ORGANISATION DE COOPÉRATION ET DE DEVELOPMENT ÉCONOMIQUES
ORGANISATION FOR ECONOMIC CO-OPERATION AND DEVELOPMENT
Private Standards schemes and
Developing Country Market Access:
Findings from 4 case studies
Linda Fulponi*
Joint UNCTAD/WTO Informal Information Session on Private Standards
June 25, 2007
Geneva
* OECD, Paris, does not necessarily reflect the opinion of OECD or its member states
Directorate for Food, Agriculture, and Fisheries
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Main themes
• Evolving Economic Environment
• Rise of private voluntary standards
• Implications for exports of developing
countries
• Small producer challenge
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Evolving economic environment-1
• Increased consumer demands: quality, safety and process attributes
• Increased competition for market shares
– Reputation firm level—key to keeping and acquiring customers
– Quality and price competition-quality and safety are necessary and low
prices to consumers
• Increased concentration in agro-food sector-retailers and processors
– Growing concentration in retail sector gives them power to negotiate conditions
of sale with producers/importers. Buying in large quantities implies they become
important to the producers sellers also.
• Global sourcing and selling
– Increased information asymmetry—
– Increased risk as buyers know less about producers and how goods are
produced and can not easily check on these because of distancew
Directorate for Food, Agriculture, and Fisheries
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Evolving economic environment-2
• Commercial requirements:
– Quality, volumes, reliability as well as supply logistics conformity
– Retailers in North countries must be assured of delivery of quality products
on a regular basis in order to maintain availabilities to customers
– These commercial requirementsare as important as quality
• New requirements on product and process attributes due to :
– Regulatory measures: increasing stringency in national food safety laws
and testing requirements for market entry--lower MRLs and new ones
added to the list
– Legal Liability framework-in EU firms are responsible for what they sell
and the larger the firm the more they are expected to control for any
possible risk. This is their incentive to have a paper trail on their purchases
which can demonstrate that they have undertaken necessary precautions to
ensure safe food
– Reputation risks ; Any food safety scare occurring at a major retailer will
be picked up by the mass media and this can have damaging effects on
reputation, thus the objective is to limit any risk to reputation
Directorate for Food, Agriculture, and Fisheries
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Private Voluntary Standards: governing
global supply chains
• Provides for increased control/monitoring of food safety, quality and process
attributes
• Reduces information asymmetry and transactions costs– Certification of production procedures informs the buyer of processes and
technologies utilised
– Certification of production procedures reduces costs of buyers inspecting and
monitoring production and harvest.
– Shifts quality and coordination costs up the chain- as certification on production
procedures and food safety testing begins at the farm level it is the farmers and
exporters who have to supply the certificates and thus they bear the costs. In
developing countries this may mean flying in auditors or sending samples to 3rd
countries for testing which can increase certification costs substantially.
• OECD Final report on private voluntary standards and the shaping of the agrofood system
– http://www.olis.oecd.org/olis/2006doc.nsf/linkto/agr-ca-apm(2006)9-final
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Challenges of evolving global supply chains
• Increasing breadth and depth of private standards
– Increasing breadth and depth of standards
• Private standards are covering a wider set of attributes in addition to
food safety and quality
• Private standards require more precise documentation on specific food
safety requirements
• Tracking and tracing of food products is increasing in importance and
along with these increased information technology requirements
• Increasing importance of commercial requirements
• Rising minimum standards: quality, regulatory and private sector
– Racheting up of the window of opportunity makes market entry and success more
difficult
– This means it is more difficult for new firms/country to reach North markets because
the upgrading distance --to reach the minimum private standard and public standard- keeps moving up. Advanced developing countries who already meet the standard
need only make marginal changes but the least developed may have too far to go to
meet it.
Directorate for Food, Agriculture, and Fisheries
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OECD study: Impacts of PVS on
developing country access to Global Supply
Chains
Case study approach : Peru, Ghana, South
Africa and Chile
• Common questionnaires to exporters and
producers
• Fruit and vegetable sectors exporting with
private standards:
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Product coverage for case studies
Chile
South Africa
Peru
Table grapes
Table Grapes
Asparagus Pineapple
Apples
Apples &
Pears
Citrus
Mango
Cherries
Ghana
Mango
Papaya
Avocadoes
Directorate for Food, Agriculture, and Fisheries
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Main PVS schemes applied
Farm level PVS
Chile
South
Africa
Peru
Mango
Peru
Asparagus
Ghana
EurepGap
100%
100%
100%
100%-EU
Eurep
Gap
Promango
SQF1000
Prosafe
some 8%
some↑
Gap-USA
ChileGap
100%-US
75%
Other schemes:
-Nature’s choice
Directorate for Food, Agriculture, and Fisheries
Some ↑
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Main findings
• Domestic infrastructure and services key to enabling integration to global
supply chains
– Lack of adequate telecommunications, roads, port and airport facilities as well as
services such as laboratories, presence of certification agencies and auditors have
a negative impact on export opportunities.
• Associative initiatives essential to success: where producer and exporter
associations are strong and include a wide number of participants they can
benefit from sharing information, knowledge and costs of market search,
varietal development and marketing
• Private-Public sector cooperation improves export market outcomes
– The public sector initial seed money and assistance in organization and set-up of
the associations is important
– Cooperation between the two in development of new varieties and technical
assistance as well as in marketing is fundamental;
• Small firms face internal firm constraints-lack of technical and managerial
skills as well as financial and human capital.
– They also face the same set of external constraints where infrastructure and
services are lacking
Directorate for Food, Agriculture, and Fisheries
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0
Main findings-Private standards and
costs of compliance
Increased costs of production but
– Increased efficiencies in input use and better management
– Most respondents pleased with physical outcomes-increased farmer and
worker safety, efficient production, improved quality
• Increased transactions costs for exporters and decreased for
buyers
– Small scale growers increase costs of technical and managerial assistance
for exporters.
– No added remuneration for following a private standard
• Duplication in attributes due to multiple standards requirements
– Need to have mutual recognition among attributes certified in a standard
– This reduces multiple certifications
Directorate for Food, Agriculture, and Fisheries
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Costs of Compliance: upgrading and
recurrent costs
• Investment costs : function of the firm/farms initial set-up
– How far from the requirement? The further the farm is from
meeting the require the more costly to upgrade, this is most
important for small scale growers from least developed
economies
• Recurrent costs: audits, certification and maintenance
– Lack of certification bodies in the country and lack of testing facilities can
substantially increase cost of compliance
– These costs can determine whether the farm is a economically viable
– Aid can help, but may not be long term
• OECD findings: costs vary substantially across countries and
firms/farms
– Good estimates were lacking
– Definitions vary across studies/countries
Directorate for Food, Agriculture, and Fisheries
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Examples of costs of compliance:
preliminary
Chile
Recurrent <1%
costs:%
of sales
Investment 22000$ to
to Upgrade 250000$
farm size
Directorate for Food, Agriculture, and Fisheries
South
Africa
~4%
NA
Peru
Ghana
4-15% of < 3%
Farm
gate price
400-500$/8ha.
NA
Holding to
10000 $ / 720
ha farm
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What was learned from high performers:
Chile and South Africa
• Good infrastructure and availability of services necessary
from technical and economic perspective
• Accumulated social, physical and financial capital—
– South Africa has been exporting to Europe for 100+years
– Chile has 20 years+ of experience
• Significant role of associations-producer/exporter
• Cooperation between state and private sector
– Marketing : ChileGap, Capescan, Fedefrutta,
– Information : offices in import markets
• Chile and South Africa have government information offices in capitals
such as Brussels or the USA
– Research and Development :University and specialized centres
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Peru- asparagus success story
• Number one fresh asparagus exporter
• Business opportunity in a portfolio management optic
– Investor based activity a way to diversify investment and thus substantial
sums of money used to create the industry
– No small farmers minimum income 80000$
• Associative efforts to overcome infrastructure failings : government
initial seed money and leader
– Aereo Frio, IPEH
– Aereo Frio is Latin America’s largest airport cold storage facility
– Peruvian Asparagus technical standard developed by the producer
associations with initial help from government and built upon Codex
requirements
• Record keeping at plot level an added value—difficult and costly but
necessary to market objective
– The objective is to supply markets with what the market says it wants or
needs
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Chile and small holder experiences
• What is small and viable? Which products?
– More than 8 hectares for temperate fruits
– 3-4 hectares for : other fruits berries, avocadoes,
nuts, honey
• INDAP story: with 3000 producers, 500 certified
– Assistance for these to integrate to Global value
chains but not very successful
– Without continual supervision and assistance:
• Record keeping and chemical application
– Reversion to old habits + low education
– Uncertain outcome once programme terminates
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South Africa and new comer--small
holder experience
• Farms not viable with less than 8 hectares
• New comers face similar difficulties due to lack
of resources---Black new farmers
– Lack management and agronomic skills,
• Unable to meet record keeping constraints
– Rely on government and donor assistance
– Lack long term capital sources
– Cannot compete with those already in the system
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Peru-Mango from local to global
markets
•
Small producer, traditional local product
– Local market is the main outlet for proudction
•
Exporters organized small producers because of needed volumes s
– Low literacy/education- recording keeping difficult
– Lack ‘market orientation’
– Lack associative incentives: low participation in producer associations
– Float in and out of export market:
• Producers often decide to break their contract if prices are higher on local markets which
is large
• Certification problematic because the set of independent producers not stable
•
– Shipments often contain both certified and non-certified mangoes so farmers do not
perceive the certification/standards process and outcome to be stringent or a
necessity
– Do not see benefits in price but only in costs-since prices do not increase
What long run solution?
– Joint certificates? New forms of cooperatives– new generation cooperatives
– Focus on local markets
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Ghana: can producers meet the
challenge?
• Lack of basic infrastructure and institutional support
– Poor roads, lack of cold storage at airport, poor telecommunications,
unstable energy supplies, no MRL testing facilities, few laboratories,
no certification bodies
• Little or no R&D for commerical varietal development
• Limited associative support
– Low participation in associations
– Little promotion of associations by public authorities
• Sector incapacity to organize and enter into market visionlinked to lack of associative efforts
• Low literacy, low skills, low market orientation,
• Unwilling investment by producers:
– variable quality means low price and payment system
slow
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Small producers and global supply
chains
• Exporters key link in:
– Organizing and managing production, testing and
certification procedures
• High exporter transactions costs for small producer
management: effort, time and money.
• Constraints of small producers: internal
– Low literacy and numeracy, low agronomic knowledge,
poor hygiene cultural habits, little or no capital, lack
market mindset
Directorate for Food, Agriculture, and Fisheries
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Impacts of Rising Private Standards
on Agro-food system
• Likely to restrict the set of potential suppliers to
by increasing entry costs of standards
compliance
• Market access available to those producers who
can meet standards and supply logistics.
• Increased divergence across countries/
producers or both?
Directorate for Food, Agriculture, and Fisheries
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What strategy?
(from the Chilean experience)
• Upgrade infrastructure and services to meet market
demands
• Foster greater associative initiatives Increased south
– south trade and lower south- south barriers
• Select product strategy: identify market and
products
• Select a market strategy
• Select potentially successful market participants
Directorate for Food, Agriculture, and Fisheries
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