Geographical Indicators

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Geographical Indicators

• Daniel Pick
• Economic Research Service

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What is Champagne?

• Champagne, a sparkling wine, comes from the
  Champagne region of France. Champagne has
  produced sparkling wine since the days of the
  Roman empire, and still bottles some of the best
  vintages in the world.
• (www.cnn.com/FOOD/specials/1999/champagne)

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What is feta cheese?

• Feta is a classic and famous Greek curd cheese
  whose tradition dates back thousands of years.
  Strictly speaking, real feta cheese is produced
  exclusively in Greece. (www.greekproducts.com).

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What do these commodities have in common?

• Both are associated with a particular region or
  countrybut, these products are produced in
  other countries as well
• Each has a generic name
• The EU proposed a list of GIs to be protected in
  the WTO trade negotiations

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Todays discussion

• A closer look at GIs
• The economics around GIs
• Policies used
• Existing studies
• Governments role

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What is a Geographical Indicator (GI)?

• Indicators which identify agood as
  originating in the territory of a Member, or a
  region or locality in that Territory, where a
  given quality, reputation, or other charac-
  teristic of the good is essentially attributable
  to its geographical origin
• --Article 22 of the TRIP Agreement

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Why the interest in GI?

• Geographical indicators provide the opportunity
  to
• Differentiate a product
• Create market power (financial opportunity)
• Have government policy intervention
• Transfer income (rural development)

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What is the economic justification for GI?

• The rationale behind GI is
• Market failure Consumers can't distinguish
  between qualities
• Information failure Consumers are not informed.
  Suboptimal equilibrium resulting from information
  failure may be improved through various
  institutions
• Warranties
• Certification
• Signaling and reputation

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Three types of goods

• The economic literature differentiates between
  three types of goods depending on how their
  quality characteristics are identified
• Search goods
• Experience goods
• Credence goods

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Types of policies

• Policies instituted to help consumers identify
  the quality characteristics of a product
• U.S. Certification
• EU PDO and PGI
• Protection of Designations of Origin (PDO)
• Protection of Geographical Indication (PGI)

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Types of policies, contd

• EU policy to protect specific agricultural
  commodities
• Protection is based on geographical origin
• Regulation No. 2081/92 on the protection of PGI
  and PDO

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Purpose of Regulation No. 2081/92

• To recognize, protect, and foster trade among
  Member States of PGI and PDO products to secure
  higher income for farmers in return for improved
  quality
• Hundreds of products are covered under this
  regulation

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PDO and PGI brand names by product class
Product type No.
Cheese 148 25
Meat products 147 25
Fruits, vegetables cereals 130 22
Fats olive oils 72 12
Mineral waters 31 5
Beer 15 3
Breads 12 2
Fish 6 1
Other products 34 6
Total 595 100
Source Hayes, Lence, and Stoppa, Agribusiness, Vol 20(3) 269-285 (2001) Source Hayes, Lence, and Stoppa, Agribusiness, Vol 20(3) 269-285 (2001) Source Hayes, Lence, and Stoppa, Agribusiness, Vol 20(3) 269-285 (2001)
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Approved PDO and PGI brand names in the EU
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Existing studies

• Loureiro McCluskey (2000)
• Consumers willingness to pay for PGI labeling
• Galician veal in Spain
• PGI label effective in high quality meat only
• Bonnet Simioni (2001)
• Consumer response to PDO labeling
• Camembert cheese
• Consumers do not seem to value PDO label

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Existing studies, contd

• Zago Pick (2004)
• The regulation creates two goods
• High quality good under the regulation
• Low quality good not included in the program

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Existing studies, contd

• Results from Zago Pick
• If administrative costs are high, quality
  differences small, and costs differences high
  then we can obtain negative welfare effects
• With supply restrictions, after the regulation,
  the higher the quality differences, the larger
  the negative impact on consumers surplus and the
  larger positive impact on high-quality producers

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Existing studies, contd

• Results from Zago Pick (contd)
• Effects of the regulation depend on
• Difference in quality
• Costs of producing the quality
• Cost of administration

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What is the government role?

• Several costs and benefits are associated with
  labeling policies (Gardner 2003)
• Benefits
• Protection of consumers from low quality
  products
• Reducing consumers search costs
• Reduction of sellers costs by having uniform
  labeling requirements
• Gains to producers of high quality products

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What is the government role? contd

• Costs
• Exclusion of low quality products
• Possible barrier to food innovation
• Sellers increased costs of labeling
• Government costs of implementation
• Creation of market power

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The bottom line

• The welfare effects of PDO and PGI must be
  evaluated on a case-by-case
• Providing blanket policy is not necessarily
  optimal
• Market distortions may be created by the policy