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Julia Neuwirth ©
Federal Institute of Agricultural Economics, Vienna, Austria
GEOGRAPHICAL INDICATIONS FOR AGRICULTURAL PRODUCTS IN THE EU: FOOD QUALITY POLICY, FARMER BENEFITS AND CONSUMER
DEMANDS
Globalisation trends and food scandals alienate consumers and increase their desire for more safety, traceability and trustability. EU quality schemescoveringgeographical indications for agricultural products tackle these issues and aim to provide better information for consumers in combination with positive income effects for farmers and producers. The present paper mergesinformation on selected contents of the EU TECH.FOOD project with a literature review and the results of an Austrian case study to provide insight intothe EU's food quality policy and geographical indications, as well as their effects on producers and the demand of consumers for food quality.
Key words: geographical indications, PDO, PGI, TECH.FOOD project, EU food quality policy
Introduction
The European agro-food sector is mainly influenced by the globalisation of production and markets on the one hand, and, on the other, by an increase in social awareness for linkages between quality of life and healthy food, and between sustainable agricultural production and the environment. Thus, consumer needs are increasingly turning to quality, convenience, diversity, safety and sustainable and regional food production. To meet these new demands, new production solutions based on common strategies, tools and the promotion of research and innovation opportunities in the agro-food sector are necessary.
The project TECH.FOOD - financed by the European Regional Development Fund (ERDF) within the frame of the South East Europe Transnational Cooperation Programme - tackles these challenges and aims to advance research and technology development and innovation capacity in the agro-food sector. Towards this end, the project aspires to create networks among enterprises and research bodies, as well as tools to foster technological innovation in food quality production on a transnational level. TECH.FOOD is implemented by 13 partners under the leadership of the Province of Modena (Italy). The project started in 2009 with a scheduled duration of 2.5 years.During the TECH.FOOD project,numerous informational events and workshops were held covering a wide range of topics, such asfunctional food, energy saving in food production, labelling, the production, certification and marketing of organic products, and food safety and hygiene requirements.
The aim of this paper is to illuminate the issue of food quality in the EU based on the findings of studies presented at the seminar "Local/Regional/Traditional Food and
© Julia Neuwirth, 2011
Quality Assurance - a Contradiction?" on 14 June, 201 land at the seminar "Regional Food, Local Food" on 15 June, 2011in Vienna, supplemented by a literature review and case study of the effects of geographical indications (GIs) on Austrian farmers and producers.
The EU food quality policy regarding agricultural products
Above all, quality means fulfilling the expectations of consumers. In turn, quality becomes manifest in specific product attributes (e.g. method and place of production) that helpproducers raise the level of awareness for their products and furthermore help inform consumers (Cordonnier 2011).
Over the past two decades, the growing globalisation of trade and move towards market differentiation and product proliferation has increased the uncertainty of consumers regarding the quality and origin of food products.At the same time, the reduction in traditional agricultural pricing policy instruments and liberalisation of markets has contributed to strengthening protection strategies for food quality and origin. In response to these developments,labels certifying regional originhave grown in importanceand more and more regional concepts for the marketing of agricultural products have appeared(Bramley et al. 2009; Reithmayer 2011; Spiller et al. 2007).Foodstuffs are "goods of experience and confidence" and therefore are characterised by asymmetric information, a situation that can be undermined by opportunistic producers and retailers for their own advantage. The effects of asymmetric information could be market failures and incertitude among consumers,as foodstuffs are "necessary goods" with inelastic demand (Akerlof 1970;Hardes and Uhly 2007 in Theuvsen 2008). As a result, protecting consumers against frauddue to wrong product labelling is more important than ever.
The EU became active on this issue quite early on. Already in 1988, the European Commission recognised that quality-linked protection of GIs was needed on a general level, as opposed to only for wine, which was then the case. In the course of its reform in 1992, the EU passedRegulation (EC) No 2081/92 on the protection of geographical indications and designations of origin for agricultural products and foodstuffs as an important instrument for a new quality policy within the Common Agricultural Policy (CAP) (EC 1988 and 2011a; Groier 2008a).Nowadays, the EU's quality policy for agricultural products pursues three main objectives (EU 2010, p. 54):
• "Ensuring that farmers and producers receive a fair income reflecting the quality of their agricultural produce
• Enabling farmers and producers to satisfy the desire of consumers to access products demonstrating characteristics and production methods which generate value added and
• Improving consumers' understanding about the characteristics of agricultural products and their production methods, by ensuring accurate information is provided on labels and by schemes."
Related aims include: supporting the diversity of agricultural products, protecting regional products against abuse and imitation (free riders and plagiarisms), ensuring "product truth" on behalf of consumers, strengthening regional chains of economic
addedvalue and,along with it, positively influencing rural developmentas well as marketing activities on national and international markets (Bramley 2009; Groier2008a; Jochum 2011; Spiller et al. 2007). At the time of writing, anew EU quality package is being formulated that will result in a new regulation onagricultural product quality schemes, which will provide more coherence and clarity, a new general-baseline marketing standard and new best practices guidelines for voluntary certification and labelling.It is expected to be adopted in 2012 (EC 2011a; Jochum 2011).
PDO and PGI: What do these instruments mean?
"Geographical indications are names that identify productsas originating in a territory where a given quality, reputation or other characteristic of the product is essentially attributable to its geographical origin. The geographical indications schemes provide protection of intellectual property rights for products described by registered geographical indications; and marketing assistance, primarily by conveying information as to compliance with the geographical indication system. The schemes enhance the credibility of products in the eyes of consumers and enable fair competition between producers. There are three schemes (for wines, for spirit drinks, and for agricultural products and foodstuffs) and two instruments, the PDO (protected designation of origin) and the PGI (protected geographical indication)." (EC 2009)
The three regulations - coveringthe protection of GIs (EC regulation 2081/92), the protection of traditional recipes for food products (EC regulation 2082/92) and organic production (EC regulation 2092/92) - are the cornerstones of EU agriculture and food quality policy. Products protected by these schemes have a privileged position with respect to legal protection, EU financial aid and eligibility for financial aid from the Member States(to promote these products). The legal protection afforded to registered products is much higher than that of brand names, as their name is not only protected against unfair competition, but also the mere use of the name in any other context is forbidden (Becker and Staus 2008).
The protected designation of origin (PDO) covers agricultural products and foodstuffs which are produced, processed and prepared in a given geographical area using recognised know-how attributable to that area. The protected geographical indication (PGI) covers agricultural products and foodstuffs for which at least one of the stages of production, processing or preparation takes place in the area.
In addition, two other quality labels for agricultural products exist in the EU: one for organic farming products and the label "traditional specialty guaranteed" (TSG) for agricultural farm products and foodstuffs, which indicates a protected recipe (EC 2011d). Since neither of the two is a GI, they are not covered in detail in this paper.
GIs serve as tools for positioning the registered products in the market and as marketing instruments. They protect the intellectual property of regions and help farmers receive a fair share of added value (Reithmayer 2011).The number of quality food names registered stood at1,037in 2011. Of these, 518 were PDOs, 479 were PGIs and 40 were TSGs,while, by type, most registered products were fruits, legumes or cereals, meat or meat products,orcheese (EC 2011b,c). Since 2006, products from third countries have also been eligible for PDO or PGI registration.
The benefits tofarmers
The theoretical literature shows that GIs are expected to provide many benefits to farmers and producers. Territorial origin is seen as a strategic tool for differentiation in agro-food markets, giving farmers the opportunity to move away from commodity markets into more lucrative niche markets. This differentiation allows small producers to create a competitive advantage similar to that of a trademark, and to form collective monopolies by erecting barriers to participation for other producers (Bramley et al. 2009; Giovannucci et al. 2009; Reithmayer 2011). Ultimately, the protected nature of GIs enables producers to capture a premium, with the size of the premium depending on market size, degree of competition with substitutes, consumer perceptions about the linkage of a GI with the product's attributes and demand elasticity (Correa 2002 in Bramley 2009; Reithmayer 2011).
On the other hand, there are also critical authors who stress that successful GIs are not easy to establish, for achieving success on a large scale often takes decades and requires patient application and sustained commitment. Sometimes this is connected with considerable costs for organisational and institutional structures as well as ongoing operational requirements like marketing and legal enforcement (Giovannucci et al. 2009). However, registration of a PDO or PGI does allow the producerto claimsupportive measures, e.g. from the rural development programme(Reithmayer2011).
For their part, empiricallyunderpinned studieshave arrived at more differentiated results. Groier (2008b) investigated eight GI initiatives in Austria in terms of internal structures, acceptance of protected GIs and future perspectives. The results showed increases in production quantity and number of producers for most of the protected products, although a linkage to GI-registration was not clear in every case. For the most part, higher prices wererealised, but some initiatives had no related price advantagedue to ahigh degree of similarity withnon-GI products, the ratio of quantity supplied to demand, the marketing channelmix (direct marketingvs.regional marketingvs. retail marketing), the degree of processing used and the extentof the product range. In terms of size and scope, there exist very small, loosely organised production and marketing initiatives that serve more-or-less regional markets, but also initiatives characterised by large production quantities and professional (industrial) processing and marketing structures that supply regional and international markets via traditional indirect marketing channels.At the same time,the lack of nationwide promotion activitieshas resulted in general unawareness of GI products among consumers.Finally, interviews showed that those responsible for the initiatives were rather positive regarding estimated future developments, for the most part expectingprice levels to stabilise or improveand production quantities to increase.
A German survey (Spiller et al. 2007) draws a similar picture: 73 European producers of GI products appraised the EU quality system to bevaluabledue to simpler positioning (of the product), higher quality standards and competitive advantages. But the bureaucratic obstacles were viewed negatively, especially the long application process (on average it takes three years from submission to final registration; Becker and Staus 2008). In addition, the necessary control costs and administrative effort were
deemed a hindrance for small and medium sized enterprises. For the most part, sales volume and turnover, prices, yield returns and the number of employees wereall positively influenced by GI registration. However, increasesin sales turnoverwere shown to dependmuch more on higher sales volume than on a higher price, whereforethe yield returns increased only slightly.
Case study: Styrian pumpkin seed oil (PGI)
Within the frame ofthe midterm evaluation of the measure "Participation of farmers in food quality schemes,"a measure of the Austrian Rural Development Programme 2007-2013, a written survey of 680 producers of the PGI product Styrian pumpkin seed oil was conducted in 2009to study the effects ofquality-scheme participation on production quantity, purchase price, production cost and income (Neuwirth and Ortner 2010). For the majority of farmers, participation in the PGI scheme did not change the quantity of product produced (82% of responding farmers), nor the purchase price (59%) nor the production costs (59%), while 69% of respondents reported no change in income.However, in terms of changes in quantity, cost, price and income over the full duration of participation in the PGI scheme, some significant correlations between duration and quantity and between duration and price were reported. Farmers participating in the PGI scheme for 12 to 14 years experienced the highest price increases. In contrast, farmers participating for one or four years experienced the lowest - and sometimes even negative - price changes, despite the fact that the producers' prices had previously experienced positive development duringthe similar timeframe.Therefore, the survey concludedthat positive effects on the enterprise level increase with the duration of participation, and that the additional cost of participation is negligible and can be compensated by higher prices and higher production volumes. In addition, incentives for participating in GI schemes appear to be important to maintaining or raisingfarmer incomes, to contributing torural development and to increasing the number of products with controlled quality on the market - which may benefit consumers. And, finally, especially newcomersto the schemeshould receive financial support to help fight against market entry barriers.
From the perspective of consumers
Within a globally linked world and with recurring headlines about food scandals (e.g. E. coli in sprouts and cheese, dioxin in fodder, contaminated meat in supermarkets, the BSE crisis, anti-freeze agents in wine, etc.), consumers are becoming more and more frustrated and thus desire better food safety, traceability and trustability.
Undoubtedly, the need to cook and eat purchased food will remain a part of our lifestyle.But eating and drinking are more than just necessities, for they also fulfilimportant rolesin social life and human interaction, and in individual and national identities: e.g. national foods and beverages(Jochum 2011).
The driving forces influencing consumer behaviour are time, money and knowledge. Today ,the timeavailable for buying, preparing and eating food is limited, because family members spend most of their time not at home, but at work orat school. As a result, the trend towards convenient food, fast food and home meal replacementsis only growing, while a shift to dinner as the principal meal has also been recognised.
With higher incomes due to general economic growth, the share of moneythat households spend on food is decreasing. In addition, the industrialisation of farming, processing and food distribution leads to cheaper unit costs. Competition between "needs and wants" is also increasing,and this is apparent by the broader price ranges for individual types of goods (i.e. the range from commodity to specialty goods) while fulfilling other basic needs, such as habitation, energy, mobility, information, communicationand recreation,has become more important.Lastly, knowledge about food, farming, cooking and recipes determines the level of interest in these topics. Unfortunately, a lack of knowledge on various levels exists and is supported by the media - e.g. food scandals, diet and fitness manias, strawberries in winter, etc. (Jochum 2011).
The results of several recent surveys shed further light on consumers' fears and demands. For example, in 2010 aEurobarometer survey asked the general public about problems and risks associated with food, requesting spontaneous answers from the respondents. The most common fears mentioned were the presence of chemicals, pesticides and toxins, followed by concerns over food poisoning and bacterial contamination. Diet-related diseases ranked only third. The resultscorrespond to those of a 2009 survey,also by Eurobarometer, askingrespondents from the general public to nameagricultural issues that they felt poorly informed about. Every second person answered that he/she would like to have more information regarding the safety and quality of food products, while one in three respondents said they wanted to know more about environmental and climatic effects (Eurostat 2011).
In Austria, a qualitative survey undertaken in 2009 concluded that food safety is the main priority of consumers, particularly in terms of product origin, freshness, naturalness and processing quality. At the same time, beyond these rational aspects, Austrians also place emotional value on their food, with manyconsumers perceiving Austrian food as being "part of home" (AIZ 2009). Another national survey, carried out in 2010, revealed the main reasons for purchasingregional food: freshness (80% of respondents), quality (79%) and good taste (77%) (GfK Austria in Jochum 2011). An analysis of motives performed by RollAMA in 2010 showed that 92% of the 1200 respondents(in Austria) believe that food from regional agriculture will grow in importance in future,while the MarketInstitute came to the result that 78% of Austrian citizensare willing topurchase regional products even if they are slightly more expensive (N?N Landeszeitung 2011).Obviously, GIs could serve as important instruments to help meet consumer demandfor more confidence and trustabilityvia independent controlling (Reithmayer 2011).
Outlook
In a world filled with food scandals and consumer uncertainty,quality-certified regional foods can help re-establish confidence. To advance the development of regional food with controlled quality, the following issues will have to be addressed (Jochum 2011):
• Clear terminology: A definition of regional and local food in terms of product quality and how it differs with other EU quality standards is needed.
• Determination of the strategic goals: High added value?Maintenance of small-scale farming and SMEs?Productdiversity?
• Financial support: CAP measures or other incentive schemes.
• Ensuring transparent information transfer to prove the authenticity and trustability of products.
• Development of new distribution channels: e.g. delivery services via information and communication technologies, one-stop shop, shop in shop, events and tourism.
• Educational measures and advisory services to improve processing and marketing.
Recent discussions in the European Parliament have dealt with limiting the total production of productswith a protected designation of origin in order to avoid price deteriorations and adopting new labels for products from mountain farms and outermost regions, e.g. Azores, Canary Islands, French Guyana, etc. (AGRA-EUROPE 2010; EC 2011a, e). However, all signs point to the success of GI products in future.
References
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Summary
Protected GIs areat the core of the EU's food quality policy and serve both as a consumer protection measure, by addressing information asymmetries and quality, and as a producer protection measure, by protecting the producer's reputation andconsequently offering an opportunity to gain comparative advantages.
Food security and quality are increasingly gainingin importance, wherefore international projects like TECH.FOODwill continue to play a relevant role in disseminating information about innovative food developments and thus better meeting consumer demands in future. At the same time, further efforts are needed with respect to terminology, strategic goals, financial support, innovative distribution channels, transparent information transfer, education and advice to farmers and producers.
