Differentiated Product Marketing

1. Differentiated Product Marketing

2. 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 Voluntary Traceability Motivations: Differentiate and market foods with subtle or undetectable quality attributes Facilitate traceback for food safety and quality Improve supply-side management SYSTEMS OF PRODUCT IDENTIFICATION

3. 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 SYSTEMS OF PRODUCT IDENTIFICATION

4. 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 SYSTEMS OF PRODUCT IDENTIFICATION

5. 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 SYSTEMS OF PRODUCT IDENTIFICATION

6. 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 SYSTEMS OF PRODUCT IDENTIFICATION

7. 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 SYSTEMS OF PRODUCT IDENTIFICATION

8. 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 SYSTEMS OF PRODUCT IDENTIFICATION

9. 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 SYSTEMS OF PRODUCT IDENTIFICATION

10. 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 SYSTEMS OF PRODUCT IDENTIFICATION

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

12. 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 SYSTEMS OF PRODUCT IDENTIFICATION

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

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

15. 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 2002 Farm Act Was to become mandatory Sept 30, 2004 Delayed until Sept 30, 2006 Delayed again until Sept 30, 2008 SYSTEMS OF PRODUCT IDENTIFICATION

16. 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 SYSTEMS OF PRODUCT IDENTIFICATION

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

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. 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 SYSTEMS OF PRODUCT IDENTIFICATION

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 JapanQuality 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 JapanProducer 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 JapanManagement 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 BrandsHayes 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 BrandsHayes 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 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 Commodity v. Product