Steven Jaffee, World Bank Mohammad Jabbar , International Livestock Research Institute

1. FOOD SAFETY AND AGRICULTURAL HEALTH STANDARDS: CHALLENGES AND OPPORTUNITIES FOR DEVELOPING COUNTRY EXPORTS Steven Jaffee, World Bank Mohammad Jabbar, International Livestock Research Institute …………………….. Ethiopian Veterinary Association Conference, Addis Ababa, Ethiopia, June 8-9, 2005

2. Outline • Context of changing SPS standards • Study motivation + approach • Strategic options for developing countries • Compliance costs, benefits + distribution –case studies • Implications for capacity building and donor community

3. CONTEXT OF CHANGING STANDARDS

4. CHANGING COMPOSITION OF DEVELOPING COUNTRY AGRO-FOOD TRADE

5. DEVELOPING COUNTRY EXPORTS OF HIGH-VALUE FOODS (US $ Billion)

6. THEN, WHY THIS RESEARCH? • Trade Policy Concerns • Protective trade barrier – tax on value added plus increase SPS • Developing countries lack ‘voice’ • Technical/Administrative burden • High costs of compliance • Development Fears • Undermine comparative advantage of developing countries • Reverse trade progress • Marginalize small players Solution—Negotiating power? Raise capacity for compliance? ???

7. MAJOR DRIVERS OF AGRO-FOOD STANDARDS • Consumer demographics + preferences • ‘safe’, ‘healthy’, ‘sustainable’, ‘convenient’, variety • Scandals/crises—BSE, Dioxin, E.Coli, Avian Flu….. • Increased scientific knowledge • Food supply chain consolidation – emerging super markets (both a driver and an outcome) • Bio-terrorism concerns • Political and commercial risk aversion

8. OFFICIAL AND PRIVATE RESPONSES • Official • Stricter regulations + additional foci • ‘Farm to fork’ perspective + traceability • Intensification of enforcement efforts • Private Sector • Company/Industry ‘codes of practice’/audits • Bundling of standards • Supply chain control—’preferred suppliers’

9. RESEARCH MOTIVATION: Main Questions • What are the specific challenges posed by emerging official and private standards? • What strategies are being used to meet or influence requirements? • What is the magnitude of compliance costs and benefits? • What is the trade-off between actual safety and costs? • Who are the ‘winners’ and ‘losers’ of emerging standards? • Can a lesser set of standards provide safer food in developing countries to a much broader set of people? • What are the implications of these trends for rich countries, the development community, and developing countries?

10. APPROACH : World Bank study • Supply chain case studies Fish & fishery productsKenya, Senegal, India, Thailand, Nicaragua, Jamaica Fruit & VegetablesKenya, Morocco, Thailand, Jamaica Animal ProductsEthiopia, Latin America Southern Cone Nuts & Spices Senegal (Groundnuts) , India (spices) • Buyer Surveys: US, EU, Japan • Desk review of capacity-building programs

11. APPROAH : FAO/ILRI scoping study on livestock/livestock products • Literature reviews, analyses and modelling • Case studies • Vietnam.Thailand, Philippines – pork and poultry products • Ethiopia - meat and live animals • Kenya - pork and poultry products • South Africa, Namibia – beef, lamb, goat meat • Costa Rica, Guatemala, Honduras, Nicaragua – beef and dairy products Source: Perry et al. 2005

12. KEY MESSAGES • Rising standards: a ‘double-edged sword’ • Opportunities for some; risks for others • Benefits of compliance often exceed costs • Room for maneuver • Strategic choice of markets, approaches, details • Vary between commodities • More/better capacity-building assistance • Wider context of competitiveness

13. FINDINGS: MARKET ACCESS • Barriers to trade? • Animal/plant health: possible absolute barrier • Food safety: private standards more important for quality assurance • Conflicts (and ‘protection’) not primarily South-North • Trade Creating? • Standards as catalysts • Supplier and product differentiation • ‘Glass is Half-full’: • Rising high value food trade ( slide 5) • Many countries successfully managing standards, but how?

14. STRATEGIC RESPONSE BY DEVELOPING COUNTRIES

15. STRATEGIC OPTIONS • Compliance: • Changes which serve to meet international or trade partner product/process standards • Viable where private sector role important • Voice: • WTO complaints/cross-notifications • CODEX participation • Bilateral negotiations and negotiations with buyers • Viable where size of industry or market share large • Re-direction: • Shift export markets • Shift to domestic market • Change product mix

16. TIMING AND NATURE OF RESPONSE Timing: • Proactive: • Anticipate future requirements and act ahead of time in a manner that minimises costs or maximises benefits • Reactive: • Wait until requirement is put in place and then take actions Nature: • Defensive: • Take measures to minimise the changes required • Offensive: • Exploit the measures as an opportunity to gain competitive advantage

17. ILLUSTRATIVE ELEMENTS OF COMPLIANCE STRATEGIES • Legal/regulatory change • Restructure/increase control over primary production • Intensify disease/pest surveillance • Undertake technical/scientific research • Increase product testing • Upgrade packing/processing facilities • Develop/apply risk management systems (I.e, HACCP) • Strengthen accreditation/certification arrangements

18. FINDINGS: OBSERVATIONS ON STRATEGIES • Common approach: • Reactive • ‘Fire-fighting’: trade interruption or perceived threat • Lack of ‘strategy’ except at very micro level • Most ‘voice’ is bilateral rather than multilateral • Proactive exceptions where: • Strong private sector leadership • Very strong public-private collaboration • Main stakeholders understand the consequences

19. COMPLIANCE COSTS, BENEFITS AND DISTRIBUTIONAL IMPACTS Some highlights

20. ILLUSTRATIVE COSTS OF COMPLIANCE • Production/ Raw Material Sourcing • Hygiene, agro-chemical use, record-keeping, certification • Processing/exporting • Proper buildings, equipment, QA systems, staff training • Public sector and the industry • ‘Competent authority’, inspection + certification capacity, testing • Importers / retailers or whole supply chain • Quality system, rejections, quarantine, re-grading / repacking

21. HOW MUCH DOES IT COST? • Varies significantly: • Starting point/baseline conditions • Timing of response • Strategic choices • Industry structure + collective action • Firm size • Prevailing service capacities • Investment costs: 0.5 to 5% of multi-year value of trade • Recurring costs: 1-3% of annual sales • Much higher in cases of crisis—pest/disease outbreak; trade ban • Direct costs much higher than losses from non-compliance!!!!!

22. ILLUSTRATIVE BENEFITS OF COMPLIANCE • Continued market access: wider commercial options • Access to better market segments: higher prices, brand equity • Image as trusted supplier: less competition, less inspection • Prevent ban: no forgone business, no price cuts • Productivity gains: rationalization of processes; reduced wastage • Health + environment: worker safety, cleaner water, domestic food safety spillover • Rising standards as catalyst : modernization of export chain, Incentives for safer practices, Potential new sources of competitive advantage, Induce increased collective action

23. CASE STUDY : KENYAN EXPORTS OF FRESH VEGETABLES, 1991-2003

24. Kenyan vegetables : reinventing competitive advantage • Early 1990s • Traditional trader based industry serving mainly mainstream wholesalers, ethnic market, few supermarket • Some awareness yet little pesticide oversight, quality assurance and food safety management systems • Late 1990s, early 2000s • Standards and commercial competition • Ride the tail of UK supermarkets • New product, new supply arrangements, rigorous QA, FS and plant health management systems

25. Case studies: livestock exports • Successful cases: Thailand, Kenya, Namibia, S. Africa • Common traits • Most concerned livestock products rather than live animals • Product quality assured from systems not always disease free • Most driven by private sector • Many developed brand identities, synonymous with quality, safety and dependability • Many are vertically integrated systems involving small/medium outgrower producers or closed systems Source: Perry et al.2005

26. Case study: compliance costs and benefits - impact of Rift Valley Fever in Ethiopia • Dramatic consequences for the region resulted after two bans on exports (1998 and 2000) due to an outbreak of RVF • A Social Accounting Matrix based CGE model for the Somali region to assess impact of ban • Case studies of various stakeholders (pastoralist, traders, brokers, butchers, consumer goods traders, consumers) Source: Nin Pratt et al . 2005.

27. Impact of the ban: change in GDP Source: Nin Pratt et al. 2005

28. Costs of compliance: A health certification program for non-vaccinated animals • Animals kept 30 days in collection ground • Animals Fed and watered • 1stsampling and testing of 1 to 5 percent of animals • Quarantine for 30 days • Animals Fed and watered • 2nd sampling and testing Source: Nin Pratt et al. 2005

29. Net Present Value resulting from the animal health certification program • If Costs > Benefits with probability 0.5. Expected loss: $45 million • If benefits>cost with probability 0.5, expected gains $97 million

30. Annual cost of the plan under different policies

31. Probability of gains (B>Cs) under different policies to fund health certification plan Source: Nin Pratt et al 2005

32. Issues/concerns arising from the livestock SPS study • How can developing country stakeholders be included more effectively in setting and adjudicating trade rules and standards? • Is the commodity-based livestock trade safe and pro-poor? Can safe commodity be derived sustainably from areas or production systems outside disease free or risk free zones? • How can poor livestock keepers participate in commodity value chains? Implications of outgrower or contract farming schemes? • How can developing countries become better equipped to deal with the challenges and complexities of the global trade in livestock products? Source: Perry et al. 2005

33. IMPLICATIONS FOR CAPACITY BUILDING EFFORTS

34. NATIONAL COMMERCIAL + DEVELOPMENTAL OBJECTIVES IN THE FACE OF EVOLVING STANDARDS • Maintain/obtain market (segment) access • Maximize benefit/cost ratio • Position industries for long-term competitiveness • Mitigate adverse effects on vulnerable groups • Improve domestic food safety and agricultural productivity

35. RANGE OF SPS MGMT. FUNCTIONS • Apply GAP, GMP and HACCP (farms + firms) • Develop legislation and standards • Register/control feed, agro-chemicals, vet drugs • Conduct basic research, diagnosis and analysis • Accredit labs/vets/other 3rd party entities • Develop/apply quarantine procedures • Conduct epidemiological surveillance • Inspect/license food establishments • Develop/maintain pest or disease-free areas • Test products for residues and contaminants • Establish/maintain products traceability • Report possible hazards to trading partners • Notify WTO/trading partners on new SPS measures • Participate in international standard-setting • Negotiating agreements

36. CURRENT DONOR SUPPORT FOR CAPACITY BUILDING Amount • Support SPS only US$ 75 million per year, US$70 million by World bank • Exports HVP US$ 75 billon per year including US$33 billion of livestock products • Farm support in rich countries - Ag products >US$ 300 billion a year Impact and sustainability : Mixed results Why? • Reactive, ‘fire-fighting’ • Technical, top-down bias • Little analysis of costs and benefits • Lack of good practice elaboration/consensus • New and complex area

37. IMPLICATIONS FOR DONOR COMMUNITY • Meet increasing demand from developing countries • Improve the quality and sustainability of current support • Foster strategic, pro-active approaches • Help with articulation of need for capacity building • Tie in with trade and broader rural/PSD development initiatives • More coordination needed among donors • World Bank has started following some of these

38. CONCLUDING MESSAGES Developing countries • Adopt forward-looking, strategic approach • Offensive and preventative measures, rather than crisis response • Awareness + facilitation more effective than controls • Collective action for prioritization + implementation • Voice is important, yet only if twinned with capacity Industrial countries • Include in regulatory assessment impacts on developing country access and costs—mitigate adverse effects • Increase direct support to level the playing field and enable compliance • Harmonize standards where feasible (both official and private)

39. And…for Ethiopia • Meet international obligations (WTO; neighbors) • Form collective strategic vision of agro-food trade • Distinguish evolving requirements in different markets • Where are high risk/high gain or low risk/high gain situations? • Safety vs. quality; regulation vs. facilitation opportunities • Prioritize use of limited public resources/capacities • Act throughout and at key points in supply chains • Separate short + medium-term: think comprehensively yet act incrementally, learning and adjusting over time • Standards only part of broader competitiveness challenge