Food Value Chain Coordination in Practice: European and Australian Case Studies of the Creation of Chain Good Innovations

Abstract

Food value chain businesses form alliances with horizontal and/or vertical partners to take collective action to either overcome or ameliorate chain failure, or to take advantage of new opportunities available due to innovations in products or processes. The desired outcomes from the collective action would not be possible to achieve if these businesses acted independently.

While such alliances may take many forms, depending on degree of commitment and infrastructure linkages, they can often be considered to be clubs. Four such types of clubs can be identified (1) horizontal clubs comprising businesses that take collective action across a single cross-section or an aggregate of multiple cross-sections in the value chain; (2) vertical clubs, which consist of businesses that form a strategic alliance for collective action along a single value chain within a network of chains; (3) clubs that specialise in a single product or multiple products in the value chain; or (4) clubs focusing on a single input/activity or multiple inputs/activities. Thus the path to collective action chosen by clubs may vary according to existing capabilities and the scope for collaboration, particularly in relation to the potential for value-creating innovation. The result of the collective action is the provision of a chain good or service which usually leads to greater and more valuable chain coordination. By collectively identifying, funding and acting to capture positive externalities associated with innovation, businesses in many parts of a food value chain can widen opportunities to increase whole-of-chain surplus as well as increase private profits.

In this paper four mini-case studies are presented which demonstrate the breadth of past collective actions that have been undertaken by a substantial proportion of businesses in food value chains, two in Europe and two in Australia. These are (1) the Euro Pool System, (2) Global Standards certification in Europe and globally, (3) Meat Standards Australia, and (4) the OBE Beef organic producer alliance in Australia. Each case study yields insights into the rationale of how businesses in different food value chains in different countries have acted as a club to use their joint resources to internalise positive innovation and coordination externalities that would not have been possible to achieve were these businesses to act independently.