Does Backward Integration Improve Food Safety of the Tea Industry in China in the Post-COVID-19 Era?

Abstract

China is the largest tea producer in the world; however, tea quality and safety issues have caught broad attention due to pesticide overuse in the growing stage. In order to control the quality and safety of their raw inputs, tea-processing firms in China are expanding their own plantations. Does this backward integration (BI) improve the food safety performance of the tea firms in China? Based on the transaction cost theory, we empirically investigate the effect of tea firms’ BI on their food safety performances, using data from 246 tea firms collected via an online survey in 2021. Controlling the basic background situation and firms’ characteristics, the empirical regression results, when controlling for the self-selection bias, support the hypothesis that BI can improve the food safety performance of the tea industry when it reaches the effective integration level, specifically, 80% or higher. Other factors include that the private brand and asset share of the plantation would also help reduce the firms’ food safety problems. Therefore, the government may consider supporting firms’ BI in the development of tea plantations through one-time subsidies and/or land and labor coordination, so as to improve the food safety situation and industry efficiency.