Sanitary Requirements in Dairy TradeEvidence from an Exporter Survey on Divergent StandardsThom AchterboschIPC International Dairy Roundtable, Geneva, 2 March 2007

Rationale

Increasing importance of technical food regulation

Sanitary measures good for society... ...but concern over impact of divergent

requirements on trade Dairy case study

Limited scope in terms of global players Differentiated product Animal health and food safety issues Codex and OIE standards

Outline

Issues at play Objectives of the study Key results (economic impact) Approach Observations and case studies Conclusions and recommendations

Issues at play – Dairy regulation under the SPS agreement

1 dairy SPS disputes 6 specific concerns addressed in SPS

committee 1995-2006

Issues at play – Mandatory sanitary requirements encountered

Certification Health Veterinary

Specifications Testing

Issues at play – Internationally recommended standards under Codex/OIE Product standards (tolerances, etc) Process standards Emergency measures Conformity assessment standards Methods of sampling and analysis

International Dairy Federation (IDF)

How to analyse sanitary requirements in trade

Practice of dairy exporting companies is to seek compliance with whatever regulation put forward (keep trade going)

1. TRADE BARRIER

2. RESPONSE(short term)

3. SOLUTION(long term)

Type of impedimentMotivation or causeEconomic impact

ComplyNegotiate

International agreements and standards; Dispute settlement;Change national policies;Firm: restructure

Study objectives

1. Examine the trade-impeding effects of divergent sanitary requirements, from the perspective of exporters.

2. Explore how dairy exporters minimise trade losses and costs in case of SPS obstacles to trade.

3. Explore possible solutions for timely resolution of disputes over obstacles to trade.

Economic impact of sanitary requirementsTrade loss Transaction cost

“Response” “Solution”

Cost for firm

Detained shipmentMarkets restrictedVolumes, prices dropLoss of market position

Scan foreign regulationsCompliance costs: products, labels, tests, certificationNegotiation

Second-best business solutions

Cost for govern-ment, industry organization

-- Prepare compliance, certificatesNegotiationsInspections

Standard-settingDispute settlement

Key results – trade impact of sanitary requirements Exporters face divergent standards across

markets – ´a patchwork quilt´ Costs of sanitary requirements lie in additional

complexity of trading Large benefits to be obtained from reducing trading

costs

Few markets closed by means of SPS measures Limited overprotection recorded Many unintended obstacles

Approach

Selection of 9 firms from 5 dairy export countries: Denmark (1), France (3), Netherlands (3), New

Zealand (1), US (1) Total sales of € 37.1 billion

Contact via producer organizations limited non-response

Methods of data collection Questionnaires, semi-structured interviews with

export firms and key informants Limitations: small sample, market sensitivities

Observations and case studies – 1 of 3

Emergency measures often go beyond recommended length and scope OIE recommends continued dairy trade with

countries experiencing outbreaks infectuous disease

BSE, FMD in EU: €100 million of trade loss reported in the survey

Dispute settlement no option within time-frame

Possible solutions

More binding OIE standards (compulsory harmonization?)

Rapid consultation under advisory technical exports group (science based risk assesment) Including more detailed regionalization

Observations and case studies – 2 of 3

Divergent methods for analysis and sampling hamper trade, particularly when zero-tolerance limits are applied as mandatory requirements Mandatory end-product testing versus private

process standards quality assurance schemes Zero-tolerance limits for contaminants and

pathogens International Dairy Federation laboratory standards

applied ‘with a twist’ €85 mln trade losses reported in the survey

(Chloramphenicol and E.Sakazakii) Arbitrariness in country experiences in compliance

Possible solutions

Replace zero tolerances for contaminants with MRLs (harmonization)

IDF/ISO proposed standard on methods for analysis and sampling (harmonization)

Advisory technical exports group (science based risk assesment)

Equivalence agreements

Observations and case studies – 3 of 3

Veterinary requirements for dairy products (esp. heat-treated) often not justified for sanitary purpose Generic rules apply – veterinary certificates required

for highly processed product Risk of transmitting animal and zoonotic diseases is

determined by import risk and application by downstream producer in supply chain.

Survey records difficulties in certification on all key dairy products (powders, cheese)

Also ingredients (casein, milk protein conc.): milk rules apply to products that some no longer consider as milk

Possible solutions

Solutions lie in specific rules for dairy-based ingredients: differentiating rules for food safety and

agricultural health by applications of the shipped products;

quality assurance standards for performance rather than product

Conclusion

Sanitary measures affect dairy trade mainly by increasing the complexity and raising the costs of shipping products abroad.

Conclusion Export firms encounter a 'patchwork quilt' of

sanitary requirements Dairy exporting companies seek compliance with

whatever regulation Emergency measures often go beyond

recommended length and scope €100 mln trade losses

Standards involving zero-tolerance limits hamper trade

Divergent methods for analysis and sampling hinder trade €85 mln trade losses

Strong competion on emerging markets, more SPS issues

Recommendations - 1

Target SPS procedures more towards reducing the costs of sanitary requirements in trade Trade facilitation Economic impact of reducing trading costs by

1.5% comparable to benefits of a Doha round reform.

Recommendations - 2 Harmonization

Replace zero-tolerances with MRLs Apply global standards for laboratory analysis, sampling

Equivalence Performance standards in regulations

Science-based risk assessment Processed milk minor factor in transmitting risk Need for a less restrictive regulatory framework for

sanitary measures in dairy trade Dispute settlement

Solve time-constraint for checks on emergency measures

Rapid consultation, forms of mediation

Sanitary Requirements in Dairy Trade: Evidence from an Exporter Survey on Divergent Standards, by Thom Achterbosch, forthcoming on websites of IPC (www.agritrade.org) and LEI (www.lei.wur.nl)

© Wageningen UR