Food traceability is in the news—in articles ranging from
food safety and bioterrorism to the consumer’s right to know.
Recent news stories have focused on tracking cattle from birth
to finished product to control the risk of mad cow disease, on
tracking food shipments to reduce the risk of tampering, and on
traceability systems to inform consumers about food attributes
like country of origin, animal welfare, and genetic composition.
Traceability
is not only newsworthy, but investment worthy too. Food producers
have voluntarily built traceability systems to track the grain in a cereal
box to the farm and the apples in a vat of apple juice to the orchard. However,
traceability is just one element of any supply-management or quality/safety
control system. What exactly is traceability, how does it work, and what
can it accomplish? Most important, does the U.S. food supply have
enough of it?
Our examination of U.S. food traceability systems involved research
into the market studies literature, interviews with industry experts,
and site
visits
in which we interviewed owners, plant supervisors, and/or quality control
managers in fruit and vegetable packing and processing plants;
beef slaughter plants;
grain elevators, mills, and food manufacturing plants; and food distribution
centers. In some cases, we accompanied auditors for USDA procurement programs
and were shown the firm’s complete traceability records.
What Is Traceability?
ISO (International Organization for Standardization), which develops voluntary
international standards for products and services, defines traceability as
the “ability to trace the history, application, or location of that which
is under consideration.” This definition is quite broad. It does not
specify a standard measurement for “that which is under consideration” (a
grain of wheat or a truckload), a standard location size (field, farm, or
county), a list of processes that must be identified (pesticide applications
or animal
welfare), or a standard identification technology (pen and paper or computer).
It does not specify that a hamburger be traceable to the cow or that the
wheat in a loaf of bread be traceable to the field. It does not specify which
type
of system is necessary for preserving the identity of tofu-quality soybeans;
controlling the quality of grain used in a particular cereal; or guaranteeing
correct payments to farmers for different grades of apples.
The definition of traceability is necessarily broad because food is a complex
product and traceability is a tool for achieving a number of different objectives.
As a result, no traceability system is complete. Even a hypothetical system
for tracking beef—in which consumers scan their packet of beef at the
checkout counter and access the animal’s date and location of birth,
lineage, vaccination records, and use of mammalian protein supplements—is
incomplete. This system does not provide traceability with respect to bacterial
control in the barn, use of genetically engineered feed, or animal welfare
attributes like hours at pasture and play time.
A system for tracking every input and process to satisfy every objective would
be enormous and very costly. Consequently, firms across the U.S. food supply
system have developed varying amounts and kinds of traceability. Firms determine
the necessary breadth, depth, and precision of their traceability
systems depending on characteristics of their production process and their
traceability objectives.
Breadth describes the amount of information collected.
A recordkeeping system cataloging all of a food’s attributes would
be enormous, unnecessary, and expensive. Take, for example, a cup of coffee.
The beans could come from any number of countries; be grown with numerous
pesticides or just a few; be grown on huge corporate organic farms or small
family-run conventional farms; be harvested by children or by machines;
be stored in hygienic or pest-infested facilities; and be decaffeinated
using
a chemical solvent or hot water. Few, if any, producers or consumers would
be interested in all this information. The breadth of most traceability
systems would exclude some of these attributes.
Depth is how far back or forward the system tracks
the relevant information. For example, a traceability system for decaffeinated
coffee would extend back only to the processing stage. A traceability system
for fair-trade coffee would extend only to information on price and terms
of trade between coffee growers and processors. A traceability system for
fair wages would extend to harvest; for shade grown, to cultivation; and
for nongenetically engineered, to the bean or seed. For food safety, the
depth of the traceability system depends on where hazards and remedies can
enter the food production chain. For some health hazards, such as Bovine
Spongiform Encephalopathy (BSE, or mad cow disease), ensuring food safety
requires establishing safety measures at the farm. For other health hazards,
such as foodborne pathogens, firms may need to establish a number of critical
control points along the entire production and distribution chain.
Precision reflects the degree of assurance
with which the tracing system can pinpoint a particular food product’s movement
or characteristics. In some cases, the objectives of the system will dictate
a precise system, while for other objectives a less precise system will suffice.
In bulk grain markets, for example, a less precise system of traceability
from the elevator back to a handful of farms is usually sufficient because
the elevator serves as a key quality control point for the grain supply chain.
Elevators clean and sort deliveries by variety and quality, such as protein
level. Elevators then blend shipments to achieve a homogeneous quality and
to meet sanitation and quality standards. Once blended, only the new grading
information is relevant—there is no need to track the grain back
to the farm to control for quality problems. Strict tracking and segregation
by farm would thwart the ability of elevators to mix shipments for homogeneous
product.
What Does It Do?
Firms have three primary objectives in using traceability systems: improve
supply management; facilitate traceback for food safety and quality; and differentiate
and market foods with subtle or undetectable quality attributes. The benefits
associated with these objectives include lower cost distribution systems, reduced
recall expenses, and expanded sales of products with attributes that are difficult
to discern. In every case, the benefits of traceability translate into larger
net revenues for the firm. These benefits are driving the widespread development
of traceability systems across the U.S. food supply chain.
Traceability to improve supply management.
Industry analysts calculate that during 2000, American companies spent
$1.6 trillion
on supply-related activities, including the movement, storage, and
control of products across the supply chain. The ability to reduce
these costs
often marks the difference between successful and failed firms. In
the food industry,
where margins are thin, supply management, including traceability,
is an increasingly important area of competition. A firm’s
traceability system is key to finding the most efficient ways to
produce, assemble,
warehouse,
and distribute products.
Electronic coding systems, from the granddaddy barcode system to cutting-edge
technologies like radio-frequency identification systems, are helping to streamline
the U.S. food supply system. As technological innovation drives down the cost
of these devices, more firms across the food supply chain are using electronic
tracking systems. In some cases, buyers manage these systems to monitor internal
supply flow. In others, firms establish systems that link suppliers and buyers,
allowing them to automate reordering. Retailers such as Wal-Mart have created
proprietary supply-chain information systems, which they require their suppliers
to adopt.
Inventory-to-sales ratios are further evidence that U.S. companies are
embracing new logistic systems to better control inventory flow. The
ratio of private
inventories to final sales of domestic business has fallen by half since
the end of WWII. The same trend can be observed in many sectors of the
domestic
food industry, including natural, processed, and imitation cheese; cereal
breakfast foods; and soft drinks and carbonated waters. In each case,
the inventory-to-sales
ratio fell, with the largest decline in the cereal sector, where the ratio
fell from over 8 percent in 1958 to 3-4 percent in the early 1990s. This
downward trend in inventories reflects growing efficiencies in supply
management in
the U.S. food industry, including traceability systems. This trend is expected
to continue as food manufacturers continue to adopt technologies already
in use in other industries.
Traceability for safety and quality control. Traceability
systems help firms isolate the source and extent of safety or quality control
problems. This helps reduce the production and distribution of unsafe or
poor-quality products, which in turn reduces the potential for bad publicity,
liability, and recalls. The better and more precise the tracing system, the
faster a producer can identify and resolve food safety or quality problems.
One surveyed milk processor uniquely codes each item to identify time of
production, line of production, place of production, and sequence. With such
specific information, the processor can trace faulty product to the minute
of production and determine whether other products from the same batch are
also defective.
Many buyers, including many restaurants and some grocery stores, now
require their suppliers to establish traceability systems and to verify,
often through
third-party certification, that such systems work. The growth of third-party
standards and certifying agencies is helping push the whole food industry—not
just those firms that employ third-party auditors—toward documented,
verifiable traceability systems.
Traceability to market and differentiate foods.
The U.S. food industry is a powerhouse producer of homogeneous bulk
commodities such as wheat, corn, soybeans, and meats. Increasingly,
the industry
is tailoring goods and services to the tastes and preferences of various
groups
of consumers.
Consumers easily spot some of these new attributes—green ketchup
is hard to miss. However, other innovations involve credence attributes,
characteristics
that consumers cannot discern even after consuming the product. Consumers
cannot, for example, taste or otherwise distinguish between conventional
corn oil and oil made from genetically engineered (GE) corn.
Credence attributes can describe content or process characteristics of the
product. Content attributes affect the physical properties
of a product, although they can be difficult for consumers to perceive. For
example, consumers are unable to determine the amount of isoflavones in a glass
of soymilk or the amount of calcium in a glass of enriched orange juice by
drinking these beverages.
Process attributes do not affect final product
content but refer to characteristics of the production process. Process attributes
include country of origin, free-range, dolphin-safe, shade-grown, earth-friendly,
and fair-trade. In general, neither consumers nor specialized testing equipment
can detect process attributes.
Traceability is an indispensable part of any market for process credence
attributes—or
content attributes that are difficult or costly to measure. The only
way to verify the existence of these attributes is through recordkeeping
that establishes
their creation and preservation. For example, tuna caught with dolphin-safe
nets can only be distinguished from tuna caught using other methods through
a recordkeeping system that ties the dolphin-safe tuna to an observer
on
the boat from which the tuna was caught. Without traceability as evidence
of value,
no viable market could exist for dolphin-safe tuna, fair-trade coffee,
non-biotech corn oil, or any other process credence attribute.
Does the Private Sector Supply Enough Traceability?
Firms in every sector of the U.S. food supply system are investing in traceability
to improve production and distribution efficiency, monitor and control food
safety and product quality, and differentiate and market products with credence
attributes. However, traceability systems alone do not accomplish any of these
objectives. Simply knowing where a product is in the supply chain does not
improve supply management unless the traceability system is paired with a real-time
delivery system or some other inventory-control system. Tracking food by lot
in the production process does not improve safety unless the tracking system
is linked to an effective safety control system. And of course, traceability
systems do not create credence attributes, they simply provide evidence of
their existence.
Firms use traceability systems together with a host of other management,
marketing, and safety/quality control tools to achieve their objectives.
The dynamic interplay
of the costs and benefits of these tools has spurred different rates
of investment in traceability across sectors—and continues to
do so. Observers of this mish-mash of traceability may conclude that
such variation
is an indication
of inadequacy. It is more accurately an indication of efficiency, the
result of a careful balancing of costs and benefits coordinated by
relative prices.
All of this is not to argue that companies always invest in the socially optimal
amount of traceability. In some instances, the private costs and benefits of
traceability may not be the same as the social costs and benefits. There are
circumstances where market incentives could lead to less traceability than
is desirable for product differentiation or for food safety. Both industry
and government have a number of options to help correct this market failure.
Options To Enhance Traceability
In cases where markets do not supply enough traceability for product differentiation,
individual firms and industry groups have developed systems for policing and
advertising the veracity of credence claims. Third-party safety/quality auditors
are at the heart of these efforts. These auditors provide consumers with verification
that traceability systems exist to substantiate credence claims. For example,
auditors from Food Alliance, a nonprofit organization, certify foods grown
with a specific set of sustainable agricultural practices.
Government may also require that firms producing foods with credence attributes
substantiate their claims through mandatory traceability systems. For example,
the Government requires that firms producing organic foods verify the claim.
If firms are not required to prove that credence attributes exist, some may
try to gain price premiums by passing off standard products as products with
credence attributes.
One difficulty with mandatory traceability proposals is that they often fail
to differentiate between valuable quality attributes, those for which verification
is needed, and less valuable attributes for which no verification is needed.
For example, though consumers may desire verification that organic foods are
indeed organic, no such verification is necessary for conventionally produced
foods. There is no potential for fraud in the case of conventional foods, no
danger that producers would try to cheat consumers by misidentifying organic
products as conventional ones. Likewise, there is no danger that producers
would try to cheat consumers by selling non-GE (genetically engineered) soybeans
as GE soybeans.
In cases where markets do not supply enough traceability for food safety traceback,
a number of industry groups have developed food safety and traceback standards.
For example, the California cantaloupe industry has incorporated traceability
requirements in their marketing order to monitor food safety practices. In
addition, buyers in every sector are increasingly relying on contracting, vertical
integration, or associations to improve product traceability and facilitate
the verification of safety and quality attributes. For example, many hog operations
are now integrated by ownership or contractually connected to slaughtering
firms. As a result, identification by herd or batch is much easier today than
50 years ago.
Government may also consider mandating traceability to increase food safety,
but this may impose inefficiencies on already efficient private traceability
systems. The widespread voluntary adoption of traceability complicates the
application of a centralized system because firms have developed so many different
approaches and systems of tracking. If mandatory systems do not allow for variations
in traceability systems, they will likely end up forcing firms to make adjustments
to already efficient systems or creating parallel systems.
Other policy options give firms incentives to strengthen their safety and traceability
systems without requiring any specific process for achieving these objectives.
For example, standards for mock recall speed (in which firms must prove that
they can locate and remove all hypothetically contaminated food from the food
supply within a certain amount of time) give firms the freedom to develop efficient
traceback systems while ensuring that such systems satisfy social objectives.
Policy aimed at increasing the cost of distributing unsafe foods, such as fines
or plant closures, or policies that increase the probability of catching unsafe
food producers, such as increased safety testing or foodborne illness surveillance,
will also provide firms with incentives to strengthen their traceability systems.
When the cost of distributing unsafe food goes up, so, too, do the benefits
of traceability systems.
One area where industry has no incentive to create traceability systems
is for tracking food once it has been sold and consumed. No firm has
an incentive
to monitor the health of the Nation’s consumers in order to speed the
detection of unsafe product. Government-supplied systems for monitoring the
incidence of foodborne illness, such as FoodNet and PulseNet, are one option
for helping close this gap in the food system’s traceability network.
Foodborne illness surveillance systems increase the capability of the
entire food supply chain to respond to food safety problems before they
grow and
affect more consumers.
This article draws from the ongoing research of ERS's Traceability
Team. Read more about the team and their work in the profiles section.