1. Differentiated Product Marketing

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

3. SYSTEMS OF PRODUCT IDENTIFICATION
Motivations for Voluntary Traceability
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
Credence attributes may prompt some firms to segregate or establish IP and traceability systems—in fact, where attribute testing is not possible, IP and traceability may be the only way to differentiate these attributes.
Some firms may differentiate production by establishing separate product lines within the same plant or by sequencing production and thoroughly cleaning production facilities between differentiated product batches.
Other firms may dedicate a whole plant to the production of one specific product line.
Firms that produce foods with process attributes by contracting with ingredient suppliers for commodities with particular attributes have, de facto, established traceability and IP systems. For example, firms that market dolphin-safe tuna segregate (sometimes exclusively buying dolphin-safe tuna) and keep records of their transactions.

4. SYSTEMS OF PRODUCT IDENTIFICATION
Motivations for Voluntary Traceability
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
A fundamental issue faced by a firm producing a product differentiated by a credence attribute is how to establish market credibility.
Third parties offer four primary services to help verify quality claims: establish product quality standards and/or traceability standards; test products, and/or review traceability documentation to verify that traceability and/or technical standards have been met; provide certification that standards have been met; and report violations of standards.
• The Good Housekeeping Institute sets product standards and provides consumer guarantees for a wide range of goods, including foods.
• The American National Standards Institute (ANSI) facilitates development of voluntary private-sector standards for a wide range of products.
• Underwriters Laboratories (UL) provides standards and certification, primarily for electrical appliances.
• The Council of Better Business Bureaus works with the National Advertising Review Board to investigate questions of truth and accuracy in national commercial advertising.
• ISO is a worldwide federation of national standards bodies, promotes the development of standardization and international standards for a wide range of products
Governments can also provide voluntary third-party verification services. For example, to facilitate marketing, producers may voluntarily abide by government established and monitored commodity grading systems.

5. SYSTEMS OF PRODUCT IDENTIFICATION
Motivations for Voluntary Traceability
Differentiate and market foods with subtle or undetectable quality attributes
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
Firms want to avoid the association of their brands with safety hazards or compromised quality.
Most food processors put coded information on food packaging to facilitate product identification.
The struggle to control BSE in cattle in the United Kingdom has warranted the development of various traceability systems to document the distribution of beef products. One example is the traceability system adopted by an Irish supermarket which uses DNA testing capable of tracing meat to animal of origin rather than to farm or herd.

6. SYSTEMS OF PRODUCT IDENTIFICATION
Motivations for Voluntary Traceability
Differentiate and market foods with subtle or undetectable quality attributes
Facilitate traceback for food safety and quality
Improve supply-side management
Traceability helps manage product flows and track retail activity
Bar codes are composed of a series of numbers detailing standard information on type of product and manufacturer (the UPC code), and a series of numbers assigned by the manufacturer to nonstandard production or distribution details.
The original UPC system has combined with technological advances and e-marketing to spur the development of integrated systems that code, track, and manage wholesale and retail transactions. For example, a few big retailers such as Walmart and Target have created proprietary supply-chain information sys-tems that their suppliers must adopt. In other cases, firms establish systems to link suppliers and buyers. For example, UCCnet, which is a subsidiary of the Uniform Code Council, has developed an inte-grated system to standardize and automate information systems across a supply chain.
Vegetable and fruit farmers routinely tag their produce crates to record location and date of harvest. This information aids in inventory management at the packinghouse and in tracking shipments.

7. SYSTEMS OF PRODUCT IDENTIFICATION
Motivations for Mandatory Traceability
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
Facilitate and monitor traceback to enhance food safety
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
Note that if markets produce all the information that consumers are willing to pay for, mandatory traceability systems would be superfluous and introduce unwarranted costs.

9. SYSTEMS OF PRODUCT IDENTIFICATION
Motivations of Mandatory Traceability
Facilitate and monitor traceback to enhance food safety
Enhance consumer information about food safety and quality
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
If firms are not required to establish proof that credence attributes exist, some may try to pass off standard products as those having credence attributes, in order to gain price premiums. No mandatory traceability would be necessary for conventional foods because consumers typically are not willing to pay more for these foods.

10. SYSTEMS OF PRODUCT IDENTIFICATION
Motivations of Mandatory Traceability
Facilitate and monitor traceback to enhance food safety
Enhance consumer information about food safety and quality
Protect consumers from fraud and producers from unfair competition
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
Products grown and processed according to USDA’s national organic standards and certified by USDA-accredited State and private certification organizations
Organic 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
Total U. S. organic industry sales around $9 billion in 2002.
Annual growth rate exceeding 20%

15. SYSTEMS OF PRODUCT IDENTIFICATION
Country-of-Origin Labeling (COOL)
2002 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
Was to become mandatory Sept 30, 2004
Delayed until Sept 30, 2006
Delayed 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
Feedlot
Packer
Auction Barn
Cow/Calf Producer
Third Party Database
Potential Industry Use

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 Products Undifferentiated
Perfectly competitive markets
Products
Differentiated
Monopoly - Workable competition
Niche Market, branded, labeled, etc

28. Motivation Commodity market Product markets 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

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.

39. 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