Managerial responses to transaction cost disequilibrium in food supply chains and networks

Abstract Differences in transaction costs (i.e. costs of information processing, monitoring and control) between firms in local supply chains as well as in an international setting may have a negative impact on competitiveness and on creation of value added. Transaction cost disequilibrium is defined as a state in which transaction costs exceed the transaction benefits from the exchange of assets. The goal of this article is to assess whether such a disequilibrium exists for European food supply chains; if so, what its effects are and how it can be reduced. Transaction cost disequilibrium will be investigated at two levels: international competition and within local supply chains. The first focuses on the competitiveness of supply chains in global markets, the second especially regards the competitive position of companies within a single supply chain. To address our research question, we gathered empirical data by means of survey questionnaires and interviews in 2007 and 2008. The results show that internationally differences in transaction costs exist, but perceived disadvantages of EU food firms towards the US are being outweighed by perceived transaction benefits (i.e. preferred higher levels of food safety). However, within local supply chains SMEs are confronted with more than average transaction and compliance costs. Transaction benefits can only partially be reaped, especially because of a lack of transparency of the origin of value added to consumers. Proposed improvements to the competitive position of SMEs - contingent upon supply chain structure and product characteristics - include up-scaling, improvement of innovative power, co-labelling as well as simplification of EU food law.