When Quality Management Helps Agri-food Firms to Export

From the Bovine Spongiform Encephalopathy outbreak in the 90's to the milk powder scandal in China in 2008, food safety incidents have led to an increasing demand for traceability and safety of food products, from both consumers and distributors. Governments have answered to this demand by strengthening public regulation on their territory (see for example the European Community Regulation 178/2002 on food traceability) or by increasing the number of Sanitary and Phytosanitary measures (SPS) and Technical barriers to trade (TBT) at the border. The private sector also implemented several certifications to facilitate the standardization of safety and traceability (HACCP, ISO standards) or to manage the buyer-supplier relationship (IFS, BRC retailers standards). Therefore, the ability to make safe products, to ensure traceability and to have it recognized through certifications appears to be an essential element of the international competitiveness of agri-food companies. Even if these characteristics are not systematically observed by final consumers, they may help to access to markets with high levels of sanitary requirements or enable to benefit from international retailer networks. In this paper, we investigate the effects of firms' commitment to traceability and food safety on export performance. We rely on the presence of quality management and control personnel in agri-food firms to proxy their level of commitment to product reliability and safety issues. Quality management and control personnel ensure that the firms' goods are safe and reliable, that they meet customers' expectation and that they follow regulatory requirements. Quality managers are therefore major players in the firm's quality policy, both by preventing failure and by copying with those that do occur. They are key in the adoption of standards and in their maintenance. Working both with the firms' other employees and with external partners such as suppliers, customers, health inspectors or customs, they can lead to better export performance through four channels. First, the increase of product safety allowed by the implementation of quality systems limits consumers' exposure to potentially hazardous foods, and reduces recalls and consumers complains. Second, quality control and management may increase the effectiveness of operation and the efficiency of supply chains, through a better optimization of the processes, inducing higher productivity and a reduction of losses or products deterioration. Third, quality specialists help to comply sanitary, phyto-sanitary or technical legal requirements in destination markets, both by applying the necessary procedures, and by being able to provide evidence of compliance with the measures. Finally, better procedures and traceability can increase firms' reputation among buyers, whether they are intermediaries, retailers or final consumers. This confidence can come from a simple perception or from different certifications (such as HACCP, IFS or ISO), whose adoption is facilitated by the presence of qualified and specialized personnel. The firms' commitment in traceability and food safety may thus lead to a differentiation of products for the buyers' point of view. Of course, firms do not need to have a dedicated staff on quality management to be able to meet standards, implement traceability systems and have certifications. We can however expect that firms hiring specialized employees have stronger policy and capability on these issues, and consequently better export performance, that we test in this article. Using French administrative employee-firm-level data merged with French customs data, we measure the effect of firms' quality management system first on the intensive and extensive margins of trade, and second on trade unit values and perceived quality on foreign markets, using Khandelwal's methodology (Khandelwal, 2010). Focusing on a single country's exports allows us to control for foreign consumers' preferences for the different origins. We compare exports of firms with quality management personnel with exports of firms without this category of employees to a given destination, product (defined at the 6-digit code of the Harmonized System) and year. We furthermore explore whether these effects vary according to destination countries, depending on the level of Non-Tariff Measures (NTMs) applied at their border.