1. Differentiated Product Marketing

2. SYSTEMS OF PRODUCT IDENTIFICATION Government-Mandated Traceability –Motivations: 1.Facilitate and monitor traceback to enhance food safety 2.Enhance consumer information about food safety and quality 3.Protect consumers from fraud and producers from unfair competition 4.Protect domestic producers Voluntary Traceability –Motivations: 1.Differentiate and market foods with subtle or undetectable quality attributes 2.Facilitate traceback for food safety and quality 3.Improve supply-side management

3. SYSTEMS OF PRODUCT IDENTIFICATION Motivations for Voluntary Traceability 1.Differentiate and market foods with subtle or undetectable quality attributes “Credence” attributes: Characteristics that consumers cannot discern even after consumption –Content attributes: Affect actual physical properties of product, but difficult for consumers to perceive –Process attributes: Concerned with production process, usually cannot be detected even with specialized testing equipment

4. SYSTEMS OF PRODUCT IDENTIFICATION Motivations for Voluntary Traceability 1.Differentiate and market foods with subtle or undetectable quality attributes Firms sometimes resort to third-party entities to validate claims about quality attributes –Examples: »Good Housekeeping Institute »American National Standards Institute (ANSI), »Underwriters Laboratories (UL) »Council of Better Business Bureaus »International Organization for Standardization (ISO) »Government inspectors

5. SYSTEMS OF PRODUCT IDENTIFICATION Motivations for Voluntary Traceability 1.Differentiate and market foods with subtle or undetectable quality attributes 2.Facilitate traceback for food safety and quality Traceability helps producers reduce time to identify and remove contaminated foods from production lines and/or from market, before food item reaches consumers

6. SYSTEMS OF PRODUCT IDENTIFICATION Motivations for Voluntary Traceability 1.Differentiate and market foods with subtle or undetectable quality attributes 2.Facilitate traceback for food safety and quality 3.Improve supply-side management Traceability helps manage product flows and track retail activity

7. SYSTEMS OF PRODUCT IDENTIFICATION Motivations for Mandatory Traceability 1.Facilitate and monitor traceback to enhance food safety Mandatory traceability enables authorities to identify sources of food contamination/hazards and contain risks faster

8. SYSTEMS OF PRODUCT IDENTIFICATION Motivations for Mandatory Traceability 1.Facilitate and monitor traceback to enhance food safety 2.Enhance consumer information about food safety and quality If producers are not providing as much information about safety/quality as consumers desire, mandated traceability may allow consumers to choose food products better matching their preferences

9. SYSTEMS OF PRODUCT IDENTIFICATION Motivations of Mandatory Traceability 1.Facilitate and monitor traceback to enhance food safety 2.Enhance consumer information about food safety and quality 3.Protect consumers from fraud and producers from unfair competition By enforcing traceability, the government may assure consumers and competitors that firms claiming to sell products with credence attributes can substantiate their claims

10. SYSTEMS OF PRODUCT IDENTIFICATION Motivations of Mandatory Traceability 1.Facilitate and monitor traceback to enhance food safety 2.Enhance consumer information about food safety and quality 3.Protect consumers from fraud and producers from unfair competition 4.Protect domestic producers Mandatory traceability to identify domestically produced vs. imported foods may allow domestic producers to command a premium

11. SYSTEMS OF PRODUCT IDENTIFICATION Examples of Mandatory Traceability  Certified Organic  Country-of-Origin Labeling (COOL)  Age verification for Japan  Grass-fed beef  Naturally raised livestock

12. SYSTEMS OF PRODUCT IDENTIFICATION Examples of Mandatory Traceability  Certified Organic Products oProducts grown and processed according to USDA’s national organic standards and certified by USDA- accredited State and private certification organizations oOrganic Foods Act of 1990 established national standards for organically produced commodities  Organic growers must have to be certified under USDA’s National Organic Program  A person may sell or label an agricultural product as organically produced only if product has been produced and handled in accordance with National Organic Program

13. SYSTEMS OF PRODUCT IDENTIFICATION Examples of Mandatory Traceability  Certified Organic Products

14. SYSTEMS OF PRODUCT IDENTIFICATION Examples of Mandatory Traceability  Certified Organic Products

15. SYSTEMS OF PRODUCT IDENTIFICATION  Country-of-Origin Labeling (COOL) o2002 Farm Act  Retailers must ensure verifiable audit trail  COOL not required for foods that are ingredients of processed food items  Foodservice establishments exempt from COOL  “Unknown origin” label not allowed  2002 Farm Act oWas to become mandatory Sept 30, 2004 oDelayed until Sept 30, 2006 oDelayed again until Sept 30, 2008

16. SYSTEMS OF PRODUCT IDENTIFICATION  Country-of-Origin Labeling (COOL)  Disagreement on how to implement  Presumed US  Make importers label  Anything not labeled is presumed to be US  Verifiable audit trail  Move the product with a signed affidavit  Keep records to back up claim if audited  Regardless of cost at farm level there is a cost beyond the farm gate to segregate and document

17. NAIS is NOT COOL COOL is an amendment to the 1946 Agricultural Marketing Act –Retailers inform all consumers –Sec of Ag cannot implement traceback NAIS (National Animal Identification System) –Animal health surveillance –Confidential system, only federal veterinarians

18. The Proposed NAIS System National Database USDA Required Third Party Database Potential Industry Use FeedlotPacker Auction Barn Cow/Calf Producer

19. SYSTEMS OF PRODUCT IDENTIFICATION ISO, Greek for “equal” International standard for quality systems In a nutshell: –Say what you do –Do what you say –Document it with records

20. SYSTEMS OF PRODUCT IDENTIFICATION  Age verification for Japan –Japan will accept 20 months or less –Two methods to confirm age Physiological maturity A40 Production records –Need records to export variety meat  Based on ISO principles

21. Age verification for Japan Signed affidavits alone are not sufficient to qualify cattle for the EV Program for Japan. Cattle must be approved either through an approved USDA Process Verified Program or QSA Program. These Programs require supplier evaluations and re- evaluations.

22. Age verification for Japan Quality Management System A written management system that must address: –Documentation Requirements –Management Responsibility –Resource Management: –Production of Product –Measurement, Analysis and Improvement: –Record Requirements

23. Age verification for Japan Producer Requirements Records to validate age Procedures – Farm or Ranch Plan –Written management plan Records to validate activities Must be repeatable Producer is evaluated by company and/or USDA to verify conformance.

24. Age verification for Japan Management Plan Describe operation/farm Define practice –What is done –Who does it and how are they trained –How is it recorded –Where are the records

26. Product v. Process Certification Tighter product specification –Sorted by processor Process specification –How it is produced Role of and return to producer????

27. Commodity v. Product Commodity –Undifferentiated –Perfectly competitive markets Products –Differentiated –Monopoly - Workable competition –Niche Market, branded, labeled, etc

28. Motivation Commodity market –Price takers –Cost driven –Long-run P=minimum ATC Product markets –Price makers –Costs not as important –Potential for sustained higher profit margins

29. Commodity system Extremely efficient Challenges –Co-mingling from many sources –Consumers signals not transmitted –Little incentive to improve because benefits not passed through to producer –Expand to capture economies of size

30. Product system How to differentiate? Managed supply chain –Allows traceback to producer –Restricts production –Focus on quality

31. Procedures Why is the product different? –How it is produced –Where it is produced –What is produced –What it includes –What it doesn’t include Develop marketing around the difference

32. Procedures Limit production and access to control supply –Can’t look like price fixing to regulators –Geographical restrictions Swiss cheese Champaign –Trade secret –Emphasis on quality Traceability to verify

33. Farmer-Owned Brands Hayes and Lence Parma Ham –Restricts area where ham can be cured –Claim unique climate and winds –Restricts breeds and regions where hogs can be produced –Italian hog prices averaged $7.44 more than German hogs 1999-2001

34. Farmer-Owned Brands Hayes and Lence Vidalia Onions –Selected region in south Georgia –Used existing state law to restrict area –State-owned trademark –Premiums of $.30-$.34 per pound –First spring sales are 30-50% higher

35. Iowa 80 Beef Minimum Certification Requirements –Verified to be sired by a 100% Angus bull. –Source verified to the farm of birth using an identification system –Fed in an Iowa feedlot for a minimum of 180 days. –Fed a high-concentrate ration that totals at least 75 percent corn or corn co-products over the feeding period. –Age verified and processed at 18 months of age or less. –USDA grades upper one-third Choice or Prime.

38. Commodity v. Product Commodity Minimum requirements Anonymous No product or price differentiation Profits tied to low cost of production Product Product specifications Traceback and accountable Product and price differentiation Profit tied to costs and ability to protect higher prices