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“Mobilising Agro-Food Expertise”

Intensive Study Program (ISP):
Challenges and Opportunities for Modern Agribusiness Firms

Bolzano, South Tyrol, Italy.

13 March – 18 March 2016, Academic Year 2015-2016.

General Information

The Intensive Study Programme (ISP)“Challenges and Opportunities for Modern Agribusiness Firms”(COMAF) will present a thorough overview of the different aspects characterizing the modern agribusiness sector.The topics (illustrated in detail below) will cover different aspect of quality in agribusiness, which include communicating and signaling quality to buyers and consumers, innovation to achieve quality, standards and industrial quality, and different aspects of the interactions and coordination among actors in agro-food supply chains.

The course activities encompass a mix of lectures, study visits, interactions with private sector speakers, group work, and in-class discussion and presentations.

The team of instructors is comprised of:

Francesco Bimbo:PhD student in Business Economics at Wageningen University, and Post-doctoral researcherin Agricultural Economics at University of Foggia. His expertise is in applied industrial organization, economics of food retailing, and of food, health and quality. He teaches MS level course in Corporate Finance Management.

Chenguang Li: Lecturer of agricultural economics and international food marketing at the School of Agriculture and Food Science in the University College Dublin (UCD), Ireland. Her areas of expertise are industrial organization of food markets and retail chain analysis. She teaches international food and agribusiness marketing.

Luisa Menapace:Professor of Governance in International Agribusiness at TUM. She focuses on institutional and governance issues in the agro-food sector and internationalization and teaches “Agribusiness Governance” and “Value Chain Economics” for the agro-food sector.

Cesar Revoredo-Giha: Senior Economist and Team Leader of Food Marketing Research at Scotland’s Rural College (SRUC) and lectures at the MSc on Food Security at the University of Edinburgh. His areas of expertise are in industrial organization of food industries, operation of agro-food supply chains, and agricultural economics.

Carlo Russo:Associate Professor of Agricultural Economics, Department of Economics and Law of the University of Cassino and Southern Lazio. His main interests concern the industrial organization of agro-food chain, collective action in agriculture and the regulation of imperfectly competitive agro-food market.

Course Learning Objectives

This course is designed for master students who intend to have a more in-depth background in modern agribusiness firms’ economics and have a high interest in the European agro food supply chain. It aims to provide a comprehensive overview of trends, issues and challenges, faced by the stakeholders operating in the agro-food industries. Students will apply economicsprinciples to understand the mechanisms of coordination of agro food chain stakeholders, and will be encouraged to examine critically how agro-food policies affect stakeholders’ behavior along the food supply chain.

Students Learning Outcomes:

At the end of this course students should be able to:

Explain the EU agro-food system and highlight challenges from the perspective of its stakeholders (e.g. farmers, retailers, consumers)

Discuss, using economic theory and principles, challenges of the EU agro-food sector including (but not limited to) asymmetric information, environmental externality, contracts, standards, strategic pricing, innovation and evolution in food consumption trends

Analyze and discuss the role of policies implemented by the EU relevant for the issues covered in the course and their effects on all stakeholders

Explain the coordination mechanisms among the stakeholders

Synthetize the analysis of a complex problem concerning agro-food chains by means of an oral presentation

Assessment:

  • Students will be assessed by means of a group presentation and an individual report. The class presentation is plannedon the last day of the ISP (Friday).
  • Students will be asked to address a specific topicusing: concepts and terminology acquired throughout the week and information collected during the study visit and the interaction with the speakers from the private sector.
  • Students will receive a list of 4 topics. Students can order topics in order of preference.This ranking will be used to create the groups. More details on the expectations regarding the research report and the presentation are summarized in the attached file on “assessment”.

Lessons Schedule, Class Activities and Specific Lesson Objectives

Day 1- Monday Mach 14

Morning Section – Introduction and Lectures

Introduction to the Intensive Study Programme (ISP)

Lesson 1.1: Communicating food quality under asymmetric information (Luisa Menapace)

Content: Asymmetric information between producers and consumers is known to be an important problem for the provision of quality in agro-food markets and is a cause of market failure.Depending upon the nature of the product attributes (search, experience and credence attributes), different market tools can be used by firms to communicate quality to consumers thereby alleviating market failures. These include private and collective brands, geographical indications, quality seals, etc. Geographical indications represent as the main pillar of the EU’s quality policy on agricultural products.

Topics:

Product attribute classification

Market-based solutions to market failures due to asymmetric information

Geographical indications: relevance in the EU agro-food sector, EU regulation framework, main features of GI protection in EU and their economic implications

Learning outcomes:after completing the lesson, students will be able to classify product attributes, explain which market-based tools can be used to prevent market failures due to asymmetric information. Students will be able to explain the concept of geographical indication and the main features of the EU system of protection of geographical indication.

References:

***Akerlof, G. 1970. The markets for “lemons”: Quality Uncertainty and the Market Mechanism, The Quarterly Journal of Economics 84(3).

Cabral, L. The Economics of Trust and Reputation: A Primer. Notes 2005.

***Moschini, G., Menapace L., and D. Pick. 2008. Geographical Indications and the competitive provision of quality in agricultural markets. American Journal of Agricultural Economics, 90(3):794-812.

Menapace, L., and G. Moschini. 2012. Quality certification by Geographical Indications, trademarks and firm reputation. European Review of Agricultural Economics, 39(4):539-566.

*** Identifies references that students are invited to read before the ISP

Afternoon Section - Lectures and Group work

Lesson 1.2: Standards and Industrial Quality (Cesar Revoredo-Giha)

Content:The production, processing, distribution, retail, packaging and labelling of foodstuffs are governed by a mass of laws, regulations, codes of practice and guidance. This mass of coded information regulates all transactions between buyers and sellers along the entire food supply chain and is created to obviate to market imperfections mainly generated by asymmetric information and externalities. The purpose of this lecture is to provide an overview of quality regulations, standards as well as private protocols in the EU food and drink industry.

Topics:

Product quality, information asymmetries and quality standards

Public and private standards

Standards and compliance costs

Examples of the use of standards in the food and drink chain

Learning outcomes:after attending this lesson, students will be able to explain the reasons for the need of regulations and standards, the economic incentives to implement them, how they are implemented in EU system as well as their costs. Students will be able to distinguish public and private standards and understand how standards interact with each other’s.

References:

Alvarez, G. (2010). Fair trade and beyond: Voluntary standards and sustainable supply chains. Delivering performance in food supply chains. Woodhead Publishing Limited, Cambridge, the United Kingdom of Great Britain and Northern Ireland, 478-510.

Caswell, J. A., Bredahl, M. E., and Hooker, N. H. (1998). How quality management metasystems are affecting the food industry. Review of Agricultural Economics, 20(2), 547-557.

Fulponi, L. (2006). Private voluntary standards in the food system: The perspective of major food retailers in OECD countries. Food policy, 31(1), 1-13.

Henson, S. (2008). The role of public and private standards in regulating international food markets. Journal of International Agricultural Trade and Development, 4(1), 63-81.

Malorgio, G., and Solaroli, L. (2012). Policies and regulations in the Mediterranean: complementarity and coherence. MediTERRA 2012, Chapter 21. Available online: policies_and_regulations_in_the_mediterranean_complementarity_and_coherence

Smith, G. (2009), Interaction of Public and Private Standards in the Food Chain, OECD Food, Agriculture and Fisheries Papers, No. 15, OECD Publishing. Available online at:

Young, L. M., and Hobbs, J. E. (2002). Vertical linkages in agri-food supply chains: changing roles for producers, commodity groups, and government policy. Review of Agricultural Economics, 24(2), 428-441.

Lesson 1.3: Food quality: a firm perspective (Francesco Bimbo)

Content: Innovation is widely viewed as a major competitive parameter in the agri-food sector and it is mainly targeted to increase the quality of products and/or the efficiency of the processes by creating new ones or modifying existing ones. The minimum requirement for an innovation is that the “innovative” improvement must be new to the firm. Innovation process involves multiple actors whose joint efforts are aimed to increase the market performances of the firm. Sectorial and regional expects also influence innovation outcomes.

Topics:

Economics of Innovation

Innovation Process Models

Innovation in the EU agro-food sector

Learning outcomes: after completing the lesson, students will be able to define innovation and explain the difference with related terms, understand and recognize the main types of innovations. Further, students will be able to identify the drivers of the innovations in the EU food sector; how innovations are developed and how sectorial and regional factors affect innovative outcomes.

References:

OECD, 2005. Oslo Manual: Guidelines for Collecting and Interpreting Innovation Data, 3rd Edition.

***Muscio, A., Nardone, G., and Dottore, A. (2010).Understanding demand for innovation in the food industry. Measuring Business Excellence. 14(4) 35-48.

Capitanio F., Coppola A., Pascucci S. (2009). Indications for drivers of innovation in the food sector. British Food Journal 111 (8), 820-838

Baregheh, A., Rowley, J., Sambrook, S., & Davies, D. (2012). Innovation in food sector SMEs. Journal of Small Business and Enterprise Development, 19(2), 300-321.

Sarkar, S., & Costa, A. I. (2008). Dynamics of open innovation in the food industry. Trends in Food Science & Technology, 19(11), 574-580.

Oslo Manual: Guidelines for Collecting and Interpreting Innovation Data, 3rd Edition OECD

Case Studies:

Boland, M., Cooper, B., & White, J. M. (2015). Making Sustainability Tangible: Land O'Lakes and the Dairy Supply Chain. American Journal of Agricultural Economics, aav062.

Yeager, E. A., Downey, W. S., & Widmar, D. A. (2015). Syngenta: Changing a Global Company. International Food and Agribusiness Management Review, 18(2), 173. Open Innovation: Pringles Print.

Group Work Session 1 – Background

Topic 1: Quality communication to buyers (Luisa Menapace)

Contents: Students will explore the structure of apple and wine supply chains and identify key asymmetric information problems and potential tools to communicate quality.

Learning outcomes: Students will be able to explain the problem related to the presence of asymmetric information and to identify tools used by firm to address such problems.

Topic2: Standards and Industrial Quality (Cesar Revoredo-Giha)

Contents: Students will explore the food quality management systems that are in place in the visited firms to help them ensure that they meet the regulations related to their products and the traceability of goods, from the packaging back to the producer.

Learning outcomes: Students will be able to identify regulation and standards related to food safety and quality.

Topic 3: Innovation in the agri-food system (Francesco Bimbo)

Contents: Students will explore the structure of apple, wine and agricultural input supply chains and identify the key processes affecting the needs of innovations in each chain.

Learning outcomes: Students will be able to explain the structure and functioning of apple, wine and agricultural input supply chains and individuate their business innovation needs.

Topic 4: Coordination and Quality (Carlo Russo)

Contents: Students will explore the structure of the apple supply chain, identify key transactions and will define agents’ incentives.

Learning outcomes: Students are able to explain the structure and functioning of the apple supply chain.

Day 2 - Tuesday Mach 15

Morning Section - Lectures

Lesson2.1:Coordination, contracts and incentives (Carlo Russo)

Content: Quality in the agro-food supply chains is a complex achievement, often requiring the joint effort of several independent firms and individuals. Coordination is required to produce complex food products, meeting industry standards and consumers’ expectations. Yet, bringing together heterogeneous agents for a common goal is a non-trivial task because each individual has specific and potentially incompatible objectives. Producing quality implies that all agents comply with a stated (or implicit) production plan regardless of private incentives. The design of a coordination mechanism such that all agents can agree on a production plan based on individual profit (or utility) maximization is a complex task. Economists refer to this issue as the incentive alignment problem (cfr. Salanié).

Topics:

The coordination continuum: vertical integration, spot market, contracts, other hybrids

Basic notions of contract theory

Setting incentives and using contracts as coordination devices

Learning outcomes: students will be able understand and explain the multiple ways to organize transactions as well as indicate the optimal choice according objectives and specific conditions.Further, students will be able to explain the incentives that may influence the outcome of the transactionas well as the role of a contract to set and manipulate incentives.

References:

Stiglitz (1974): Incentives and Risk Sharing in Sharecropping. The Review of Economic Studies, Vol. 41, No. 2 (Apr., 1974), pp. 219-255[Advanced]

*** Bogetoft, P., & Olesen, H. B. (2002). Ten rules of thumb in contract design: lessons from Danish agriculture. European Review of Agricultural Economics, 29(2), 185-204. [Basic]

Lesson 2.2: Food quality: a consumer perspective (Carlo Russo – sub. For Chenguang Li)

Content: Quality is a key competitive advantage in the agri-food system. By providing quality, agri-food firms can meet the new trends in consumer demand, expand market shares and – most importantly – increase profits. The strategic management of quality requires the understanding of key economic principles. This lecture covers the foundations of economic theory of consumer demand for quality and discusses the implication for competition. The emphasis of the lecture is on the market mechanisms linking food quality and firm profits.

Topics

Topic a: Consumer demand for quality

Products as bundle of attributes

The consumer problem when quality matters

Product positioning

Horizontal and Vertical quality

Topic b: Quality as a competitive advantage

A simple model of vertical quality

Optimal quality level (determinants)

Insights into horizontal quality

Learning outcomes: Students will understand the definition of quality. Students will understand implications of product differentiation for consumer choice and will be able to evaluate the marketing position of a product or a brand. Student will understand the role of competition in defining the optimal level of quality.

References:

Lancaster, K. J. (1966). A new approach to consumer theory. The journal of political economy, 132-157. [Advanced]

*** Gwin, C. F., & Gwin, C. R. (2003). Product attributes model: A tool for evaluating brand positioning. Journal of Marketing theory and Practice, 11(2), 30-42. [Basic]

Gabszewicz, J. J., & Thisse, J. F. (1979). Price competition, quality and income disparities. Journal of economic theory, 20(3), 340-359. [Advanced]

Mussa, M., & Rosen, S. (1978). Monopoly and product quality. Journal of Economic theory, 18(2), 301-317. [Advanced]

Afternoon Section – Group work and industry visit

Group Work Session 2Theory

Topic 1: Quality communication to buyers (Luisa Menapace)

Contents: Students clarify the theoretical background of quality communication. Students prepare for firm visits. Students apply theory from lectures to analyze the problem and propose solutions.

Learning outcomes: Students are able to apply economic reasoning to solve asymmetric information problems.

Topic 2: Standards and Industrial Quality (Cesar Revoredo-Giha)

Contents:Instructor clarifies theory and presents cases related to commercial/industrial quality and standards in the food and drink industry. Students prepare for firm visits. Students apply theory from lectures to analyze the problem and propose solutions.

Learning outcomes:Students are able to apply economic reasoning to solve problems related to food safety and quality preservation.

Topic 3: Innovation in the agri-food system (Francesco Bimbo)

Contents: Instructor presents students examples/case studies on how innovations support the competitiveness of agro-food manufacturers in the market.Students prepare for firm visits.

Learning outcomes: Students will be able to apply content proposed in class to understand the demand of innovation expressed by each firm.

Topic 4: Coordination and Quality (Carlo Russo)

Contents: Instructor presents students examples/case studies of coordination problems. Students apply theory from lectures to analyze the problem and propose solutions.Students prepare for firm visits.

Learning outcomes: Students are able to apply economic reasoning to solve basic incentive problems.

Day 3 - Wednesday Mach 16

Morning Section – Industry visit

Study visit 3.1:Melinda, Cles.

Firm description:Melinda is a consortium of producerswhose vital structure is made up of member farmers, namely of around 4.000 families of fruit-farmers who live and grow apple trees in the Noce Valleys. The scopes of activities that are undertaken by Melinda include: harvesting, storage, packaging, marketing and communications, and sales of fruit. The consortium owns bins for harvest of over 360 000 tons of fruit, refrigerators with the total capacity of 340 000 tons of fruit, and scientific, computerized selection and packaging systems. In total Melinda has 6 processing centers, which operate in compliance with strict international certification requirements (Haccp, ISO 9001, BRC, IFS), and it has a turnover for around 300€ mil.. The given technology makes it possible to package up to 1500 tons of fruit per day, six days a week. In total there are three main business sections: apples, berries and apple based snacks.

Afternoon Section– Industry visit

Study Visit Session 3.2:Rotary, Mezzocorona

Firm description:Mezzacorona S.c.a is founded in 1904 and is one of the first cooperatives of winemakers born in Italy. It has 2600 hectare vineyard located in Trentino Alto Adige and 900 hectares in Sicily. Mezzacorona S.c.a has over than 300 employees and, with a turnover of 174,7 mil. €, is one of the firms lead in the production of sparkling wine using the Metodo classico by using sustainable practices. In fact, Mezzocorona’s wines follow production processes that pay great attention to preserving the natural environment lowering chemicals inputs in the soil and carbon dioxide emissions in the air. To reach these goals, firm usesbiological systems of combatting harmful insects in the vineyards, uses locally produced materialsas well asuses renewable sources of energy. Further, All structures built by Mezzacorona S.c.a group are perfectly in synthesis with its surrounding natural environment.