"Big Food" is often vilified, and there are often calls for more regulation of food production and processing. Is it possible, however, that private companies' food standards are actually "too high"? Or, that food companies' standards are higher than government standards? A recent paper in the American Journal of Agricultural Economics by Thijs Vandemoortele and Koen Deconinck sheds some light on these issues.
They start with an interesting (if not widely mis-perceived) observation:
Empirical evidence shows that 70-80% of retailers assess their own private standards slightly or significantly higher than public standards
They offer several possible reasons for this phenomenon. First,
private standards may reduce consumers’ uncertainty and information asymmetry about product characteristics such as safety, quality, and social and environmental aspects, thus increasing consumer demand.
firms may use private standards as strategic tools to differentiate their products, thus creating market segmentation and softening competition.
firms may use private standards strategically to improve bargaining power over their suppliers.
private standards may also serve to preempt government regulations.
The authors construct a conceptual model, in which they argue that market power is a primary motive. This is something of a counter-intuitive outcome: a "bad" (market power) creates a "good" (high standards). As they point out, the political economy relationship between companies and government probably also has something to do with the extent to which private standards are greater than public ones. So does consumer demand; if consumers want an are willing to pay for higher standards, there will be an incentive for companies to provide it. But, as this article points out, high standards can also be used to create barriers to competition.