Food and Water Safety

Cost of Compliance

Area 2: To evaluate the cost of compliance of increased food safety requirements on smallholders in light of increased Sanitary and Phyto-sanitary (SPS) measures including in developing countries

There is a concern that, that small and medium scale producers in developing countries might not be able to participate in food export markets because of the high costs associated with meeting strict food safety standards. The difference in costs of compliance by size is likely to be product and region specific. Most importantly the costs of compliance are likely to be institution specific.

Research questions

  1. What is the extent of consumers’ demand for food safety in developing and developed countries? Are there positive spillover effects domestically due to producers meeting international standards so as to export?
  2. What is the extent of smallholders’ willingness to provide safe food? What are the market failures along the supply chain preventing smallholders from meeting these changing food safety requirements?
  3. To what extent do profits differ per unit of output across farms due to compliance costs associated with different standards and economies of scale?
  4. Have there been successful ways to improve the compliance of smallholders with domestic and international food safety standards?

Hypotheses

The hypotheses to be tested in this research are:

  • There are significant differences in the costs of compliance with food safety standards. These vary across commodities and across regions;
  • Various institutional arrangements mitigate the costs of compliance significantly and reduce differentiation across different producers;
  • The profitability of the different size producers is affected significantly following the requirement to meet high standards;
  • There are spillover effects from international to domestic markets (of food safety standards), which help small producers;

Research approach and methods that may be used

The proposed project will be carried out in six parts:

  1. In depth analysis of the supply/value chains currently linking smallholders to different markets for selected high value products smallholders are producing;
  2. Focus group interviews to understand market failures preventing smallholders from providing safe and the timely delivery of foods to domestic and export markets;
  3. Institutional analysis to identify how various institutional arrangements have facilitated implementing risk reduction strategies as well as the reduction of transaction costs through supply chain management so that smallholders can successfully be linked to various markets;
  4. Farmer surveys to understand how various public and private standards and associated requirements are affecting profitability of different size producers;
  5. Through a series of experiments to identify what type of institutional mechanisms is necessary in a specific countries to link smallholders to the supply chains;
  6. Stakeholder workshops, policy briefs and education campaigns to translate findings to stakeholders;

Projects to date

Economic Analysis of Technical Barriers Limiting Agricultural Trade in China

Regulations to protect plant, animal and human health are key determinants of trade in primary and processed agricultural products. Despite international rules to disciple their use, some technical barriers to trade impose undue costs on developing countries, with little offsetting benefit from improved sanitary or phyto-sanitary conditions. At the same time, agricultural trade is growing fastest in high-value products for which technical standards are important, and the standards themselves are evolving rapidly under changing technology and consumer preferences. A shift is occurring from the outright product bans or inspection-based testing (with costly sampling and product rejections) to process-based approaches to risk mitigation that require enhanced firm- and farm-level and public institutional capacity. Thus, developing countries face challenges, both as exporters and importers, including the design of production systems that engage smallholder farmers in meeting standards of international markets. A well-functioning regulatory system is of importance to all countries exporting or importing agricultural products.

This project provides risk-assessment and economic analysis of selected technical barriers that limit the agricultural trade of China. The research has two components. The first is to identify technical barriers for which strategies can be developed to expand trade opportunities. The second component will provide in-depth, analysis integrating risk-assessment and economic information necessary to make effective arguments for modification or elimination of selected barriers. The research emphasis will be on assessment of systems approaches that utilize production-process requirements designed to achieve risk-reducing goals while facilitating trade. The methodology employed evaluates the net results and the marginal effects of each measure within the management system. The objective is to determine the steps necessary to achieve the needed risk mitigation at least cost. Assessment is made both of risk reduction and expected economic impacts on producers, consumers and trade. In combining the risk and economic analysis, questions that arise include what are the costs and technical effectiveness of each measure; what is the subsequent market supply; how is demand characterized; and does the market from which a product is excluded without the system approach provide the only economically feasible trade possibilities? These factors determine the effects of modifying or eliminating technical barriers to trade.

Publications

  • Orden, D., L. Gao, X. Xue, E. Peterson and S. Thornsbury. Technical Barriers Affecting Agricultural Exports from China: The Case of Fresh Apples. Research Report.
  • Cheng, F., Z. Tang. Sanitary and Phytosanitary (SPS) Barriers to China’s Agricultural Exports. Research Report

Comparative Study of Institutions for Addressing SPS Concerns in Green Bean Exports from East Africa to Europe

The world is entering a period of rapid change of how agricultural products are produced, processed, consumed, and marketed. Many developing countries have gone into the production of nontraditional agricultural products in order to diversify their agricultural exports and increase foreign currency earnings. Although all countries share similar concerns about food safety, the relative importance of different risks varies with climate, diets, income, and public infrastructure. With increasingly integrated global markets, least developed countries (LDC's) are increasingly becoming food suppliers for developed countries (DCs).

One of the main reasons that small- and medium-scale producers are often not participating in growing export markets for high-value agricultural commodities is that they cannot meet strict food safety and quality requirements associated with the delivery of their product to distant and more formal markets. These producers face four distinct problems: 1) how to produce safe food, 2) how to be recognized as producing safe food, 3) how to identify cost-effective technologies for reducing risk, and 4) how to be competitive with larger producers who have the advantage of economies of scale for compliance with food safety requirements. At the same time, lower standards are often applied for domestic markets in LDCs.

This project examined the export flows of Green Beans from Kenya, Ethiopia, and Zambia to the EU. The study focused on the five research questions - a) any food safety requirements imposed by green bean importers and the national government. b) how producers and exporters meet those requirements, c) are small-holders squeezed out by these requirements, and d) what are the spillover effects of food safety regulations for exports on the domestic market?

Publication

Comparative Study of Institutions for Addressing SPS Concerns in Cantaloupe Exports from Latin America to the United States

Many developing countries have moved into the production of non-traditional agricultural products to diversify their exports and increase foreign currency earnings. Accessing developed country markets and urban domestic markets requires meeting the food safety requirements due to several demand and supply side factors. Food retailers have developed protocols relating to pesticide residues, field and packinghouse operations, and traceability. In this changing scenario where food safety requirements are getting increasingly stringent, there are worries regarding the livelihood of the poor since companies that establish production centers in LDCs might exclude them. Poor producers face problems of how to produce safe food, be recognized as producing safe food, identify cost-effective technologies for reducing risk, and be competitive with larger producers with advantage of economies of scale in compliance with food safety requirements. In enabling the smallholders to remain competitive in such a system, new institutional arrangements are required. In particular, public-private partnerships can play a key role in creating farm to fork linkages that can satisfy the market demands for food safety while retaining smallholders in the supply chain. Furthermore, organized producer groups monitoring their own food safety requirements through collective action often become attractive to buyers who are looking for ways to ensure traceability and reduce transaction costs.

Publication

Success in High Value Horticultural Export Markets for the Small Farmers: The Case of Mahagrapes in India

The growth in fresh fruits exports offers a window of opportunity to those developing countries that have a low processing capacity but have high labor and suitable agro-climatic endowments. India is one such country dominated by smallholders (with 82% of landholdings less than 2 ha in 2001) but the policy debate on whether or not smallholders can access high value export markets encompasses the whole gamut of developing countries. India is one of the leading producers of fruits and vegetables in the world. In 2005, India contributed to about 9% of world fruit and 14% of vegetable production. At the same time India is a relatively small horticultural exporter. According to the 2005 World Bank report on Indian horticulture, India is a competitive producer of horticultural products on farm but owing to off-farm disadvantages, she fails to compete abroad. India’s share in world horticultural trade was just 2.3% in 2004, a figure disproportionate to its share in global production.

The most important reason for such imbalance is the inability of the smallholder dominated production systems to meet the food safety and quality requirements of the rich country markets. The smallholder-based agriculture in India imposes limits on the number of farmers capable to adopt more sophisticated farm practices and undertake the necessary investments to meet more stringent food quality and safety requirements.

Study examines the institutional solutions to these problems. Producer organizations like production cooperatives were proposed to resolve the issues. In particular, study looked at the case of Mahagrapes, a marketing partner to farmer cooperatives attributing its success to a combination of collective action and public private partnerships. Results indicate that Mahagrapes farmers earn significantly higher income vis-à-vis their outside marketing option and smallholders face no bias in selection.

Publication

Public-Private Partnership in Ensuring the Delivery of Safe Food

As supply chains become more complex, supply chain management plays an increasingly important role in the delivery of high-value agriculture (HVA) to distant markets. Given the perishable nature of HVA and the demand for certain quality and safety attributes, relationships, networks, skills, and coordination mechanisms need to be created to manage the flow of products between intermediaries and ensure that quality specifications are met. Public-private partnerships (PPP's) can play a key role in creating such links, particularly where market failures impede access by the poor. This work examines a number of case studies in a number countries illustrating the potential of PPP's in promoting smallholder access to HVA supply chains, highlighting the market failures faced by smallholders at different parts of the supply chain and the challenges HVA imposes on public and private institutions in meeting these new standards.

Publication