Factors Driving Quality Standard Compliance in the Polish Dairy Sector
Pieniadz, Agata, Hockmann, Heinrich, Atlantic Economic Journal
The "quality turn" (Allaire 2004) has, in recent years, become an ubiquitous phenomenon and has stimulated a significant body of research. However, the current literature on quality issues tends to focus on the competing concepts of 'standards as barriers' and 'standards as catalysts' in the context of food safety regulations and requirements for industrialized countries engaging in international agricultural trade (Henson & Jaffee 2006; Josling et al. 2004). Thus far, little work has been published on quality issues in transition countries, especially those which have recently joined the European Union (EU). This is astonishing, since EU membership obliges the adoption of the total body of community law accumulated thus far (acquis communautaire). For agri-food businesses based in the current EU-aspirants, this means that all mandatory EU standards concerning food production, processing and retailing have to be met by the day of accession, or after a fixed transitional period. The recent history of the EU's eastward enlargement reveals that, especially in countries with a majority of small-scale holdings and processors, the compliance process is relatively slow (Berkum 2005; Pieniadz et al. 2004). Particularly, the adoption of EU hygiene regulations for food of animal origin is one of the biggest challenges, because the regulations contain various obligations for technical equipment and building installations. Moreover, the diffusion of voluntary, private quality standards from Western countries has put additional pressure on agribusiness operators in accession countries (Hanf & Pieniadz 2006). The firms' changing environment, including the reform of official control authorities and ongoing restructuring processes at all stages in the food chain, have caused some delays in the compliance process.
Analyses of quality standards adoption in light of EU accession focus mainly on the economic impact of foreign-imposed standards on the structure of agricultural markets (Rau & van Tongeren 2006; Hockmann & Pieniadz 2005). Still, the factors that are driving compliance with quality requirements on the micro level remain highly ambiguous, regardless of whether governmental or private standards are considered. Some studies cite compliance costs as the main determinant of standards' adoption. The majority of these studies, however, are either based on the desire to provide policy-makers with basic information about the costs of various new food safety regulations in order to identify cost-effective food safety approaches (Unnevehr & Jensen 2001; Antle 2000), or to provide information about the costs of implementing and enforcing the acquis communautaire in order to assess the need for governmental aid to support the compliance process (Kiss & Weingarten 2003). Thus, while recognizing that the cost side dominates research on the adoption of standards, there is a need for 'rebalancing' the current debate in this area by considering, in addition, factors influencing the returns of the quality standards adoption.
Our paper aims to fill this gap in the literature by identifying factors that are driving compliance with quality standards at the micro level. We argue that the adoption of standards is guided by the producers' and processors' expected profits before and after improvements in food safety and quality. This implies that the adoption of standards is affected not only by costs but also by additional revenues associated with compliance. Our main hypothesis is that through quality-related payment schemes, downstream firms can significantly affect the diffusion of quality standards in upstream sectors. In the next section we develop a theoretical model to identify the driving factors of the diffusion process. The empirical application concerns the Polish dairy sector prior to transition (2000-2002). This market is particularly interesting, since (1) milk is an important product of both EU and Polish agriculture, (2) a wide range of hygiene standards must be implemented during the accession process, and (3) milk production in Poland is dominated by small farms, which causes sluggish diffusion of EU quality standards (Pieniadz et al. …