Vertical Coordination and Transaction Costs

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From the course by Technische Universität München (TUM)

The Economics of Agro-Food Value Chains

39 оценки

Technische Universität München (TUM)

The Economics of Agro-Food Value Chains

39 оценки

Have a look at our trailer for a brief introduction to this course: https://youtu.be/GADAgxTHjgE In this course, you learn how the agro-food value chain approaches the challenge of constantly improving its competitiveness by producing high quality food and products and also aiming to attain greater sustainability. Some of the topics of this course are: • The notion of quality for food and agricultural products and consumer value. • How to conduct market research in this field. • Labelling, branding and pricing strategies, as-well as innovation in the agro-food sector. • How sustainability can be used as a competitive advantage through corporate social responsibility. • The role and different types of industrial standards. • The different forms of coordination in the chain, in particular with regard to the retailing and distribution sector. This course is taught by a group of international experts from Universities in Italy, Germany, Ireland, Scotland and the Netherlands. Each of them will give you insights into a specific topic related to food quality and the organization of the agro-food value chains.

From the lesson

Module 13: Industrial Standards

In this module you will learn about vertical coordination and its relation to transaction costs and quality. You will also learn about standards, meta-standards and meta-systems. The module ends with examples of food quality standards.

Vertical Coordination and Transaction Costs7:29

Meet the Instructors

Hannes Lang
Research Associate
Technical University of Munich
Luisa Menapace
Professor
Technical University of Munich
Faical Akaichi
Research Economist
Scotland’s Rural College
Francesco Bimbo
Research Economist
Wageningen University
Montserrat Costa-Font
Research Economist
Scotland’s Rural College
Carlo Russo
Associate Professor
University of Cassino and Lazio Meridionale
Chenguang Li
Research Economist
University College Dublin

Welcome to module 13 about - Industrial Standards -

My name is Montserrat Costa-Font and I'm a researcher at SRUC.

In this model we will learn about the role of quality regulation and standards in the food supply chain.

This model is divided into 5 lessons.

In the first lesson, we are going to talk about how food supply chains have evolved

and introduced the concept of transactional cost.

In the second lesson, we aim understand the increasing importance of quality in the performance of food supply chains.

In the third lesson, we will learn about the notion of a standard.

In the fourth lesson, we intend to gain knowledge about food quality management systems

and the difference between the meta-standards and meta-systems.

Finally, in the fifth lesson we will present some examples of food quality standards.

Let's start with the first lesson.

The learning objectives of the first lesson is to be able to explain the notion' of transactional cost

and its relevance in the context of supply chains with a growing level of vertical coordination.

Modern food supply chains having have become increasingly globalized and complex.

Retailers and food industries now source their products from all over the world,

transforming the food industry into interconnected system with great variety of complex relationships.

Governments on both the national and international level have responded to

this situation by developing new legislation and regulations to ensure

levels of safety, quality and sustainability in the food supply chain.

Examples are the UK's Food Safety Act, the Codex Alimentarius, and the General Food Law.

While government's mainly provide a regulatory and hygienic overview,

the private sector, specifically the suppliers of the value chain,

have assumed responsibility for quality and safety issues.

This has been achieved thanks to the development of voluntary standards

and an increased involvement of stakeholders along the entire value chain,

moving towards an increasing level of vertical coordination.

What is meant by vertical coordination?

Vertical coordination refers to the means by which products move through the supply chain from producers to consumers.

A major part of vertical coordination

refers to the synchronization of successive stages of production and marketing,

with respect to quantity, quality and timing of product flows.

Some of the driving forces behind change in vertical coordination are:

changing consumer preferences, biotechnology, information technology,

environmental pressures, credit and risk issues and the reduction of global trade barriers.

Closer vertical coordination has emerged, in part,

because the above factors result in higher relative transactional cost for traditional spot market transactions.

Indeed, the effects of consumer demand for differentiated food products

and of advances in agricultural biotechnology,

have been to encourage a movement away from commodity production, as homogeneous products,

and towards the production of food products with diverse characteristics for specific niche markets.

And what is a transactional cost?

A transactional cost is a cost incurred by making an economic exchange.

For example, the cost of participating in a market.

Transactional costs can be divided in 3 categories:

First, search an information cost.

They are costs that are incurred due to the search and information gathering process.

For example, determining that the required good is available on the market or which product has the lowest price.

Second, bargaining or negotiation cost.

These are the cost required to come to an acceptable agreement with the other party

to the transaction and required for drawing up an appropriate contract.

Finally, policing and enforcement costs.

These are the costs that incur while making sure the other party sticks to the terms of the contract,

and by taking appropriate action, often through the legal system, if this turns out not to be the case.

We have just learned about vertical coordination and transactional costs.

Now it's your turn to get active:

Which of the following costs cannot be considered classic transactional costs?

Gathering information concerning prices of the goods.

The fixed cost of production.

Negotiation costs.

Cost of compliance with the contract.

Or variable cost of production.

With this slide we conclude the first lesson - Vertical Coordination and Transaction Costs -

of module 13 - Industrial Standards -

Thanks for being with me through this lesson. See you in lesson 2 - Quality and Vertical Coordination - of module 13

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