The Growing Demand for Food Quality: Implications for Agricultural and Trade Policy

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Ohio State University. Department of Agricultural, Environmental, and Development Economics

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The growing demand for many food quality components is usually expressed in the form of a growing demand for food quality standards. Such standards represent public goods and thus involve a market failure. The general focus of this paper is on both the nature of this market failure and its central implications for agricultural and trade policy. If competitive markets do not generate the necessary standard-assuring mechanisms, the nature of such a market failure needs to be understood. By setting out a simple of model contractual enforcement, it is possible to show that asymmetric information on food quality components is sufficient for the quality-enforcement mechanism not to work in the case of food safety. Given that public institutions will tend to set nationally divergent food quality standards, many will act as barriers to trade. Therefore, political coalitions between consumers and agricultural producers are likely to gain in importance which will add a new dimension to attempts at international agricultural and trade policy coordination.