Conclusions and Recommendations

Synthesis

Standards are increasingly critical for global trade competitiveness and becoming more decisive at the domestic level in less developed countries. Trends indicate that even for domestic markets, standards will increasingly represent the rules of the game. This is especially true for higher-value and perishable products including fruit, vegetables, seafood, dairy, and meat products. Standards, like the markets they serve, are dynamic and rapidly evolving. They pose very substantial challenges, especially for smaller producers. Yet, within the challenge of standards there are a host of opportunities.

As Hoffman notes,²⁰ governments should look beyond the immediate costs to the prospects and the catalytic role that standards offer both for national competitiveness and environmental sustainability. For developing countries, these standards provide competitive options with higher-value products, especially sustainability standards such as organics whose process management and traceability can aid market entry and whose application methods are well suited to small-farm conditions.

The public sectors in most developing countries often lack know-how in this area, and their capacity to provide extension services and marketing support has further diminished in recent decades. A measure of public support, often with private partnerships, i.e., contract farming, semi-private extension, etc., is vital to ensure efficient and affordable participation for small and medium farmers or rural enterprises. Given the unique nature of standards, an innovative response will be necessary in order for government to be effective. Two issues are predominant:

1. Information and capacity building to help producers, firms, and traders compete;
2. Institutional structures to enable the majority of farmers and SMEs to invest and participate.

Policy Focus

Van Gelder et al. (2006) note that “Policies on food safety often lead to standards that cannot be met by southern countries” and that a program to build capacity is necessary to meet standards. The World Bank, formulating its rural strategy in 2003, acknowledged how market trends require a new focus on knowledge, value chains, and sustainability that align with the inevitable standards needed for higher-value crops, sustainable production systems, and chains. This change in emphasis reflects a similar policy focus in many of its progressive client countries.

Policies

Policies play a big role, and particularly those that influence distributional outcomes will contribute to competitiveness in the long run as small and medium rural entrepreneurs develop and advance the sector. For example, for small and medium producers to participate in the livestock sector requires coordinated taxation policy between producers and their contractors. In this sector, inputs (primarily feed) can represent three-fourths of the cost of production (FAO), and many nations tax market transactions between the contractors (feed and input suppliers) and producers who raise the animals. In contrast, most nations do not tax the grain transfers within integrated operations. Taxing transactions with small producers not only is a relatively modest source of government revenue but also creates a disincentive for working with such out-growers, giving larger, vertically coordinated firms a distinct advantage.

It can be difficult to determine which standards to select for development training. Some standards are highly specific to a subsector or desired in a particular market. However, numerous basic standards are relevant across both sectors and markets and are therefore the most useful starting points. For example, integrating GAP practices into basic production methods can provide a measure of basic production sustainability and also the baseline requirement for many other field standards. Subsequent interventions would likely progress toward more sophisticated standards such as organics that can have broader local environmental impacts and international market relevance

Public and Private Roles

Public and private roles around the issue of standards are intimately intertwined and complementary. At some levels the public sector is intrinsically too slow to be an effective arbiter or facilitator of the many increasingly important private standards. The private sector too has its limitations, primarily the failure to adequately address the public concerns for food safety and value chain equity. Still, some useful distinctions exist between private and public sector responses to changes in technical standards.

On the whole, the public sector in many developing countries appears unprepared to handle the new norms, since public formulation and enforcement of standards have been relatively weak or even absent. This is important since even the slow-to-change public standards, such as Minimum Residue Levels, are progressively more demanding. A clear concern exists about the possible use of public standards as a non-tariff trade barrier. Even if they can be met, the high compliance costs imply the possible erosion of the comparative production advantages in developing countries.

Private standards are often developed at the firm level.²¹ The expansion and proliferation of these standards can generate particularly onerous transaction costs for producers and SMEs. Small farms typically face higher compliance costs than larger ones as they are more likely to lack internal control systems, technical capacity, and investment capital. Therefore, if they do not either participate in proactive value chains or have a measure of institutional support, they may essentially end up producing less-tradeable goods.

Accordingly, dealing with standards requires new, more agile institutional frameworks than traditional methods. As such, innovative institutional structures can equitably link international capacity to local needs. A better collaboration with value chains via practical structures such as contract farming will help ensure competitiveness and inclusion of SMEs and smaller farmers. Consequently, it is imperative for government to take the lead in creating an enabling environment to meet three objectives:

1. Knowledge management infrastructure to both distill information and provide access to it;
2. Business development strategies that integrate with the private sector to ensure standards relevance;
3. Institutional structures oriented to producers but also encompassing the entire chain to guarantee both equity and long-term competitiveness.

The recent ubiquitousness of standards and new value-chain models present a unique opportunity to learn and develop appropriate interventions that spur the competitiveness of inputs, production, processing, and marketing.

1. Knowledge management

Knowledge management systems are vital to aid awareness and understanding of the drivers, threats, and opportunities implicit in the relevant and forthcoming standards. This includes dedicated, locally accessible knowledge platforms so that producers, SMEs, and value chains can better understand emerging market trends in different areas, differences between standards, and implications of adopting particular ones. For example, the work of the Sustainable Commodity Initiative's Committee on Sustainability Assessments (COSA) provides institutions with a detailed grasp of producers’ full costs and benefits involved in adopting diverse sustainability standards and initiatives.

Although standards are dynamic and changing, their basic premises are consistent and can be conveyed in a variety of teaching forms, which range from farmer field schools to influencing the curricula of Technical and Vocational Training schools in order to enhance the skills of farmers and extension agents.

Although education can provide the basis of learning, producers and traders also need knowledge management systems that can provide progressive and more dynamic market intelligence. Market intelligence requires services that can assess the nature of demand, standards requirements, trends, and projections in the relevant markets. Rather than setting up new market information systems, it would be more productive to link with existing private sources of information that are increasingly available and also with ongoing public initiatives such as those developed by the International Food Policy Research Institute (IFPRI) and by the International Center for Tropical Agriculture (CIAT by its Spanish acronym).

2. Business strategies

It can be particularly productive for government to partner with the private sector in order to develop strategic medium- and long-term public responses that effectively support competitive value chains. The trade participation of most producers and SMEs will occur through value chains. These are characterized by systemic rather than individual efficiencies, and value chains both generate and distribute rents, though not necessarily equally. Without accessible knowledge systems and supporting institutions, smaller and weaker chain members are more likely to be eliminated than strengthened.

Public-private partnership can help smallholder producers to more effectively participate in value chains; yet, an important lesson on the public side is for government to adequately address the potential exclusionary impacts of standards development.

3. Institutional structures

While national-level reach is important, locally relevant institutional structures are vital in order to both create immediate local capacity and establish the institutional trajectories necessary to foster long-term agricultural competitiveness as well as include a broader portion of rural producers and SMEs.

These institutional structures and supporting policies include NGOs, educational centers, producer organizations, trade associations, and local government agencies such as extension services. They also are market information systems, certification systems, regulatory mechanisms to make clear the rules of the game, and enforcement mechanisms—both public and private—to monitor and ensure compliance. These hardware and software aspects work best when there is transparency and interrelatedness in the systems. Such institutions provide consistency at the local level as well as market-oriented linkages to international technology and information. Without these frameworks, smaller producers and SMEs will find it difficult to adapt and to improve their capacity and to equitably participate in value chains and markets.

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Comment(s)

There are [2] comment(s) for this entry. Post a comment.

1. Prof. J. George
   (posted 06 July 2008 / 07:56:18 PM)
   
   The authors, Giovannucci and Pursell needs to be complimented on this publication for putting together a business perspective to the application of standards in the food trade.
   
   The perspective of the book however could have been broadened if the production landscape in the region was brought to play a dominant role. The price discovery advantages are certainly not available to the producers. The cost burden, however, is surely an additionality for the producer in more than one ways. For instance, the AGORA experience in Bangladesh is being experienced in all the member countries in the region. This burden is magnified when the state governments either in collusion or in default setting withdraws due to the fiscal conditionalities.
   
   The publication could have immensely benefitted from a professional copyediting and/or critical peer review. But it is a useful addition to the discipline of food safety regulation.
2. Dr T. Tappani
   (posted 03 June 2008 / 05:47:56 AM)
   
   This ADBI paper: "Standards and Agricultural Trade in Asia" is quite a practical and useful look at the topic of trade and development. The authors, Giovannucci and Pursell, clearly have a sharp eye for the needs of business and the realities of farmers (mostly small in the region) and combine these to offer some practical solutions that the Asian Development Bank and governments would be wise to consider in their work.