i -ional Agricultural Trade and Policy Center
SUPPLY CHAINS MAY DELIVER SAFER TOMATOES AND
Richard L. Kilmer & Thomas J. Stevens III
PBTC 03-11 September 2003
POLICY BRIEF SERIES
Institute of Food and Agricultural Sciences
INTERNATIONAL AGRICULTURAL TRADE AND POLICY CENTER
MISSION AND SCOPE: The International Agricultural Trade and Policy Center
(IATPC) was established in 1990 in the Food and Resource Economics Department
(FRED) of the Institute of Food and Agricultural Sciences (IFAS) at the University of
Florida. Its mission is to provide information, education, and research directed to
immediate and long-term enhancement and sustainability of international trade and
natural resource use. Its scope includes not only trade and related policy issues, but also
agricultural, rural, resource, environmental, food, state, national and international
policies, regulations, and issues that influence trade and development.
The Center's objectives are to:
Serve as a university-wide focal point and resource base for research on
international agricultural trade and trade policy issues
Facilitate dissemination of agricultural trade related research results and
Encourage interaction between researchers, business and industry groups,
state and federal agencies, and policymakers in the examination and
discussion of agricultural trade policy questions
Provide support to initiatives that enable a better understanding of trade and
policy issues that impact the competitiveness of Florida and southeastern
agriculture specialty crops and livestock in the U.S. and international markets
Supply Chains May Deliver Safer Tomatoes and Strawberries
Richard L. Kilmer and Thomas J. Stevens III
Scientific and technological advances continue to expand and refine our
knowledge of increasingly subtle aspects of food quality and safety, such as pesticide
residues, pathogenic serotypes of E. coli and most recently, genetic engineering. Many
of these new or technological qualitative aspects of food are imperceptible to human
senses and can only be determined through costly laboratory analysis and/or the
collection and sharing detailed information on how it was produced, processed and
distributed. Research suggests that increased vertical coordination and integration
between supply-chain stages results in better control and flexibility over product quality
as well as quantity (Caswell, Roberts and Jordan; Hennessy). The more obvious and
sensational cost incentives to improve coordination for food producing and marketing
firms are those associated with product safety and liability. The intent of this article is to
discuss the results of our efforts to evaluate the relationship between vertical integration
and the occurrence of pesticide residues in fresh produce.
The application of pesticides in food production can be viewed as one of a
number of inputs that influence its quality. If the levels of pesticide residues in food are
unknown or uncertain, and may negatively impact a firm's profits, then producers and
handlers will consider them as quality risk factors and will incorporate this fact into their
decisions on how to produce and market their products. This includes strategic decisions
as to the adoption of integrated pest management practices, precision agriculture
techniques, or the degree with which to coordinate or share information with adjacent
Widely recognized economic theory on risk and uncertainty can be employed in
evaluating and optimizing a firm's decisions under such conditions (Robison and Barry).
This theory shows that there is a very clear incentive for a firm facing uncertain input
quality to seek to both increase the level of input quality and decrease input quality
variability. Greater vertical coordination between supply-chain stages may be one means
for firms closer to consumers to accomplish this. Given the inverse relationship between
input quality and pesticide residues, it was anticipated that producers who are vertically
integrated with firms closer to consumers might have a lower level and variance of
pesticide residues in their food products.
To verify this hypothesis, data on fungicide and insecticide residues found in
Florida strawberries and tomatoes between October 1990 and June 1993 were acquired
from the State Department of Agriculture. The growers who produced these samples
were subsequently interviewed to determine the production and handling practices they
employed for their crops, as well as their socio-economic characteristics. Of the 55
tomato growers interviewed, 16 reported that they were not formally affiliated with the
packing, distribution or marketing stages and 39 shared common ownership with one or
more of these stages, i.e., were vertically integrated. Of the 50 strawberry growers
interviewed, 30 were not formally affiliated with the packing, distribution or marketing
stages and 20 shared common ownership with the downstream stages.
Statistical analysis of these data found that the variability of fungicide and
insecticide residues in strawberries grown by vertically integrated producers was
significantly lower than for those grown by non-affiliated producers. In other words, the
strawberries coming from vertically integrated growers were more uniform in quality
than those from non-vertically integrated growers. Furthermore, strawberries from
vertically integrated growers were of higher quality because fungicide residue levels
were, on average, lower than those from non-vertically integrated growers. In contrast,
vertical integration appears to be significantly associated with greater variation in
fungicide residues in tomatoes; however, insecticide residue levels were found to be less
varied and more uniform in tomatoes grown by vertically integrated growers.
This study represents the first known attempt to quantify the relationship between
food safety and vertical coordination in food supply-chains. The case of fungicide and
insecticide residues in Florida strawberries and the insecticide residues in Florida
tomatoes confirm the positive relationship between safer food and increased coordination
in the food supply chain cited in a growing number of qualitative studies in this area.
For more information
Caswell, J. A., T. Roberts and C.T. Lin. "Opportunities to Market Food Safety." Food
and Agricultural Markets: The Quiet Revolution. L. P. Schertz and L. M Daft,
eds. Washington, D.C.: National Planning Association, 1994.
Hennessy, D. A. "Information Asymmetry as a Reason for Food Industry Vertical
Integration." Amer. J. Agr. Econ. 78(November 1996):1034-1043.
Kilmer, Richard L., Anouk M. Flambert, and Thomas J. Stevens III. "Pesticide Residues
and Vertical Integration in Florida Strawberries and Tomatoes," Agribusiness: An
International Journal 17(2) (2001): 213-226.
Robison, L. J. and P. J. Barry. The Competitive Firm's Response to Risk. New York:
Stevens, T. J. III and R. L. Kilmer. Empirical Relationships Between Pesticide Residues,
Producer Attributes, and Production Practicesfor Florida Grown Strawberries
and Tomatoes. Florida Agricultural Experiment Station Research Bulletin No.
329, Gainesville: February 1999, 50 pp.