Documentation is the difference.

For many specialty crop buyers, the documentation that accompanies the specialty crop can be as important as the actual product delivered. Currently, there are three major drivers of change that are increasing the importance of documenting and certifying production practices and input usage. The potential market uses of this documentation are only starting to be discovered and the recurring predictions that all of agriculture will become a differentiated product market may finally come to fruition.

1ST DRIVER--LABELING

The first driver of change is that food companies are increasingly seeking to put labels on their products that are linked to process and product attributes for which consumers are willing to pay a premium. For example, consumers are willing to pay a premium for products that are organic, antibiotic-free, free-range, or free of genetically-modified (non-GM) ingredients, to name only a few of the possible labels.

In order to label a food product with any of these attributes, the food company must be able to document that these products have indeed been produced as labeled with approved inputs. As a result, documentation of the production process by the producer carries substantial market value.

The organic sector also provides examples of innovative ways companies are using this production documentation to market their products beyond just a label. For instance, Organic Valley Farms offers a "Find My Farmer!" option for every carton of soy milk. The consumer enters the date on the top of the carton, and can find out who produced soybeans, farm location, the number of contracted acres, the soybean variety, planting date, and see a picture of the farmer!

2ND DRIVER--REGULATIONS

A second driver of change that increases the importance of documentation at the input supply and farm level are new regulations in the U.S. and Europe. These regulations are designed to enable a rapid response to any food safety incident and to increase consumer confidence in the safety of the food supply.

First, the U.S. Congress passed the Public Health Security and Bioterrorism Preparedness and Response Act of 2002. This regulation requires that food processors maintain records of all food production, going "one-step back" to all input purchases and "one-step forward" to the sale of all processed products, while making farmers exempt.

Second, the European Union's "General Food Law" contains a mandatory traceability requirement that applies to all food, animal feed, food-producing animals and all stages of the food chain from the farm to retail. This regulation went into effect January 1, 2005, and it applies to all U.S. food companies and farmers that export to Europe.

With respect to GM crops, the regulation requires that anyone handling GM products to transmit this information throughout the chain and retain these records for five years. Any product that contains more than 0.9 percent GM material must be labeled that it contains GM ingredients.

This law further establishes a traceability model of "one-step forward, one-step back," which means that input suppliers would keep records on how their products are produced and to whom they are sold. Farmers would keep records on where they purchased their inputs, how their products are produced and to whom they are sold. Grain buyers would keep records on where they purchased their grain, processing, and to whom they sell their product. And so on up the chain to the food retailer.

While this law requires that input suppliers keep records on all inputs that are used to produce food or feed for export to Europe for five years, the implications for input supply firms are not yet fully understood.

Third, the National Organic Program (NOP) went into effect in October 21, 2002, and this regulation establishes standards for organic production. Organic producers are required to document their production practices and have them certified every year by a government-approved third-party certifier.

Fourth, the USDA has announced that it will implement a national animal identification system that will allow them to trace back the movement of any diseased animal within 48 hours.

These four regulations provide a clear incentive to the food supply chain to increase the documentation of production practices.

3RD DRIVER--NEW TECHNOLOGY

A third driver of change is that farmers, companies and land grant universities are developing testing instruments like near infrared and record-keeping systems that will reduce the costs and increase the effectiveness of documenting production practices and tracing products through the system. A variety of record-keeping systems have been developed for different stages of production, some with third-party certification.

Examples include: (1) Novecta offers third-party certification and an on-farm quality assurance process. (2) Grainsafe is an on-farm quality assurance process developed by Dr. Dirk Maier at Purdue University. (3) Each state's crop improvement association offers third-party certification of quality assurance programs to guarantee seed purity. A cost-benefit analysis of the Grainsafe programs shows that the primary costs of on-farm quality assurance are associated with the record-keeping time, and in the case of identity-preserved food-grade white corn these additional costs range from 0.5 cents-per-bushel bushel up to 2 cents-per-bushel. The availability of well-designed record-keeping systems that lower the cost of documentation will greatly facilitate the development of these differentiated markets.

IMPLICATIONS

The fact that consumers, food companies and potential export markets are becoming more interested in how their food is produced has implications for all upstream members of the food supply chain, including seed, chemical and machinery suppliers.

The seed industry provides several current examples. For instance, if a producer is going to sell identity-preserved non-GM grain, then the producer needs to be able to buy seed that is certified as non-GM. The tolerance limits in export markets range from 0.1 to 5 percent GM in grain. For those producers trying to deliver 0.1 percent or less non-GM grain, this will not be possible if they start with seed that contains 1 percent GM seed.

THE ORGANIC MARKET

The organic sector provides many examples where the value of the product depends on documentation related to inputs. For instance, the organic market has zero tolerance for GM contamination, therefore seed must be certified as completely free of GM. Milk cows can only be fed vitamins and minerals that meet the organic NOP standards; vitamins and minerals cannot contain or be produced with any of the list of prohibited synthetic and non-organic substances. Input suppliers that want to sell to organic producers must document the ingredients and processes used in their products and may be able to gain a competitive advantage by providing user-friendly documentation.

The very strict tolerances and increased documentation requirements in the conventional food-grade market and the organic market may provide opportunities for the input industry. Seed companies that can guarantee the purity of their seed may either gain market share or to charge a higher price for their higher quality in these specialty markets. Further, the establishment of these record-keeping systems may increase the ability of seed companies to capture the market value of proprietary varieties with valuable characteristics.

Crop protection chemical companies may also gain a competitive advantage in these specialty markets by clearly documenting their product formulations.

Machinery suppliers can offer testing and record-keeping tools that interface with record-keeping software to save the producer time and increase the accuracy of the records.

Corrine Alexander is an assistant professor of Agricultural Economics at Purdue University. For more information contact 765/494-4249 or e-mail [e-mail].