Role of certification bodies in the organic production system

Organic food products are an example of quality food products, i.e., products possessing a particular feature (attribute) that distinguish them from other products of the same type and may make these products preferred on the market. When talking about quality and product attributes, economists distinguish between “search goods” for which the quality attributes are apparent and can be verified before purchase, “experience goods” for which the quality attributes are difficult to observe in advance, but they can be ascertained upon consumption and “credence goods” for which consumers cannot easily ascertain the quality attributes even after they have consumed/used the goods (Nelson, 1970; Darby and Karni, 1973). Markets are able to easily manage quality differences when they are defined by search attributes, since people may simply choose the product they prefer and/or pay a higher price for it. Experience attributes are more difficult to manage, but mechanisms linked to product/producer/distributor reputation help to solve the problem. With credence goods sellers know the actual quality of the good while buyers do not, and this may give rise to market inefficiencies and fraud. With credence goods the market may not be able to optimally allocate the resources (a situation that is usually addressed as “market failure”) because of asymmetric information and moral hazard. Asymmetric information is the situation in which one side of an economic relationship has more information than the other. Moral hazard is defined as the behaviour of agents who do not bear the full cost of their actions and thus are more likely to take such actions (OECD glossary). In other words agents are characterized by opportunistic behaviours to enjoy an advantage when they can skip the negative consequences. In this chapter, we discuss the nature of credence goods of organic food and we illustrate the mechanisms underlying the need to establish certification systems in order to provide quality signalling tools in this kind of market. In the following section, we offer a double perspective of the issues concerning the organic certification systems. First, we briefly discuss the development of international standards for organic agriculture in different world areas and the ways by which they affect international trade of organic food. Then, we discuss the case of Italy, where we investigate the performance of certification bodies in a domestic market perspective.