1. Sanitary Requirements in Dairy Trade Evidence from an Exporter Survey on Divergent Standards Thom Achterbosch IPC International Dairy Roundtable, Geneva, 2 March 2007

2. 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

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

4. Issues at play – Dairy regulation under the SPS agreement 1 dairy SPS disputes 6 specific concerns addressed in SPS committee 1995-2006

5. Issues at play – Mandatory sanitary requirements encountered Certification Health Veterinary Specifications Testing

6. 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)

7. 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 impediment Motivation or cause Economic impact Comply Negotiate International agreements and standards; Dispute settlement; Change national policies; Firm: restructure

8. Study objectives  Examine the trade-impeding effects of divergent sanitary requirements, from the perspective of exporters.  Explore how dairy exporters minimise trade losses and costs in case of SPS obstacles to trade.  Explore possible solutions for timely resolution of disputes over obstacles to trade.

9. Economic impact of sanitary requirements Trade lossTransaction cost “Response”“Solution” Cost for firmDetained shipment Markets restricted Volumes, prices drop Loss of market position Scan foreign regulations Compliance costs: products, labels, tests, certification Negotiation Second-best business solutions Cost for govern- ment, industry organization --Prepare compliance, certificates Negotiations Inspections Standard-setting Dispute settlement

10. 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

11. 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

12. 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

13. Possible solutions More binding OIE standards (compulsory harmonization?) Rapid consultation under advisory technical exports group (science based risk assesment) Including more detailed regionalization

14. 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

15. 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

16. 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

17. 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

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

19. 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

20. 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.

21. 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

22. 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)www.agritrade.orgwww.lei.wur.nl © Wageningen UR