Identity Preservation and International Trade: Signaling Quality across National Boundaries

Abstract

Changing consumer preferences, technological advances, global agri‐food markets and increasing regulation of food quality and safety have created the need for identity‐preserved production and marketing (IPPM) systems, which bridge the gap between differentiated consumers' wants and traditional commodity‐based agri‐food production and marketing systems. The international trading regime is ill equipped to deal with these changes. In the absence of an agreed set of trade rules to regulate trade in differentiated food products, relying on IPPM systems or barring imports of “low‐quality” goods become domestic policy choices. The latter is shown to be an inferior policy option. The sustainability of an IPPM across national boundaries is dependent upon its ability to credibly signal quality to consumers. Incentives to cheat erode this credibility. Horizontal and vertical cooperation through thirdparty certification are key to the long‐run sustainability of IPPM systems.