Certify or not? An analysis of organic food supply chain with competing suppliers

Customers expect companies to provide clear health-related information for the products they purchase in a big data environment. Organic food is data-enabled with the organic label, but the certification cost discourages small-scale suppliers from certifying their product. This lack of a label means that product that satisfies the organic standard is regarded as conventional product. By considering the trade-off between the profit gained from organic label and additional costs of certification, this paper investigates an organic food supply chain where a leading retailer procures from two suppliers with different brands. Customers care about both the brand-value and quality (more specifically, if food is organic or not) when purchasing the product. We explore the organic certification and wholesale pricing strategies for suppliers, and the supplier selection and retail pricing strategies for the retailer. We find that when two suppliers adopt asymmetric certification strategy, the retailer tends to procure the product with organic label. The supplier without a brand name can compensate with organic certification, which leads to more profits than the branded rival. As the risk of being abandoned by the retailer increases, the supplier without a brand name is more eager than the rival to obtain the organic label. If both suppliers certify the product, however, they will fall into a prisoner’s dilemma under situation with low health utility from organic label and high certification cost.