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

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

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

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?

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

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

SPS control informal markets and small-scale farming Risks 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.

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

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

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

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

Expenditure on food processing and marketing (through SAPARD program) Source: SAPARD Programme , Poland & Lithuania; National Agriculture and Rural Development Plan : Romania Total expenditure Public expenditure EU contribution (75% of public expenditure) Private participation Poland Lithuania Romania (Million EUR)

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

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

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

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