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Subgroups

Sub-group on Full Information Product Pricing Networks

The NAFTA trading agreement contains important side agreements designed to insure that manufacturing and trade in the North American trading region observes fair wage practices and minimizes the environmental impact of manufacturing practices that support North American trade. The North American Agreement on Environmental Cooperation (NAAEC), and the North American Agreement on Labor Cooperation (NAALC) are two tri-lateral agreements set up by the NAFTA accords to monitor and promote such fair labor and environmentally friendly manufacturing processes. The purpose of this research project is to explore a set of government-sponsored product labeling and information policies that may have the potential to significantly expand the share of fair wage and environmentally friendly products traded within the NAFTA region. We propose that the market share for such products can mirror the recent rapid expansion in “organic” food products that followed the development and implementation of organic food labeling and packaging standards led by the US Department of Agriculture and similar agencies in Canada and Mexico such as the Mexican Ministry of Agriculture (Secretaría de Agricultura, Ganadería, Desarrollo Rural, Pesca y Alimentación). We propose to explore fair labor and environmental friendly labeling using an innovative design that focuses on one product—coffee grown in Mexico but roasted, brewed, and consumer in Canada and the United States—and exploits the existence of two prototype information systems linked to a coffee market simulator that can capture supply chain pricing dynamics. The project culminates with a series of white papers designed to demonstrate the feasibility of such policies to government officials in all three NAFTA partner countries.

Background

Most products consumed within the NAFTA trading zone are produced and distributed through cost-effective distribution networks that typically do not reveal certain types of information to end consumers. However, a growing number of consumers and producers are increasingly paying attention to information about where, when, how, and by who our goods are produced. In all these cases, producers strive to attach non-price information, thereby adding value, to their products. We are calling such networks of relationships among consumers, producers, and distributors “Full Information Product Pricing (FIPP) Networks”. FIPP production and distribution networks are important because they can sustain networks of small producers, enable SME creation in rural or under-developed areas, and in general fuel region-wide economic development [1]. Typically FIPP production and distribution occurs with fewer negative externalities such as adverse environmental impact. FIPP production and distribution also fosters the creation of social capital. Most importantly, because FIPP practices can fuel economic development, they can increase the cash value of exports from producer to consumer nations (or market segments within a nation) [2]. However, FIPP benefits to producers vary on particular contexts [3]. Moreover, some analysts pose important questions about the real benefits or the long-term sustainability of FIPP networks [2, 4, 5].

Research Questions and Plan

The research questions include:

Q1. What are the characteristics of successful FIPP networks?
Q2. How to use information and communication technology (ICT) to support FIPP distribution networks?
Q3. How can government policy and investment in ICT promote FIPP distribution networks?
Q4. Which are key factors determining levels of success in FIPP Networks?

To answer these questions, the subgroup members conducted 5 exploratory case studies in various countries. In-case and cross-case analysis and modeling are carried out and the results are presented in conferences and academic journals. In addition, practical guidance is also developed based on initial case exploration and literature review.

After the initial stage, the research team plans to build a prototype whose foundations would be a mix of two existing systems: CARTV’s Directory of Québec Certified Organic Products and Bilumi’s database of user ratings about the social performance of players active in industries like the chocolate industry. These two existing systems hold complementary data that is collected through different means. CARTV’s Directory contains information that, by law, Québécois businesses (through authorized certifiers) must gather and provide the Québécois government to sell their food products under an organic label. Bilumi’s database contains information that’s obtained through crowdsourcing mechanisms, that is, by normal, unconnected Internet users concerned with the social performance of the firms that produce the food we eat or products we buy. A project proposal is currently under development.

Brief Case Description

In this section, we present preliminary results from five cases:

Tosepan Titataniske (“Together we win”-English Translation):
Tosepan Titataniske is a cooperative of about 1400 small producers from 70 communities in the northern mountains of the State of Puebla in Mexico that produces and exports organic and fair-trade coffee to the US, Japan and Europe. Tosepan is certified as an organic/fair-trade coffee producer by Fair Trade Mexico, Certimex, Ocia International and by the Fair Trade Labeling Organization (FLO). The certifying process involves certification of small land owners and establishing production quotas for each of them. Tosepan has a manual traceability system to control individual quotas. ICT have the potential to facilitate certification and traceability of coffee in the network of producers. Moreover, according to Tosepan’s marketing director, Fair-trade exports could benefit by having clearer government standards and regulations, which are much developed for organic products.

Traceability, e-business and Québec’s food exports
More and more, American consumers want to know where the food they buy come from and how and by whom it is made. Some players along the value chain are willing to pay more for products made in a certain way or by a certain type of producer. Also, more information is needed by businesses outside the US to export their goods to the US. This fact presents a major challenge to Québécois food producers who need access to the US market to prosper. Québec has built a powerful traceability system to enable quick identification of problems and prevent the propagation of diseases. But this system only covers certain types of animals (beef, veal and cervid). It cannot track them outside farms and the borders of Québec, and it does not cover other types of food products (e.g. lettuce). Moreover, the system is not popular, because producers don’t see how much value (if any) it adds to their products. Studying the impacts of Québec’s traceability system and how that system could be extended for export and value-adding purposes would bring real benefits to Québécois producers.

Central American Fair Trade Craft Cooperative
The hub of this FIPP network is a women-owned cooperative in Central America producing non-traditional crafts using traditional fabrics for export to Fair Trade outlets in North America and Europe. Each product is hand-signed by the woman who produced it. The women of the cooperative use the proceeds from the sales to pay themselves a living wage and then to provide social services for their children and community including schools, medical clinic, and new business development opportunities. While this organization does use the Internet to manage its order flow and it does have an on-line URL, it does not yet have a well-developed strategy to use ICT to connect to its customer base. The cooperative is a member of Fair Trade Federation (FTF), SERVV, and the Association of Producers for 10,000 Villages. It is skeptical about the future possible role of government intervention to support their business out of a belief that governments help larger organizations, not small producers.

Internet-Enabled Sales of Traceable Foods from Specialty “Heritage” Producers
This case centers of an Internet-enabled network of specialty food producers who market heritage foods directly to consumers. A key feature of their sales approach is an information system that allows consumers to trace and document the source of their food products. Producers in this network sell a wide variety of products (plant and animal) having a “heritage” nature, such as Turkey. The producers are located within the United States and market themselves to a US market. The Internet allows this network of producers to reach out directly to its customers and to provide online food traceability information. There is no government regulation or oversight of this distribution channel above and beyond usual FDA and Department of Agriculture regulations that apply to all food producers in the United States.

County-Based Networks to Support Local Food Markets in Upstate New York
The NYS Department of Agriculture and Markets is working under a Governor’s directive to promote local farmer-to-consumer networks as a way to bolster upstate agriculture. Combining local farm-based energy with a top-down government support, these projects are springing up all around the state of New York and have an ubiquitous, but low presence in the mindset of local consumers. Some local farmers have a more direct approach using direct contracts with consumers in forms of “Community-Supported Agriculture” (CSA). Under these schemes, local consumers actually purchase an annual “share” in the products of a specific farm and in return receive weekly or bi-weekly product shipments during the harvest season. In many regions, farmers sponsor alliances with local restaurants, cooperate in local farmer markets, and work with local food cooperatives. In general, all members of this network are interested in FIPP strategies, increased market share and support prices for local farmers. In general, they do not yet use any sophisticated information systems to support their operations.

Conversations about common themes in each case indicated that a better understanding of FIPP networks has the potential of contributing to the design of policies and technologies to support local and regional economic development. Some of these initial themes to explore are related to network configurations, trust, governance mechanisms, traceability systems, and government policy. This subgroup continues with the comparison of these initial cases through the use of qualitative techniques as well as modeling and simulation. Initial explorations of FIPP systems in Canada, United States and Latin America suggest that several factors play a role to explain differences in the operation of each network. Some of these contributing factors are trust, social capital, governance mechanisms, work processes and Information Technologies (IT). Among them, trust appears to be a recurrent theme in the initial cases explored by the research team. Akerlof´s information asymmetry theory has been identified as an important element to explain FIPP dynamics [6].