Full Information Product Pricing (FIPP):
Information Policies to Expand the Share of Worker and
Environment Friendly Trade in the NAFTA Region
A Research Program of 1The North American Digital Government Working Group
Project Synopsis
The North American Free Trade Agreement (NAFTA) contains important side agreements designed to ensure that firms active in the NAFTA region observe fair labor practices and strive to minimize the environmental impacts of their activities—(1) The North American Agreement
on Environmental Cooperation (NAAEC), and (2) The North American Agreement on Labor Cooperation (NAALC). The Commission for Environmental Cooperation and the Commission for Labor Cooperation are two trilateral organizations established within NAFTA to monitor and promote these agreements.
The purpose of this research project is to explore a set of government-sponsored product labeling and information policies that may have the potential to supplement a compliance-enforcement approach with a more market-based voluntary approach that relies on shifts in producer and consumer behavior to significantly expand the share of worker and environmentally friendly products traded within the NAFTA region. We propose that the market share for such products can mirror the recent rapid expansion in ―organic‖ food products that followed the development and implementation of organic food labeling and packaging standards led by federal and provincial governments in the US, Canada and Mexico.
We propose to explore the effects of fair labor and environmental friendly labeling using an innovative design that focuses on one product—coffee grown in Mexico but roasted, brewed,
and consumed in Canada and the United States—and exploits the existence of two prototype
information systems linked to a coffee market simulator that can capture supply chain pricing dynamics. One prototype is based on a government-sponsored and enforced organic product standards monitoring system in the Province of Quebec. The other is an innovative internet-based system that relies on voluntary customer reporting, creating a virtual community of consumers who share an interest in worker and environmentally friendly products. Our overall project culminates with a series of white papers designed to demonstrate the feasibility of such policies to government officials in all three NAFTA partner countries.
1 The North American Digital Government Working Group (NADGWG) is a consortium of research centers and individuals funded by the National Science Foundation and interested in the use of digital government technologies in North America between the member states of Mexico, Canada, and the United states. For more information, see Appendix A or go to ADD URL ONCE INFO IS UP.
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Full Information Product Pricing (FIPP):
Information Policies to Expand the Share of Worker and
Environment Friendly Trade in the NAFTA Region
A Research Program of 1The North American Digital Government Working Group
Project Synopsis: The NAFTA trading agreement contains important side agreements designed to ensure that firms active in the North American trading region observe fair wage practices and strive to minimize the environmental impacts of their activities—(1) The North American Agreement on Environmental
Cooperation (NAAEC), and (2) The North American Agreement on Labor Cooperation (NAALC). The Commission for Environmental Cooperation and the Commission for Labor Cooperation are two trilateral organizations set up within NAFTA to monitor and promote both agreements. The purpose of this research project is to explore a set of government-sponsored product labeling and information policies that may have the potential to supplement a compliance-enforcement approach with a more market-based voluntary approach that relies on shifts in producer and consumer behavior to significantly expand the share of fair wage and environmentally friendly products traded within the NAFTA region. We propose that the market share for such products can mirror the recent rapid expansion in “organic” food products that followed the development and implementation of organic food labeling and packaging standards led by federal and provincial governments in the US, Canada and Mexico.
We propose to explore the effects of fair labor and environmental friendly labeling using an innovative design that focuses on one product—coffee grown in Mexico but roasted, brewed, and consumed in
Canada and the United States—and exploits the existence of two prototype information systems linked to a coffee market simulator that can capture supply chain pricing dynamics. One prototype is based on a government-sponsored and enforced organic product standards monitoring system in the Province of Quebec. The other is an innovative internet-based system that relies on voluntary customer reporting, creating a virtual community of consumers who share an interest in fair wage and environmentally friendly products. Our overall project culminates with a series of white papers designed to demonstrate the feasibility of such policies to government officials in all three NAFTA partner countries.
Full Information Product Pricing (FIPP) in the NAFTA Region Most products consumed within the NAFTA trading zone are produced and distributed through cost-effective distribution networks that typically do not reveal certain types of information to end consumers. This information asymmetry makes it difficult for many consumers to assess the quality of the products. This gives producers incentives to offer consumers products that are of low quality or products that have been manufactured in low wage or environmentally unfriendly ways.
1 The North American Digital Government Working Group (NADGWG) is a consortium of research centers and individuals funded by the National Science Foundation and interested in the use of digital government technologies in North America between the member states of Mexico, Canada, and the United states. For more information, see Appendix A or go to ADD URL ONCE INFO IS UP.
However, a growing number of consumers and producers are increasingly paying attention to information about where, when, how, and by whom our goods are produced. In these cases, producers strive to attach non-price information to their products, thereby reducing information asymmetry and adding value to their products. Often this non-price information is transmitted from producers to consumers through relationship-based networks or under certifiable labels such as ―organic‖ or ―Fair Trade.‖ We are calling such networks of relationships among consumers, producers, and distributors ―Full Information Product Pricing (FIPP) Networks‖.
FIPP production and distribution networks can sustain networks of small producers, enable SME creation in rural or under-developed areas, and in general fuel region-wide economic development. However, FIPP benefits to producers vary across particular contexts and our understanding of these variations is still limited.
In this document, we briefly present an integrated research project whose objective is to develop a proposal for an information policy that might lead to an improvement in the market share of fair wage and environmentally sustainable trade within the NAFTA region. That policy might also lead to an increase in the competitiveness of NAFTA players by supporting trade practices
that would be attractive to other trading partners, such as the European Union.
As shown in Figure 1, the research program involves several inter-related activities: we will conduct field work, develop simulation models, create and evaluate an information prototype, and make policy recommendations.
We decided to start our exploration of FIPP networks with coffee because the NAFTA region is both an important market for coffee and an important coffee producer. In addition, there exists in the NAFTA region a variety of coffee production practices reflecting values such as fair wages, environment friendly or organic production. Finally, coffee is produced within a commodity-driven supply chain whose pricing dynamics have been well studied and hence is amenable to a simulation approach that can explore the features of alternative production strategies in a flexible ―what if‖ approach. In the following paragraphs we briefly describe each of the components (sub-projects) in this research program, and how are they related to the development of an information policy proposal.
The proposed research will be carried out by members of the North American Digital Government Working Group (NADGWG), an NSF-sponsored consortium of 20 researchers from 14 institutions in Mexico, Canada, and the United States who share an interest in digital government research. See Appendix A for more information on the composition and purpose of NADGWG.
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Field Work (Coffee in Mexico) FIPP Prototype Design
Coordination Coffee Product trust
Market and traceability Simulator prototype
Data and Scenarios GUI from simulation
Stakeholder
Evaluation
Focus Group Best Info Package Seal Trust
FIPP Policy Design
Figure 1. Overview of FIPP Research Program Components and their relationships
Field Work
During a preliminary phase, group members have conducted exploratory case studies of FIPP networks in Canada, Central America, US and Mexico. As a result of this initial work, the group decided to focus on one single product, coffee produced in Mexico and processed in Canada and the US. Coffee production practices in Mexico are diverse, and cover several mechanisms of branding, including fair-trade, organic and environmentally friendly practices. As a result of the initial case studies, the group has developed a preliminary simulation model that reproduces coffee supply chain dynamics, and also has identified two working prototypes (one in Canada and one in the US) that provide consumers with information associated with products and supply chains.
Informed by the initial findings, a second stage of field work will be to further explore both the nature of the coffee supply chain and the utility of an information system to share information about the production and distribution processes involved in commodity coffee as well as organic and fair-trade coffee. In this way, fieldwork will involve interviews and site visits with several stakeholders in the coffee production chain in Mexico, including certifying bodies, retailers, consumers and producers. The group has initial seed funding from the Mexican National Council for Science and Technology (CONACYT-Mexico) to conduct this Fieldwork in Mexico during
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the calendar year 2009. For more information on the field work component of this project, see Appendix B.
Coffee Market Simulation
Customers who purchase FIPP products within the NAFTA region may also be interested in information that arises not only from the production of the products, but also cost and price information from the distribution and supply chain that supports the product’s delivery to retail shelves. Supply chain dynamics for a commodity such as coffee can be complex and involve dynamic interactions between supply and demand. Because of the long delays between planting coffee trees and their ability to yield a mature harvest, demand and supply can and does get out of synch, leading to price spikes and troughs—oscillations familiar to all who have purchased
coffee over the years.
In addition to driving disequilibrium dynamics, commodity supply chains such as those that support coffee can exhibit markedly different final equilibrium prices for identical production unit costs. How the final retail dollar is split between producers, retailers, and ―middle men‖ distributors can vary significantly. Indeed one strategy employed by large retail organizations such as Wal-Mart and Starbucks is to create a vertically unified supply chain that can both maximize their profits while at the same time holding down costs to end-use customers. We intend to explore these dynamics within a simulated coffee market and use information from these simulated markets to supplement field work in creating the product trust and traceability prototypes. More information on the coffee market simulator can be found in Appendix C. Product Trust and Traceability Prototype
This sub-project involves the creation of a traceability prototype that would communicate non-price information to participants of the coffee value-creation chain as well as consumers of that product (see figure 2).
That prototype’s foundations would be a mix of two existing systems: the Conseil des
appellations réservées et des termes valorisants of Québec’s (CARTV’s) Directory of Québec
Certified Organic Products and the Buy It Like you Mean It (Bilumi) database of user ratings
about the social performance of players active in industries like the chocolate industry.
These two existing systems hold complementary data that is collected through different means. CARTV’s Directory contains information that, by law, Québécois businesses (through
authorized certifiers) must gather and provide the Québécois government to obtain the right to sell their food products under an organic label. Bilumi’s database contains information that’s obtained through crowdsourcing mechanisms, that is, by normal, unconnected Internet users
concerned with the several performance dimensions of the firms that produce the food we eat or products we buy.
As described in Appendix D, the final product trust and traceability prototype will combine information from both of these pre-existing systems. It will also present information extracted from the coffee market simulator discussed above.
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Where would you Montr閍llike to purchase the
product?
What category does Processed productsthe product belong
to?
What product are Coffee
Where does the you interested in?
product originate
Mexicofrom?
These companies are located in Montr閍l and they distribute,
process or produce organic coffee that originates from Mexico.
A.L. Van Houtte inc.
Address: 8300, 19e avenue
Region: Montr閍l
Province: Qu閎ec
Country: Canada
H1Z 4S8
Telephone: 514 555 1212
Fax: 514 555 1213
Products certified by OCIA-International
Customized score: 2.8 (number of reviews : 17)
Ecological sustainability: 2.3
Community involvement: 2.0
Energy and resource efficiency: 2.0
Human rights: 2.3
Labor relations: 1.7
Figure 2. Example of information shown by the traceability prototype Political spending: 4.0
Product health and safety: 3.4
Stakeholder Evaluation Transparent practices: 4.9
After the development of the coffee market simulator and prototype, a series of stakeholder Fair competition: 2.0
evaluation will be carried out to measure user interactions with the prototype. This research will evaluate what features of FIPP information systems are most valued by consumers, retailers, producers, and government regulators. Most importantly, the evaluations will provide important feedback on how to better design and implement future product information and labeling systems to maximize the market share of fair labor and environmentally friendly products within the NAFTA training regions.
Several stakeholder groups will be affected directly or indirectly as a result of the deployment of full pricing information system and related policy changes. These may include but not limited to
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producers, government agencies and NGOs in the NAFTA region who are involved in developing and enforcing standards of production and distribution (e.g., New York State Department of Agriculture, Secretaría de Agricultura, Ganadería, Desarrollo Rural, Pesca y Alimentación, and the Conseil des appellations réservées et des termes valorisants of Québec), distributors or retailers such as Whole Food, Wal-Mart and local grocery stores, and general consumers. We will conduct stakeholder evaluation with decision makers and users in these stakeholder groups. Further details of the stakeholder evaluation sub-project are provided in Appendix E.
Supporting Worker and Environment Friendly Trade Policy
Using research results from the field study, market simulation, prototype development, and stakeholder evaluation, we intend to develop a set of policy papers that identify government policies, standards, and legislation that can promote the development of FIPP-oriented product labeling standards and systems that can increase the market share of, organic, fair trade, and eco-friendly products, and hence promote regional economic development and competitiveness in sustainable fashion. These papers will identify information investment, standards, and policy changes that leverage free market principles to supplement a regulation-based approach to expanding the market share of products traded within the NAFTA region that conform to fair labor and environmental standards promoted by NAFTA. Additional information on these policy position papers is contained in Appendix F.
Anticipated Products from the Research Program
The primary product of this proposed research will be a series of policy white papers aimed at policy makers interested in the fair wage and environmental characteristics of products traded within the NAFTA region. These policy white papers will depict how innovative information policies based on FIPP principles can support the share of traded products that are produced using fair wage and environmentally friendly practices. These policies leverage consumer preferences and depend on open market principles of making full information available to end consumers.
In addition, the proposed research will create a series of technical products that support the policy designs within the white papers including a set of FIPP labeling standards for coffee products, a prototype information system to connect producers, retailers and consumers, a simulation environment that can explore market investment and growth dynamics for various scenarios, and detailed reactions of producers, consumers, retailers, and government officials from all three nations to FIPP-inspired product labeling and information policies. Appendices:
A: Who and What is the North American Digital Government Working Group?
B: Details of Field Work
C: Details of Coffee Market Simulation
D: Details of Product Trust and Traceability Prototype
E: Details of Stakeholder Evaluation
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F. Competing on Quality- Supporting Worker and Environment Friendly Trade Policy
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Appendices
Appendix A: Who and What is the North American Digital Government Working Group?
Background
The North American Digital Government Working Group (NADGWG) was formed to explore current models of collaboration and cooperation being employed across the geographic, jurisdictional and political boundaries of the three countries of North America; Canada, Mexico, and the United States. Formed in early 2007 by researchers and practitioners from a variety of institutions and disciplines in the three countries, NADGWG members are working together to develop a comparative and transnational research agenda targeted at questions about intergovernmental digital government initiatives in North America. This group was formed with the support of the National Science Foundation Digital Government Research Program and the home institutions of the members in Canada, Mexico, and the United States, to advance electronic government research across geographic and political boundaries in the region.
Scope of Work
Members of this group are exploring current models of collaboration and cooperation being employed across geographic, jurisdictional and political boundaries, and presidential and parliamentary systems, in both advanced and developing economies. In particular, the group is focused on building understanding of the social and technical capabilities necessary to tackle these important public policy problems both within countries and when those countries work together on these problems. This project seeks to better understand the role of technology in the ability of individual nations to respond to public problems and in the ability of nations to work together in response to transnational problems. The focus on Canada, Mexico, and the United States allows the researchers to look at topics that are germane to North America as a whole.
As the governments of the world evolve toward a more global perspective on the social, political, and economic issues facing our nations it is critical that research efforts are sensitive to and respond to this evolution as well. New requirements for cross-boundary collaboration driven by a global view demand new understanding about how individual nations respond to public problems and about how nations work together in response to transnational problems. New forms of government enabled by technologies and made possible through new models of cooperation and collaboration made possible through new models of cooperation and collaboration must be explored and tested. As researchers, we must also create new models and strategies for working together across geographic and political boundaries, focusing on the efforts of government ass they seek to work in this new way. This project seeks support for an international digital government working group that focuses on understanding new models of collaboration required by the global nature of
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government problems as well as the role of technology in facilitating these inter-organizational initiatives. The activities of this working group focuses on the development and pursuit of a research agenda that attends to comparative questions about intergovernmental digital government initiatives in North America as well as questions related to North American digital government initiatives that are transnational in nature.
Although the three countries of North America are very different in many aspects (providing good variation), they have important similarities in government and a federal system). Project leaders in the three countries appreciate the importance of intergovernmental relationships for the success of many digital government initiatives. In addition, the three countries are closely related and interdependent in several political, economic, and social issues. Therefore, the results may also have important policy implications for each of the three countries and North America as a whole. Finally, the inclusion of a developing country, a country with a highly developed presidential – system,
and one with a highly developed parliamentarian – system allows the results to be relevant
to many countries specifically as well as many regions around the world.
Group co-chairs are Dr. Theresa A. Pardo from the Center for Technology in Government, University at Albany, and Dr. Luis F. Luna-Reyes from the Universidad de las Americas, Mexico. The eleven-member working group includes members from three countries: Canada, Mexico, and the United States. Eleven institutions are represented by the group.
This initiative provides the opportunity for the members of the working group, many of whom have collaborated together in the past, to take their joint interest and expertise in this area to a new level. The grant funds provides the opportunity to leverage many previously productive two and three way collaborations among members of the proposed group to a more significant and focused effort towards a long-term research and practice collaboration.
Together, the Working Group members produce a series of deliverables for academics and practitioners, including reports, papers, cases or methodological notes among others. The products created include resources for practitioners throughout North America and beyond as they work both within and across boundaries to enhance capability within multi-jurisdictional policy domains. Due to the diversity present in the three North American countries, this Working Group is able to develop lessons not only for the region, but also for developing and developed countries facing similar policy issues around the world. As such, the value of the research can be extended beyond the North America to other regions of the world facing similar sets of challenges.
In addition to the research value, the working group members are gaining useful insights into the process of creating an international research community; exploring the role of technology to support collaboration among geographically dispersed researchers, developing strategies for creating research proposals that are relevant to funding organizations in multiple countries, and responding to the multiple research traditions and practitioner priorities in identifying research areas.
Since 2007, one sub-group of NADGWG has been working on case studies and simulations of FIPP prototype systems within NAFTA. For example, initial explorations of FIPP
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