Determinants and Effects of Institutional Change: A Case Study of Dry Bean Grades and Standards
Sterns, Patricia Aust, Reardon, Thomas, Journal of Economic Issues
In an era marked by the twin forces of globalization and agro-industrialization, global food markets are undergoing a shift from homogeneous markets to differentiated markets, a reorientation from national markets to global markets, a move from spot market toward vertical coordination and integration (Schertz and Daft, 1997), and a restructuring of economies and polities from planned to market driven. In this new global context, expanded international trade of agricultural commodities and food products exists in a new trade and business environment characterized by increasingly liberalized trade, sophisticated logistics, precise product specifications and attribute management, and a concentration of actors.
As the global agrifood system adapts to these forces, firms are implementing strategies to enhance quality and control coordination. Standards are part of the instruments firms use to implement those strategies and, thus, the role of standards is shifting from one of commodity definition to lower transaction costs to that of a strategic tool for product differentiation (Leat et al. 1998) and market formation and protection for both private industries and governments (Reardon et al. 1999). However, this "shift" is not a clear movement from one function to another but rather highlights the dual nature of standards. While a standard can and might produce standardization (conformity) of goods, it can also provide the necessary structure for product differentiation (diversity).
The changing role of standards will lead to changes and adaptation of existing standards, adoption of new ones, and some elimination of old ones by individual firms, industry associations, and governments acting jointly, in conflict, or completely ignoring the others' actions. Two fundamental questions arise from this situation: what are the determinants of changes in grades and standards and what effects do the changes have on the agrifood chain?
The importance of institutions and the process by which they change and evolve have been well documented in the literature. However, much of the work on institutional change is predominantly theoretical, and there is a need for more empirical examples of the process of institutional change in order to refine and expand existing theories.
This paper uses an institutional change model to examine changes in standards in the dry bean agrifood system as an endogenous process within the system, which itself is a cumulative process of feedback. This case study is particularly interesting because it illustrates an evolution from collective, public standards to individual, firm-specific standards as well as highlighting the interaction of technology, existing institutions, and market structure. It also adds a dynamic element to the agricultural economics literature where much of the work on changes in grades and standards has focused on the economic effects of a particular regulatory change, thus making institutional change an exogenous force taken as a given (Bockstael 1984; Schmitz et al. 1995; Unnevehr et al. 1998; Unnevehr and Jensen 1999).
The paper's analysis begins with a discussion of standards as institutions. It then outlines a model of institutional change and applies it to a case study of grades and standards in the dry bean agrifood system. The case study shows how changes in technology, consumers' preferences, and power relations lead to a change in dry bean canners standards, which then feeds back to these variables as well as affecting the outcome of the system. These effects include changes in the trade relationships between canners and elevators, elevator industry restructuring, and concomitant institutional change in the Michigan dry bean sector, including private and public standards.
Standards as Institutions
Standards are institutions, i.e., sets of ordered relationships among people that define their rights, their exposure to the rights of others, their privileges, and their responsibilities (Schmid 1987). …