Economics of food chain coordination and food safety standards: Insights from Agency Theory

Souza, Monteiro, DM

doi:10.1007/978-3-319-92138-9_3

Economics of food chain coordination and food safety standards: Insights from Agency Theory

Lookup NU author(s): Dr Diogo Monjardino De Souza Monteiro

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Abstract

Over the past three decades food markets became increasingly integrated and contractsbetween upstream suppliers and downstream manufacturers, retailers and food servicebusiness are increasingly the norm. Economic theory suggests that integrated companies willhave fewer foodborne illness outbreaks, since the integrated companies have more controlover their supply chain from farm to table. Yet, despite this change in global marketstructure, there have been many food safety outbreaks in the last decade. The prevention andmitigation of these outbreaks was significantly undermined by the existence of informationfailures, even within a single company. This chapter introduces agency theory, an economicframework that helps understand the role of information on the vertical contractual relationsin the food supply chain. The change in economic incentives under different contractsituations is explored. We further discuss how this framework can be used to examinealternative public policies and private strategies to improve supply chain coordination andreduce food safety risks, against some standard established either by the private sector or bygovernment agencies.