Jahn-Schramm-Spiller Reliability-of-Certification.Pdf

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Gabriele Jahn, Matthias Schramm and Achim Spiller The Reliability of Certification: Quality Labels as a Consumer Policy Tool

ABSTRACT. Given the large number of certification systems in the food industry, it is surprising that there are only a few research approaches to the economics of certification. Certification schemes are used to ensure marketing claims for unobservable quality attributes. Under asymmetric information, process-oriented quality characteristics such as organic farming, animal welfare, or fair trade raise the question of mislabelling. In the long run, only a reliable control procedure can reduce the risk of food scandals. The article presents a model which includes several starting points to enhance the efficiency of certification systems and the corresponding labels. On the whole, tendencies towards price wars on the certification market and considerable differences in performance reveal the necessity of institutional changes. Strategies for reducing auditors’ dependence, intensifying liability, increasing reputation effects, and minimizing audit costs are suggested. Finally, policy implications for public and private monitoring are discussed.

Numerous crises and scandals (BSE, FMD, etc.) have shaken the European food sector over the past few years. In spite of far-reaching regulations and governmental control, most of the causes were not detected until after the crises had occurred, leading to a decline in consumer confidence in the safety and quality of many food products (Hobbs, Fearne, & Spriggs, 2002; Sporleder & Goldsmith, 2001). As a consequence, many EU countries developed consumer protection strategies such as new quality labels based on neutral control throughout the whole value chain. At first sight, the labelling approaches seemed to be an adequate policy tool as they ensured highquality food and at the same time relieved public authorities of an additional financial burden (Caswell & Mojduszka, 1996). However, it is evident that the reliability of the quality labels and their effectiveness in consumer policy strongly depend on the type of external audits and their implementation. Usually the control process is carried out by independent inspectors (certifiers) who in turn have to fulfil criteria laid down by rule-making agencies. Only if the certifiers succeed in revealing critical aspects and opportunistic behaviour will quality Journal of Consumer Policy (2005) 28: 53–73 Ó Springer 2005

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assurance concepts be able to build up the reputation necessary to serve as a reliable quality signal. From experience, we know that certification systems are susceptible to opportunistic behaviour. In 2000 about 10% of organic corn sold in Germany came from ‘‘conventional’’ agriculture despite the existing control scheme (Baummann, 2001). Rough estimations for the southern states of the EU allege frauds in organic labelling between 15% and 40% (Giannakas, 2002). Other examples of imperfect ` monitoring standards can be found in Anania and Nistico (2003), GfRS (2003), and McCluskey (2000). Furthermore, the current crisis in financial auditing reflects the potential shortcomings of third party control procedures. Scandals such as Enron or Parmalat caused a deep loss of confidence in the quality of financial auditing (Nussbaum, 2002; Thomas, 2002; Vinten, 2003). In contrast, research and public discussion about the audit quality within the food sector are still in early stages. The assumption of perfect certification is implicitly or explicitly part of most research models dealing with credence goods (Giannakas, 2002). In a market in which the company to be supervised can choose its own auditor, misleading incentives may occur. A cheap certification can be a decisive competitive advantage in certification markets (Barrett, Browne, Harris, & Cadoret, 2002). Low-cost strategies can significantly affect the quality of inspections. The underlying institutional structure can considerably influence the...
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