Agribusiness Firm Reactions to Regulations: The Case of Investments in Traceability Systems

Markets for agricultural and food products are characterized by high information asymmetries since producers, processors and retailers are in most cases much better informed about the quality of their products than consumers (Henson/Traill 1993). Often consumers are only at (prohibitively) high costs or not at all able to control important quality criterions such as food safety, nutritional value or region of origin. Such credence attributes can result in market failure due to a lack of credible information in the market (Akerlof 1970). As a result, attempts to protect consumers against food hazards, product adulteration and deception have gained much relevance in food supply chains (Deimel et al. 2008). Besides the more or less voluntary private certification schemes that have been established, large parts of the agrifood sector are already mandatorily regulated, especially in Europe. Therefore, in recent years, food law has been undergoing major changes in the European Union (EU) (Theuvsen/Hollmann-Hespos 2007; Haertel: 2007). General Food Law Regulation (EC) 178/2002 and the so-called EU hygiene package (Regulations (EC) 852/2004, 853/2004 and 854/2004) have strongly contributed to a much more intensive regulation of food production. The farm to fork approach laid down in Regulation (EC) 178/2002 has resulted in the obligation to secure “traceability of food […] at all stages of production, processing and distribution” (Art. 18).