Traceability: When Is It Worth It?

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In a previous post, I described some of the potential gains to improving traceability in the beef industry. One might ask why there is not a greater degree of traceability in our food system at large. The simple answer is that improving traceability can be costly, and producers will invest in more precise traceability systems only if the expected benefits exceed the costs.

Golan et al. (2004) identify three major objectives for investing in traceability systems: 1) to improve supply-side management, 2) to increase safety and quality control, and 3) to market foods with credence attributes, which cannot be verified by simply observing or consuming a product. (Credence attributes usually refer to production practices such as how a good was grown, raised, or harvested.) Improved traceability systems can potentially reduce the costs of product distribution through improved supply-chain management, reduce the frequency and cost of product recalls through improved safety and quality control procedures, or increase the sales of high-value products by differentiating goods with credence attributes that consumers value more highly.

The complexity of traceability systems varies widely across agricultural goods because producers’ objectives, processing methods, and product characteristics vary. Consider grain production as an example. Traceability in the grain supply chain is relatively imprecise and goes no deeper in the supply chain than the elevator. At the elevator, grain from numerous farms is sorted, dried (if necessary), cleaned of debris and low-quality kernels, and blended. While the elevator records which farms supply grain, they cannot typically trace an individual kernel back to the farm. Management of the supply chain is usually adequate at this degree of traceability since the elevator inspects quality and blends grains to make a homogenous product serving as the central quality control point. There are few safety risks that could be resolved from more precise traceability since grains are heavily processed and methods of handling grain early in the supply chain present few health risks to the consumer.

Increased traceability may be beneficial to the grain industry if producers can market a credence attribute that brings higher premiums. For instance, many consumers will pay a premium for organic grains, and Montana produced 1,789,604 bushels of Certified Organic wheat in 2015. Organic grains must be stored and processed separately from conventional grain and there must be adequate traceability back to the farm where the grain was certified as organic for the finished product to carry the organic label.  If demand for organic grain declines, then storage facilities and equipment for organic will either go unused or be switched to conventional grain, but must be thoroughly cleaned if they are to be used for organic again. All of these provisions along the supply chain carry a cost, and how much an industry invests in traceability depends on how much there is to gain or lose from the investment. Industries with greater safety risks early in the supply chain or that have potential to market goods with more valuable credence attributes that trace back to the farm will likely invest more in traceability.

(Photo by kevin dooley is licensed under CC BY 4.0)

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Diane Charlton

Diane Charlton is an assistant professor in the Department of Agricultural Economics and Economics at Montana State University. She received her Ph.D. in agricultural economics from the University of California, Davis. She has done research on agricultural labor markets in Mexico and the United States along with researching the determinants of migration. She never tires of talking about agriculture with her sister and brother-in-law from their almond orchard in the Central Valley of California, and she is looking forward to learning more about and researching agricultural production in Montana and the northern Great Plains.

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