Managing food safety, plant health and animal health in informal markets

1. Managing food safety, plant health and animal health in informal markets by Cornelis van der Meer WB/BFA Workshop Hainan, China, June 26-27, 2006

2. Overview • WTO-SPS “principles” and implementation issues • Risks and costs of implementation in informal markets and informal border trade • Experiences from full implementation of EU requirements in new member countries • Implications and way forward for Southeast Asian countries

3. SPS requirements, formal and informal markets • Formal SPS principles: transparency, equivalence, non-discrimination, harmonization, etc. • Capacity building: training, inspection services, laboratories • Realities for less developed economies: • Large informal sector • Large scale informal border trade • Weak human, technical and financial resources • Governance problems

4. Important questions • Should same requirements apply for informal as for formal sector? • Because of non-discrimination between controls on imports and domestic markets? • Should informal border trade be brought under control? • Should poor consumers in developing countries have “same protection” as consumers in OECD countries?

5. Relevant issues (1) • Emerging three tier market segmentation in developing countries: • traditional local, emerging modern urban, export markets • Different risks, pathways etc. • Traditional food processing often safe • Different market requirements • Range of standards applied, certification • Different interventions needed • Different cost benefits of interventions

6. Relevant issues (2) • Informal market products may not compete with imported products • Perhaps no losses from discrimination, no ground for legal complaints • Food safety controls in informal markets may have small health benefits and can raise cost of food for the poor • Trade-off poverty reduction and food safety promotion • Controls may enhance black market and illegal activities • Smuggling, hiding incidence of diseases • Governance issues, rent-seeking

7. SPS control informal markets and small-scale farmingRisks and costs Need to identify risks arising from informal markets and small-scale farming Major requirement • Collection and analysis of data on human and agricultural health hazards With status quo • Potential losses (medical expenses, reduced productivity, lost income) With interventions • Cost of enforcement, including rent seeking • Costs of implementation for small-scale producers, traders, consumers • Potential economic losses for enterprises unable to comply • Increased risk of smuggling, illegal activities • Potential benefit from intervention – reduction of risks and losses Control of informal markets and traditional small-scale farming • can be very difficult and costly • can result in large-scale closures of small enterprises.

8. SPS control of border trade Risks and costs Need to understand epidemiology and pathways of spread of diseases Major requirement • Data on epidemiology and pathways of animal and plant pests and diseases With status quo • Potential losses from destroyed crops and livestock • Medical expenses from illnesses due to unsafe imported food • Losses from unsafe local food from use of illegal agrochemicals With control of border • Cost of facilities, equipment, human resources to enforce border control • Higher transaction costs for traders from more border requirements • Possibility of corruption with inadequate governance • Risk of smuggling and illegal activities • Potential benefit from intervention – reduction in risks and losses Control of border trade can be very expensive and yet ineffective. Regional cooperation can be much more cost-effective

9. Experience of Central Europe • EU accession – based on broad political decisions from EU and new members – implies participation in common market Candidate countries need to adopt and implement the EU Acquis Communautaire – the complete body of laws and regulations of the EU, including those on food safety and SPS

10. Tremendous challenges for EU candidate countries • National standards and regulations to be harmonized with those of EU • Food safety management and control agencies to be strengthened • Food and drink industries to bring their factories up to EU quality and hygiene requirements – big investments in facilities, equipment, technology and training • Failure of compliance? closure of factory

11. Expenditure on institution strengthening and capacity building (through PHARE program) Example: Lithuania • € 30 million EU funding (out of a total 40 million on agriculture) was used for SPS-related projects* • Veterinary and phytosanitary control, 1.7 million • Veterinary and phytosanitary border control measures, 3.5 million • Strengthening and enforcement of EU food control system, 3 million • Strengthening of control on infectious animal diseases, 6.11 million • Strengthening of food safety control, food control laboratories, 2.9 million * Equal amounts matched from national sources

12. Expenditure on food processing and marketing 2000-2006(through SAPARD program) Source: SAPARD Programme 2000-2006, Poland & Lithuania; National Agriculture and Rural Development Plan 2000-2006: Romania (Million EUR)

13. In spite of the support and efforts, many food factories have been shut down Poland • 2600 slaughter houses in 1999; 1200 now Lithuania • 60 dairy processors before 2000; 11 now Romania is still struggling • Food safety is a “serious concern” of the European Commission that could postpone Romania’s accession to the EU – planned for January 2007 • Only 9% of 1400 meat processing plants have received EU license by May 2006

14. Lessons and Implications for Southeast Asian Countries • EU show huge benefits of economic and political cooperation in common market • Differences with countries of central Europe • Political integration less intensive • Lower level of development • Bigger gap in SPS standards with EU and Japan • Less resources available • More time available

15. What strategies, what priorities? • Adopt strategies based on assessment of risks, costs, and benefits (opportunities) • Priority setting within a long-term perspective • Selective efforts, sequencing • Active surveillance needed to identify risks and to guide inspection and containment efforts • Regional cooperation • Coordinated active surveillance • Use of costly infrastructure • Periodic bilateral, sub-regional consultation

16. Regional cooperation in food safety, and animal and plant health Rationale for cooperation • Countries share same ecosystems and long porous borders (Lao PDR has 5083 km of borders with Vietnam, Thailand, Cambodia, China, Myanmar) • Trans-boundary animal and plant pests and diseases • Large volumes of informal border trade • AFTA and WTO will open new opportunities for trade • Neighbor's problems are shared problems A few examples: • Coconut leaf beetle (affected Vietnam, Thailand, Cambodia, Hainan province of China and Lao PDR) • Fruit fly affecting Vietnam, Malaysia, Thailand, Philippines • Foot and Mouth Disease (SEAFMD, EUFMD, Panaftosa) • FAO/OIE’s joint initiative of GF-TADs • Surveillance and rapid alert of risks in food and feed