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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)
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).
What do these commodities have in common?
• Both are associated with a particular region or country…but, 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
Today’s discussion
• A closer look at GIs• The economics around GIs• Policies used • Existing studies• Governments’ role
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
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)
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
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
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)
Types of policies, cont’d
•EU policy to protect specific agricultural commodities
•Protection is based on geographical origin
•Regulation No. 2081/92 on the protection of PGI and PDO
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
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 100Source: Hayes, Lence, and Stoppa, Agribusiness, Vol 20(3): 269-285 (2001)
Approved PDO and PGI brand names in the EU
France22%
Germany11%
Greece13%
Portugal13%
Spain11%
UK & Other10%
I taly20%
Source: Hayes, Lence, and Stoppa "Farmer-Owned Brands? " Agribusiness , Vol. 20(3): 269-285 (2004).
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
Existing studies, cont’d
• Zago & Pick (2004)– The regulation creates two goods– High quality good under the
regulation– Low quality good not included in
the program
Existing studies, cont’d
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
Existing studies, cont’d
Results from Zago & Pick (cont’d):• Effects of the regulation depend on:
– Difference in quality– Costs of producing the quality– Cost of administration
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
What is the government role? cont’d
• 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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