Impact of food quality standards on agricultural trade

 In Food & Agribusiness, Thinking Aloud

Introduction 

Countries have become increasingly aware of food safety and the effects of agricultural production on environmental sustainability. In more developed countries, consumers tend to gravitate towards green produce, opting for foods that are produced in an eco-friendly manner. In a study by Li et al., (2014)[1], it was found that countries with higher per-capita income adopt more stringent food safety standards. This is because the public’s awareness of food safety, animal welfare, and environmental sustainability tends to increase with relative rise in income level. In poorer countries like Nigeria where food security challenges persist, the task of meeting consumer demand takes precedence over environmental and health concerns.

Food quality regulations are one of the methods used by countries to ensure the safety and quality of food locally produced and imported. They are important non-tariff measures[2] (which differ from regular trade tariffs, custom duties and quotas) that can be used as policy instruments to regulate quantity or prices of international trade in food and other agricultural products. Among the many food quality standards and regulations, the Maximum Residue Limit (MRL) standard is the focus of this article.

It is estimated that as much as 40% of the world’s crops are destroyed by insect pests and diseases (Pimentel, 2000)[3]. This figure is probably higher in Nigeria due to the tropical temperature which favours rapid growth of pests and micro-organisms, thereby increasing the potential for food spoilage. Farmers therefore tend to employ a wide range of pesticides to maximize production and increase profit. The relative potency of these chemicals, compared to cultural and biological pest control methods, make them even more attractive to farmers.Due to indiscriminate use of pesticides in terms of wrong concentration and frequency of application, residues are left in/on the soil and crops. Pesticide residues are “substances or mixtures of substances in food for man or animals resulting from the use of pesticides including derivatives, such as degradation and conversion products, metabolites, reaction products and impurities considered to be of toxicological significance[4]. Contamination of agricultural produce may result from pre-harvest treatment as well as residues from preceding treatments in the soil, cross-contamination by tools during harvesting or via storage treatments (Janssen, 1997)[5].The United Nations estimates that about 200,000 people die each yearfrom acute pesticide poisoning[6]. Since it is practically impossible to entirely avoid the use of pesticides, countries have set Maximum Residue Limits (MRLs) to reduce human exposure to chemical residues and safeguard human health. MRLs represent the highest possible concentration of pesticides that a country is willing to tolerate in or on food and agricultural products,usually by the time the products are ready for sale at retail markets.

Impacts of quality standards on agricultural trade

The Codex Alimentarius Commission[7] (CAC) Committee on Pesticide Residues is responsible for establishing MRLs for pesticide residues. In setting tolerance levels, factors such as toxicity of the pesticide and its breakdown products, concentration and frequency of application, and its persistence[8] in the environment are considered. Although the CAC sets the MRLs for most agricultural products, member countries are not legally bound to adopt such standards. Therefore, MRLs vary widely across countries due to differences in residue definitions, usage patterns, scientific procedures used to determine MRL levels and formulations used in field trials that may differ from pesticide use in actual production settings(Madden, 2014)[9].As a result of variations in standards, limits set by importing countries may diverge significantly from those of exporting countries or eveninternational standards. These discrepancies result in a range of issues – increase in production costs which may bring about higher consumer prices in the importing country (in the case of stricter measures imposed by importing country), increase in food poisoning cases in importing countries with very lax standards. In extreme cases, goods may get rejected at importing country borders and trade flow between both countries may be cut off. Countries such as Nigeria that do not have internally set standards tend to adopt international standards such as those set by the European Union or CAC.

The production cost-raising effects of regulatory standards may not necessarily be continuous. According to the figure below, there is a typical initial increase in costs which could arise from learning about the regulation and then conforming to its specifications. As time goes on, and as producers become more familiar with regulations, marginal costs could arise from periodic testing as well as complexities from new innovations or discoveries.

Various studies (Otsukiet al., 2001[10]; Wilson et al., 2003[11]; Chen et al., 2008[12]) support the hypothesis that overly stringent food safety standards by importing countries tend to negatively affect bilateral trade, especially for developing nations (that are often financially and technically incapable of meeting such specifications) trying to access developed country markets. Governments with poorer regulatory quality are less likely to resort to food safety standards because implementation cost of food safety standards is much higher than that of conventional trade barriers. This is probably due to the effect ofseveral multilateral trade negotiations that are designed to reduce barriers to trade and investment among nations. It is important to note that the effect of stringent regulatory requirements on trade flow also depends on the relative costs of domestic and foreign products, and on the willingness of consumers to pay higher prices for safer products.

According to the National Bureau of Statistics (NBS), Nigeria’s major agricultural exports in the first quarter of 2017 were sesame seeds, soya bean, frozen shrimps and prawn, cashew nuts and palm kernel. Agricultural goods accounted for 4.35% (valued at N30.11billion) share of total trade[13].Although data on what percentage of export costs goes towards regulatory compliance is unavailable, it is not far-fetched to conclude that regulatory standards have a significant negative effect on Nigeria’s agricultural exports. The European Union ban on Nigerian exports and several cases of rejection of commodities at importing countries’ borders point to the fact that Nigeria has poor regulatory quality and this negligence has taken a toll on her non-oil export earnings. According to a report, continued rejection of non-oil exports from Nigeria and other African countries, owing to regulatory non-compliance, especially agro-allied commodities, amounts to a yearly loss of $23 billion in earnings[14].

Policy implications for Nigeria

Nigeria may not have to worry so much about MRLs and international safety standards since most agricultural production goes to meet domestic demand. However, evaluation of pesticide residues in food should be a priority objective of regulatory agencies to ensure food quality and to protect consumers against possible health risks. Besides, it makes economic sense to ensure food quality; if the government is really serious about increasing the share of foreign revenue via agricultural exports, the country should go beyond mere membership of CAC, adopt and strictly comply with established food safety standards. In this way, the nation would be much more strategically positioned to negotiate higher prices and expand her agricultural export market potential.For instance, the imposed ban by the European Union on imported beans from Nigeria, along with dried fish, melon seeds, palm oil, and meatproducts[15]could have been avoided if care had been taken by Nigerian regulatory authorities to ensure the quality of those commodities before export.

To tackle the problem of indiscriminate pesticide use by local farmers,agrochemical manufacturers and marketers should be mandated to exhibit instructions and warnings on pesticide labels in local languages for better understanding.Constraints to efficient delivery of agricultural extension services, in terms of technical capacity, financing, access and mobility should be tackled so that farmers can be educated on the environmental and health risks involved in the wrong use of pesticides. In this way, vital information could be disseminated more effectively to farmers and appropriate feedback relayed to research institutes and policy makers in the agricultural sector.The agri-environmental policy of the European Union could be adopted in Nigeria to encourage environment-friendly farming practices in return for some form of incentive. For example, farmers could get fertilizer subsidies in return for implementing cultural/physical pest control methods.

In addition, rather than imposing outright bans on imported food products, food standards can be potentially utilized by regulatory agencies to keep out foreign products and protect the local agriculture and food processing industry.

[1]Li, Yuan; Xiong, Bo; and Beghin, John C. (2014). “The political economy of food standard determination: international evidence from maximum residue limits”. Economics Working Papers (2002–2016). 47. http://lib.dr.iastate.edu/econ_las_workingpapers/47

[2] Non-tariff measures (NTMs) are a range of policies that countries apply to imported and exported commodities. They include subsidies, technical barriers to trade (TBTs), sanitary and phytosanitary measures (SPS). Some policy makers argue that these measures may have restrictive effects on international trade and they may be used as disguised instruments for protection of local industries.

[3] Pimentel, David (2000). Pest control in world agriculture.College of Agriculture and Life Sciences, Cornell University, Ithaca, NY, USA. Available at http://www.eolss.net/sample-chapters/c10/e5-24-10-00.pdf

[4]http://www.inchem.org/documents/jmpr/jmpmono/v075pr40.htm

[5]Janssen, M. T. (1997). Contaminants in Food, Safety and Toxicity.(1st Edition).Vries, J. (Ed.). CRC Press LLC. ISBN 0-8493-9488-0, Boca Raton, USA. pp. 61-71.

[6]http://www.newstarget.com/2017-03-22-report-pesticide-poisoning-has-resulted-in-200000-deaths.html

[7] The CAC develops harmonizedscience-based international food standards to protect consumer health. See http://www.fao.org/fao-who-codexalimentarius/en/

[8] This is the amount of time it takes for biological and non-biotic (such as chemical and photochemical reactions) processes to transform pesticide into a harmless or chemically inert form.

[9] Madden, B. (2014). MRL Meeting, Office of Pesticide Programs, Registration Division, U.S. Environmental Protection Agency.http://specialtycrops.org/pdfs/mrl_2015/wednesday/1545.pdf

[10]Otsuki, T., J.S. Wilson, and M. Sewadeh. (2001). What Price Precaution? European Harmonisation of Aflatoxin Regulations and African Groundnut Exports.European Review of Agricultural Economics, 28 (2): 263–284.

[11]Wilson, J., Otsuki, T. and Majumdsar, B. (2003). Balancing food safety and risk: do drug residue limits affect international trade in beef? The Journal of International Trade & Economic Development. Taylor and Francis Journals, 12(4): 377-402.

[12]Chen, C., Yang, J. and Findlay, C. (2008).Measuring the Effect of Food Safety Standards on China’s Agricultural Exports.Review of World Economics, 144 (1): 83–106.

[13]http://nigerianstat.gov.ng/report/565

[14]https://guardian.ng/business-services/poor-quality-hampers-nigerias-non-oil-exports-in-foreign-markets/

[15] According to the EU, the products contained high levels of unauthorized pesticides.

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