The European Food labeling Policy and Regulation:
How Good Is at Informing, Protecting and Persuading?
by
Jean-Christophe Bureau
(Institut National Agronomique Paris-Grignon)
and
Egizio Valceschini
(Institut National de la Recherche Agronomique)
Paper presented at the Conference of the FAMPS (the Food and Agricultural Marketing Policy Section of the American Agricultural Economics Association) "Emerging Roles of Food Labels: Inform, Protect, Persuade."
Washington, D.C. March 20-21, 2003.
DRAFT VERSION, March 12, DO NOT QUOTE
European and North American preferences . It is well-known that the perception of food quality differs significantly between both sides of the Atlantic ocean. Bredahl, for example, shows how tastes differ regarding what is perceived as "high quality" in a chicken (Bredahl 1998). Vogel describes how the same unpasteurized cheese can be seen as hazardous in the US and as gourmet food in France. More generally, Bureau and Marette (2000) stress that there are considerable differences between North American and Europe on what are the relevant quality attributes, among the nutritional content, taste, production methods and authenticity of products, and on the extent to which they may legitimately be the subject of regulation.
The somewhat peculiar perception of quality by European consumers has shaped the EU regulation, which, as a result, is sometimes at odds with other countries standards. For example, many Europeans consider that the soil, climate and traditional know-how that exist in a region have a decisive influence on product quality. The European legislation stresses the importance of the attribute "authenticity" which has inspired the 1992 EU regulation on food quality labeling. Definitions based on taste or traditional know-how receive little support in North America. More generally, at the international level, the quality attributes that are stressed focus more on the absence of germs and toxins, on compliance with technological process, or nutritional characteristics, and less on taste, integrity or geographical origin. This results in frictions in international trade. EU consumers fear they could be misled by foreign products that do not stress the same quality attributes as the ones they value most. On the other hand, non-EU countries fear that the EU regulation on quality acts as a barrier to trade.
Within the European union, there are also significant differences in the perception of quality. The concern for "authenticity" is particularly strong in France, Italy (and, outside the EU in Switzerland), but is less shared in Sweden and Finland. Frictions similar to the ones that now occur in the multilateral arena have occurred in the construction of the EU single market. Forty years of a common agricultural policy have nevertheless managed to conciliate these differences in consumers preferences with the rules that guarantee a single market. The EU approach combines mandatory standards when necessary (such as in the case of hazardous products), mutual recognition of national legislations, and a EU-wide policy on labeling.
In the next sections, we will provide a brief description of the EU regulations and national regulations on product quality. Then, we will analyze the positive effects of the EU legislation, i.e. its ability to "inform, protect and persuade". We will then describe what we see as limitations of this policy, and express some personal considerations on the future of the EU labeling policy.
The history of the EU regulation was shaped by both the CAP and national traditions and cultures. Since 1957 West-European countries have had a single market for agricultural products under the CAP (the single market for other products was only achieved in 1993). The EU regulation results from the need to find a common ground for a single market, even though the 15 members (soon to be 25) differ a lot as far as their food preferences and production methods are concerned.
The Common agricultural policy has led to massive production of agricultural products, but the common market organizations, the core of the CAP, has not addressed the issue of differentiated products. While bulk production increased in the second half of the XXth century, there was still a need to segment the market for high quality products. This is why member countries developed their own national grading and labeling system.
The various national regulations conflicted, and at some point became an obstacle to the construction of the single market. For example, in the case of beer, there are different processing standards: the German “Reinheitsgebot” dating from the XVII century, ruled out the use of products other than water, malt, yeast and hops, whereas other States authorized additives like sweeteners. Attempts from Germany to impede sales of beer that did not comply to the national standards was a threat to the completion of the single market. Cases like the German beer triggered the setting of a EU-wide system of standards. Over two decades, most legislations regarding food safety have been harmonized in the Community. Because of the high administrative costs of harmonization, the principle of mutual recognition was used for those issues that did not directly endangered consumers' health (e.g. beers circulate freely within the EU internal market, although they are brewed according to different national legislation). European jurisprudence, and in particular the "Cassis de Dijon" ruling (case 120/78, Court of Justice of the European communities, February 1979), now ensures that while standards might differ across countries, a country cannot oppose importation from another EU country for technical reasons (except in cases involving sanitary issues or toxic waste issues).
The reliance on mutual recognition in order to avoid trade barriers between countries, together with the need to differentiate quality products from the bulk production generated by the CAP arrangements, have resulted in more importance given to national labeling. For example, national labels of food quality in France and Italy have appeared more and more attractive to consumers, and therefore to producers that used them to segment the market. Pressures from countries that had developed a labeling system, largely based on geographical indications, namely France and Italy, led to the definition of a EU-wide system of labeling, in what is called the 1992 regulation of food quality.
The EU legislation on food quality contains texts designed to ensure the safety of food products. This includes mandatory labeling of foodstuffs. Other (non compulsory) labels at the EU level deal with indications of origin and organic products.
The EU legislation on the labeling of foodstuffs prevents presentation and advertising to mislead the consumer as to the product's characteristics or effects. The main instrument is the Council Directive 2000/13/EC on labeling, presentation and advertising of foodstuffs to the final consumer. This Directive is based upon the principle of functional labeling. Its aim is to ensure that the consumer gets all the essential information as regards the composition of the product, the manufacturer, methods of storage and preparation, etc. Producers and manufacturers are free to provide whatever additional information they wish, provided that it is accurate and does not mislead the consumer. Furthermore, this Directive prohibits the attribution to any foodstuff of the property of preventing, treating or curing a human disease, or reference to such properties.
Compulsory labeling includes the list of ingredients, net quantity, date of minimum durability, and special conditions for keeping or use. The name or business name and address of the manufacturer or packager or of a vendor established in the Community must be indicated. It is noteworthy, though, that the place of origin or provenance must only be indicated when the omission of such information might mislead the consumer. In other cases, it is not required to indicate the origin of products. It is also noteworthy that nutritional labeling is not mandatory. The obligation to indicate nutrition facts on labels some countries such as the United States is even perceived as a trade barrier by EU exporters, who do not face a similar regulation at home, and who experience extra costs when they want to export to the US.
The EU Regulations translate into national laws. The example of the mandatory labeling for food products that is required to inform French consumers is given in Box 1.
Box 1: Mandatory labeling of foodstuffs in France: the information available to consumers
The French legislation translates the EU Directives and legislation in the national legal body. The French law distinguishes packaged food and food that is not sold as packaged (bulk). All food sold in bulk to the final consumer must be accompanied by a label indicating the name of the product. Packaged food must inform objectively the consumer, and indications must be written in French. The label must not mislead the consumer regarding the composition of the product and the origin, if the origin is indicated. The mandatory information includes:
• The exact nature of the product.
• The net quantity.
• The composition of the products, with the ingredients given in descending order (percentage of dried material). Additives must be indicated in the list of components, either under their full name, or their code name (e.g. E228 for such or such additive).
• The consumption date. It must be indicated clearly on packaged food, including the optimal consumption date, or as a limit consumption date for products that must be consumed rapidly (meat products, dairy products, some ready to use vegetables, etc.). Sales are prohibited beyond this date. When products must be stored at low temperature, this must be indicated.
• The name of a responsible person in the European Union, either the producer, the packager, or an intermediate seller.
• The identification of the packager (this information, most of the time with the indication EMB followed by a code or an address, is used by inspection services).
• Net weight or volume, in legal measurement units, i.e. liters, kilograms, centiliters, etc. The letter "e" that follows indicates that the package itself is subject to precise controls of quantity, weight, and satisfies EU regulation.
• The number identifying the production (particular lot produced in a given day by a given plant).
• The origin of the product if the omission can create confusion on the true nature of the product.
• The instructions for use, when the lack of instructions prevents the consumer from making a proper use of the good. This includes precautions for use.
• For some particular goods other mentions are mandatory (i.e. the degree of alcohol if the drink contains more than 1.2% of alcohol).
• When a particular ingredient is quoted in the denomination (e.g. "paté aux truffes", i.e. processed meat with truffles), or stressed on the label, the amount of the particular ingredient must be indicated.
• The denomination of the product, the net quantity, the shelf life and the alcohol content must be indicated in the same visual field.
Labels that are only used to indicate higher quality products have gained a particular importance in the EU. The idea is that one should "give consumers the choice": Beales et al (1981) have shown that segmenting the market, and allowing for each group of consumer to buy the products corresponding to their willingness to pay, is, in theory, a much better solution than mandatory uniform standards. As a result, labeling and consumer information policies are often portrayed as preferable alternatives to regulation because they are cheaper for producers, leave the choice to consumers and are less likely to constitute trade barriers.
Several European countries had developed regulations governing the use of some geographical names to protect regional production and improve marketing, because the identification by consumers of some specific food products has developed with reference to these geographical regions. As described in Box 1, France has been a pioneer country in this area, with protected appellations that date back to the XVIth century (case of Roquefort cheese). In order to guarantee consumers the authenticity of these products, or in order to safeguard the typical character attached to the traditional production and processing methods, these regulations were extended at the EU level.
On 14 July 1992 the Council adopted Regulation (EEC) No 2081/92 improving the protection of designations of origin for agricultural products intended for human consumption, which was subsequently amended by Regulation (EC) No 535/97.
The 1992 regulation extends at the Community level the main arrangements of the French and Italian regulations. That is, it emphasizes three main areas: the "qualification" of products, meaning that the definition of quality is tightly linked to the origin of products; the allocation of property rights, that is the use of the denominations of origin is restricted to producers organizations complying to particular rules; the respect of the commitments, that is the verification of the use of denominations of origin relies on official certifications. The EU wide framework now imposes technical specifications on producers wishing to benefit from a geographical labeling. Some of these products, because of their quality or their typical character, have indeed developed over time a reputation that has led to a strong price differentiation and the creation of “market niches” (e.g. Bordeaux, Champagne, Porto, Jerez, Parma Ham). These geographical labels do not necessarily correspond to patented know-how but to a particular practice that the government wants to regulate to achieve the above mentioned objectives. Such technical specifications usually lead to higher costs of production. If producers choose to follow them rather than other production or processing methods, it is with a view to the market premiums obtained for such “appellation” products.
The 1992 EU framework for protecting and promoting quality products focuses on traditional products and products from a designated origin (see Box 2). Three systems of identification were implemented: the Protected designation of origin (PDO) and Protected geographical indication (PGI) and the Traditional specialty guaranteed (TSG). PDO covers the term used to describe foodstuffs that are produced, processed and prepared in a given geographical area using recognized know-how. In the case of the PGI the geographical link must occur in at least one of the stages of production, processing or preparation. A TSG does not refer to the origin but highlights traditional character, either in the composition or means of production. The reason is that these products have developed a reputation, associated with the geographical origin, that makes them valued more by consumers. Ham sold as Parma, for example, or cheese sold under one protected French name, should come only from that product’s traditional region of origin and be made according to traditional methods. Products from other areas or made by other methods would have to be sold under variant names. This means that Danablue, for example, may no longer be produced in any country other than Denmark. At the same time, other product names were designated as generic (including some cheese such as emmenthal or camembert), and can be used for goods made essentially anywhere and by any methods. In some cases, the decision to grant protection to a particular type of cheese (e.g. the name feta, that will only be able to use to label Greek cheese produced with ewe milk) has raised some controversy since other countries have used this appellation for a number of years.
Box 2: The EU regulation on quality and origin
The European Union protects two denominations Protected Designation of Origin and Protected Geographical Indication, which relate to two different levels of link between product and geographical origin. A third denomination attests the specific character of a particular food product.
The "Protected Designation of Origin" indicates "the name of a region, a specific place or, in exceptional cases, a country, used to describe an agricultural product or a foodstuff originating in that region, specific place or country, and the quality or characteristics of which are essentially or exclusively due to a particular geographical environment with its inherent natural and human factors, and the production, processing and preparation of which take place in the defined geographical area". Two elements must therefore coexist: a defined geographical area and recognition of a certain know-how.
The Protected Geographical Indication indicates “the name of a region, a specific place or, in exceptional cases, a country, used to describe an agricultural product or a foodstuff originating in that region, specific place or country and which possesses a specific quality, reputation or other characteristics attributable to that geographical origin and the production and/or processing and/or preparation of which take place in the defined geographical area”. In the case of PGIs, the connection with a given region exists at least one of the following stages: production, processing or preparation.
The "Attestation of Specific Character” indicates the feature or set of features which distinguishes an agricultural product or a foodstuff clearly from other similar products or foodstuffs belonging to the same category. In order to appear in the register of certificates of specific character, an agricultural product or foodstuff must either be produced using traditional raw materials or be characterized by a traditional composition or mode of production and/or processing reflecting a traditional type of production and/or processing.
Following initiatives by groups of producers, Member States forward applications for registration to the European Union after conducting national checks that they comply with the criteria set down in the EU regulation. Once a product has been recognized as a PDO or PGI, it is automatically recognized and protected in all EU countries against misuse of any kind. To qualify for registration, producers must form groups and show the relevant national body proof of the link between product and geographical area, and product specifications which strictly regulate the production process (from raw materials to processing and packaging), and which they undertake to observe in order to make use of the registered name. Compliance with the specifications has to be monitored by an independent, objective and impartial structure (Lucatelli, 1999). The recognition of a third country’s geographical name as a PDO or GI is subject to the strict respect of a number of EU regulations. This system guarantees the full protection of the name once it has been accepted after a rigorous review procedure.
Under the EU regulation on labels of origin, the management of the quality signal (terms of reference, procedures for certification, controls, etc.) is largely delegated by the regulator to professional organizations. The public regulator therefore chose to use and codify the origin of the products as a quality signal so that:
The exclusive allocation of property rights on the geographical denomination is given to a group of producers organized in a collective way.
The use of the name must be done in a collective way (producers organizations).
The different participants are responsible in a collective way for the reputation
The inspection, control and certification is made by a third party, which is technically competent and independent, and which is accredited by the public regulator
• The aim is that the economic rent associated to the reputation benefits to producers and local development.
The ownership of the name PDO pr PGI is collective. The ownership of the appellation of origin can be either public (property of the State) or private (property of a consortium). In both cases, all farmers belonging to the defined geographical area and respecting the specifications have the right to use the geographical name recognized by the appellation of origin.
The originality of the EU system is not only to have provided a legal framework protecting the use of the geographical name for the exclusive use of a group of well organized producers, it is also to have established some conditions for this exclusive rights. The conditions are the organization of heterogeneous production structures, and to bring guarantees and information to consumers looking for quality products. The reference to the origin of the product uses the regional image as a marketing tool creating a rent associated to the product differentiation, but there is a need for specific characteristics of the products, and a management procedure that ensures quality (Valceschini et al. , 1995 ; Valceschini and Mazé, 2000).
In 1991 and 1999, regulations defined organic foods and the conditions for using the corresponding denomination. The EU regulation protects the denominations "biological", "ecological" and "organic", sets production rules and standards, and defines the procedures of control and inspection.
Regarding vegetal products, the regulation distinguishes processed and not processed products. An organic agricultural product must result from production methods that ban the use of chemically synthesized pesticides and fertilizers. Production methods must be based on the recycling of organic natural ingredients, on the use of natural ways for fighting insects, and on crop rotation. They must respect a plan for converting land to organic practices, so that chemicals have been banned at least for two years before growing organic crops (three years for pluriannual productions such as fruits). Additives, conservation agents, desinfection, cleaning must rely on natural products. The list of fertilizers and pesticides allowed in organic production is given by a EU regulation that was modified in 2000 so that it bans the use of genetically modified organisms.
Processed products can be labeled organic if they contain at least 95% or organic agricultural products, and if the remaining 5% are not available in sufficient quantity on the EU market for organic products. Wild (i.e. harvested in nature) products can be labeled organic if they grow in areas that are not subject to chemical treatments, and if they are collected in a sustainable way, that does not endanger wildlife or natural habitats.
Organic animal products are regulated in a specific way. The way animals are raised is regulated. Livestock must be extensive in the sense that it does not involve pollutions of soil and water, with spreading of manure that is limited per hectare. In addition, animals must be fed with organic feedstuffs that are grown on the farm or nearby. Non-organic feedstuffs can be used only in limited occasions and within 5 to 10% of the total supply. The choice of breeds must be such that the breed can adapt to local conditions and maintain biological diversity. Except in special cases, animals must be born on the farm. Chemical medication is banned. Animals must have access to pastures or be raised in a free range way. The overall stocking density must be lower than 2 livestock units per hectare. Animal welfare considerations are also taken into account. Mutilation of animals is not allowed, and transportation and slaughtering must comply with animal welfare rules. The use of growth promoting substances (hormones) is not allowed.
The body of regulation relative to GMOs labeling relies on EU directives that have been adopted over the last ten years. The EU directive 90/220/CEE relative to the dissemination of GMOs is oriented towards the regulation of the protection of the environment. The main purpose of this directive is to regulate and harmonize the administrative procedures and the evaluations of GMOs for dissemination. This regulation has recently been amended by Directive 2001/18/CE in the spirit of the "precautionary principle". The revised directive specifies the conditions that have to be fulfilled – assessment of the risks to the environment, a plan for monitoring in order to identify effects of GMOs on human health or the environment, among others – for the release of GMOs to proceed. The same conditions apply for GMOs or products containing GMOs that are placed on the market with additional proposals for labeling and packaging.
The food-safety aspects of GMOs are regulated by the Novel Foods regulation CE 258/97. This regulation states that the safety of the products must be assessed when the new product contains a GMO or, resulting from genetic engineering, is substantially different from a traditional ingredient. In such cases labeling is required. The procedures to evaluate innocuousness of novel foods are described. Notice that the most worldwide used GMOs, Monsanto Roundup Ready soybean and Novartis Bt corn, were marketed before the regulation. A regulation that states that food containing these ingredients must be labeled was adopted in 1998 (1139/98). The regulation 49/2000 sets the threshold for mandatory labeling at 1% GMO, in order to account for accidental contamination. And the regulation 50/2000 provides for specific additional labeling requirements for food and food ingredients containing additives and/or flavorings that have been genetically modified or have been produced from genetically modified organisms.
The EU regulation raises concern regarding compatibility with international rules. The US-Canadian approach for evaluating GMOs (based on risk assessment) differs from the EU conception, which is more based on a precautionary approach to risk assessment and management. Up to now, the diverging conceptions have not led to an official dispute brought to the WTO. The odds that such a dispute may occur in the future are high. The IATRC (Agriculture in the WTO: the role of product attributes in the agricultural negotiations 2001) has examined the issue; the outcome is uncertain. Given the various GATT agreements, the EU mandatory labeling could be challenged under either the SPS or the TBT agreement. The Article III of the GATT states that countries cannot discriminate between like goods on the basis of origin, raising the issue of the equivalence of GM and non-GM goods. The SPS-agreement approach of precaution (Article 5.7) is more restricted than the one underlying the EU regulation. The GATT provisions for ethical concerns (article XX) are unlikely to legitimate a ban. The EU could however argue that there is a difference between the concept of equivalence and the concept of substantial equivalence mentioned in the agreements, and that GM crops are not equivalent to their GM counterparts and should therefore be labeled.
In EU member states, national regulations on food labeling must comply with the general EU framework. That is, the French legislation on "Produits d'Appelation d'Origine Contrôlée" or AOC, is a national translation of the EU legislation on "Protected Designation of Origin". Depending on countries, the EU system of PDOs translate in a national acronyms (French AOC, Italian DOC, Spanish DOC). The French illustrates the articulation between the EU framework and national policies. In France, the law of January 1994, supplemented by the July 1999 law organizes the system of "identification of quality and origin" of food products. There are five forms of labeling.
• The "Appellation d'Origine Contrôlée" o r AOC (i.e. the denomination of controlled origin)
• The quality label, which relies mostly on the "Label Rouge" (a trademark that is a property of the French Ministry of agriculture).
• The certification of conformity.
• The certification of an organic mode of production ("biologique" in French)
• The denomination "mountain".
In all cases, these are voluntary labels, and their attribution relies on a terms of reference that is made public, going beyond the regular production methods used in the industry. The product that benefits from one of the five forms of labeling quoted above must be certified by an accredited organization that is independent from producers, and satisfies the standard EN45011. A given product may benefit from several of the labels quoted above. For example, some cheese benefiting from and AOC can also be organic. Some labels can be attributed to foreign products, even though this procedure is not very common (there are cases of Scottish salmon benefiting from the Label Rouge on the French market; some Italian coffee and Belgian ready to use vegetables benefit from a certificate of conformity). The objective is to avoid that the use of an indication of origin misleads consumers, or damage the protection given to AOC and other certified products. The legislative framework therefore limits the use of geographical names and tends to restrict their use to those products that benefit from and AOC/AOP or a certificate of conformity with an IGP, so that it protects the reputation of the production of particular quality products that are famous as coming from a particular geographical region. Products that benefit from a quality label (Label Rouge) or a certification of conformity cannot mention a geographical indication if this indication has not been officially registered as an IGP (except in some particular cases).
The "Appellation d’origine contrôlée" (AOC). The AOC is the geographical denomination of a particular region that is used to design a product that originates from this region, and whose characteristics or quality are caused by the geographical origin, for natural or human regions (local know how). It implies a tight link between the territory, the human knowledge and the product, with the idea that the same product could not be replicated in another region. The philosophy of the AOC is to distinguish a high quality product, but also a product that could not be produced anywhere else without significant alteration to the quality. It is necessary to demonstrate that production must be limited to a specific area without if one wishes to make a coherent product, implying to establish the influence of the geographical conditions on the characteristics of the product. The terms of reference for the attribution of an AOC specify that the product must come from a well define region, comply to particular production methods, be widely known, and be accredited (for example, wine, the main product benefiting from and AOC, must result from a traditional know-how and from some particular soil and climate conditions found only in a particular area if an AOC is attributed). Each AOC is recognized by a law that defines the area of production, the conditions of production and of accreditation of the appellation. In the wine sector, the terms of reference, for example, specifies that wine produced under such or such AOC must be limited in quantity, in yields, etc. These conditions are seen as necessary to ensure a high quality of the product. The proposal for eligibility must be elaborated by a local syndicate, and then accredited by various institutions, including the Institut National des Appelations d'Origine (INAO)
The label signaling higher quality includes the Label Rouge, which is a collective brand property of the French ministry of agriculture, or a regional label (regional labels tend however to disappear and evolve towards PGIs). The Label Rouge certifies that a given agricultural or food products possesses a set of specific characteristics that establish a higher quality. The superior quality must be obvious for the final consumer, in terms of taste and in terms of the image that conveyed by the product. Attribution of the Label Rouge therefore relies on a validation by consumption panels. For the logo "Label Rouge" to be present on the product, the terms of references must be accredited by a certifying institution.
The certificate of conformity certifies that a particular foodstuff or agricultural product is conform to a set of specific characteristics or rules that are defined in a 1994 law. It is designed to be appropriate to modern production methods, but intends to make it possible to distinguish a product from bulk products. The specific characteristics rely on objective criteria, that can be measured, or on standards defined by the French standards organization AFNOR.
The denomination "organic product" (mode de production biologique). Organic agriculture has been officially recognized in 1980. The 1999 regulation protects foodstuffs, included processed products, produced under "organic" conditions. In order to be able to make reference to the organic production mode, the producer, processor, packager or importer must notify its activity to the Ministry of agriculture, maintain a special accounting, comply to the terms of reference, and submit its production to a control and certification by an accredited organization. Such organizations are accredited on the basis of competence and independence, following the EU standard EN45011. Only crops that are 100% organic, and processed vegetal products that contain more than 95% of organic crops can use the appellation " agriculture biologique: système de contrôle CEE". Products that contain more than 70% of organic material can refer to this percentage but do not benefit from the appellation. The logo "agriculture biologique" therefore brings a reliable information to consumers. This logo is a collective brand that is property of the ministry of agriculture. It can only be used by firms that implement total traceability of their raw material and are subject to controls and certifications on this traceability.
It is noteworthy, though, that imported products can benefit from the logo and the certification "agriculture biologique". This is the case for products coming from other EU member states, but also from countries that have a mutual recognition agreement (Argentina, Australia, Hungary, Israël, Switzerland, Czech Republic). Meat products from other countries can access the French label provided that they comply to the French terms of references.
The denomination "mountain product". The use of the term "mountain" is protected, and a logo can be attributed to products that comply with well defined terms of references (with the exception of wine and mineral waters that cannot benefit from the appellation). Foodstuffs that are produced, processed and packaged in mountain areas. Some raw materials (critrus, spices, in processed products, feedstuffs in animal productions) can originate from non-mountainous areas after approval. A firm that intends to benefit from the "Mountain product" logo must present a project, and comply with particular standards regarding the conditions of production and processing. Note that if the product benefits from a PDO or a PGI, the term "mountain" can be used on the label, but the authorization must be part of the PDO or PGI accreditation. Note that the European Court of Justice has raised the issue of the compatibility of the protection of the term "mountain" with the Treaty of Rome.
The EU labeling system has often been portrayed as a success story. This is particularly the case in France, where labels in the wine sector or in the poultry sectors have made it possible to segment the market and where well-identified high quality products have met a strong demand.
The EU policy of PDO, PGI and conformity certification has been relatively successful. In the year 2000, there were 572 agricultural products protected in the European Union, including 339 PDOs, 214 PGIs. Countries that had a long tradition in linking quality to geographical origin account for most of the protected products. France had 121 PDOs, Italy 110, Portugal 78, Greece 76, Spain 53. Nevertheless, some countries such as Germany (53 PDOs in 2000) have taken advantage of the 1992 EU regulation. There are for example 143 protected denominations for cheese in 2000.
Box 3. The importance of quality labels in France
The development of appellations of denominated origin and other labels has been impressive in France. A few years ago, the "AOC" were limited to the wine sector, with a few exceptions. Now, the label has provided niche markets for a large set of products. The following figures are for the year 2000 (the gross revenue figures do not account for labels in the wine sector).
Regarding the Protected Geographical Indications, there are now 49 associations promoting quality, that control 237 terms of references for products under the "Label Rouge", 4 regional labels, 20 products under a certificate of conformity. These products use 61 geographical denominations that are registered as PGIs. Altogether, there were 37000 farmers producing such goods, including 6 384 poultry producers, 3 782 dairy producers. There are also 652 non agricultural firms, including some in the upstream sector (e.g. poultry genetic selection, feedstuffs, etc.) and slaughterhouses and processors. There are also 188 wholesalers, and 1916 retailers, including 1422 butcher shops. The gross income of the IGP chain was, in 2000, close to 800 million euros. This income has increased by 20% between 1999 and 2000.
113 000 farms are involved in the AOC labeling. Wine under AOC account for roughly 13 billion euros, and liquor for roughly 1.5 billions. The combination of the two is the largest net exporting sector in France. Cheese and dairy products under AOC amounted to roughly 7 billion euros, close to 20% of total sales of cheese. There is a development of AOC in new products, even though the importance is still limited.
Sales of products benefiting from a certificate of conformity amounts to 3 billion euros. It is the fastest growing quality label in the food sector.
Compared to other European countries, organic farming has had a limited success in France. It amounts to roughly 1% of the land used for farming. It is much more successful in Italy and Austria, for example.
Even though that was not the primarily purpose of the EU policy on food quality labels, one of the major positive aspects of this policy has been the traceability that was implemented because of the requirements of the terms of references of the quality labels. Because of the demand from retailers for more traceable products, following the confidence crisis in the food sector in the EU (caused by the "mad cow" issue, as well as other panics involving dioxin in Belgium, chemical residues in Germany, etc.), food that had been attributed a quality label did not suffer from the fall in consumer confidence. Products under Appelation d'Origine Contrôlée in France have resisted particularly well: unlike standard poultry meat, AOC chickens have never experienced any fall in consumption, even during the dioxin crisis in 1999.
Guarantee of origin requires control by a third party. This is obtained by the provision of information on the product itself, on the place where it has been produced, on the suppliers, etc. Quality labels under the 1992 legislation has therefore had an important role in experimenting the concept and methods for ensuring traceability of products. Now that, after the BSE crisis and under the pressure of consumers, the system of traceability has been largely imposed by the retailing sector (e.g. in the beef sector) the systems of certification of the origin of products has spread outside the chains for quality products. However, quality labels have had a learning effect. The experience for PDO and PGI products has also made it possible to generalize traceability of other products because of the sunk costs and the economies of scale in this area.
The organization of producers, with the reputation rent as an incentive, is a positive consequence of the quality label policy. It has made it possible for farm producers to capture a reputation rent in exchange of a collective management of the label.
The EU regulation on quality labels relies on a de facto contract between the regulator and the producers. As a counterpart for the exclusive use of a geographical name, producers must get organized collectively. That is, they must create a producer organization in order to manage the use of the appellation. This makes it possible to control, coordinate, and implement the right incentives for a sound collective management of the label. The whole system is organized some sort of "cartelization" of this group of producers that benefit from the exclusive use of the positive externality of the label, so that the value added can be captured by the agricultural sector. The regulator therefore allows the collective organization of producers to benefit from a rent that is quite similar to the reputation rent of a private brand. By allowing the use of a well-known name, the regulator enables the producers to reap the benefits of the reputation rent, without incurring all the costs that a private company has to incur when it has to establish the reputation of a commercial brand name. In that way, the appellations of origin allow even small producers group to benefit from a well-established reputations.
In addition, under the EU legislation, it is the producer themselves that largely define the characteristics of the product they want to signal, and the corresponding production methods. Even though this raises problems that we will discuss below, this allows for flexibility. Producers can tailor the terms of reference of the appellation so that they obtain a clearly differentiated (and differentiable) product without suffering from constraints imposed by a one size fits all regulation that would raise large compliance costs for an industry with a particular structure and organization.
The EU regulation has encouraged the rationalization of production methods in a way that promoted better practices. The terms of references of the labels have been quite flexible, but overall, they have introduced self-discipline among the producers organization that managed the appellation. For example, in several cases, producers have decided to ban particular production techniques because they had a negative effect on the quality of product, even though it was not originally required by the terms of references. For example, in some labeled cheese (e.g. the cheese from Salers in France), producers have decided to ban the use of silage grass in feeding dairy cows, and shift to dry hay, because of the negative effect (acidity) of the silage on the milk, and therefore on the taste of the cheese. This has had the effect of reducing the introduction of telluric germs in feedstuffs, that were previously introduced by the silage. T he increased hygiene has participated to the consumers' confidence towards labeled products.
In the wine sector, the appellations (e.g. the French AOC) has required replanting with traditional, but higher quality types of grapes. This has contributed to the considerable improvement of wine in some regions such as Southern France or Italy. The terms of references of the AOC have also introduced mandatory limitation of yields. This has often resulted in banning or limiting irrigation and fertilizers, and also contributed to higher wine quality. In the animal sector, the terms of references of some AOC and the quality label "Label rouge" has imposed a lower stocking density. The reduction of the number of chickens per square meter, or the imposition of free ranging has increased animal welfare, but also the quality of the meat, for both the final consumer (taste, chicken more "chewy") and the processor (meat that has better mechanical characteristics for chicken cuts). Another consequence is the use of more "natural" (e.g. vegetal) feedstuffs, which also contributed to consumer confidence. Finally, an indirect effect is that the quality chicken has imposed new standards for animal welfare. Animal welfare has become a concern for a significant share of citizens, and affects consumer demand.
Even if one might question the link between origin and quality that is implicit in the EU regulation, the location of production brings a differentiation that is perceived by consumers. This is potentially a significant asset for the local economy.
The link between the quality label and the production location of the product has made it possible to value the image of a particular territory or region, of the traditional or artisanal know-how. In the most successful cases, the origin of the product is the criteria of product differentiation, as much as would be a registered commercial brand name. The positive externality benefits to the whole region through higher prices paid to the producers, through a reputation that encourages tourism and promotion of processed products. For example, in a region benefiting from well-known appellations for a particular cheese (say, Beaufort, or Comte), producers receive up to twice the national average price for their milk. This results in the persistence of a large rural population, and of a dynamic economy in mountain areas that would be otherwise largely abandoned by farmers. The terms of reference for benefiting from this appellation require extensive and environment-friendly production techniques (no silage, naturally dried hay, etc.). This in turn results in the development of a tourism industry based on landscape, outdoor activities as much as gastronomy. That is, in the most successful cases, linking the quality label to the origin of the product has generated a virtuous circle.
Mahé and Ortalo-Magné (2001) conclude that the strategy of linking quality labels to the origin of the product has had a considerable positive for rural development in particular regions. They think that even high value added goods (e.g. organic goods, processed goods) that can be imitated by competitor can seldom translate into higher income for producers in the long run, because of the entry of new competitors. If the good produced is not imitable because of a patent or a brand name, shareholders eventually capture all the rent. On the other hand, if the differentiation rent is linked to the geographical, it will capitalize into those factor of production that are required to produce the good: labor, if the skill needed are specific, land, or intellectual property right if the name of the product is protected by a label based on the geographical location such as a PGI. This is a fundamental difference with labels certifying that the product is "of high quality", or "organic", since in both case, they are imitable.
The Common agricultural policy has been criticized for imposing considerable costs on taxpayers and consumers. The CAP arrangements have not particularly been targeted towards quality. The CAP has actually had ambiguous effect on the quality of products. By encouraging bulk production, the intervention system (i.e. public purchase of excess supply in order to maintain a guaranteed price for the main commodities) has sometimes led to massive quantities of products of low quality. The intervention system still contributes to the production of surplus of low quality wine that find no buyer and low quality wheat that sells poorly on the world market.
The EU regulation on food quality labeling provides a market based form of regulation that makes it possible to segment markets, differentiate products in a much more traditional way than classical CAP instruments. It is noteworthy, for example, that quality wine (AOC) and liquors are the net exports among agricultural and food products in France, that these products face no public support. In addition exports of AOC wine and liquors have increased by 5% in 2002, while the exports of the products that receive high subsidies and support (cereals, sugar) have experienced a significant decrease. At some point, the regulation on quality products has made it possible for the agricultural sector to express its economic potential, while the traditional CAP has proved its inadequation as an "industrial policy" (Mahé and Ortalo-Magné, 2001).
We now turn to the limitations of the EU policy. A major one is that the EU official labels signal origin more than quality. It is widely accepted, in Italy and in France, that the quality of a product is intimately linked to the origin. Defenders of this idea advocate that local conditions (soil, climate, regional know-how) explain most of the quality of a wine or a cheese. This is why the EU regulation on quality has focused so much on the geographical origin. The link between quality and origin is nevertheless questionable, on a scientific basis. In addition, consumers have proved that they would be easily attracted by high quality products regardless of the origin (the success of Australian, Californian or Chilean wines in France is an illustration). Altogether, there are several drawbacks in the present EU policy that raise questions about the future of the policy.
The question of the international recognition of the "know how" that the European system of appellations of origins intends to protect is a difficult one. The international framework tends to promote a different notion of product quality than the one that is protected by the EU regulation. Indeed, in countries such as France or Italy, where consumers are aware of the local food traditions, of the production techniques that are specific to a given area, they are often willing to pay more for acquiring a good from a particular origin. The economic value of the appellation justifies protecting the name from "counterfeit" products. In other countries, quality is more associated to a set of rules on the safety, the integrity, or the conformity to industrial processes. Because consumers do not place a particular value on products coming from such or such origin, there is no point protecting appellations. In international trade, the two conceptions might conflict.
For example, it is a concern for the EU that the stance of international agreements (e.g. the Sanitary and Phytosanitary Agreement) is to take into consideration only a single quality attribute, namely sanitary quality. International Standardization Office (ISO) labels, which could become de facto standards regulating international trade, do not include all the quality dimensions of European regulations, which are based to a considerable extent on a product’s organoleptic qualities (taste) and authenticity. Bureau and Marette (1999) have provided some examples on how these differences in perception quality had led to different regulations that sometimes conflict in the global world. Indeed, trade conflicts, and disagreements within international standardization bodies, such as the Codex Alimentarius, often arise from genuine differences in preferences, even though one cannot ignore that economic interests are also often at stake.
The major conflicts that arise relate to the protection of the signs of quality. Some countries are reluctant to recognize that some geographical names could be protected like brand name. There is a lot of incomprehension when such names have been used for decades and when suddenly, producers are told that they should not be using this name because it counterfeits a EU product (case of South African wines, an issue that took several years to be solved). The continuation of the use of names such as "Champagne", "Gamay-Beaujolais" in the US, or "Cognac" in Brazil has been a bone of contention for years with the European Union.
The definition of geographical indications has been accepted internationally by WTO Member countries signatories to the Agreement which have signed the Trade-Related Aspects of Intellectual Property Rights (TRIPS) Agreement,12 of which Article 22, paragraph 1, reads: “Geographical indications are, for the purposes of this Agreement, indications which identify a good as originating in the territory of a Member, or a region or locality in that territory, where a given quality, reputation or other characteristic of the good is essentially attributable to its geographical origin”. Under article 15.1 of the TRIPS Agreement any sign or any combination of signs capable of distinguishing the goods or services of one undertaking from those of other undertakings, shall be capable of constituting a trademark. Under the Lisbon Agreement an appellation of origin is the geographical name of a country, region, or locality, which serves to designate a product originating therein, the quality and characteristics of which are due exclusively or essentially to the geographical environment, including natural and human factors. (Lucatelli, 1999).
Nevertheless, the EU complains that the protection granted to traditional know how, and to the PGI and PDOs in the multilateral framework is much weaker than the one granted to registered brand names. Because the EU policy for quality labeling relies on such appellations, rather than registered brand names, the international recognition is weaker. It is also more difficult to fight what the EU calls "counterfeit products". This may prove a major handicap for the promotion of EU quality products on the world market.
Perhaps more important is the fact that the EU denominations, even when they are not "counterfeit" in other countries, suffer from a lack of identification by consumers. It is significant that, in spite of the EU official quality, the most widely known names of French wine in the US are those of companies that have registered brands (e.g. Chateau Margaux, Georges Duboeuf, Mouton-Cadet), even though these brands also use geographical appellations (i.e. Bordeaux, Beaujolais, Médoc, etc.). This suggests that a well-promoted brand name can be a more efficient marketing instrument than an official EU quality label.
The EU regulation with a decentralized system of definition of the labels, of control of the respect of the terms of reference, has raised the opportunity of political collusion. The French history of the Appellations d'Origines includes cases where AOCs have been accredited thanks to an influential local politician, even though the quality, the authenticity/typicity of the product were hard to establish. The influence of particular lobbies in the definition of the terms of reference, of the exact area to which an appellation is granted (given the huge consequences on the price of land, for example, in the case of wine) has been a recurrent problem. The adoption of the legislation at the EU level, and the fact that supranational authorities now scrutinize the decision, has improved significantly the procedures.
There are nevertheless two aspects in which the EU legislation still suffers from a bureaucratic bias that endangers the functioning of the system of PDOs and PGIs. The first one is the system of accreditation of the labels, that is both rigid and subject to rent seeking strategies. Box 4 details the procedure of accreditation of an "AOC" and the "Label Rouge" in France. Such a procedure, where producers have a large role in the decision making process, can lead to the attribution of labels to products that present questionable objective signs of a higher quality for all consumers.
The second one is that the terms of references that are imposed on products under a, say French AOC, are sometime rigid and can act as an obstacle to innovation, that would itself improve quality. For example, some innovations in the wine sector, could not be used by AOC winemakers, on behalf of maintaining the tradition (it is the case of some methods that originated in France, and that are now more widely used in Australia or California, such as the "Flash détente" separation of juice and grape must). The technological gap between AOC wine and wine produced in industrial type wineries is likely to become larger in the future, with the adoption of genetically modified grapes. If these innovations translate into what is perceived as a higher quality by the consumer, it is likely that the respect of tradition will act against the AOCs. Already, the obligation of manual harvesting in some AOC wine may has acted against the competitiveness of such wines.
Box 5. The accreditation of an Appellation d'Origine Contrôlée and other labels in France
The procedure used to register a quality label is a complex one, in France. The initiative is left to producers, who have a large degree of freedom for defining the geographical area and the terms of reference, but the label must be accredited by official institutions. The procedure illustrates the subjective link between quality and the origin of the product, and also the possible political interference in the attribution of a label.
Appellation d'origine contrôlée . For the application to an AOC, the regional partners (e.g. producers, processors, local governments) in the sector concerned must prepares an application setting out the grounds for requesting a new AOC. Evidence of a reputation; evidence of the link between the product and the natural, technical and social conditions that give the product its typical characteristics and an economic and financial assessment are required. The procedure then involves the National Institute for Appellations of Origin (INAO). INAO appoints an Investigation Board that hears experts from the sector concerned. It then makes known its decision regarding the registration of the AOC and draws up production requirements, proposed boundaries and approval procedures (Lucatelli, 1999).
In the case of Protected Geographical Indications (PGIs), the investigation is also concerned with identifying any opponents outside the area, requesting an extension of the territory to include them, or arguing that the product and its name are generic. INAO’s National Committee gives its approval and draws up the official version of the decree. This is then forwarded by the Ministry of Agriculture to the European Union authorities in Brussels.
For AOCs the procedure can take from three to ten years, and for PGIs from two to three years. INAO is responsible for inspections and analytical/organoleptic tests for AOC products as required under the 1994 Act and European regulations. PGI products are recognized by INAO, which retains broad responsibility for inspections although, in practice, these are conducted by the certifying institutions (Lucatelli, 1999). An organization of producers are in charge of the control, the development and the promotion of the AOC.
The "Label rouge". The Label Rouge is a registered trademark owned by the Ministry of agriculture, that is granted to products that satisfy quality requirements. A national commission of labels and certifications for food products (CNLC) examines the terms of references of the product candidate to the "Label Rouge". A Ministerial decree grants the label to the product, possibly on a temporary basis. Control is decentralized to a third organization, that must satisfy requirements in terms of independence and efficiency. Such organizations are accredited for three years, with immediate removal by the Ministry of agriculture in case of default in inspection and control.
The EU labels under the 1992 regulation are provided to a group of producers. That is, they are collective brands, and the producers organization is in charge of the management and the implementation of the terms of reference, so that production, processing and preparation will take place in the geographical area specified.
The collective property of the indication of geographical origin is one major weakness of the EU system. Because of the implicit axiom that the quality is linked to the origin, all producers in the area that satisfy the terms of reference of the label can use it and benefits from the positive externality of the collective reputation. This leaves room for moral hazard and opportunistic behaviors. Indeed, the attribution of the label relies on the fact that the production has been of high quality, and be specific to the area, in the past. This does not prevent that, for a particular year (bad weather conditions in wine production), of for a particular producer, some low quality products can be put on the market.
The fact that the origin of the product, and the concept of authenticity ("typicity" would be more appropriate) plays an important role in the attribution of a quality label under the EU regulation contributes to the imperfect information of consumers as to the objective quality of such or such product that benefits from the collective appellation. Indeed, consumers have a reliable information mainly on the origin of the product, but cannot identify free riders and reputation-milkers. In France, the superposition of brand names to appellations of origin, particularly visible in the cheese sector and in the Bordeaux wine, can be seen as an attempt to distinguish such or such particularly virtuous producer from the group benefiting from the appellation, whose reputation can be eroded.
The adoption of the procedure used in France and Italy at the EU level has introduced some transparency in the system of control and certification. The independent institutions that inspect, control and certify are liable from a legal point of view. National institutions supervise the procedures (e.g. INAO in France). Nevertheless, the collective management of an immaterial asset (the image of the product) raises difficult questions of coordination. (Raynaud and Valceschini, 1999). In some cases, in particular in the wine sector, free riding and difficulties of management have led to a loss in reputation of the collective quality signal.
There are still some significant problems of readibility of the official EU quality signs. Because the 1992 regulation was largely inspired by the existing national regulations in France, Spain and Italy, it has promoted quality attributes that were not perceived as very relevant by Northern consumers. For example, polls show that the PDO and PGI are not very well identified by consumers in Sweden and Finland, compared to private brands.
The organization of the EU legislation, and the exclusive right given to a group of producers to use such or such denomination has raised some competition issues. These issues are particularly well documented in Buccirossi et al (2002), Lucatelli (1999) and Crespi and Marette 2003, and we will not detail it in this paper.
A point that can be added to the existing literature is that the 992 EU regulation suffers from a weakness in the protection of individual producers. In France, for example, the EU system does not regulate the contractual arrangements between producers for the use of denominations. Producers that use collectively such denominations therefore face the standard anti-trust legislation, that forbids anti competitive arrangements (coalitions, cartel, agreements, etc.). Producers are often de facto in a situation of legal uncertainty. This problem has occurred over the last few years in several EU countries, where producers organizations and firms that benefited from an official quality label have been accused, and sometimes fined for anticompetitive practices (see Reynaud and Valceschini, 1999 for cases in the poultry sector).
The EU regulation on labeling of product quality has been relatively successful, in particular in promoting typical and traditional products, and in making it possible to direct a differentiation rent to local producers. Because it is a cost effective policy, it has been a useful complement of the traditional CAP. Nevertheless, we saw that the policy presented some severe drawbacks, in terms of collective reputation that might be subject to free riding, in terms of competition, and in terms of international recognition. Also the link with the origin of the product creates a signal that is sometimes ambiguous, because it is not based on quality attributes that are seen as "objective quality" by some consumers (e.g. nutrition, taste, integrity). In the following sections, we discuss the possible future of the EU policy.
The 1992 EU regulation has encouraged the diffusion of a concept, quality and origin related labels outside the countries that were originally limited to a few countries. Italy still accounts for 28% of the products under a EU label, France for 16% and Greece for 11%. However, there has been a development of PDO/PGI in countries where there was no previous tradition, such as Finland, Denmark, Sweden or Ireland. Even though the number of products that benefit from an appellation is still limited in these countries, it has increased over the last few years, and has been used for new products (the Bratwurst from Thuringe, a German sausage being one of the latest examples).
Outside the EU, the use of geographical labeling has been accused of acting as barriers to entry. However, it is noteworthy that it has not prevented some other forms of labels (e.g. brand named wines) to take a significant share of the EU market. In addition, it is noteworthy that some producers (especially in Californian wine) see some advantages in developing a more detailed system of geographical appellations that the "Napa" or "Sonoma" names. Some non-EU producers could perhaps gain a share of the EU market of differentiated products if they developed a similar system to the EU PDO and IGP, that could enable their producer to capture the rent. This is particularly the case of producers in Argentina, who benefit from an excellent reputation for their beef in the EU market, and who have the experience of several years of recognition of their label "organic product" in the EU. Already, Hungary has gained in the EU system, by the recognition of the name "Tokaj" as protected. French producers of "Tokay" wine, for example will have to remove this name from the label of their bottles by 2007.
The adoption of the EU labeling system by non EU producers could strengthen the 1992 regulation. It may also ease the fears that the EU uses this system as a non tariff barrier, and limit the opposition from non EU countries in international fora.
The international recognition, and the generalization of the EU PDOs, PDIs and other indication will be a determinant factor for the future of the EU legislation of quality labeling. One major fear is that the EU system remains marginalized in the international market, because the widely recognized standards will be ISO certification on the one hand, and registered brand names on the other hand.
The TRIPs agreement has provided an international definition of the geographical indication, that makes it possible to protect most EU appellations. The agreement protects traditional collective AOP (Roquefort, Comté), and IGP (Poultry of Landes, Challans,…). An additional protection is provided to wine and spirits. Nevertheless, the recognition of the EU system under the TRIPS agreement remains limited. First, relatively few countries have ratified the TRIPS agreement, some of the signatories of the Marrakesh GATT agreement have withdrawn from the TRIPS component. Second, there are many exceptions to the international protection of appellations, since it is possible to use some "semi-generic" names including those from EU appellations (Californian "Chablis", Canadian "Champagne"…). The EU has emphasized the need for settling this issue in the current round of negotiations, but its demand face little enthusiasm from other countries.
One reason why the other countries are reluctant to accept a strict discipline on appellations is that they fear that the EU uses such a system to protect its domestic market from foreign competition. The fact that the quality label is linked to the geographical origin is seen as a ways to prevent foreign producers from signaling the high quality of their food products. This point of view is not shared by the EU, where it is argued that foreign producers have other means to signal their products (including brand names, a strategy that has proved particularly successful in the wine sector). In addition, non-EU products still have the possibility to have their own geographical indications recognized and advertised in the EU, even under national labels (for example, in France, some foreign products are eligible to the national "Label Rouge", an illustration being that the producers of high quality Scottish salmon export some salmon under this label for some 13 million euros on the French market). Local names are sometimes used as a sign of differentiation, even though it is outside the EU framework per se (e.g. the Kentucky bourbon, etc.). The fact that China joined the WTO, and sees some advantages in protecting some local names for traditional products (i.e. the Shaoxing wine, that is exported in increasing proportion to the Japanese market, or the Lon Jing tea, Xuanwei ham) can help the international recognition of denominated origins in the multilateral framework. It is conceivable that, in the future, Russia would like to promote a more authentic vodka than the industrial (and largely tasteless) liquor produced all over the world.
The eligibility of non-EU products to the EU PDO-PGI system has been so far limited. Nevertheless, if the EU wants other countries to accept, support and adopt the EU framework, it is important that foreign products can take advantage of the EU legislation on an equal basis.
One major interrogation on the future of the EU labeling system is its capacity to resist to the competition of alternative quality signals, if they are based on other attributes than the product origin, and if they are relevant and credible.
The EU framework was designed to protect and promote local know-how and rural development. Nevertheless, large scale industries are able to offer high quality products that emphasize other attributes than the "typicity". With the progressive industrialization of traditional products, following increasing standards on hygiene, the distinction between PDO/PGI products and high quality industrial products might finally disappear, as far as the objective characteristics of the products are concerned. Clearly, the wine sector shows that high quality products sold under a brand name are likely to be easily accepted by consumers, and that the "authenticity/typicity" is not always a quality attribute that drives purchasing decisions.
Another risk for the ability for a PDO/PGI to signal a differentiated product is that there are now regional brands that emphasize the notoriety of the region, outside the PGI framework. This is a strategy that is followed by the industry in some particular regions in Europe (Emilie-Romagna, Tuscany in Italy, Asturia in Spain, etc.).
If private brands manage to compete successfully with the PDO/PGI in terms of image for the consumers, the economic consequences will be potentially considerable for the latter. First, the requirements for an official certification are much higher for a appellation of origin than for a regional brand. This involves extra costs for the former. Second, the distribution of the rent is not the same along the food chain and across regions. With a regional brand, and the rent is likely to be captured by the processing or the retailing sector in a larger extent than with the present PDO/PGI scheme.
It is also possible that the future of the EU labels combines official certifications with private brands, as it is presently the case in the Champagne wines and some of the Bordeaux wines. The impressive development of the certificates of conformity suggests that firms will try to benefit from both the official quality signal and the individual reputation provided by a brand name. The two combines two types of quality signals, a credible investment in reputation (the brand name) and the certification by an independent organization (the official quality label). Because of the growing concerns of consumers about food safety, this may help convincing consumers, who look increasingly for reliable signs of quality in a world where there is a multiplication of labels.
Another source of uncertainty about the future of the EU policy on food labeling is the emergence of new criteria that are seen as relevant as quality attributes for citizens. Consumers now focus more than in the past on the environmental characteristics of the goods, and on the multifunctional nature of the production methods (protection of landscape, nature, natural resources). They also focus more on more on the safety issue. And animal welfare is a growing concern.
The official labels such as the PDO/IGP account for some of these characteristics (e.g. production methods that encourage free range chicken, etc.). Nevertheless, they are not central in the terms of reference. Some private brands, some regional brands, and some retailers labels base the differentiation of their products on these characteristics that are seen as more and more important by consumers. This is the case, for example of the "Agriculture raisonnée", that can be translated by "sustainable agriculture", meaning that the product is not organic but it is grown in a way that does not generate pollution of the environment (no excess nitrogen, for example). A label "sustainable agriculture", of "animal friendly", or "free range", could be more palatable for consumers than a label that emphasizes the origin of the product. It is likely that the terms of reference of PDO/PGIs will have to adapt in order to integrate these characteristics, if they want to resist the competition with other, emerging, quality signals. Food companies are particularly eager to be able to capture some of the rent that benefits to products under a label of origin. Their ability to modify consumers' beliefs through marketing campaigns, their reactivity, could prove damaging for the recognition of the PDO/PGIs as relevant quality signals.
The EU policy relies on claiming the existence of a link between quality and a geographical origin, on the exclusive use of a well known name for a group of producer that satisfy certain terms of reference and accept controls and certification by an independent organization. This policy has been quite successful, and has made it possible to segment the market and to enable producers to capture the reputation rent. In some EU countries, tradition, local know-how and the geographic origin of a product is indeed clearly recognized by consumers as a relevant quality attribute that deserves protection from counterfeit products. By making it possible to differentiate products that result from particular production methods and alleviating the "Greisham law", the policy has, in some cases, made it possible for rural areas to value their productions in a way that benefits consumers as well as producers, with minimal costs for taxpayers. Major success of the policy include quality wine, cheese but also poultry, where official labels have made it possible for quality products to capture a large share of the market in the EU.
However, the link between origin and the actual quality of product is not always obvious, and these regulations have been criticized as barriers to entry, some of them even faced challenges from national anti-trust commissions. Other countries sometimes see the EU quality signals as barriers to trade rather than opportunities, and are reluctant to accept that the origin of products is a reliable sign of high quality.
The EU official certifications now face the competition from brand names, but also from regional brands. The terms of reference designed to protect traditional methods of production sometimes provide some competitive advantage to industries that face less constraint for adopting innovation. The proliferation of signs of quality makes consumers less receptive to a quality label that is based on particular characteristics such as origin and "authenticity/typicity". The quality attributes that are perceived as important by consumers are changing, and the EU framework is perhaps not flexible enough to address their concerns that now include environment, animal welfare and extra safety.
Overall, one may wonder whether, commercial brand names for these productions would have been more visible, and would have benefited from a better legal protection, making them perhaps a more efficient instrument than the present EU labels and appellations. Already, some producers attempt to combine the reputation of a brand name with the credible signal of an official quality label.
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Contact: Jean-Christophe Bureau, Professeur, UMR Economie publique, INAPG, 16 rue Claude Bernard, 75231 Paris Cedex 05, bureau@grignon.inra.fr ; Egizio Valceschini, Directeur de recherche, INRA-SAD, 16 rue Claude Bernard 75231 Paris Cedex 05.
Here, the term "authenticity" is used to translate the concept of "typicité", which is the basis of all French and Italian quality labeling system. This is however a relatively poor translation. What is meant is that that a product must be "typical" –i.e. representative- of a particular area, in addition to be produced with premium raw materials and, often, traditional techniques.
The Council Regulation (EEC) No. 2081/92 on the protection of geographical indications and designations of origin for agricultural products and foodstuffs does not apply to wines and spirits, which are covered by separate European regulations.
Note that there has been a formal WTO notification of a dispute of Egypt challenging imports of tuna in GM soybean oil from Thailand (WT/DS205/1, WTO.
Lisbon Agreement for the protection of appellations of origin and their international registration, signed in Lisbon in 1960 and coming into effect in 1966. This Agreement currently has 18 members (Algeria, Bulgaria, Burkina Fasu, Congo, Costa Rica, Cuba, the Czech Republic, France, Gabon, Haiti, Hungary, Israel, Italy, Mexico, Portugal, the Slovak Republic, Togo and Tunisia).
The EU has developed bilateral agremeents on the recognition of geographical indications. Most of them rely on a list of products with geographical indications, and the facilitation of exports, or the recognition of production methods. Such agreements have been part of free trade agreements (Agreement EU-South Africa, EU-Switzerland in 1999), or a product specific agreement (UE-Australia on wine in 1994, EU-Hungary in 1993).