Food Supply Networks: Trust and E-business

By Maurizio Canavari, Gert Jan Hofstede, Nicola Cantore and 6 more

When relations are facilitated by communication technologies such as e-business, food supply networks can improve efficiency, flexibility and effectiveness. However, a lack of trust within such transactions can prevent the integration of e-business into this large, economic sector. Using case studies from European countries, chapters discuss trust-building methods for food networks in an e-business environment. Key issues include the influence of cultural disparity and cross-border transactions upon major product groups such as meat, cereal products and fresh produce.

• Language: English
• Publisher: CAB International
• Release date: Nov 25, 2015
• ISBN: 9781786390233

Book preview

An Introduction to Food Supply Networks: Trust and E-business

MAURIZIO CANAVARI, MELANIE FRITZ AND GERHARD SCHIEFER

Business-to-business (B2B) e-commerce is an innovative use of information and communication technologies and refers to the exchange of goods and related information between companies supported by Internet-based tools such as electronic marketplaces (also called electronic trade platforms) or online shops. It provides opportunities for cost-efficiency in supply chain management processes and access to new markets. With regard to the food sector, with its chain levels input–agriculture–industry–retail–consumer, B2B e-commerce involves the exchange of food products between all levels except retail to consumer (business-to-consumer e-commerce).

It is evident and widely known that B2B e-commerce brings key advantages and potential for European consumers and the European food sector, including:

•  Affordable high-quality, traceable food for European consumers, supported by the potential for innovation from e-commerce technologies for cost-efficient processes along the food chain. Quality food will become the easy and affordable choice for European consumers.

•  Competitiveness for the European food sector, with small and medium-sized enterprises (SMEs) increasing as B2B e-commerce technologies support cost-efficient transaction processes in food supply chains.

In recent years, the availability of sophisticated B2B e-commerce technology has improved tremendously. The ‘European e-Business Market Watch’ initiative of the Directorate-General Enterprise and Industry of the European Commission has shown that only large multinationals exploit the potentials of B2B e-commerce in the food sector for their supply chain management with their business partners. However, SMEs, which create the majority of turnover in the European food sector and therefore create jobs and benefits in Europe, are reluctant to take up existing B2B e-commerce technologies into their food supply selling.

The crucial barrier to adoption is that trust between companies is not mediated appropriately by existing e-commerce technology. Consumers demand trustworthy high-quality food that is safe to eat. Consumers’ trust in food demands trust between companies along the food chain because it is not possible to check and control all food quality characteristics. Currently, the barriers to B2B e-commerce for food sector SMEs come from:

•  The difficulty of examining the quality and safety of food products. This refers to all kinds of transactions in the food sector, whether supported by e-commerce or not. However, when it comes to e-commerce, the difficulty of physical product examination plays a much larger role because physical product inspection is not possible.

•  The (perceived) risk of performing a transaction via e-commerce. This includes concerns regarding secure transfer of data, or the possibly unknown transaction partner.

Existing e-commerce offers apparently do not generate sufficient trust between food companies. The fundamental core challenge for European food chains to competitively deliver affordable high-quality food to European consumers is how to develop trust for e-commerce between companies in the food chain. In order to prevent a growing gap in competitiveness between SMEs in the European food sector and large companies, SMEs urgently need to take up and integrate B2B e-commerce.

Elements for generating trust between companies in the food chain and so trustworthy B2B e-commerce environments for the food sector include: guarantees regarding food quality, multimedia food product presentations to signal their quality, secure e-commerce technology infrastructures and third-party quality signs. Because trust is highly subjective and depends on culture, food chains in different European countries with different cultural backgrounds require different combinations of trust-generating elements regarding the quality and safety of food.

If trustworthy B2B e-commerce environments for food sector SMEs are not included in the food sector, SMEs will not be able to exploit the opportunities and potentials, including cost reductions, created by B2B e-commerce (see above). This would have substantial negative consequences for the provision of affordable, safe, high-quality food to European consumers and the competitiveness of European food sector SMEs, in particular.

Lost competitiveness of SMEs in the food sector would force them to leave the sector, which would result in fewer jobs in Europe. Only highly efficient processes for the exchange of food products along the European food chains will support the supply of European consumers with high-quality food products at affordable prices. This is only possible if the efficiency potential of B2B e-commerce is exploited.

Relevance to the Food Quality and Safety Priority

In general, the Food Quality and Safety Priority has the objective of improving the health and well-being of European citizens through higher quality food and improved control of food production and related environmental factors. Taking the ‘fork-to-farm’ approach, it gives the priority to consumers’ demands as the key driver for the development of new and safer food production chains.

The Food Quality and Safety Priority considers the key aspects of food quality, safety and consumer concerns along the whole food chain, together with the international dimension of trade and related global challenges affecting food quality and safety in Europe. The approach starts with consumer concerns and proceeds along the production chain, outlining issues associated with production and distribution related to the food chain. The Priority considers an innovative combination of food production with information technologies and economic and social sciences as appropriate to achieve its objectives. Strengthening the competitiveness of the European food sector, with its many SMEs, is an important objective of the Priority.

Consumers demand safe, healthy, quality foods they can trust because food has a major impact on their well-being and quality of life. Their trust in food has been shaken by the recent crises in the European food sector. In addition, food processing is a global industry where increases in global trade are foreseen and where consequences from contamination can be very widespread and damage the credibility of the food sector as a whole and the reputation and trustworthiness of food products.

The ability of food chain companies to create trust and transparency along the food chain and deliver trustworthy guarantees to the consumer is therefore a key issue for the creation of consumer confidence. To take into consideration consumers’ point of view and confidence at every stage of the food chain is essential. Trust between companies in the European food sector is needed to transfer the consumers’ demands into the entire chain.

European consumers demand safe and high-quality food from transparent ‘fork-to-farm’ chains. Requirements for communication, information exchange and trust between companies across the food chain are influenced by the demands and expectations from consumers at the end of the chain. A trustworthy food chain is a prerequisite for consumer confidence in food.

Once the efficiency potential from B2B e-commerce has been established along the food chain, European citizens will benefit from the opportunity to access affordable high-quality food.

To enhance the international competitiveness of the European food sector as a whole and of European food sector SMEs as opposed to multinational food processors and retailers, innovation and the take-up of new technologies are needed. European leadership in information and communications technology (ICT) use must be developed and exploited in the food sector, in particular for cost-efficient inter-company transaction processing. The use of new technologies and business practices for cost-efficient processes along the chain is needed to ensure affordable high-quality and safe food for consumers.

Objectives

The book bridges the gap between innovative ICT potentials for cost-efficient processes in the European food chain and trust between companies in the food chain. It has the objective of creating consumer confidence through transparent, trustworthy food chains able to deliver guarantees to consumers, which will contribute to the affordability of high-quality food for European consumers.

The combination of trust and affordability can be reached through improvements in trade processes and in the communication of trustworthiness between trading partners along the chain. The book delivers concepts for trade relationships that combine actual e-commerce developments with trust-mediating functionalities. It has been designed with the purpose of reporting the research results from the e-Trust project (‘e-Trust: Building trust for quality assurance in emerging markets for food chains’, Specific Support Action contract no. 043056, 6th EU Framework Programme), which aimed to support both improvements in food supply to consumers and the competitiveness of the European food sector.

To transfer this aim into action, the e-Trust project had the objective of facilitating the uptake of B2B e-commerce technologies by food sector SMEs to promote cost-efficiency in food chains, competitiveness in the European food sector and the well-being of European consumers. The take-up of B2B e-commerce is one of the key issues and core challenges for the competitiveness of European food chains.

The book identifies appropriate combinations of trust elements for B2B e-commerce for food quality and food safety for each of the main regional, European and internationals food chains (e.g. the meat chain, the fresh fruit and vegetable chain, the grain chain), and for the European and international countries involved.

Structure of the Book

To meet the main objective of facilitating the uptake of B2B e-commerce by SMEs in the European food sector to promote cost-efficiency in food chains, competitiveness of the European food sector and the well-being of European customers, this book has the following sub-objectives, which are presented in the individual chapters:

•  to collect trust elements for food quality and food safety in business relationships with regard to cultural differences in Europe and to create a typology of these trust elements (e.g. trust in quality and safety of food products, trust in food production processes, trust in quality signs) (see Chapter 1);

•  to analyse food chains with regard to demands for food quality and food safety, and typical food quality risks along these chains (e.g. fresh vegetables, fresh fruit, meat, grain) (see Chapters 2 and 3);

•  to assess the importance of trust elements for food quality and food safety in these product chains and on different chain levels (e.g. production to wholesale trade, wholesale trade to industry or wholesale trade to retail) (see Chapter 4) and their relative importance for different food chains and cultural backgrounds;

•  to analyse the main elements of e-commerce and ICT adoption in the Spanish case and the role of e-marketplaces in food networks (see Chapters 5 and 6);

•  to identify ways to mediate and generate trust regarding food quality and food safety in B2B electronic commerce in food chains (e.g. trust in quality signs, trust in e-commerce infrastructure, trust in guarantees of food quality) (see Chapter 7); and

•  to assess the interchangeability of traditional trust with electronically mediated trust for different food chains and chain levels, respectively, and for different European cultural backgrounds (see Chapter 8).

The chapters contained in this book can be read as stand-alone studies, but their value can be fully appreciated if the general framework of the book is considered.

I    Trust and Food Supply Networks

1     Trust in the Agri-food Sector: A Typology with a Cultural Perspective

GERT JAN HOFSTEDE ¹* ELSJE OOSTERKAMP ¹ AND MELANIE FRITZ ²

¹Wageningen UR, Wageningen, The Netherlands; ²University of Bonn, Bonn, Germany

*Corresponding author: [e-mail]

Executive Summary

This chapter investigates what role trust plays for a company in the food business that is in need of a new supplier. It lays the foundation for the remainder of this book, in which electronic trust-related communication is the focus.

The concept of trust can have many meanings, ranging from total, heartfelt reliance on one another, through trusting only some aspects – for instance, the good intentions, but not the competence – of a partner, to trusting that one can punish defaulting trade partners.

Trust is needed in business relationships to mitigate transaction-related risks. This is important in a sector where quality problems can have severe consequences for consumers. The greater the perceived risks, the more energy a company will invest in making sure that new partners are trustworthy.

Across Europe, national cultures differ greatly. In the north-west they tend to be egalitarian and individualistic, with the result that relationships are rather volatile and impersonal regulations are often in place. In the south and east, society is more hierarchical and collectivistic. Here, one tends to trust those one knows, and to distrust institutions. Accordingly, the dynamics of trust can be expected to vary across Europe, with more personalistic relationships prevailing in the south and east.

An investigation of the food sector using the literature and in-depth interviews shows that reputation is an important conveyor of information about trustworthiness in the food sector, particularly among smaller companies.

Altogether, these various inputs have inspired a four-level typology of trust. The typology contains all possible elements of trust; some companies will focus on different subsets of the typology’s elements from others. The top level distinguishes trust in the product from trust in the seller, with trust in the market environment – including enforcement institutions – as a third element. Empirical work using this typology is discussed in later chapters. Companies can use the typology as a checklist in new relationships, either to benchmark new partners or to assess how they might be perceived by them.

1.1 Introduction

The agri-food sector is in a period of rapid transition and growth worldwide. Internationalization and the availability of new technologies are driving forces. Yet, in many sectors throughout Europe, food trade between primary producers, manufacturers and wholesalers is far from automated. Faxes are often the upper limit of sophistication. This has to do with the fact that agri-food enterprises all across Europe tend to be small and embedded in the local community. Producers, processors and traders know one another by face, name and reputation. This situation has the drawback that it limits access to new, possibly lucrative, market channels for smaller parties, i.e. most producers. Business-to-business (B2B) e-commerce tools are not being adopted as readily as some would expect and they are used largely for collecting information, rather than for buying goods (Moen et al., 2008). Lack of trust on the buyer’s side may play a role in reluctance to adopt B2B e-commerce technology.

Buyers of agri-food products are never quite sure what they will get for their money. In a situation where trustworthiness cannot be taken for granted, it makes sense for buyers to be conservative about switching suppliers. However, a firm that sticks to the same supplier might be missing opportunities. The choice to search for a new supplier therefore depends on trust at several levels, as well as on the perceptions of risk, control and potential gains. This chapter takes the perspective of a buyer in search of new suppliers and aims to develop a typology of trust factors that might play a role for a buyer in search of a new supplier. It reports on a conceptual step: creating a typology of all possible factors that affect the trust a buyer places in a new potential seller. The typology can be used as a checklist or as a research tool, and the latter is done in the remainder of the book.

1.1.1 Focus on culture

Trust is an essential element of any society, critical to its moral cohesion. Without trust in institutions, rules, leaders and specialists, a society cannot thrive. Trust is also an essential element of trade relations (Lindgreen, 2003). From a utilitarian point of view, trust saves money. Trusting a trade partner reduces perception of transaction risks and saves the cost of control. Trust is not just calculative; it is also normative. At a psychological level, people are driven to search for and to maintain trusting relationships. This has an evolutionary basis – in the past, groups in which trust collapsed tended to be less successful than others and failed to reproduce their values (Wilson, 2007). Our rapidly changing trade networks and societies have made the old, tested models of trust obsolete, resulting in these trust-related issues coming to the fore so frequently nowadays.

Several contextual variables affect the formation of trust. In the international context of food trade, one of the most important is culture, or the unwritten rules of the social game (Hofstede et al., 2010). The organization of society varies a great deal across Europe. This variation in culture also results in a disparity in how organizations and business networks function in different countries. The dynamics of trust issues in trade processes are bound to be affected by these cultural differences (Knight et al., 2007). Other variables are also of obvious importance. One of these is the kind of food sector. The degree of consolidation, the role played by quality and the incidence of risk all vary across sectors and this can obviously affect the need for and the level of trust in a sector. In this chapter the focus is mainly on culture. The justification is that a culture-aware typology of trust will be usable across sectors if due consideration is given to sector-specific concepts.

1.1.2 Chapter content

In this chapter we introduce a definition of trust and distinguish two types of trust that are not usually disentangled, intrinsic and enforceable trust, then we introduce key concepts pertaining to trust and culture. In the context of dynamics of trust across cultures, particular attention is given to anonymity and the power of reputation. Next, we present the research on trust in food supply networks and focus on sources of trust in the early stages of B2B relations. These sections will allows us to develop a first draft of the typology. In the fourth section we report on the in-depth interviews held with traders in various countries and sectors to refine the trust typology (see Appendix 1.1) and we present the final results. At the end of the chapter we offer a few practical conclusions for users of the typology.

1.2 Defining Trust

Trust is a vast field of study for researchers in many disciplines; it is therefore not possible to give a comprehensive overview of all research on the subject here. Thus, we build on previous reviews of the literature (e.g. Arnott, 2007) and recent articles. Nannestad (2008) provides a comprehensive review of trust conceptualizations in political science. For perspectives from marketing and management, we build on Mayer et al. (1995), Pavlou (2002), Nooteboom (2002), Grabner-Kräuter and Kaluscha (2003) and Saunders et al. (2004). From the literature it is apparent that trust is not the same thing to everyone.

The ‘hard’ tradition in the literature conceptualizes organizations as social entities that set up and seek to achieve goals. In this light, inter-organizational trust is instrumental, i.e. useful only for achieving the organization’s goals. If you want to be sure that a business partner can be trusted, an enforceable contract will do the job as long as the partner believes that the penalty for defaulting exceeds the possible gains.

The ‘soft’ tradition, as in the management literature, sees organizations as social entities that seek to manage relationships. This perspective puts trust at the centre of the stage. It implies that purely instrumental definitions of trust are not sufficient to comprehend inter-organizational ties that are needed for netchains to function. Economists, psychologists and sociologists tend to work with widely different conceptions of trust. Sociologists such as early trust researchers Luhmann (1973) and Misztal (1996) focus on the functions of trust. In this project we adopt the definition from Mayer et al. (1995) because much of the empirical literature on trust refers to his work (see McKnight and Chervany, 2001; Grabner-Kräuter and Kaluscha, 2003). It is a compromise definition because it is rooted in different multidisciplinary traditions:

Trust is the willingness of a party to be vulnerable to opportunism of another party based on the expectations that he will perform a particular action important to the trustor, irrespective of the ability to monitor or control that other party.

(Mayer et al., 1995, p. 712)

The keyword in this definition is ‘vulnerable’. It is not being vulnerable per se, but being willing to take a risk. Trusting people means that you do not need to take the trouble of checking on them, accepting the chance that they might cheat on you. Trust without vulnerability or uncertainty, i.e. ‘hard’ trust as defined