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Traceability systems are recordkeeping systems for tracking theflow of product or product attributes through the productionprocess or supply chain. Recently, policymakers in many countrieshave begun weighing the usefulness of mandatory traceability formanaging such diverse issues as bio-terrorism, country-of-originlabeling, mad cow disease, and genetically engineered foods.
Traceability 
in the U.S. Food Supply 
 Economic Research ServiceUnited States Department of Agriculture
 
How much food traceability do we have in the U.S.?
 A lot, because markets motivate firms to develop and maintain traceability systems But systems vary across food sectors, reflecting variations in costs and benefits 
• Processing• Sale from producerto wholesaler/retailer• Transportation• Storage• Harvest• Cultivation• Bean/seed
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DecafFair TradeFair WageShade GrownNon-GESafety
The Depth of a Traceability System Depends on the Attributes of Interest
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Coffee Attributes of Interest
Necessary Depth of Traceability
Markets give food suppliers three primary motives forestablishing traceability: supply-side management, prod-uct differentiation, and food safety and quality control.The benefits associated with thesemotives include lower-cost distri-bution systems, expandedsales of high-value products,increased brand equity,and reduced recall and lia-bility expenses. Thesebenefits are driving thewidespread developmentof traceability systemsacross the U.S. food sup-ply chain.
1. Supply-side management.
A traceability system is a firm’skey to finding the most efficientways to produce, assemble, warehouse,and distribute products. During 2000, American compa-nies spent $1.6 trillion on supply-related activities, includ-ing the movement, storage, and control of products acrossthe supply chain. Firms have an incentive to find ways toreduce these costs. In the food industry, where marginsare thin, supply-side management, including traceability, isan increasingly important area of competition.
2. Differentiation of foods with “credence” attributes.
Many food products have credence attributes that areimpossible or difficult for consumers to detect. The onlyway to verify the existence of these attributes is through abookkeeping record that establishes their creation andpreservation. Without traceability as evidence of value,no viable market could exist for dolphin-safe tuna, fair-trade coffee, non-biotech corn oil, country-of-origin, orany other process credence attribute.
3. Food safety and quality control.
Traceability systemshelp firms minimize the production and distribution of unsafe or poor-quality products, which in turn minimizesthe potential for negative publicity, liability, and recalls.The better and more precise the tracing system, the fastera producer can identify and resolve food safety orquality problems.Traceability costs and benefits vary across firms andindustries. The dynamic interplay of different levels of costs and benefits has spurred different rates of invest-ment in traceability across sectors of the food supply –and continues to do so. The breadth, depth, and precisionof each system varies depending on the attributes of inter-est and each firm’s costs and benefits. Such variation isevident across three major U.S. food sectors.
 
Do we need more?
Not usually But market failure may result in a less than optimal amount 
In the
fresh produce industry 
, the development of trace-ability systems has been greatly influenced by the charac-teristics of the product. Perishability of and quality variationin fresh fruit and vegetables necessitate the boxing andidentification of quality attributes early in the supply chain,either in the field or packinghouse. This has facilitated theestablishment of traceability for a number of objectivesincluding marketing, food safety, supply-side management,and differentiation of new quality attributes.Virtually all
grains and oilseeds
produced in the UnitedStates are traceable from production to consumption –however, for the most part, quality and safety variation ingrain and oilseeds has not warranted the cost of precisetraceability systems back to the farm. Systems trackingproduct to elevators, at which point quality and safety aremonitored, have been largely sufficient for the efficientoperation of grain and oilseed markets. Growing demandfor specialty crops, including non-genetically engineeredproducts, has spurred the development of more precisetraceability systems, though the elevator still operates asan important quality-control point.The
cattle/beef sector 
has a long history of identifying and track-ing animals to estab-lish rights of owner-ship and to controlthe spread of animaldiseases. Producers inthe meat sector havealso developed traceability systems to improve productflow and to limit quality and safety failures. Recent devel-opments are motivating firms to bridge separate animaland meat traceability systems and establish systems fortracking meat from the farm to the retailer. Though techno-logical innovations are helping reduce the costs of suchsystems, institutional and philosophical barriers haveslowed their adoption.Variation in traceability across sectors of the food supplyis often interpreted as an indication of inadequacy. It ismore correctly an indication of efficiency, the result of acareful balancing of costs and benefits. Even firms orindustries with little capacity to track may not need more.Traceability is only one means to efficient supply-side man-agement, product differentiation, and food safety – and italone cannot accomplish any of these objectives. Simplyknowing where a product is in the supply chain does notimprove supply management unless the traceability sys-tem is paired with a real-time delivery system or someother inventory-control system. Tracking food by lot in theproduction process does not improve safety unless thetracking system is linked to an effective safety control sys-tem. And of course, traceability systems do not create cre-dence attributes, they simply verify their existence.The optimal amount of traceability for food safety must be judged in relationship to the other safety and quality con-trol options available to the firm. The characteristics of traceability systems for safety and quality necessarilyreflect the control points in the overall system and varyacross industries and over time depending on safety andquality technologies and innovations.This is not to deny that there are cases of market failure,where the private sector supply of traceability is not thesocially optimal amount. In some instances, the privatecosts and benefits of traceability may not be the same asthe social costs and benefits so that the private supply of traceability falls below socially desirable levels. Market fail-ure could lead to a sub-optimal supply of traceability forproduct differentiation or for food safety.
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