Chapter 14: Enhancing consumer confidence in food supply chains – Delivering Performance in Food Supply Chains

14

Enhancing consumer confidence in food supply chains

M. Garcia Martinez,     University of Kent, UK

Abstract:

Understanding consumer confidence in the safety of food products and the regulation thereof is critical for effective implementation of risk management and communication strategies aimed at restoring consumer trust in food chains. The perceived risk and mistrust of food safety systems influences public concerns. Consumer responses to risk messages contribute to the unacceptability of proposals for activities perceived as risky stimulate social and political action to reduce or avoid risk lead to questioning of the work and decisions of risk regulators and authorities and promote the selective use of information sources. This chapter looks at public attitudes towards food its safety and the risks and uncertainty associated with it. It considers the impact of food traceability and corporate social responsibility in increasing transparency throughout the food chain and enhancing consumer confidence in food and food producers. The chapter concludes with a discussion of the most effective and desirable mechanisms for achieving an appropriate level of food safety in the food supply chain.

Key words

food chains

food safety

perceived risk

supply chain management

trust

14.1 Consumers’ risk perception and trust in food chains

A number of food scares and controversies in recent years have left consumers confused about exactly what is and is not safe and uncertain about whether or not the government is acting in their best interests (Davies, 2001). This has resulted in increasing public distrust and reduced consumer confidence in the safety of food, the food industry and the government’s ability adequately to regulate, manage and communicate food risks (Cantley, 2004; Caduff and Bernauer, 2006; Halkier and Holm, 2006).

As a result, consumers want to know more about the motivations behind policy decisions regarding food safety (Davies, 2001). They are no longer content to accept a passive role when it comes to food and its safety and are increasingly looking for information from much further up the food supply chain and further back along the policy decision-making process in order to make more informed food choices. Thus, understanding consumer perceptions of food safety and its regulation is critical to the restoration of consumer confidence (Latouche et al., 1998).

Indeed, the literature on perceived risk highlights that consumer confidence and trust in regulatory institutions and players in food chain is critical for effective implementation of policies regardless of their efficiency merits (De Jonge et al., 2004; Walls et al., 2004; De Jonge et al., 2007). Research shows differences between players regarding the level of trust conferred to them by consumers (Frewer and Miles, 2003; Lang and Hallman, 2005), with consumer trust in some players having a greater impact on general consumer confidence in the safety of food than consumer trust in other players. Overall, consumer confidence in the safety of food is most strongly enhanced by trust in food manufacturers compared to trust in the government, farmers or retailers (De Jonge et al., 2008) as they are perceived to have more responsibilities for the safety of food than farmers and retailers, though less responsibility than the government (De Jonge et al., 2004).

The occurrence of a food safety incident and its reporting in the media significantly influences consumer confidence in regulatory institutions and players in the food chain (De Jonge et al., 2004) even when there is no medical or scientific evidence (Verbeke and Van Kenhove, 2002). However, consumer confidence in the safety of different food product categories varies. Consumers were highly confident about the safety of agricultural products such as diary and vegetables, but expressed less confidence in processed foods like ready-to-eat meals and those products perceived to have chemical character, namely vitamin supplements and energy drinks. This indicates that food safety incidents that are related to products already perceived as risky may have a higher impact on consumer confidence compared to those perceived as safe.

Consumers’ behaviour and associated attitudes towards a particular hazard are driven more by psychologically determined risk perceptions than the technical risk estimates provided by experts (see for example Slovic, 2000). Under uncertainty, people’s reactions to risk frequently depart from the behaviour predicted by the expected utility theory, with serious implications for choice and more importantly demand for risk mitigating interventions (see Arrow, 1982; Starr and Whipple, 1984; Smith and Desvousges, 1987; Viscusi et al., 1987; Lichtenberg and Zilberman, 1988; Viscusi and Hamilton, 1999). Particularly, incidents that are associated with increased consumer concerns can have significant negative consequences for the food industry and more critically for the regulatory authorities, limiting their ability to develop effective consumer protection policies (De Jonge et al., 2007). In the recent past, food safety incidents have resulted in trade bans, price fluctuations, culling of animals, decreased consumption of affected products and reputational damage of both the particular industry perceived to be responsible for such incidents and the wider food industry in general (Buzby, 2001; Verbeke, 2001; De Jonge et al., 2007). Such economic losses from perceived risk and the resulting irrational response to risk may not also be limited to the immediate time period following an incident, but potentially have long-term effects and reach beyond local and domestic markets (Shepherd and Saghaian, 2008).

In the past, expert groups have expressed frustration with public attitudes towards food, its safety and the risks and uncertainty associated with it (Macfarlane, 2002). The general public display behavioural patterns and make choices that seem irrational or illogical or at least inconsistent with expert opinion and scientific knowledge (Hansen et al., 2003). Consumers place more importance on factors that may not contribute to technical risk estimates, while underestimating other factors, which potentially represent a substantial threat to human health (Miles and Frewer, 2001). For example, microbiological hazards in food are judged by scientists to be one of the main risks to health, but the public is far more concerned about potential hazards from pesticide residues and food additives (Miles et al., 2004). Results suggest that people are more worried about risks caused by external factors (‘technological hazards’) over which they feel they have no control, while being much less concerned about personal factors or factors linked to their own behaviour or lifestyle (‘lifestyle hazards’) over which they feel they have more knowledge or more personal control (Frewer et al., 1994), although there are individual differences in the extent to which this holds true (Miles et al., 2004).

These differences have been further fuelled by biased media coverage of food safety issues, which tends to focus on relatively infrequent but highly sensational incidents (Baker, 1998). There is ample empirical evidence to suggest that the public is not ignorant and/or irrational (Slovic, 1992; Frewer et al., 2002; Macfarlane, 2002) and the differences in perception are the result of consumers including other (non-scientific) factors in their judgements of ‘acceptable’ risks (Fischhoff, 1995). Consumers tend to personalise risk and take a multidimensional view that incorporates certain personal values (Macfarlane, 2002). Thus, scientific evaluation is not necessarily the principal determinant of consumer choice. If consumers are not convinced of the utility of a product, they are unlikely to accept the risks associated with its consumption, however small the scientific risk might be, particularly when they perceive that the benefits of such products accrue mostly to industry. This argument has been demonstrated particularly in the case of gene technology where attitudes towards technological issues are strongly related to other more general sociopolitical attitudes, including attitudes towards the environment and nature (Frewer et al., 1997), attitudes towards science and modern technology and social (dis) trust (Siegrist, 1998).

14.2 Impact of food traceability in restoring consumer trust in food chains

Producers and regulatory institutions in Europe have attempted to restore consumer confidence in policy making and industry practices by introducing food and ingredient traceability systems (i.e. General Food Law, Regulation (EC) 178/ 2002). Traceability systems and subsequent quality and origin labelling schemes are expected to increase transparency throughout the food chain and to result in the development and maintenance of consumer trust in food and food producers (Van Rijswijk et al., 2008). Quality signalling can transform credence attributes into search attributes and strengthen consumer trust, allowing a reduction in consumer perceived risk towards food quality and safety and information asymmetry between consumers and producers (Mojduszka and Caswell, 2000). The credence characteristic of a product (i.e. food safety, animal welfare, organic production) cannot be observed or inferred by direct inspection, on consumption or even after consumption, whereas search characteristics (i.e. appearance or size) are known by consumers prior to purchase (Darby and Karni, 1973).

However, consumer interest in traceability information cannot be taken for granted (Hobbs et al., 2005; Verbeke and Ward, 2006). Research shows that people have little understanding of what traceability is (Giraud and Amblard, 2003) and that they are not particularly interested in cues directly related to traceability and product identification, despite uncertainty following a number of meat safety crises (Giraud and Halawany, 2006; Verbeke and Ward, 2006). Direct indications of traceability (e.g. bar codes and license numbers) and the provision of technical information associated with it are unlikely to increase consumer confidence given the low quality or safety inference potential of such information cues (Verbeke et al., 2007). Conversely, quality labels and safety guarantees are much more valued by consumers. Hence, the presentation of simpler information on traceability systems accompanied by labels (quality and safety related) would increase the probability of being valued by consumers (Verbeke et al., 2007; Van Rijswijk et al., 2008).

Research shows that consumers across Europe have divergent associations, perceptions and expectations regarding traceability (Giraud and Halawany, 2006; Van Rijswijk et al., 2008). Cultural values influence consumer food decision making (Briley et al., 2000; Hoogland et al., 2005), so expectations and attitudes towards food safety issues and risk management may vary depending on consumers’ cultural backgrounds (Van Kleef et al., 2006; Houghton et al., 2008). The Van Rijswijk et al. (2008) study on consumer perceptions of traceability in Europe shows similarities between countries regarding the benefits consumers associate with traceability (i.e. health, quality, safety and control). Across-country differences were also identified. German consumers are more sensitive about the processing conditions, while French consumers care more about origin and give a greater importance to past product experience such as taste. Spanish consumers perceive a high quality product as a sign of trust and Italian consumers are more sensitive to safety conditions. In other words, the consumers’ background greatly affects their attitude towards traceability-related attributes.

Consumers tend to associate traceability with higher product prices (Giraud and Halawany, 2006). Some consumers will be willing to pay higher beef prices to reassure safety while others will trade off price against safety improvements. In addition to socioeconomic characteristics, consumers’ risk perception associated with beef is one of the main driving forces for price premiums (Loureiro and Umberger, 2004).

Hobbs et al. (2005) in Canada and Dickinson and Bailey (2002) in the USA found that consumers’ willingness to pay (WTP) is higher for traceable meat compared to non-traceable meat. The WTP rises further for traceability provided characteristics (e.g. additional meat safety and humane animal treatment guarantees). Conversely, despite the importance of food safety to Spanish consumers, the majority (73%) are not willing to pay a price premium for traceable beef (Angulo and Gil, 2007). Traceability alone plays a very small role in Spanish consumer choices compared to products labelled with a protected designation of origin (PDO) label linked to a particular region with a reputation for food safety or food quality.

14.3 Consumers and corporate social responsibility in the food chain

Corporate social responsibility (CSR) and sustainable consumption have become a widespread topic in business and public discussion. Firms are increasingly engaging in socially responsible behaviour, not only to fulfil external obligations such as regulatory compliance and stakeholder demands, but also owing to enlightened self-interest considerations such as increased competitiveness and improved stock market performance (Bansal and Roth, 2000; Waddock and Smith, 2000). Governments, non-governmental organisations (NGOs) and the media have put corporations in the spotlight to account for the social consequences of their activities, often publicly shaming and stigmatizing businesses for their undesirable behaviour (Winston, 2002). As a result, CSR has emerged as an important area of action for companies globally.

In the food sector, which is dependent on natural, human and physical resources, CSR is gaining importance owing to the complex, labour intensive nature of food supply chains (Forsman-Hugg et al., 2008). Increasingly, companies in both the food industry and retailing are aware of consumers’ and stakeholders’ interest in CSR issues and are taking initiatives and making efforts to consider their values and actions from the CSR perspective. Global consumers are increasingly willing to pay premiums for safe, organic sustainable products that address their health concerns, as well as their interests in preserving the environment and fighting poverty. Consumption has become a means by which people’s non-material views about the nature of society and the future of the environment can be manifested in a tangible and measurable way (The Cooperative Bank, 2005).

While there is no universal agreement on what CSR is, or how it should be measured, the general idea is that corporate behaviour should reflect the ‘triple bottom line’ of economic, social and environmental performance (Elkington, 1997). CSR implies a wider perspective than the view that companies act in compliance with legal norms and produce safe food that meets basic quality criteria.

However, it is difficult for consumers to use CSR dimensions as selection criteria in the food purchase situation since they lack adequate and easily available information on CSR-related issues. Hence, the increasing demand by social activists for food companies and retailers to implement standards and certification programmes as tools to promote sustainable development through their supply chains by influencing suppliers to adopt more environmentally and socially responsible practices (Hatanaka et al., 2005). Standards consist of a series of criteria, or rules, with which third-party suppliers are asked to comply (although the number, content and stringency of these criteria can vary substantially between schemes) (Genier et al., 2008). In many cases, they represent an attempt to bridge the gap between legal and social norms in producer and consumer countries and, particularly on social issues, may be developed in response to perceived weaknesses in laws and law enforcement.

To encourage code adoption, companies may offer a ‘carrot’, such as a price premium, to suppliers in return for compliance. More commonly they wield a market entry ‘stick’, whereby non-compliant producers are excluded from the supply chain. In a highly competitive retail environment, private standards are very likely to increase in severity as firms attempt to ‘out-compete’ each other on social/credence attributes associated with their food offer (Garcia Martinez and Poole, 2009). One outcome of this is that it becomes increasingly challenging for producers, and particularly low-resourced small-scale producers from emerging/developing countries, to be able to meet the increasingly exacting standards (García Martinez and Poole, 2004).

In recent years, standards and codes have proliferated; references to over 100 schemes have been found (Genier et al., 2008). In addition to those developed by food retailers, a number of NGOs have developed their own independent schemes as a way to promote alternative production and consumption systems that are more socially and environmentally sustainable (e.g. IFOAM, the Rainforest Alliance, the Marine Stewardship Council and the Fairtrade Labelling Organisations International). The market for these products remains small; however, sales are steadily increasing as food retailers and manufacturers recognise that there is a lucrative market niche willing to pay a premium for ethical attributes. The UK ethical food market was valued at £4.8 billion in 2006 (+ 17% over 2005) (The Cooperative Bank, 2007). This represents just 5.1% of the total grocery market but is becoming increasingly important, growing at 7.5% per annum (or 50% above the rate for the conventional grocery market).

However, research shows that consumers may overstate their propensity for purchasing ethically. Reconciling claimed behaviour with actual behaviour is a pertinent subject, especially when it comes to moral issues, and ethical consumption is one of these. There is still an imbalance between positive attitudes and purchasing behaviour, to a large extent due to consumers being confused about the end benefit (i.e. which is more ethical, ‘organic’ or ‘Fairtrade’?). There is little leadership taking the message about organic forward, providing clarity in order that more consumers can make informed decisions, rather than taking blind decisions out of a sense of guilt or duty (Fearne, 2008). Hence the challenge for all involved is to induce a positive predisposition prior to the point of purchase. Appropriate information about ethical attributes is part of the augmented product that ethical consumers are seeking. Suppliers must assume their responsibility to deliver quality products with the added information attributes (Garcia Martinez and Poole, 2009).

Organic and fairly traded produce has considerable potential for improving the welfare of communities (Browne et al., 2000). Nevertheless it is an important empirical question whether and to what extent the price premiums paid by consumers are transmitted to primary producers and their communities. While improved prices are an important opportunity for smallholders, the costs of meeting accreditation standards are also considerable, such that the net benefits must be analysed. It may be that the primary benefit for smallholders is access to valuable export markets rather than better prices and that these benefits, according to a growing body of evidence, accrue mainly to better-off producers (Garcia Martinez and Poole, 2009).

14.4 Improving communication with consumers

In response to increasing public distrust and reduced consumer confidence both in policy making and industry practices, government oversight of food safety has undergone profound regulatory reforms in recent years with the establishment of dedicated and ‘independent’ food safety agencies (Vos, 2000; Flynn et al., 2004; Ansell and Vogel, 2006). These reforms towards a more transparent and inclusive process of food safety governance aim to remove the inherent historical conflict of interest in dual responsibilities of a single government department, traditionally agricultural ministries, both for regulating food safety and the interest of the agri-food sector (Ansell and Vogel, 2006; Borraz et al., 2006; Steiner, 2006), which largely tended to favour industry over consumer interests in food safety decision making (GAO, 2005).

The outbreak of the BSE crisis in 1996 clearly revealed significant dysfunctions, both in industry practices and their supervision by governments, undermining general public trust in food safety governance (Vos, 2000; Borraz, 2007). The institutional failures put pressure on the European Commission to expand its scope of influence in regulating food safety across the European Union (as the breakdown in food safety controls were in the first instance a result of failure of national government control agencies) (Caduff and Bernauer, 2006) and forced the Commission to present a more coherent approach to food safety based on true principles of separation of the responsibility for legislation and scientific advice, responsibility for legislation and inspection, and greater transparency and information throughout the decision-making process and inspection (Vos, 2000).

Current risk management effort tries to restore public confidence by involvement of relevant stakeholders at an early stage in the regulatory decision making process (Rowe and Frewer, 2005). However, the effects of proactive participatory processes on public trust are presently unclear (Rowe and Frewer, 2000). If stakeholders are to engage positively in the process of setting standards, such processes require mutual trust and understanding on the part of government, industry and other stakeholders in order that ‘quality’ information is collected and assimilated into the regulatory process and confidence is built in the value of consultation (Garcia Martinez et al., forthcoming).

Research has stressed the importance of effective communication on food safety risks to facilitate informed decision making by consumers and to change consumers’ health-related behaviour (Frewer, 2004; Fisher et al., 2005; Verbeke, 2005). Information about food risk controlling measures by responsible authorities is likely to increase perceptions of control among consumers, which in turn may decrease risk perceptions (Fischhoff et al., 1978; Redmond and Griffith, 2004). Consumers particularly appreciate communication that focuses on ‘what is being done’. Easily accessible information about hygiene inspections of food premises is greatly appreciated by consumers (Worsfold, 2006). The posting of inspection results outside restaurants (the so-called ‘scores on doors’) has been shown to have a significant impact on both consumer patronage and business performance (Jin and Leslie, 2003; Greenstreet Berman, 2008). This suggests that information by enforcement authorities on food control measures and enforcement procedures offers reassurance to consumers that food safety is being monitored and business practices scrutinised. Consumers show a preference for preventive risk management as opposed to the adoption of a reactive approach and regard this approach as more indicative of good management (Van Kleef et al., 2006).

Despite experts’ belief that providing information about scientific uncertainty in risk assessment to the general public will undermine trust in scientific institutions and will cause unnecessary panic and confusion (Frewer et al., 2003), consumers still prefer this information to be made available in a user-friendly format (Frewer et al., 2002). Communicating uncertainty in risk assessment is increasingly seen as highly relevant to ensure consumer confidence in regulatory institutions (Millstone and Van Zwanenberg, 2002; Shepherd et al., 2006).

Research highlights the importance of cultural context regarding the impact of potential risk communication strategies (Van Dijk et al., 2008). Hence, specific cultural characteristics may determine the need to adapt risk communication strategies to cross-country variations. This finding is particularly relevant within the EU context where the establishment of the European Food Safety Authority (EFSA) should lead to a standardised pan-European approach to risk communication. The Van Dijk et al. (2008) cross-country study shows that while communication of uncertainty had a positive impact in Germany, the same information had a negative impact in the UK and Norway. UK consumers have been found to be more sceptical about the efficiency of risk assessment practices compared to those in Germany and Greece (Van Kleef et al., forthcoming). Cultural differences were also found in the perceived quality of food risk management associated with different hazards (Van Dijk et al., 2008). The evaluation of risk management of mycotoxins was rated the highest in all countries, while the risk management of pesticide residues and GM potatoes differed between countries.

14.5 Managing food safety in food supply chains

Food safety is a credence characteristic and hence the credibility of the food product needs to be established by some form of food safety policy, if the market fails to provide sufficient information about this attribute (Cho and Hooker, 2002). There is an ongoing debate about the most effective and desirable mechanisms for achieving an appropriate level of food safety in the food supply chain. While there are some mandated food safety practices for firms in the food supply chain, the issue of economic incentives for firms actively to address food safety throughout the supply chain is unclear. Food safety controls often require significant investments in capital and labour, but do not have tangible returns. It is difficult to estimate the value of preventing a safety incident. However, a risk that is realised can potentially bankrupt the firm.

Private response to the implementation of food safety controls reflects not only regulatory incentives but also a wide range of market-based incentives related to customer audit requirements (Sperber, 1998), customer product specifications (Mehta and Wilcock, 1996; Henson and Northen, 1998), regulatory requirements for exports (Hobbs et al., 2002), risk of product recall (Skees et al., 2001) and liability laws (Buzby and Frenzen, 1999; Buzby et al., 2001). In turn, these market incentives reflect the characteristics of the firm, its objectives and strategies, the supply chains and markets in which it operates, its products and the broader economic and commercial environment.

As a result, a supply chain manager’s ‘best practice’ model today is to strive to achieve not only a fully integrated and efficient supply chain, capable of creating and sustaining competitive advantage (Christopher and Towill, 2002), but also one with sufficient flexibility and redundancy to enable the firm to respond to extreme events (Sheffi, 2005).

Evidence from many countries suggests that so-called ‘channel captains’ are a major driving force for privately motivated adoption of enhanced food safety controls (Henson and Northen, 1998; Garcia Martinez and Poole, 2004; Golan et al., 2004). Major buyers, such as multiple food retailers and caterers/food service operators, frequently require their suppliers to implement food safety controls based on hazard analysis and critical control points (HACCP) principles but in some instances these controls may be inappropriate for smaller, independent operators (Buchweitz et al., 2003), for whom a statutory minimum level of control is adequate.

Farm assurance schemes can be an effective mechanism for managing the transaction costs of buyers, including the costs associated with an information search, negotiation and monitoring. For large supermarkets with a multitude of suppliers scattered globally, such schemes have become a key means through which procurement costs are managed. The transaction cost ‘savings’ from farm assurance schemes depend, however, on the trust that buyers have in their associated systems of oversight, as reflected in levels of compliance by individual producers. While all such schemes in the UK are now governed by third party independent systems of accreditation that conform to the applicable international standards, there are still perceived to be differences in rigour (Food Standards Agency, 2002). Thus, retailerdriven assurance schemes are often perceived to provide higher levels of food safety than the generic codes of practice developed by producer organisations or government agencies, simply because the commercial motivations for compliance are generally much greater.

In the United States, it is the large technically proficient buyers of major food service chains that have led the implementation of stringent food safety requirements, particularly for meat (Golan et al., 2004), the sector estimated to cause more than 40% of human illnesses in the USA that are associated with common pathogens (Roberts, 2005). These buyers monitor food safety along their supply chains, successfully creating markets for enhanced food safety through their ability to enforce safety standards using testing and process audits, rewarding suppliers who meet these standards through a price premium or guaranteed sales whilst punishing those that do not by excluding them from lucrative markets. Through contracts with these large buyers, meat processors are able to appropriate the benefits of their investments in food safety, securing market access and preferential status (Ollinger and Moore, 2004). Until recently, more generic systems of assurance, such as those seen in the UK, were underdeveloped in the USA. However, in 2003, the Food Marketing Institute acquired the Safe Quality Food (SQF) series of standards from the Ministry of Agriculture of the State of Western Australia (Henson, 2006), which may signal a shift towards the UK ‘model’ of private food safety governance.

Arm’s length, transactional supply chain relationships place high information and monitoring costs on buyers in identifying and monitoring suppliers in order to minimise the risk of food safety failures (Hobbs, 1996). To minimise the associated transaction costs, there is a tendency for firms to engage in closer partnership arrangements with their key suppliers. As a governance structure, sharing of information serves to correct the potential distortions generated by asymmetric information, lowering transaction costs in relationships affected by moral hazard and adverse selection problems. This cooperation also creates the potential for capture of additional rents from consumers if participants in a closely coordinated supply chain can offer greater security and more credible guarantees than their competitors (Loader and Hobbs, 1999).

Private regulation plays a bigger role where supply chain governance structures are present and functional. For example, the establishment of food safety control mechanisms, such as traceability in the meat sector in the UK, can be viewed as a reciprocal multi-stage agency relationship where farmers and meat processors act as both agents and principals in vertically coordinated contractual agreements. Governance structures, in combination with strong channel leaders, may act as the catalyst for a cultural change towards transparent and traceable food supply chains. Failure to comply with the food safety demands of these systems and buyers results in a price discount as alternative channels are sought with lower food safety expectations, but also lower prices (Fearne and Walters, 2004). This tends to result in a ‘two tier’ system with enhanced food safety controls in supply chains to exacting buyers, and supply chains operating only at minimum food safety standards selling to ‘residual’ markets (Fearne et al., 2006). However, public regulation (as seen with current EU regulations) may be implemented where there is an insufficient food safety ‘culture’ upstream and/or where the industry is more fragmented.

Another example of the dynamic effect of supply chain governance structures is the progressive development of farm assurance schemes in the UK. Here, the shift to stricter food safety standards has been uneven across sectors, with the establishment of stringent food safety systems in concentrated and/or integrated markets such as eggs, poultry and pork (Food Standards Agency, 2002). Again, retailer pressure has been a strong motivator for adoption of these systems (Food Standards Agency, 2002). Conversely, in the beef and lamb sectors, strong retailer influence has been diffused by the large number of producers and the length and complexity of the food chain (Food Standards Agency, 2002). In these sectors there is a tension between the desire to recruit the majority of producers into prevailing farm assurance schemes and the desire to see standards improving throughout the chain.

One of the major potential motivating factors for firms to adopt private standards is the potential cost of product recalls. On the one hand, enhanced food safety controls may reduce the risk of product failure and in turn the risk that a recall will occur. On the other hand, private standards may be an effective defence in the case of regulatory action or litigation. Ollinger and Ballenger (2003) indicate that the number of Class I recalls in the USA has increased significantly, from 24 per year over the period 1993–96 to 42 per year for the period 1997–2000. Despite quite significant costs of compliance, rates of market exit are greater for meat processors with lower food safety controls. This suggests that the management of recall-related costs is probably becoming a greater issue and that the adoption of private standards is likely to become more widespread.

Ollinger and Mueller (2003) suggest that contractual arrangements between buyers and sellers is a potent mechanism for the enhancement of food safety controls, particularly in the context of food safety metasystems that imply close and coordinated interrelationships between all levels of the supply chain. This can be further enhanced by the use of private standards and effective mechanisms of conformity assessment, most commonly based on third party certification, and branding as a means of communicating product safety/quality at each level of the supply chain. However, although branding provides a commercial advantage to firms in market competition, it also results in greater exposure to the risks of product failure. Thus, for example, Bredahl and Holleran (1997) suggest that many of the transaction costs imposed on food retailers in the procurement of own-branded (private label) products are associated with the control of product safety.

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