Promoting traceability for food supply chain with certification

Abstract

Traceability systems are perceived as a powerful solution to cope with food safety issues. It is important to improve the traceability for food supply chains to address potential food safety events. This paper studies the sourcing decisions in a food supply chain, in which the buyer is exposed to potential food safety events due to supplier responsibility. It is shown that the buyer may fail to source from the supplier with high-level traceability on account of information asymmetry. To address this adverse selection problem, this paper employs the certification as a screening tool, and find that the buyer could separate the two types perfectly with a pooling contract with certification, if the probability of the high type is low; otherwise, a pooling contract only separate the two types partially. This paper further considers a setting in which traceability strengthens the food safety level. It is shown that the buyer prefers the supplier with high-level traceability even the unit cost incurred by food safety events or the probability of the supplier with high-level traceability is lower.