional drivers were included in the survey. Both the procurement and selling sides were investigated  Respondents were owners of the company, executive, line manager or responsible of purchasing interviewed by face-to-face or by phone (processors and retailers)  A soybean supply chain survey was conducted by JRC-IPTS from April to June 2014 in 15 UE countries that represent 90% of total UE demand  The sample is representative of the non-GMO supply chain including 202 actors  Questions related to governance and transactional drivers were included in the survey. Both the procurement and selling sides were investigated  Respondents were owners of the company, executive, line manager or responsible of purchasing interviewed by face-to-face or by phone (processors and retailers) Procurement Side Selling Side

8. 8 Methodology- Measures and Models Independent variables Dependent variables Spot market: ….% Contracts:…. % Financial participation (VI):…% A cut-off level was used recoding the variables with more than 90% value (Parmigiani, 2009) Pure Spot market: Pure Contracts Pure Financial participation (VI): Pure Plural forms Spot market: ….% Contracts:…. % Financial participation (VI):…% A cut-off level was used recoding the variables with more than 90% value (Parmigiani, 2009) Pure Spot market: Pure Contracts Pure Financial participation (VI): Pure Plural forms Specificity Environnemental uncertainty Behavioural uncertainty 9 items reflecting the level of investments in physical and human assets 2 main items assessing the perception of uncertainty in market and the possibility to readjust commitments with suppliers/buyers 2 items reflecting the easiness of assessing responsibility of suppliers/buyers in case of non- compliance and the easiness to replace the supplier/buyer PCA Analysis 2 components: Specificity and Uncertainty 1 Multinomial logit model

9. 9 Results- Governance forms Plural Forms Spot Market ContractsVI Procurement Side Selling Side

10. 10 Results- Multinomial logit model Procurement Side Selling Side

11. 11 Discussion  Prevalence of spot markets and contracts, as opposed to financial participation (Varacca et al., 2014), particularly in animal food processors in procurement side (23.3%)  Results confirm the role of TCE in shaping the non-GMO supply chain  Asset specificity  Interaction of uncertainty and specificity (David and Han, 2004)  50% of the governance forms adopted in the UE are plural forms

12. 12 TCE drivers and plural forms?

13. 13 Results- Composition of “plural” forms Procurement Side Selling Side Spot+ Contract Spot+ VI Contract + VI Spot+ Contract+VI

14. 14 Results- “Plural” forms SUR regression Procurement Side Selling Side

15. 15 Conclusion  TCE determinants impact governance in the non-GMO supply chain  TCE that does not take into plural forms and other reasoning: knowledge, strategic behavior  Further investigation to address the logic behind the choice of plural forms and behind the allocation mechanisms  Non-GMO vs. conventional supply chain

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17. 17 Expected signs of coefficients of equation (1) and (2) from theoretical predictions

18. 18 Share of spot markets by subsector

19. 19 Share of contracts by subsector

20. 20 Share of financial participation by subsector

21. 21 TCE variables