Quality Certification in Agricultural Supply Chains: Implications from Government Information Provision

Abstract

This study investigates the implication of government information provision on a farming cooperative's quality certification strategy in an agricultural supply chain. A farming cooperative has some private quality information of its product and can convey it via quality certification in the planting stage. A product distributor makes the order decision based on the farming cooperative's quality certification and can observe the exact product quality information only after the product is reaped. During this process, a local government provides free but imperfect demand forecasting to help the farming cooperative make more efficient pricing and quality certification decisions. We show that the impact of quality certification on the farming cooperative's profit hinges on three factors: the quality standard, the cost of certification, and the precision rate of government information, and the profit exhibits non‐monotonic relationship with any of these factors. The farming cooperative could become worse off with the government's free information provision, and a higher information precision rate could result in a down‐side jump for the farming cooperative's profit. In comparison to government information channel, the farming cooperative may choose to costly acquire the demand information by itself and controls the information precision rate. Our main results hold when the distributor can determine the retail price and discuss the possible signaling role of wholesale price under our game framework.