How Can Trust Be Regained in Food Chains in 2020?

Never before have consumers felt as much distrust in food claims as they do today. Food producers and own-brand retailers face supplier opportunism and a risk of food fraud that can shake their own trust in the food supply chains they depend on.

It might seem that making food quality claims is potentially riskier than it’s worth, especially reputationally and economically. Establishing trustworthy food quality claims is still beneficial to businesses to distinguish their products and command premium pricing, but the challenge of getting it right depends on whether the key concepts are correctly understood and implemented.

This opinion piece reviews the academic legacy that led to contemporary methods for defining product claims, and it shows how this information provides a road map for re-establishing trust in food claims.

Globalization and the information age have combined to create a contemporary world of shopping that customers could hardly have dreamed of a decade ago. There is an immense diversity of food products available year-round. Yet our purchasing decisions are limited by what information exists, and for many products, the information asymmetry between the brand and consumer is very significant.

When shoppers research a product before they become a buyer and make a purchase, they are discovering a type of attribute (or quality) that economist Philip Nelson termed in 1970 as a search attribute. Nelson presented two types of attributes, the other, experience, is discoverable only after purchase. For food, it represents qualities like the taste and sweetness of a peach or the product’s nutritional claims (e.g. lowers cholesterol), which can only be proven after consumption and over time.

Many experience claims are false or misleading with no scientific basis. For instance, in October 2019, a global food company agreed to stop using claims that certain products are ‘healthy’, ‘wholesome’ and ‘nutritious’.  Shoppers prefer verifiable claims, particularly when it comes to food. In another paper published in 1970, economist George Akerlof introduced the concept of asymmetric information. His paper, titled “The Market for ‘Lemons’: QualityUncertainty and the Market Mechanism”, showed that because automobile sellers know so much more about their product than buyers, they are motivated to hide their  knowledge and sell low-quality cars (lemons) to their unsuspecting customers.

When sellers hide information or misrepresent product claims, they create an extra cost for buyers because it’s more challenging to verify and determine what products they should buy and for how much. A customer who had a negative experience won’t buy the same product twice, but they still had to pay for it once to make the discovery.

This shows that asymmetric information costs both consumers and businesses alike, and consumers are likely to inform their social media contacts, especially when they had a negative experience. When these two papers were published in 1970, however, the most significant risk that asymmetric information poses was yet to be discovered.

Scholars Michael Darby and Edi Karni wanted a better explanation for why a firm would provide false or misleading information to induce a purchase decision. In 1973, they published a groundbreaking paper that introduced a third term to Nelson’s search and experience: credence. Unlike search and experience qualities, credence qualities cannot normally be verified before or after purchase by a consumer.

Food has many credence qualities, including food quality, its safety and authenticity. Today, a growing consumer base wants to know where and how their food was grown, what kind of labour was involved, if chemicals or pesticides were used, and what affect the food has on the environment.

They want to know that the ingredients in their food are authentic and not substituted with undeclared ingredients, or potentially dangerous substitutes from untrusted sources. These are all credence qualities that greatly increase information asymmetry, not just to the end consumer, but between businesses all along the food chain.

Darby and Karni’s paper laid the groundwork for additional empirical research that showed firms often make false-credence claims that their food is certified (e.g. halal, kosher, organic, cage-free eggs or grain-fed beef) to sell the product at a higher price. One solution to this dilemma is using independent and neutral third-party- organizations that provide verification and certification through scientific methods, turning both credence and specific experience claims into search attributes that a consumer can verify.

For example, companies can send a strong trust signal to consumers by obtaining USDA Organic labelling, which certifies a particular product.

However, successful credence claims like USDA Organic become vulnerable to false claims. Hence, the USDA conducts regular investigations and enforcement actions, and its website provides a list of companies that have made false claims. Food claim certification, investigations into forgeries, and educating businesses and the public are all costly. Still the costs are outweighed by the economic benefit of providing a transparent and fraud-free food chain.

There is a vast number of confusing credence claims on food packaging; they function as a double-edged sword for businesses. To take advantage of new markets for credence claims, food companies must invest in ways to certify their credence claims and enable them to become search attributes. However, any failure in the integrity of the process resulting in food fraud incidents will shake consumer trust and increase distrust (suspicion).

This shows why one of the most debated questions in the academic study of food supply chains is what comes first. Is it trust inspired by transparency, or transparency inspired by trust? It is more likely that trust functions as both an antecedent, and an outcome of enhanced transparency.

The most helpful and practical answer businesses can embrace is that both the concepts of transparency and trust are equally important: businesses should embrace the opportunity to present more detailed information about their products, because enhanced supply chain transparency is a competitive opportunity; on the other hand, the more claims a brand makes about a product, the greater the challenge of enabling and maintaining trust in the claims.

The solution to this challenge is to turn credence qualities into search qualities by supporting independent, neutral third-party-audits and science-based, credence verification. The challenge is daunting, because even third-party bodies will struggle with imperfect information and transparency in food chains.

The challenge is an opportunity for those businesses willing to meet growing customer expectations with a sincere effort to present their products with the most truthful and complete information possible. After all, transparency in a food chain is defined by promoting your strengths and working hard at exposing and addressing your weaknesses. But are food companies ready for this challenge?

About the Author:

John G. Keogh is a Toronto-based strategist, advisor and researcher. He advised the public and private sectors globally on how technology and industry standards combine to implement regulations. He is a recognized global authority on supply chain integrity and transparency and trust in the food chain.

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