British Food Journal

A transaction cost analysis of quality, traceability and animal welfare issues in UK beef retailing
Jill E. Hobbs
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Jill E. Hobbs, (1996),"A transaction cost analysis of quality, traceability and animal welfare issues in UK beef retailing", British
Food Journal, Vol. 98 Iss 6 pp. 16 - 26
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management: The case of the Tesco meat supply chain", British Food Journal, Vol. 105 Iss 6 pp. 328-349 http://
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Gemma C. Harper, Aikaterini Makatouni, (2002),"Consumer perception of organic food production and farm animal welfare",
British Food Journal, Vol. 104 Iss 3/4/5 pp. 287-299 http://dx.doi.org/10.1108/00070700210425723
Jill E. Hobbs, (1996),"A transaction cost approach to supply chain management", Supply Chain Management: An
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 A transaction cost analysis of quality, traceability
and animal welfare issues in UK beef retailing
Presents a study of the pro-
curement of beef by UK
supermarkets. Investigates
the hypothesis that a
retailer’s choice of beef
supplier is influenced by the
transaction costs incurred in
Downloaded by GALATASARAY UNIVERSITY At 06:38 13 February 2016 (PT)
different supply relationships.
Measures the relative impor-
tance of the transaction costs
incurred by retailers as a
result of concerns over qual-
ity consistency, traceability
and farm animal welfare
using conjoint analysis. Data
were collected through a
postal survey of UK supermar-
ket retailers. Results suggest
that the information and
monitoring costs arising from
the need to ensure that beef
supplies are of a consistent
quality are relatively impor-
tant influences on the choice
of supplier, followed by the
traceability of cattle, whether
the beef originates from a
farm assurance scheme and
the price paid by the retailer.
Also analyses procurement
preferences of individual
respondents, revealing some
interesting differences
between the retailers. Con-
cludes that strategic alliance
partnerships between retail-
ers, processors and market-
ing groups composed of
farmers may emerge as the
method of vertical co-ordina-
tion which minimizes transac-
tion costs.
This research was under-
taken while the author was
with the Agricultural and
Rural Economics Depart-
ment, Scottish Agricultural
College, Aberdeen, and the
Department of Agriculture,
University of Aberdeen,
Scotland.
Brit ish Food Journal
98/ 6 [ 1996] 16–26
© MCB Universit y Press
[ ISSN 0007-070X]
[ 16 ]
Jill E. Hobbs
Research Associat e, Excellence in t he Pacific Research Inst it ut e, Universit y of
Let hbridge, and Facult y of Management , Universit y of Calgary, Canada
Introduction
Th e r eta il m a r k et for beef in th e UK is dom i-
n a ted by five m a jor su per m a r k et m u ltiples[1].
As a r esu lt, su per m a r k ets n ow h ave fa r m or e
in flu en ce on ver tica l co-or din a tion [2,3]
th r ou gh ou t th e beef m a r k etin g ch a in , a n d on
th e qu a lity a spects of beef pr odu ction , th a n
h a s pr eviou sly been th e ca se. Th r ee a spects
of th e beef su pply ch a in h ave becom e pa r ticu -
la r ly im por ta n t to UK r eta iler s in r ecen t
yea r s. Th ese a r e:
1 con sisten cy of pr odu ct qu a lity;
2 tr a cea bility ba ck th r ou gh th e su pply ch a in
(pa r tly a s a r esu lt of food sa fety le gisla -
tion ); a n d
3 con su m er con cer n s over fa r m a n im a l
welfa r e.
To som e exten t, th ese fea tu r es of beef pr od-
u cts a r e beyon d th e dir ect con tr ol of su per -
m a r k ets beca u se th ey a r e deter m in ed by
pr odu ction a n d pr ocessin g pr a ctices fu r th er
u pstr ea m in th e beef m a r k etin g ch a in in
a ba ttoir s[4] a n d on fa r m s. Su per m a r k et bu y-
er s in cr ea sin gly r equ ir e m or e in for m a tion
a bou t, a n d con tr ol over, th ese pr odu ction a n d
pr ocessin g pr a ctices. Sa tisfyin g th ese m or e
dem a n din g r equ ir em en ts cou ld r esu lt in a
ch a n ge in ver tica l co-or din a tion w ith in th e
beef m a r k etin g ch a in .
Th is pa per pr esen ts a stu dy of th e pr ocu r e-
m en t of beef by UK su per m a r k ets. It in vesti-
ga tes th e h ypoth esis th a t a r eta iler ’s ch oice of
beef su pplier is in flu en ced by th e tr a n sa ction
costs in cu r r ed in differ en t su pply r ela tion -
sh ips. Th e r ela tive im por ta n ce of th e tr a n sa c-
tion costs a r isin g fr om th e n eed to en su r e
qu a lity con sisten cy, tr a cea bility a n d fa r m
a n im a l welfa r e a r e m ea su r ed.
Industry background
Con su m er s in th e UK ca n pu r ch a se m ea t
pr odu cts fr om su per m a r k ets, r eta il bu tch er s,
co-oper a tive societies, in depen den t gr ocer s,
fr ee zer cen tr es a n d a m iscella n eou s gr ou p
wh ich in clu des sa les by depa r tm en t sou r ces
(su ch a s Ma r k s & Spen cer, plc), sa les th r ou gh
fa r m sh ops, etc. Su per m a r k ets a n d bu tch er s,
h owever, r epr esen t th e two m ost im por ta n t
ou tlets.
Reta il bu tch er s sh ops wer e tr a dition a lly th e
m a in r eta il ou tlet for fr esh m ea t in th e UK bu t
h ave declin ed con sider a bly in im por ta n ce
fr om a 64 per cen t sh a r e of th e UK r eta il m a r -
k et in 1981 to 34 per cen t by 1993. Su per m a r -
k ets h ave in cr ea sed th eir sh a r e of beef a n d
vea l sa les to 50 per cen t, w ith th eir sh a r e
expected to in cr ea se fu r th er [5].
Th e sh a r es of fr ee zer cen tr es, co-oper a tive
societies a n d in depen den t gr ocer s h ave a lso
declin ed. In 1991, th e top five su per m a r k et
m u ltiples r epr esen ted ju st 6 per cen t of tota l
sh op n u m ber s bu t a ccou n ted for 62 per cen t of
tu r n over in th e gr ocer y tr a de[6]. Alth ou gh
n ot a s h igh ly con cen tr a ted a s gr ocer y r eta il-
in g in gen er a l, r ed m ea t r eta ilin g h a s becom e
m or e con cen tr a ted in r ecen t yea r s, w ith five-
fir m con cen tr a tion r a tios for r ed m ea t r eta il-
in g in cr ea sin g fr om 32 per cen t in 1988 to 41
per cen t in 1992[5].
Th e tr a n sa ction a l r ela tion sh ip between
su per m a r k ets a n d beef pr ocessor s is a dir ect
on e. Su per m a r k ets do n ot ten d to h ave for m a l
w r itten con tr a cts w ith in dividu a l beef pr oces-
sor s; r a th er, th ey h ave r e gu la r, bu t in for m a l,
pu r ch a se a r r a n gem en ts. A m or e for m a l r ela -
tion sh ip between su per m a r k ets a n d th eir
su pplier s is a str a te gic a llia n ce in volvin g a
m a r k etin g gr ou p com posed of fa r m er s a n d a
m ea t pr ocessor, givin g a th r ee-w ay pa r tn er -
sh ip cover in g th e r eta ilin g, pr ocessin g a n d
pr odu ction of beef. Spot m a r k ets, i.e. wh ole-
sa le m ea t a u ction m a r k ets, su ch a s th e Sm ith -
field m a r k et in Lon don , n o lon ger play a n
im por ta n t r ole. Th er e a r e n o cu r r en t exa m -
ples of UK su per m a r k ets bein g ver tica lly
in te gr a ted ba ck w a r ds in to beef pr ocessin g or
fa r m -level pr odu ction fa cilities. P r esu m a bly,
th e m a n a ger ia l disecon om ies of sca le a r e
pr oh ibitive.
Transaction costs
Tr a n sa ction costs a r e sim ply th e costs of
ca r r yin g ou t a n exch a n ge of goods or ser -
vices. Th ey a r ise wh er ever th er e is a n y for m
of econ om ic or ga n iza tion ; in oth er wor ds, in a
spot m a r k et tr a n sa ction between in depen -
den t fir m s or in con tr a ctu a l tr a n sa ction s or
between pa r tn er s in a join t ven tu r e or
between sta ges w ith in a ver tica lly in te gr a ted
fir m . Tr a n sa ction cost econ om ics (TCE )
 Jill E. Hobbs
A t ransact ion cost analysis of
qualit y, t raceabilit y and
animal welfare issues in UK
beef ret ailing
Brit ish Food Journal
98/ 6 [ 1996] 16–26
Downloaded by GALATASARAY UNIVERSITY At 06:38 13 February 2016 (PT)
su ggests th a t ver tica l co-or din a tion is deter -
m in ed by th e n a tu r e a n d level of tr a n sa ction
costs[7].
If tr a cea bility, a n im a l welfa r e a n d qu a lity
con cer n s a lter th e tr a n sa ction costs fa cin g
r eta iler s wh en pr ocu r in g beef, th e w ay in
wh ich r eta iler s in ter a ct w ith pr ocessor s a n d
pr odu cer s fu r th er u pstr ea m in th e beef m a r -
k etin g ch a in w ill be a ffected. Tr a n sa ction
costs ca n be divided in to th r ee m a in cla ssifi-
ca tion s wh ich r ela te to differ en t sta ges of th e
tr a n sa ction : in for m a tion , n e gotia tion a n d
m on itor in g costs.
Information costs
In for m a tion costs a r ise pr ior to th e tr a n sa c-
tion a n d a r e th e costs of obta in in g in for m a -
tion a bou t pr odu cts, pr ices, su pplier s a n d
cu stom er s. Th e in for m a tion costs wh ich
r eta iler s in cu r wh en pu r ch a sin g beef fr om
a ba ttoir s depen d on th e n a tu r e of th e r ela -
tion sh ip w ith th e su pplier, th e ch a r a cter istics
of th e beef pr odu cts a n d th e in for m a tion
wh ich con su m er s r equ ir e a bou t th ese pr od-
u cts. Su per m a r k et bu yer s in cu r in for m a tion
costs in iden tifyin g a ppr opr ia te su pplier s a n d
in eva lu a tin g th e qu a lity of th eir pr odu cts.
Th is w ill u su a lly in volve visitin g a n d in spect-
in g th e seller ’s pr ocessin g fa cilities to deter -
m in e if th e seller pr odu ces th e beef pr odu cts
r equ ir ed by th e bu yer u n der sa tisfa ctor y
con dition s.
Beef is a n “exper ien ce good”[(see [8]) wh ose
qu a lity ca n n ot ea sily be detected by
con su m er s th r ou gh visu a l in spection . Th e
qu a lity of beef cu ts ca n on ly be deter m in ed
th r ou gh post-pu r ch a se exper ien ce. If th e
qu a lity of beef fr om a r eta il ou tlet is va r ia ble,
a r isk -aver se con su m er w ill pr efer to pu r -
ch a se beef fr om a n a lter n a tive ou tlet w ith a
con sisten t qu a lity, sin ce th e r isk of obta in in g
a pr odu ct of in fer ior qu a lity is lower. Th is
m ea n s th a t th e r epu ta tion of th e su per m a r k et
is extr em ely im por ta n t a n d it w ill be in a
r eta iler ’s in ter est to en su r e th a t th e beef
wh ich it sells is of a con sisten t qu a lity[9,10].
Reta iler s in cu r in for m a tion costs in esta b-
lish in g wh eth er pr ocessor s ca n su pply pr od-
u cts of a con sisten t qu a lity. A k ey pa r t of th is
in itia l in for m a tion cost a r ises fr om th e n eed
to iden tify su ita ble su pplier s.
Negotiation costs
N e gotia tion costs a r ise fr om th e ph ysica l a ct
of th e tr a n sa ction , su ch a s th e costs of
em ployin g pr ocu r em en t or sa les sta ff, th e
costs of w r itin g con tr a cts, com m ission
ch a r ges if a n a gen t is u sed, etc. Th e n e gotia -
tion costs in cu r r ed by a su per m a r k et bu yer
depen d on th e n a tu r e of th e tr a n sa ction . For
exa m ple, th e in itia l n e gotia tion costs of esta b-
lish in g a str a te gic a llia n ce pa r tn er sh ip w ith a
pr ocessor a n d a m a r k etin g gr ou p com posed
of fa r m er s m ay be r ela tively h igh in ter m s of
th e bu yer ’s in vestm en t in tim e a n d oth er
r esou r ces, e.g. tr avel, developm en t of pr odu ct
specifica tion s, etc. On ce th e r ela tion sh ip is
esta blish ed a n d is on goin g, th e bu yer ’s n e go-
tia tion costs fa ll.
Su per m a r k ets ten d to sou r ce th eir beef
fr om a n u m ber of differ en t a ba ttoir s; th is
gives th em in cr ea sed ba r ga in in g power.
F r esh beef is u su a lly sold gen er ica lly, r a th er
th a n u n der a m a n u fa ctu r er ’s br a n d n a m e.
Th is in cr ea ses th e flexibility of su per m a r k ets
to sw itch between su pplier s. If beef w a s sold
u n der a m a n u fa ctu r er ’s br a n d n a m e, sw itch -
in g su pplier s cou ld da m a ge a r eta iler ’s sa les
if con su m er s h a d developed a str on g loya lty
for th a t br a n ded pr odu ct. Th e n e gotia tion
costs wh ich a su per m a r k et in cu r s ten d to be
r ela tively low beca u se of th e oligopson istic
power of th is sector a n d beca u se su per m a r -
k ets m a in ta in extr a ba r ga in in g lever a ge by
sou r cin g u n br a n ded beef fr om a va r iety of
su pplier s.
Monitoring costs
Mon itor in g or en for cem en t costs a r ise a fter
th e tr a n sa ction h a s been n e gotia ted a n d a r e
th e costs of en su r in g th a t th e ter m s of th e
tr a n sa ction a r e a dh er ed to by th e oth er pa r ty.
It m ay be n ecessa r y to m on itor th e qu a lity of
goods fr om a su pplier or to m on itor th e
beh aviou r of a su pplier (or bu yer ). Th e in for -
m a tion costs wh ich a r ise fr om iden tifyin g
n ew su pplier s h ave a lr ea dy been m en tion ed;
en su r in g th a t pr odu cts con tin u e to be of a
con sisten t qu a lity w ill a lso be of im por ta n ce
to th e r eta iler. Th is in volves th e r eta iler in a n
on goin g pr ocess of m on itor in g both th e qu a l-
ity of th e pr odu cts a n d th e pr ocessin g pr a c-
tices of th e su pplier. Sever a l of th e m a jor UK
r eta iler s h ave th eir ow n “qu a lity a ssu r a n ce”
sta ff wh o r e gu la r ly m on itor a n d wor k w ith
su pplier s to en su r e th a t th eir pr odu cts m eet
th e r eta iler ’s specifica tion s. Th e fa ct th a t a ll
of th e m a jor su per m a r k ets em ph a size “qu a l-
ity” in th eir m ission or cor por a te objective
sta tem en ts illu str a tes th e im por ta n ce wh ich
th ese com pa n ies pla ce on m a in ta in in g a h igh -
qu a lity pr odu ct r a n ge[10].
In a ddition , two r ecen t ch a n ges m ay h ave
in cr ea sed th e m on itor in g costs wh ich UK
su per m a r k ets fa ce wh en pu r ch a sin g beef: th e
Food Sa fety Act 1990 (F SA) a n d con su m er s’
con cer n s r e ga r din g fa r m a n im a l welfa r e. Th e
du e diligen ce defen ce cla u se of th e F SA
im poses a n ew le ga l r espon sibility on a ll
th ose in volved in th e pr odu ction , pr ocessin g,
distr ibu tion a n d r eta ilin g of food to en su r e
th a t th e food w ith in th eir possession con -
for m s to th e pr ovision s of th e Act. Th is
m ea n s th a t, if a ccu sed of a n offen ce u n der th e
[ 17 ]
 Jill E. Hobbs
A t ransact ion cost analysis of
qualit y, t raceabilit y and
animal welfare issues in UK
beef ret ailing
Brit ish Food Journal
98/ 6 [ 1996] 16–26
Downloaded by GALATASARAY UNIVERSITY At 06:38 13 February 2016 (PT)
[ 18 ]
Act, a defen da n t m u st pr ove th a t h e or sh e
took a ll r ea son a ble pr eca u tion s a n d exer cised
a ll du e diligen ce to en su r e th e sta n da r d a n d
sa fety of th e food wh ich th ey sell. It r equ ir es
food fir m s to be pr oa ctive r a th er th a n r ea c-
tive con cer n in g food sa fety. F ir m s a r e n ow
r espon sible for en su r in g th e qu a lity a n d
sta n da r d of a ll food wh ich en ter s th eir
con tr ol[11].
In or der to in vok e th e du e diligen ce cla u se,
if ch a r ged u n der th e Act, a fir m m u st pr ove
th a t it u n der took a dequ a te m on itor in g of
in com in g su pplies. Th is sign ifica n tly
in cr ea ses th e m on itor in g costs for su per m a r -
k ets wh ich m ay n eed to test su pplies of beef
m or e r e gu la r ly, k eepin g deta iled r ecor ds of
th ese tests. Su per m a r k ets a lso n eed to k n ow
th e h istor y of th eir beef su pplies, per h a ps
in clu din g th e pr odu ction pr a ctices u sed on
th e fa r m s fr om wh ich th e ca ttle or igin a ted. If
th er e is a food sa fety pr oblem w ith beef sold
in a su per m a r k et wh ich w a s ca u sed by a
pa r ticu la r on -fa r m pr odu ction pr a ctice, or
wh ich w a s th e r esu lt of a disea se in th e ca ttle,
th e r eta iler is n ow le ga lly r espon sible for
detectin g th is pr oblem . Th is su ggests th a t th e
tr a cea bility of ca ttle ba ck to th e fa r m of or i-
gin w ill becom e m or e im por ta n t beca u se of
th e F SA, lea din g to h igh er m on itor in g costs
for r eta iler s.
F u r th er m or e, th e disea se Bovin e Spon gi-
for m E n ceph a lopa th y (BSE ) r e-em er ged a s a
m a jor issu e in th e UK beef m a r k et in Ma r ch
1996. Th e r esu ltin g loss of con su m er con fi-
den ce in dom estic beef m a r k ets a n d a E u r o-
pea n Un ion expor t ba n cr ippled th e UK beef
in du str y. Over th e lon ger ter m , th e in du str y
m ay fin d th a t th e BSE cr isis h a s ser ved to
focu s con su m er s’ a tten tion on th e pr odu ction
m eth ods a ssocia ted w ith food pr odu cts (in
pa r ticu la r beef) a n d th a t con su m er s w ill
r equ ir e a ssu r a n ces a s to th e “sa fety” of food
wh ich th ey pu r ch a se. Th is h eigh ten s pr es-
su r e for tr a cea bility th r ou gh ou t th e beef
su pply ch a in . Alth ou gh th e r esea r ch on
wh ich th is pa per is ba sed w a s con du cted
befor e th e 1996 BSE sca r e, th e issu es w ith
wh ich it dea ls in clu de tr a cea bility wh ich h a s
becom e a ll th e m or e im por ta n t to th e UK beef
in du str y.
Recen t con su m er con cer n s over fa r m a n i-
m a l welfa r e a n d on -fa r m pr odu ction m eth ods
a r e in cr ea sin gly bein g given m or e pr om i-
n en ce in th e UK. F a r m er s a r e fa cin g pr essu r e
to u se less in ten sive a n d m or e “welfa r e-
fr ien dly” for m s of pr odu ction . Th ese a n im a l
welfa r e con cer n s h ave been n oted by th e
m a jor food r eta iler s w ith th e r esu lt th a t sev-
er a l la r ge su per m a r k ets pr ovide a ssu r a n ces
to con su m er s a bou t th e “welfa r e-fr ien dly”
n a tu r e of th eir m ea t pr odu cts wh ich in clu des
a n a ssu r a n ce a bou t on -fa r m pr odu ction
m eth ods. Su per m a r k ets fa ce h igh er tr a n sa c-
tion costs wh en pr ovidin g th ese a ssu r a n ces to
con su m er s beca u se th ey m u st gu a r a n tee th a t
th e beef w a s pr odu ced in a ccor da n ce w ith
th eir a n im a l welfa r e cla im s. Th is ca n eith er
be don e th r ou gh th eir ow n system of m on itor -
in g on -fa r m pr odu ction m eth ods (wh ich w ill
in cr ea se dir ectly th e m on itor in g costs
in cu r r ed by su per m a r k ets), or th r ou gh th e
u se of n a tion a lly r ecogn ized a n d in depen -
den tly en for ced a n im a l welfa r e sch em es. Two
n a tion a l fa r m a n im a l welfa r e sch em es for
beef ca ttle h ave been in tr odu ced in to th e UK
sin ce 1990; th ese a r e: F a r m Assu r ed Scotch
Livestock (FASL) a n d F a r m Assu r ed Br itish
Beef a n d La m b (FABBL)
Research method
Th e a n a lysis th a t follow s is ba sed on th e
h ypoth esis th a t a r eta iler ’s pr efer en ces for
a lter n a tive su pplier s w ill be in flu en ced by
th e tr a n sa ction costs wh ich a r ise fr om dea l-
in g w ith th ese su pplier s. Differ en t types of
bu yer -su pplier r ela tion sh ips w ill in volve
differ en t levels a n d/ or types of tr a n sa ction
costs. We ca n view ea ch su pply a lter n a tive a s
a bu n dle of ch a r a cter istics or a ttr ibu tes, ju st
a s goods or ser vices a r e som etim es viewed by
econ om ists a s bu n dles of a ttr ibu tes[13]. Som e
of th ese a ttr ibu tes a r e tr a n sa ction costs or
th ey m ay be tr a n sa ction -cost r edu cin g.
Tr a n sa ction cost th eor y su ggests th a t r eta il-
er s w ill ch oose th a t su pply a lter n a tive wh ich
m in im izes tr a n sa ction costs. Iden tifyin g th e
fa ctor s (in clu din g tr a n sa ction costs) wh ich
in flu en ce r eta iler ’s pr ocu r em en t decision s
a n d eva lu a tin g th eir r ela tive im por ta n ce
sh ou ld in dica te th e type of bu yer -su pplier
r ela tion sh ip lik ely to pr eva il a t th is sta ge of
th e beef m a r k etin g ch a in . Con join t a n a lysis
is u sed to m ea su r e th e r ela tive im por ta n ce of
selected tr a n sa ction costs in th e beef pu r ch a s-
in g decision s of r eta iler s.
Con join t a n a lysis h a s becom e a popu la r
m eth od for iden tifyin g a n d u n der sta n din g
th e com bin ed effects of pr odu ct a ttr ibu tes on
pr efer en ces for a pr odu ct[14-16]. Alth ou gh
often u sed to a n a lyse pr efer en ces for pr odu cts
or ser vices, con join t a n a lysis ca n a lso be
a pplied to th e ch oice a m on g su pply a lter n a -
tives. In th e a n a lysis wh ich follow s, su pply
a lter n a tives a r e ch a r a cter ized a s bu n dles of
a ttr ibu tes. A r eta iler is a ssu m ed to eva lu a te
th e “tota l wor th ” of a su pplier by com bin in g
th e sepa r a te eva lu a tion s of th e “pa r t-wor th ”
of ea ch a ttr ibu te. Th e su pplier a ttr ibu tes a r e
th e tr a n sa ction costs of u sin g th a t type of
su pplier. Th e u n der lyin g m odel is th er efor e:
 Jill E. Hobbs Tota l eva lu a tion of su pplier objective, h owever, w a s to focu s on tr a n sa c-
A t ransact ion cost analysis of = pa r t-wor th of level i for tr a n sa ction
i j ∴n tion costs. Lim itin g th e a n a lysis to fou r va r i-
qualit y, t raceabilit y and cost a ttr ibu te 1...+ a bles a lso avoided over com plica tin g th e con -
animal welfare issues in UK pa r t-wor th of level j for tr a n sa ction cost join t exper im en t. As th e n u m ber of a ttr ibu tes
beef ret ailing
a ttr ibu te 2 ...+ in clu ded in a n exper im en t in cr ea ses, th e
Brit ish Food Journal pa r t-wor th of level n for tr a n sa ction tr a de-off ta sk r equ ir ed of su r vey r espon den ts
98/ 6 [ 1996] 16–26
cost a ttr ibu te m becom es m or e difficu lt, lea din g to er r on eou s
or in con sisten t r espon ses or to a low r espon se
wh er e th e r eta iler -pr ocessor tr a n sa ction h a s
r a te.
m a ttr ibu tes, ea ch h avin g two or m or e levels.
Th e a bility to pu r ch a se “fa r m -a ssu r ed” beef
Th is is a sim ple a dditive m odel. It a ssu m es
is in clu ded a s a n a ttr ibu te beca u se of th e
th a t in dividu a ls effectively “a dd u p” th e pa r t-
m on itor in g costs wh ich cou ld a r ise a s a
wor th s to a r r ive a t a n over a ll tota l eva lu a tion
r esu lt of con su m er a n im a l welfa r e con cer n s.
a n d is th e sim plest con join t m odel in ter m s of
A su pplier wh o is a ble to pr ovide beef fr om
th e eva lu a tion ta sk r equ ir ed of su r vey
ca ttle r ea r ed u n der a n officia l fa r m a ssu r -
r espon den ts. Oth er m odel for m s a r e possible,
a n ce sch em e sh ou ld gen er a te lower m on itor -
su ch a s th e in ter a ctive m odel. Th is a llow s
Downloaded by GALATASARAY UNIVERSITY At 06:38 13 February 2016 (PT)

in g costs for su per m a r k ets (a ssu m in g th a t th e

com bin a tion s of a ttr ibu te levels to be m or e or
pr odu ction sta n da r ds of th e sch em e m eet th e
less th a n th eir su m . Th e pr edictive power of
r eta iler s’ r equ ir em en ts). If m em ber sh ip of a
a n in ter a ctive m odel is r edu ced a s in ter a ctive
n a tion a l fa r m a ssu r a n ce sch em e is n ot
ter m s a r e a dded beca u se th e r esu ltin g
im por ta n t to a r eta iler, eith er th e fir m h a s its
in cr ea se in pr edictive power m ay be offset by
ow n welfa r e sta n da r ds wh ich it pr efer s to u se
a r edu ction in sta tistica l efficien cy[14].
(a n d pr esu m a bly wh ich do n ot in volve it in
E a ch scen a r io con sists of level i of a ttr ibu te
excessive m on itor in g costs) or it does n ot
1, level j of a ttr ibu te 2 a n d so on , u p to level n
r e ga r d th e “a n im a l welfa r e” ch a r a cter istic of
for a ttr ibu te m . Th e tota l eva lu a tion (or tota l
beef to be im por ta n t to its cu stom er s.
wor th ) of a su pply a lter n a tive is th er efor e th e
Tr a cea bility of beef to th e fa r m of or igin is
su m of th e pa r t-wor th eva lu a tion s of ea ch
in clu ded a s a tr a n sa ction cost a ttr ibu te
con stitu en t a ttr ibu te level. Com pa r ison of th e
beca u se of th e poten tia l of th e 1990 F SA to
tota l wor th of differ en t su pplier scen a r ios ca n
r a ise th e m on itor in g costs in cu r r ed by r eta il-
th en be m a de. F u r th er m or e, a n a ssu m ption
er s. It h a s su bsequ en tly becom e m or e im por -
m u st be m a de a bou t th e r ela tion sh ip between
ta n t beca u se of h eigh ten ed con su m er con -
th e levels of ea ch a ttr ibu te. A lin ea r or qu a -
cer n s over BSE . To m on itor a dequ a tely a n d
dr a tic r ela tion sh ip ca n be a ssu m ed. Alter n a -
en for ce sta n da r ds fu r th er u pstr ea m in th e
tively, a sepa r a te pa r t-wor th r ela tion sh ip ca n
beef m a r k etin g ch a in m ay r equ ir e r eta iler s to
be u sed; th is is th e lea st r estr ictive of th e
tr a ce th e beef pr odu ct ba ck th r ou gh distr ibu -
th r ee a s it does n ot im pose a specific r ela tion -
tion a n d pr ocessin g to on -fa r m pr odu ction .
sh ip on th e a ttr ibu te levels[14].
Reta iler s fa ce h igh er m on itor in g costs if th is
Da ta for a con join t a n a lysis a r e collected
level of tr a cea bility is r equ ir ed.
th r ou gh a su r vey in wh ich r espon den ts eva lu -
Con sisten t pr odu ct qu a lity is in clu ded a s
a te a n u m ber of h ypoth etica l scen a r ios. Th e
a n a ttr ibu te beca u se th is cou ld h ave im plica -
scen a r ios a r e ba sed on com bin a tion s of th e
tion s for th e in for m a tion a n d m on itor in g
su pply a ttr ibu tes. Th e con tr ibu tion wh ich
costs wh ich r eta iler s fa ce. Reta iler s fa ce
ea ch a ttr ibu te level m a k es to th e r espon den t’s
in for m a tion costs in iden tifyin g su ita ble
eva lu a tion of th e scen a r ios is ca lcu la ted.
su pplier s a n d esta blish in g wh eth er or n ot
th ey ca n su pply pr odu cts of a con sisten t qu a l-
Designing the scenarios
ity. As beef is a n exper ien ce good, r epea t pu r -
Th r ou gh a ser ies of in ter view s w ith su per -
ch a ses by con su m er s depen d on th e pr odu ct
m a r k et r eta ilin g a n d m ea t pr ocessin g in du s-
bein g of a con sisten tly sa tisfa ctor y qu a lity.
tr y r epr esen ta tives, fou r a ttr ibu tes wer e
Reta iler s cou ld r edu ce in for m a tion costs by
ch osen for in clu sion in th e a n a lysis. Th ese
sou r cin g pr odu cts on ly fr om th ose su pplier s
wer e:
a ble to pr ovide pr odu cts of a u n ifor m qu a lity.
1 wh eth er th e beef or igin a ted fr om a fa r m
On ce th is su pply r ela tion sh ip h a s been esta b-
a ssu r a n ce sch em e;
lish ed, en su r in g th a t pr odu ct qu a lity con tin -
2 th e tr a cea bility of beef to th e fa r m of or i-
u es to be con sisten t is a n on goin g m on itor in g
gin ;
cost.
3 th e a bility of th e su pplier to deliver a pr od-
Th e fou r th beef pr odu ct/ su pplier a ttr ibu te
u ct of a con sisten t qu a lity; a n d
is th e pr ice pa id by th e r eta iler. Th is is n ot a
4 th e pr ice pa id by th e r eta iler.
tr a n sa ction cost bu t is in clu ded in th e a n a ly-
Th er e a r e m a n y m or e fea tu r es of beef pr od- sis to deter m in e th e exten t to wh ich r eta iler s
u cts a n d su pplier s wh ich in flu en ce a wou ld tr a de off a r edu ction in tr a n sa ction
r eta iler ’s pr ocu r em en t decision . Th e costs (a s m ea su r ed by fa r m -a ssu r ed beef, ea sy
[ 19 ]
 Jill E. Hobbs
A t ransact ion cost analysis of
qualit y, t raceabilit y and
animal welfare issues in UK
beef ret ailing
Brit ish Food Journal
98/ 6 [ 1996] 16–26
Downloaded by GALATASARAY UNIVERSITY At 06:38 13 February 2016 (PT)
tr a cea bility a n d a con sisten t qu a lity) a ga in st
th e pr ice wh ich th ey a r e pr epa r ed to pay for
th e beef.
Th e n ext step w a s to a ssign levels to th e
a ttr ibu tes. Attr ibu te levels sh ou ld be pla u si-
ble a n d ca pa ble of bein g tr a ded off. Th r ee of
th e a ttr ibu tes wer e a ssign ed two levels. Th e
levels for th e fa r m -a ssu r ed beef a ttr ibu te
wer e “yes” a n d “n o”; for th e tr a cea bility to
fa r m of or igin a ttr ibu te, “ea sy” a n d “diffi-
cu lt”; a n d for th e con sisten t qu a lity a ttr ibu te,
“con sisten t” a n d “va r ia ble”. Th e pr ice
a ttr ibu te h a d th r ee levels to r eflect lower,
aver a ge a n d h igh er pr ices pa id by th e
r eta iler ; th ese wer e “1 per cen t pr ice
discou n t”, “goin g m a r k et pr ice” a n d “1 per
qu estion n a ir e collected da ta for th e con join t
a n a lysis, togeth er w ith su m m a r y in for m a -
tion a bou t th e com pa n y. Th e beef or fr esh
m ea t bu yer s in n in e UK su per m a r k et com pa -
n ies wer e con ta cted; th ese in clu ded th e five
m a jor m u ltiples: J . Sa in sbu r y, Tesco, Sa few ay
(Ar gyll gr ou p), Asda a n d Som er field, plu s
fou r sm a ller r eta iler s: Wm (Willia m ) Low (a
Scottish r eta iler w ith stor es m a in ly in Scot-
la n d a n d a few stor es in n or th er n
E n gla n d)[20], Wa itr ose (oper a tin g m a in ly in
sou th -ea st E n gla n d), Ma r k s & Spen cer a n d
th e Co-oper a tive Wh olesa le Society. Fou r
u sa ble qu estion n a ir es wer e r etu r n ed – a
r espon se r a te of 44 per cen t. Th e r espon den ts
in clu ded two of th e five m a jor m u ltiples a n d

cen t pr ice pr em iu m ”[17].

Differ en t levels of th ese fou r a ttr ibu tes
wer e com bin ed to pr odu ce h ypoth etica l su p-
ply scen a r ios. Th e n u m ber of scen a r ios
depen ds on th e n u m ber of a ttr ibu tes a n d th e
n u m ber of levels. A fu ll fa ctor ia l design
in clu des a ll possible com bin a tion s of a ttr ib-
u tes a n d levels. Th is wou ld h ave gen er a ted 24
scen a r ios[18]. Th is wou ld be too m a n y for
r espon den ts to eva lu a te a ccu r a tely. In stea d, a
fr a ction a l fa ctor ia l design w a s gen er a ted
u sin g th e “ca te gor ies” pr ocedu r e of th e SP SS
com pu ter pa ck a ge[19]. Th is r esu lted in eigh t
scen a r ios design ed to ca ptu r e th e m a in
effects of ea ch a ttr ibu te. In a ddition , two h old-
ou t scen a r ios wer e gen er a ted. Th e la tter a r e
u sed to ch eck th e r epr odu cibility of th e
m odel.
Collecting the data
A posta l su r vey of UK su per m a r k et com pa -
n ies w a s ca r r ied ou t in J u ly 1994. A sh or t
two of th e sm a ller su per m a r k et ch a in s[21].
Clea r ly, th is is a ver y sm a ll sa m ple; th er efor e
th e r esu lts sh ou ld be in ter pr eted w ith th e du e
ca u tion wh ich th is im plies. On th e oth er
h a n d, a n y a n a lysis of th e UK su per m a r k et
sector n ecessa r ily in volves a sm a ll n u m ber of
com pa n ies. Th e com pa n ies r epr esen ted in
th is su r vey a ccou n t for a n im por ta n t
se gm en t of UK beef sa les. Respon den ts wer e
pr esen ted w ith th e ten su pplier scen a r ios
(in clu din g th e two h old-ou t scen a r ios) a n d
wer e a sk ed to eva lu a te ea ch scen a r io on a
pr efer en ce r a tin g sca le of 1-12, wh er e 1
r epr esen ted lea st pr efer en ce a n d 12 h igh est
pr efer en ce. P r efer en ce r a tin g sca les a r e
m or e a pplica ble to a m a il su r vey th a n a
r a n k in g of th e scen a r ios beca u se th ey a r e
ea sier for r espon den ts to u se. Ta ble I
displays th e su r vey qu estion u sed to collect
th e con join t da ta a n d descr ibes th e ten sce-
n a r ios.

Table I
Survey quest ions used t o collect conjoint dat a
Farm Traceability
assured to farm of Price paid
Case beef origin Quality by you Score
1 No Difficult Consistent 1% price discount 1 2 3 4 5 6 7 8 9 10 11 12

{ }
2 No Easy Variable 1% price premium 1 2 3 4 5 6 7 8 9 10 11 12
3 Yes Difficult Consistent 1% price premium 1 2 3 4 5 6 7 8 9 10 11 12
4 Yes Easy Consistent 1% price discount 1 2 3 4 5 6 7 8 9 10 11 12
5 No Difficult Variable 1% price discount 1 2 3 4 5 6 7 8 9 10 11 12
6 No Easy Consistent Going market price Least preferred 1 2 3 4 5 6 7 8 9 10 11 12 Most preferred
7 Yes Easy Variable 1% price discount 1 2 3 4 5 6 7 8 9 10 11 12
8 Yes Difficult Variable Going market price 1 2 3 4 5 6 7 8 9 10 11 12
9 No Difficult Variable 1% price premium 1 2 3 4 5 6 7 8 9 10 11 12
10 No Easy Variable 1% price discount 1 2 3 4 5 6 7 8 9 10 11 12
Notes:
Listed above are ten “ cases” describing beef supplies which use combinations of four possible features. Imagine that you have a choice in the combi-
nation of these four product features when purchasing beef supplies
Please rate each of the ten cases on a scale of 1 to 12, where 1 = Least preferred and 12 = Most preferred
You are encouraged to use the full scale from 1-12 when rating the different cases (please circle one score for each line)

[ 20 ]
 Jill E. Hobbs
A t ransact ion cost analysis of
qualit y, t raceabilit y and
animal welfare issues in UK
beef ret ailing
Brit ish Food Journal
98/ 6 [ 1996] 16–26
Downloaded by GALATASARAY UNIVERSITY At 06:38 13 February 2016 (PT)
Results
Averaged results for the whole sample
Or din a r y lea st squ a r es (OLS) a n a lysis w a s
u sed to estim a te th e m odel. Th e depen den t
va r ia ble is th e r espon den ts’ r a tin g of ea ch
scen a r io. Th e in depen den t va r ia bles (th e
a ttr ibu te levels) a r e tr ea ted a s du m m y va r i-
a bles. Th e expla n a tor y va r ia bles a r e defin ed
a s:
F = 1 if beef is fr om a fa r m a ssu r a n ce
sch em e, zer o if n ot;
T = 1 if tr a cea bility of beef to fa r m of or igin
is ea sy, zer o if difficu lt;
Q = 1 if pr odu ct is of a con sisten t qu a lity,
zer o if qu a lity is va r ia ble;
m ea t/ ca ttle ba ck to th e fa r m of or igin . Sim i-
la r ly, it m igh t be a r gu ed th a t qu a lity (con sis-
ten cy) a n d fa r m -a ssu r ed beef a r e cor r ela ted,
a s a n im a ls wh ich a r e r ea r ed u n der a fa r m
a ssu r a n ce sch em e wou ld h ave been h a n dled
m or e ca r efu lly, per h a ps h ou sed differ en tly
etc., th er eby in cu r r in g less br u isin g a n d
str ess a n d pr ovidin g ca r ca sses of a m or e
u n ifor m qu a lity. Th e fa ctor s a ffectin g qu a lity
con sisten cy, h owever, a r e fa r m or e diver se
th a n sim ply on -fa r m h a n dlin g or welfa r e-
fr ien dly pr odu ction m eth ods, wh er ea s a n im a l
welfa r e m ay be a specific con cer n to a se g-
m en t of con su m er s. Th er efor e, wh ile r ecog-
n izin g th e possibility of cor r ela tion between

th e a ttr ibu tes, it w a s felt th a t a n a dditive

P 1 = 1 for 1 per cen t pr ice discou n t, zer o if
goin g m a r k et pr ice or 1 per cen t pr ice
pr em iu m ;
P 2 =1 for goin g m a r k et pr ice, zer o if pr ice
discou n t or 1 per cen t pr ice
pr em iu m [22].
Th e r e gr ession equ a tion to be estim a ted is
th er efor e:
R = C + a 1F + a 2T + a 3Q + a 4P 1 + a 5P 2 + µ
wh er e R = th e r espon den t’s 1 to 12 r a tin gs of
th e pa ck a ges, C = th e con sta n t a n d µ = th e
er r or ter m .
It is possible th a t pa ir s of th ese a ttr ibu tes
m ay be collin ea r – for exa m ple, fa r m a ssu r -
a n ce a n d tr a cea bility. Wh ile a ck n ow ledgin g
th is possibility, it w a s felt th a t a lth ou gh a
r eta iler m ay be aw a r e th a t m ea t or igin a ted
fr om fa r m -a ssu r ed ca ttle ow in g to a ssu r a n ces
(or la bellin g) pr ovided by pr ocessor s, th e
bu yer m ay still be u n a ble to tr a ce th e
m odel, r a th er th a n a n in ter a ctive m odel, w a s
still a ppr opr ia te. In fu tu r e stu dies w ith a
su fficien tly la r ge sa m ple size, it m igh t be
in ter estin g to divide a sa m ple in two a n d
exper im en t w ith a dditive a n d in ter a ctive
m odels u sin g th e sa m e a ttr ibu tes on differ en t
h a lves of th e sa m ple.
Th e sepa r a te pa r t-wor th r ela tion sh ip
between a ttr ibu te levels w a s a ssu m ed for
ea ch of th e a ttr ibu tes[23]. Th er e a r e 32 da ta
poin ts beca u se fou r r espon den ts ea ch pr ovide
eigh t obser va tion s (th e two h old-ou t scen a r -
ios wer e n ot u sed to estim a te th e m odel). Th e
SP SS pr ocedu r e in itia lly estim a tes a m odel
for ea ch r espon den t (ba sed on eigh t obser va -
tion s) a n d th en aver a ges th ese r esu lts to give
r esu lts for th e en tir e sa m ple[14,15]. Clea r ly,
th e r esu lts a r e ba sed on a ver y sm a ll sa m ple
(fou r r espon den ts); sta tistica l sign ifica n ce
ca n n ot be cla im ed, bu t th e r esu lts r em a in

Table II
Averaged conjoint result s for t he whole sample
Part-worth Relative importance
Attribute level evaluation of attribute (per cent)
Constant 5.9583
Farm-assured beef 16.76
Yes 0.8750
No –0.8750
Traceability 19.05
Easy 1.0
Difficult –1.0
Quality 52.38
Consistent 2.75
Variable –2.75
Price 11.90
1 per cent price discount 0.6667
Going market price –0.0833
1 per cent price premium –0.5833
Pearson’s R 0.99
Kendall’s tau for two hold-outs 1.0
Note: Results from individual respondents are averaged to give the part-worth evaluations for the whole sample

[ 21 ]
 Jill E. Hobbs
A t ransact ion cost analysis of
qualit y, t raceabilit y and
animal welfare issues in UK
beef ret ailing
Brit ish Food Journal
98/ 6 [ 1996] 16–26
Downloaded by GALATASARAY UNIVERSITY At 06:38 13 February 2016 (PT)
in ter estin g for th e gen er a l in sigh ts wh ich
th ey pr ovide.
Th e OLS coefficien ts pr odu ced by th is
a n a lysis a r e tr a n sfor m ed in to pa r t-wor th
eva lu a tion s of th e a ttr ibu te levels by th e con -
join t pr ocedu r e in SP SS[14,19]. If a n a ttr ibu te
is gen er a lly pr efer r ed over a n oth er, it w ill
h ave a la r ger pa r t-wor th estim a te. Ta ble II
r epor ts th e aver a ged pa r t-wor th eva lu a tion s
a n d th e r ela tive im por ta n ce of ea ch a ttr ibu te
for th e wh ole sa m ple, togeth er w ith Pea r son ’s
R a n d Ken da ll’s ta u sta tistics for th e m odel.
Sta tistics close to 1.0 in dica te th a t th e m odel
is a good fit. Th e Pea r son ’s R cor r ela tion
coefficien t (0.99) m ea su r es th e cor r ela tion
between a ll obser ved a n d estim a ted pr efer -
cen t pr ice discou n t) wou ld h ave a tota l eva lu -
a tion (or tota l wor th ) of:
(5.9583) + (0.87750) + (1.0) + (–2.75) + (0.6667)
= 5.75
wh ich r epr esen ts th e su m of th e a ttr ibu te
level pa r t-wor th s a n d th e con sta n t ter m .
Ta ble III com pa r es th e pr edicted a n d a ctu a l
pr efer en ce scor es for ea ch of th e eigh t scen a r -
ios (om ittin g th e two h old-ou t scen a r ios). Th e
pr efer en ce scor es h ave a lso been con ver ted to
r a n k in gs of th e eigh t scen a r ios. As ca n be
seen fr om Ta ble III, th e pr edicted scor es do
n ot devia te gr ea tly fr om th e a ctu a l pr efer en ce
scor es, a n d th e a ctu a l a n d pr edicted r a n k s a r e
th e sa m e.
As m igh t be expected, scen a r io 4, in wh ich

en ces. Da ta fr om th e h old-ou t scen a r ios a r e
n ot in clu ded in th e com pu ta tion of th e pa r t-
wor th va lu es of th e a ttr ibu tes. Th e a ccu r a cy
w ith wh ich th e m odel r epr odu ces ea ch
r espon den t’s pr efer en ce scor e for th e h old-ou t
scen a r ios is com pa r ed w ith th eir a ctu a l pr ef-
er en ce scor es. Th e Ken da ll’s ta u cor r ela tion
coefficien t (1.0) r epor ts th e exten t of th is
cor r ela tion .
Th e pa r t-wor th eva lu a tion s in Ta ble II ca n
be su m m ed to give a tota l eva lu a tion for a n y
com bin a tion of a ttr ibu te levels. For exa m ple,
scen a r io seven (fa r m -a ssu r ed beef, ea sily
tr a cea ble, va r ia ble qu a lity, r eta iler pays 1 per
ca ttle a r e fa r m -a ssu r ed, tr a cea bility is ea sy,
qu a lity is con sisten t a n d th e r eta iler pays a
discou n ted pr ice w a s th e m ost pr efer r ed
scen a r io. Th e r a n k in gs tell u s th e exten t to
wh ich bu yer s a r e pr epa r ed to tr a de off
between th e a ttr ibu te levels. For exa m ple,
scen a r ios 2 a n d 5 h ave in com m on fa r m -
a ssu r ed beef a n d va r ia ble qu a lity. Th ey differ
in th a t scen a r io 2 h a s ea sy tr a cea bility bu t
th e su per m a r k et pays a 1per cen t pr ice pr e-
m iu m , wh ile scen a r io 5 h a s difficu lt tr a ce-
a bility of ca ttle bu t a 1per cen t pr ice discou n t.
Th e r esu lts of th e a n a lysis su ggest th a t
r espon den ts pr efer r ed scen a r io 2 to scen a r io

Table III
Predict ed preference scores and ranks
Actual average Predicted
preference Actual average Predicted
Scenarioa scoreb rank preference score rank
1 7.25 4 7.50 4
2 3 7 2.75 7
3 7.75 3 8 3
4 12 1 11.25 1
5 2.25 8 2 8
6 8.5 2 8.75 2
7 5 5 5.75 5
8 3.25 6 3 6
Notes:
a The scenarios are as follows:
a Scenario 1: Not farm-assured, difficult to trace, consistent quality, 1 per cent price discount
a Scenario 2: Not farm-assured, easy to trace, variable quality, 1 per cent price premium
a Scenario 3: Farm-assured, difficult to trace, consistent quality, 1 per cent price premium
a Scenario 4: Farm-assured, easy to trace, consistent quality, 1 per cent price discount
a Scenario 5: Not farm-assured, difficult to trace, variable quality, 1 per cent price discount
a Scenario 6: Not farm-assured, easy to trace, consistent quality, going market price
a Scenario 7: Farm-assured, easy to trace, variable quality, 1 per cent price discount
a Scenario 8: Farm-assured, difficult to trace, variable quality, going market price
b Calculated by averaging the actual preference score data from the four respondents

[ 22 ]
 Jill E. Hobbs
A t ransact ion cost analysis of
qualit y, t raceabilit y and
animal welfare issues in UK
beef ret ailing
Brit ish Food Journal
98/ 6 [ 1996] 16–26
Downloaded by GALATASARAY UNIVERSITY At 06:38 13 February 2016 (PT)
5, despite th e h igh er pr ice. Th is su ggests th a t
th ey tr a ded off th e n e ga tive a ttr ibu te of pay-
in g a sligh tly h igh er pr ice a ga in st th e posi-
tive a ttr ibu te of ea sier tr a cea bility of ca ttle.
Th e m on itor in g costs th a t a r ise fr om th e
tr a cea bility of ca ttle a r e clea r ly of r ela tive
im por ta n ce.
Th e a ttr ibu te w ith th e w idest r a n ge (fr om
h igh est to lowest) of pa r t-wor th estim a tes is
th e m ost im por ta n t. F igu r e 1 com pa r es th e
r ela tive im por ta n ce of ea ch of th e fou r a ttr ib-
u tes. By fa r th e m ost im por ta n t of th e fou r
a ttr ibu tes is a con sisten t qu a lity (52.38 per
cen t), followed by tr a cea bility (19.05 per cen t),
fa r m a ssu r a n ce (16.76 per cen t) a n d, fin a lly,
th e pr ice level (11.90 per cen t). Th is su ggests
th e su per m a r k et of th e n eed to m on itor fa r m -
er s dir ectly. Th is does n ot m ea n th a t a sligh t
pr ice r edu ction or pr em iu m is u n im por ta n t,
on ly th a t it is r ela tively less im por ta n t to th e
bu yer s’ pu r ch a sin g decision th a n th e th r ee
tr a n sa ction cost va r ia bles ch osen for th is
stu dy.
Results for individual retailers
A fu r th er a pplica tion of con join t a n a lysis is
to exa m in e th e r espon ses of in dividu a ls
w ith in th e sa m ple[24]. Th is is pa r ticu la r ly
u sefu l in m a r k et r esea r ch stu dies or stu dies
w ith sm a ll sa m ples wh er e th e a ttitu des of
“r epr esen ta tive” r espon den ts, or r espon ses a t
a n in dividu a l level, a r e of in ter est. F igu r e 2

th a t th e in for m a tion costs wh ich r eta iler s
fa ce in loca tin g a n d a ppr a isin g r elia ble su p-
plier s a r e im por ta n t deter m in a n ts of th eir
ch oice of su pplier. If r eta iler s ch a n ge th eir
su pplier s fr equ en tly th ey w ill in cu r h igh
in for m a tion costs in en su r in g th a t beef is of a
con sisten t qu a lity. If th e r eta iler does n ot
in cu r th ese in for m a tion costs, th en th e qu a l-
ity of th e beef m ay be h igh ly va r ia ble. Th is
w ill da m a ge th e r eta iler ’s r epu ta tion w ith
con su m er s a n d m ay r edu ce th e dem a n d for
its beef pr odu cts. If con su m er s go to com peti-
tor s to pu r ch a se beef pr odu cts, th e r eta iler
m ay lose th em a ltogeth er a s cu stom er s, given
th a t “on e-stop” sh oppin g is tr a n sa ction cost-
r edu cin g for con su m er s. Th e m on itor in g
costs of en su r in g th a t su pplies con tin u e to be
of a con sisten t qu a lity a lso in flu en ce pr ocu r e-
m en t.
Th e m on itor in g costs wh ich a r ise fr om th e
n eed to tr a ce ca ttle to th e fa r m of or igin a r e
a lso im por ta n t, per h a ps beca u se of th e
r equ ir em en ts of th e 1990 F SA. F u r th er m or e,
beef wh ich or igin a tes fr om a fa r m a ssu r a n ce
sch em e r edu ces m on itor in g costs for su per -
m a r k ets sin ce th is gives th em a n a ssu r a n ce
a bou t on -fa r m pr odu ction sta n da r ds wh ich
ca n be pa ssed on to con su m er s. Th is r elieves
Figure 1
Relat ive import ance of supply channel at t ribut es for t he whole sample
Relat ive at t ribut e import ance (per cent )
60
50
40
30
20
10
0
Farm-assured Ease of Qualit y Price paid
beef t raceabilit y
com pa r es th e r ela tive im por ta n ce of th e
a ttr ibu tes for ea ch r espon den t. Rela tive to th e
oth er th r ee a ttr ibu tes, secu r in g a su pply of
beef of a con sisten t qu a lity w a s th e m ost
im por ta n t ch a r a cter istic of a su pply ch a n n el
for th r ee of th e fou r r eta iler s. Th is in clu des
two of th e m a jor m u ltiples a n d r epr esen ts a
fa ir ly la r ge pr opor tion of r eta il beef sa les in
th e UK.
Th e im por ta n ce of th e a bility to pu r ch a se
stock fr om a fa r m -a ssu r a n ce sch em e m ay be
u n der estim a ted for r eta iler 2 beca u se th is
com pa n y h a d its ow n qu a lity a ssu r a n ce
sch em e wh ich in cor por a ted (a n d, a ccor din g
to th e r espon den t, exceeded) th e sta n da r ds of
th e n a tion a l fa r m -a ssu r a n ce sch em es. It
th er efor e u n der took its ow n m on itor in g of
su pplies to en su r e th a t con su m er welfa r e
con cer n s wer e m et. Reta iler 3 com m en ted
th a t, wh ile n ot a ll of its ca ttle wer e r ea r ed
u n der r ecogn ized fa r m -a ssu r a n ce sch em es, it
did set str ict cr iter ia for a n im a l h u sba n dr y,
sou r cin g a r ou n d 70 per cen t of its su pplies
dir ect fr om specific fa r m s. Th u s, th e tr a ce-
a bility of ca ttle wou ld be im por ta n t to th is
r eta iler if it did n ot r ely solely on n a tion a l
fa r m -a ssu r a n ce sch em es to m on itor on -fa r m
pr odu ction sta n da r ds. Reta iler 4 r e ga r ded
con sisten cy in qu a lity to be “essen tia l” a n d
in clu des th is in its pr odu ct specifica tion to
su pplier s. Th e in for m a tion costs of en su r in g
th a t pr odu ct qu a lity is con sisten t a r e evi-
den tly extr em ely im por ta n t to th is fir m . It
dea ls w ith a la r ger n u m ber of su pplier s th a n
th e oth er th r ee r eta iler s. Th is r eta iler h a s a
h igh volu m e of r eta il sa les a n d th er efor e m u st
spen d m or e r esou r ces in loca tin g su pplier s.
Over th e lon ger r u n it w ill a lso in cu r h igh
m on itor in g costs in en su r in g th a t th is la r ge
n u m ber of su pplier s con tin u e to pr ovide
pr odu cts of a con sisten t qu a lity.
Discussion and conclusions
Th is pa per h a s a n a lysed th e in flu en ce of a few
k ey tr a n sa ction cost a ttr ibu tes of beef su pply
[ 23 ]
 Jill E. Hobbs
A t ransact ion cost analysis of
qualit y, t raceabilit y and
animal welfare issues in UK
beef ret ailing
Brit ish Food Journal
98/ 6 [ 1996] 16–26
Downloaded by GALATASARAY UNIVERSITY At 06:38 13 February 2016 (PT)
ch a n n els on th e pr ocu r em en t decision s of
su per m a r k et r eta iler s. Th e h igh ly con cen -
tr a ted n a tu r e of th e UK gr ocer y r eta ilin g
sector m ea n s th a t in evita bly th is a n a lysis h a s
been ba sed on a sm a ll sa m ple size; a s su ch ,
th e r esu lts do n ot h ave sta tistica l
sign ifica n ce. Th is m a k es it difficu lt to m a k e
gen er a liza tion s a bou t th e pu r ch a sin g pr efer -
en ces of th e UK r eta il sector ; h owever, th e
a n a lysis does pr ovide u sefu l in for m a tion
a bou t th e r ela tive im por ta n ce of qu a lity,
tr a cea bility a n d a n im a l welfa r e to th e pu r -
ch a sin g decision s of a se gm en t of th e UK
r eta il tr a de.
Th e desir e for beef su pplies of a con sisten t
qu a lity wou ld ten d to m itiga te a ga in st sh or t-
a ll a spects of th e food wh ich th ey sell, a n d
th ey n eed m or e in for m a tion a bou t th e pr o-
du ction m eth ods u sed by beef pr ocessor s a n d
by fa r m er s; th is r a ises th eir m on itor in g
costs. Th e size of th ese m on itor in g costs
depen ds on th e exten t to wh ich ca ttle ca n be
ea sily tr a ced, wh ich in tu r n is in flu en ced by
th e w ay in wh ich fa r m er -pr ocessor a n d
pr ocessor -r eta iler tr a n sa ction s a r e
or ga n ized. Th e closer th e r ela tion sh ip
between th ese sta ges, i.e. th e m or e for m a l th e
ver tica l co-or din a tion m ech a n ism , th e lower
w ill be th e m on itor in g costs. On e of th e clos-
est for m s of ver tica l co-or din a tion is a str a te-
gic a llia n ce pa r tn er sh ip between a r eta iler, a
pr ocessor a n d a lim ited n u m ber of fa r m er s

ter m su pply r ela tion sh ips between r eta iler s
a n d a la r ge n u m ber of occa sion a l su pplier s,
sin ce th e r esu ltin g in for m a tion a n d m on itor -
in g costs in fin din g a ppr opr ia te su pplier s a n d
en su r in g th a t th eir pr odu cts wer e of a con sis-
ten t qu a lity wou ld be too h igh . In stea d, lon g-
ter m sta ble r ela tion sh ips between r eta iler s
a n d pr ocessor s wou ld r edu ce th e tr a n sa ction
costs in cu r r ed by th e r eta iler. Th is m igh t ta k e
th e for m of str a te gic a llia n ce pa r tn er sh ips
w ith pr ocessor s a n d pr odu cer m a r k etin g
gr ou ps or lon g-ter m su pply a gr eem en ts (con -
tr a ctu a l a n d in for m a l) w ith a few pr ocessor s.
Th e tr a cea bility of ca ttle to th e fa r m of
or igin w a s secon d in im por ta n ce. Tr a cea bil-
ity h a s becom e a n im por ta n t con cer n in th e
food ch a in , pa r ticu la r ly sin ce th e in tr odu c-
tion of th e 1990 Food Sa fety Act, a n d m ay
becom e m or e im por ta n t in th e fu tu r e a s a
r esu lt of th e r ecen t BSE pa n ic. Un der th e
F SA, r eta iler s a r e n ow le ga lly r espon sible for
Figure 2
Relat ive import ance of supply channel at t ribut es for individual respondent s
Relat ive at t ribut e import ance (per cent )
80
70
60
50
40
30
20
10
0
Ret ailer 1 Ret ailer 2 Ret ailer 3 Ret ailer 4
Supply channel at t ribut es
Key
Farm-assured beef
Ease of t raceabilit y
Qualit y
Price paid
[ 24 ]
or ga n ized in to a gr ou p m a r k etin g sch em e, in
wh ich th e fa r m er s pr odu ce ca ttle wh ich m eet
specifica tion s la id dow n by th e r eta iler. Th is
sh ou ld lower m on itor in g costs for r eta iler s.
Open m a r k et tr a n sa ction s, in wh ich ca ttle a r e
sold to pr ocessor s th r ou gh tr a dition a l live-
r in g a u ction s a n d th e pr ocessed beef is th en
sold to r eta iler s, m ay im pose u n a ccepta bly
h igh levels of tr a n sa ction (m on itor in g) costs
on r eta iler s. Con cer n a bou t th e tr a cea bility of
a u ction ca ttle h a s been voiced by th e UK
r eta ilin g sector :
… a u ction m a r k ets a r e in da n ger of bein g
decla r ed a “n o-bu y” a r ea by power fu l su per -
m a r k et com pa n ies a s th ey pr epa r e to m eet
th e su pply ch a in a u dits dem a n ded by th e
1990 Food Act …Su per m a r k et bu yer s’ …
biggest objection is th e w ay a n im a ls sold
u n der th e h a m m er lose th eir iden tity[25,
p. N / 5].
On e UK su per m a r k et m ea t bu yer w a s qu oted
a s sayin g:
Th is m ea n s we h ave to k n ow wh er e ou r
a n im a ls h ave com e fr om a n d h ow th ey wer e
m a n a ged. Th is ca n n ot be don e th r ou gh th e
a u ction system . As soon a s we ca n esta blish
a n etwor k of th r ee-cor n er ed qu a lity a ssu r -
a n ce pa r tn er sh ips w ith fa r m -gr ou ps,
a ba ttoir s a n d ou r selves, we w ill r efu se to
h a n dle a n y a u ction a n im a ls[25, p. N / 6].
Th e r ela tive im por ta n ce of obta in in g beef
su pplies wh ich a r e “fa r m -a ssu r ed” differ ed
between th e fou r r eta iler s. Wh en obta in in g
su pplies of fa r m -a ssu r ed beef is im por ta n t to
a r eta iler, it w ill pr efer a ver tica l co-or din a -
tion m ech a n ism wh ich pr ovides fa r m -
a ssu r ed stock a t a r ela tively low m on itor in g
cost. Th is ca n be a ch ieved in two w ays. E ith er
pr ocessor s su pplyin g th e r eta iler a gr ee to
pu r ch a se on ly ca ttle r ea r ed u n der on e of th e
n a tion a l fa r m -a ssu r a n ce sch em es, or ca ttle
cou ld be sou r ced fr om a gr ou p m a r k etin g
sch em e in wh ich fa r m er s u se pr odu ction
m eth ods wh ich m eet specified welfa r e sta n -
da r ds. Th e la tter m ay r equ ir e a str a te gic
 Jill E. Hobbs
A t ransact ion cost analysis of
qualit y, t raceabilit y and
animal welfare issues in UK
beef ret ailing
Brit ish Food Journal
98/ 6 [ 1996] 16–26
Downloaded by GALATASARAY UNIVERSITY At 06:38 13 February 2016 (PT)
a llia n ce pa r tn er sh ip between th e fa r m gr ou p,
th e pr ocessor a n d th e r eta iler.
Str a te gic a llia n ce pa r tn er sh ips between
pr odu cer m a r k etin g gr ou ps, pr ocessor s a n d
r eta iler s wou ld im pr ove th e two-w ay flow of
in for m a tion con cer n in g th e type of pr odu ct
wh ich con su m er s r equ ir e a n d th e sta n da r ds
u n der wh ich it is pr odu ced. Str a te gic
a llia n ces cou ld a lso be a w ay of en su r in g th a t
r eta iler s r eceive a su pply of beef w ith th e
desir ed qu a lity a n d “a n im a l welfa r e” ch a r a c-
ter istics. Adh er in g to fa r m a ssu r a n ce a n d
qu a lity a ssu r a n ce sta n da r ds cou ld for m pa r t
of th e r equ ir em en ts of m em ber sh ip of a pr o-
du cer gr ou p m a r k etin g sch em e. Un der th is
a r r a n gem en t, pr odu cer s a n d pr ocessor s
cou ld a gr ee on a set of pr odu ction pr a ctices
w ith a r eta iler. Th e r eta iler wou ld h ave m or e
in for m a tion a bou t th e or igin of its beef pr od-
u cts a n d h ow th ey wer e pr odu ced. Alth ou gh
th e in itia l tr a n sa ction costs of esta blish in g
th is type of su pply r ela tion sh ip cou ld be h igh
(n e gotia tion costs; in itia l in for m a tion costs of
fin din g su ita ble su pplier s/ bu yer s, etc.) over
th e lon g r u n , in for m a tion a n d m on itor in g
costs wou ld be r edu ced.
If pa r ties to th is a r r a n gem en t h ave m a de
in vestm en ts specia lized to th e tr a n sa ction ,
h owever, pr oblem s ca n a r ise. F a r m er s in
m a r k etin g gr ou p X, for exa m ple, m ay h ave
in vested in equ ipm en t, h ou sin g or feedin g
m eth ods to su it r eta iler Z. P r ocessor Y m ay
h ave in vested in pr ocessin g tech n ology to
pr odu ce specifica lly to th e r equ ir em en ts of
r eta iler Z. Reta iler Z a n d pr ocessor Y cou ld
h ave in vested r esou r ces in developin g a
m a r k et for a pa r ticu la r beef pr odu ct su pplied
by pr odu cer gr ou p X. If on ly on e pa r ty to th e
tr a n sa ction h a s m a de a n a sset-specific invest-
m en t, th ey a r e vu ln er a ble to th e oth er pa r ties
a ctin g oppor tu n istica lly a n d r en e gin g on th e
con tr a ct or str a te gic a llia n ce a gr eem en t by
ch a n gin g th e ter m s of th e tr a n sa ction (e.g.
pr ice or deliver y sch edu le, etc.). It is essen tia l
to th e lon g-ter m su r viva l of str a te gic a llia n ce
or con tr a ctu a l a gr eem en ts between pr odu c-
er s, pr ocessor s a n d r eta iler s th a t a ll pa r ties
h ave a sta k e in th e con tin u a tion of th e pa r t-
n er sh ip a n d th a t th e a r r a n gem en t is flexible
en ou gh to dea l w ith ch a n ges in m a r k et con di-
tion s or ch a n ges in tr a n sa ction costs.
As th e n a tu r e of ver tica l co-or din a tion
w ith in th e UK beef m a r k etin g ch a in evolves
in r espon se to ch a n gin g tr a n sa ction costs, so
th e beef m a r k etin g ch a in sh ou ld becom e
m or e r espon sive to con su m er con cer n s. Th is
sh ou ld r esu lt in beef pr odu cts wh ich better
m eet th e r equ ir em en ts of con su m er s in ter m s
of con sisten t pr odu ct qu a lity a n d food sa fety,
a n d wh ich go som e w ay tow a r ds m eetin g
a n y con cer n s r e ga r din g a n im a l welfa r e on
fa r m s.
Notes and references
1 Th ese a r e Ar gyll (tr a din g a s Sa few ay, P r esto,
Lo-Cost a n d Ga lbr a ith ), Asda , Som er field
(pr eviou sly Ga tew ay), J . Sa in sbu r y a n d Tesco.
Ow in g to fr equ en t m er ger a n d a cqu isition
a ctivity in th e r eta il sector, th e iden tities a n d
m a r k et sh a r es of th e top gr ocer y m u ltiples
con sta n tly ch a n ge.
2 Accor din g to Migh ell a n d J on es [3, p. 1], ver ti-
ca l co-or din a tion in clu des:“… a ll th e w ays of
h a r m on izin g th e su ccessive ver tica l steps of
pr odu ction a n d m a r k etin g. Th e m a r k et-pr ice
system , ver tica l in te gr a tion , con tr a ctin g,
cooper a tion sin gly or in com bin a tion a r e som e
of th e a lter n a tive m ea n s of coor din a tion ’’.
Ver tica l co-or din a tion ca n be viewed a s a
con tin u u m w ith spot m a r k et tr a n sa ction s a t
on e en d, wh er e econ om ic a ctivity is dir ected
by m a r k et pr ices, to fu ll ver tica l in te gr a tion a t
th e oth er, wh er e a ctivity is dir ected by w ith in -
fi r m m a n a ger ia l or der s. In between th ese two
extr em es lie m yr ia d ver tica l co-or din a tion
a lter n a tives, in clu din g in for m a l pu r ch a se
a r r a n gem en ts, str a te gic a llia n ces a n d con -
tr a cts. N ote th a t in th is pa per th e br oa d defin i-
tion of ver tica l co-or din a tion a r r a n gem en ts –
wh ich in clu des m a r k et pr ices – w ill be u sed.
Som etim es a n a r r ower defi n ition of ver tica l
co-or din a tion a r r a n gem en ts is u sed wh ich is
con fi n ed to n on -m a r k et a r r a n gem en ts. Th is
pr oblem of defi n ition ca n som etim es lea d to
con fu sion .
3 Migh ell, R.L. a n d J on es, L.A., Ver tica l Coord i-
n a tion in A gr icu ltu re, USDA E RS-19, Wa sh in g-
ton DC, 1963.
4 Th e ter m s “a ba ttoir ” a n d “pr ocessor ” w ill be
u sed in ter ch a n gea bly th r ou gh ou t th is pa per.
5 MLC, M ea t Dem a n d T ren d s, E con om ics Ser -
vices, Mea t a n d Livestock Com m ission , Milton
Keyn es, Vol. 94 N o. 1, 22 Febr u a r y 1994.
6 N ielson , T h e R eta il Pock et B ook 1994, N TC
P u blica tion s, Oxfor d, 1993.
7 Willia m son , O.E ., Econ om ic Orga n iz a tion –
Fir m s, M a rk ets a n d Policy Con trol, Ha r vester
Wh ea tsh ea f, Hem el Hem pstea d, 1986.
8 N elson , P., “In for m a tion a n d con su m er
r esea r ch ”, J ou r n a l of Politica l Econ om y, Vol. 78
N o. 2, 1970, pp. 311-29.
9 Repea t bu sin ess is extr em ely im por ta n t to
su per m a r k ets. In 1993, fou r of th e la r gest UK
m u ltiples r eceived between 59 a n d 70 per cen t
of th eir tu r n over fr om loya l cu stom er s[10].
10 Ritch ie, C. a n d Lea t, P., “Su per m a r k ets a n d
qu a lity in m ea t a n d m ilk m a r k etin g”, S cottish
A gr icu ltu ra l Econ om ics R eview, Vol. 8, 1995.
11 Hobbs, J .E . a n d Ker r, W.A., “Im plica tion s of
th e Food Sa fety Act 1990 for Scottish a gr ibu si-
n ess”, S cottish A gr icu ltu ra l Econ om ics R eview,
Vol. 6, 1991, pp. 51-9.
12 To sell ca ttle u n der on e of th ese sch em es,
fa r m er s m u st dem on str a te th a t cer ta in a n im a l
welfa r e codes of pr a ctice h ave been a dh er ed to.
Th e fa r m r eceives a ccr edita tion u n der th e
[ 25 ]
 Jill E. Hobbs
A t ransact ion cost analysis of
qualit y, t raceabilit y and
animal welfare issues in UK
beef ret ailing
Brit ish Food Journal
98/ 6 [ 1996] 16–26
Downloaded by GALATASARAY UNIVERSITY At 06:38 13 February 2016 (PT)
[ 26 ]
sch em e a n d th e ca ttle ca n th en be sold a s
“fa r m -a ssu r ed”.
13 La n ca ster, K.J ., “A n ew a ppr oa ch to con su m er
th eor y”, J ou r n a l of Politica l Econ om y, Vol. 74
N o. 2, Apr il 1966, pp. 132-57.
14 Ha ir, J .F. J r, An der son , R.E ., Ta th a m , R.L. a n d
Bla ck , W.C., M u ltiva r ia te Da ta A n a lysis w ith
R ea d in gs, 3r d ed., Ma cm illa n , N ew Yor k , N Y,
1992.
15 Steen k a m p, J .B.E .M., “Con join t m ea su r em en t
in h a m qu a lity eva lu a tion ”, J ou r n a l of A gr i-
cu ltu ral Econ om ics, Vol. 38 No. 3, 1987, pp. 473-80.
16 N ess, M.R. a n d Ger h a r dy, H., “Con su m er pr ef-
er en ces for qu a lity a n d fr esh n ess a ttr ibu tes of
e ggs”, B r itish Food J ou r n a l, Vol. 96 N o. 3, 1994,
pp. 26-34.
17 Per cen ta ges wer e ch osen r a th er th a n a m on e-
ta r y pr ice va lu e sin ce a ctu a l pr ices cou ld
differ a cr oss differ en t cu ts or types of beef. Th e
1 per cen t pr ice ch a n ge w a s ch osen on th e
ba sis of pr esu r vey in ter view s w ith in du str y
r epr esen ta tives.
18 Th e n u m ber of possible scen a r ios is a n x b m
wh er e a a n d b a r e differ en t levels a n d n a n d m
a r e differ en t a ttr ibu tes. If th e n u m ber of levels
wer e th e sa m e for ea ch a ttr ibu te, th e n u m ber
of possible scen a r ios wou ld be sim ply, a n .
19 SP SS, S PS S Ca tegor ies, SP SS In c., Ch ica go, IL,
1990.
20 Th is com pa n y h a s sin ce been ta k en over by
th e Tesco su per m a r k et ch a in .
21 For r ea son s of con fi den tia lity th e iden tities of
th e fou r r espon den ts ca n n ot be disclosed.
22 Th er e a r e th r ee a ttr ibu te levels for “pr ice”: “1
per cen t pr ice discou n t”, “goin g m a r k et pr ice”
a n d “1 per cen t pr ice pr em iu m ” wh ich m ea n s
th a t two du m m y va r ia bles m u st be defin ed for
th is a ttr ibu te.
23 For th e th r ee a ttr ibu tes w ith on ly two levels,
th e ch oice of a fu n ction a l r ela tion sh ip is of less
r eleva n ce a s, d e fa cto, th e r ela tion sh ips m u st
be lin ea r. Th e m odel w a s r u n u sin g a sepa r a te
pa r t-wor th s r ela tion sh ip a s th is is gen er a lly
r e ga r ded to be less r estr ictive th a n th e a lter n a -
tive lin ea r or qu a dr a tic r ela tion sh ips. In a
sepa r a te test, lin ea r r ela tion sh ips between th e
a ttr ibu te levels wer e specifi ed: fa r m -a ssu r ed
beef, con sisten t qu a lity, ea sy tr a cea bility a n d
lower pr ice levels wer e expected to h ave a
positive effect on th e r espon den t’s r a n k in g.
Th e r esu ltin g pa r t-wor th estim a tes wer e
a lm ost iden tica l to th ose r epor ted in th is pa per
a n d th er e w a s n o im pr ovem en t in th e a ccu r a cy
or r epr odu cibility of th e m odel a s m ea su r ed by
th e cor r ela tion coefficien ts. For th is r ea son ,
on ly th e r esu lts of th e sepa r a te pa r t-wor th
m odel a r e r epor ted h er e.
24 Th is is possible beca u se th er e a r e eigh t obser -
va tion s per r espon den t.
25 A gra Eu rope, “UK su per m a r k ets w a n t m ea t
h u sba n dr y w a r r a n ty”, A gra Eu rope, 10 May
1991, pp. N / 5-N / 6.
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