---

By Raveen Ekanayake


Increased international trade in food has resulted in consumers benefitting from access to food at lower prices, year-round supplies, and a greater quality and variety of food. On the contrary however, the globalization of the food supply chain has posed new challenges by way of food safety and quality issues, revive previously controlled risks, and spread contaminated food wider. Food safety/quality and trade-related concerns are becoming more pronounced than before.

The ongoing horse meat scandal in Europe is a salient example of this. As governments across the globe seek to regulate food markets in the interest of public health and safety, notifications from WTO members show an increasing use of non-tariff measures since the mid-1990s; notably technical barriers to trade (TBT) and sanitary and phytosanitary (SPS) measures. Whilst trade effects of SPS/TBT measures have been widely documented, analyzed, and debated – especially in relation to their developing country market access implications – their implications on consumer welfare have been given little prominence.



Food Safety and Food Quality Risk: An Overview
In Sri Lanka, there has been growing fear/incidence of food safety and quality risks in recent years. In 2008, fears were raised that melamine contaminated imported baby food, milk, and fish feed from China had made its way to the market. In June 2011, concerns were raised surrounding E-coli contaminated canned fruits and vegetables imported from Europe. Fears were also raised with regards to the importation of bird flu-infected poultry.

More recently, a shipment of stainless steel- and aluminum-based cookware with exposure to cobalt 60 (a radioactive material) was detected at the port by the Atomic Energy Authority in September 2012. Adulterated brown sugar mixed with sand imported from Brazil was confiscated by the Consumer Affairs Authority in January earlier this year. Whilst the documented incidence of substandard food entering the market is sparse, anecdotal evidence suggests otherwise; given the lack of regulation substandard food creep into the market undetected. With the growing incidence of food safety and quality risks it is critical that the government steps up its efforts at and beyond the border to better regulate the quality of imported food in the interest of public safety.

Non-tariff measures (NTMs), such as SPS/TBT measures, are often the first-best instruments to achieve public policy objectives, to address information asymmetries, and imperfect competition as well as protect public health. Given their importance of ensuring consumer safety, 94% of SPS and 23% of TBT measures notified to the WTO relate to trade in agricultural products.


SPS and TBT measures: Implications for consumer welfare
In the presence of information asymmetry one set of agents to an economic transaction possess an informational advantage over others. Under such circumstances producers can/ have the incentive to produce and supply substandard products compromising the health and safety of unwitting consumers, leading to a number of socially undesirable outcomes.

The sale and subsequent consumption of substandard food has the potential to cause bodily harm or at worst, fatalities. SPS and TBT measures such as the establishment of Maximum Residue Levels (MRLs), quarantine, the application of processing standards such as Hazard Analysis and Critical Control Points (HACCP) and Good Manufacturing Practice (GMP) certification are designed to address such types of market failure by weeding out those products be it domestic or foreign that have the potential to adversely impact health and safety of consumers.

In Sri Lanka, the task of ensuring food safety is conducted in a rather adhoc and piecemeal manner, tasks are dispersed to a number of government agencies and departments. Food safety is however a more cross-cutting issue and effectively tackling the issue requires collaborative effort by all agencies concerned

Information asymmetries are also present in international trade. Countries differ with respect to the safety and quality of goods produced. Preferences of consumers in countries also differ, with some willing to pay more for quality than others. At the same time consumers are unable to differentiate between qualities. Under such circumstances high-quality products may lose out if trade takes place with a country producing low-quality products, forcing high-quality producing countries to bring down quality standards to compete. This adversely impacts the welfare of all consumers in the importing country, as a consequence lowering the overall quality of the imports. Measures such as labeling allow consumers to distinguish between quality and pay according to their preferences. Consumers who are quality conscious are armed with the additional information to differentiate and pay accordingly, which improves the welfare all consumers.

Whilst SPS and TBT measures are deployed by governments in the interest of consumer welfare, if administered incorrectly and/or inefficiently, they have the potential of actually reducing consumer welfare. Adhering to SPS and TBT requirements involve two type of compliance costs. Exporting firms must revamp their production processes and production technologies to meet standards of the importing country and as such firms will incur additional fixed costs to access foreign markets. Compliance also results in increased variable costs as consequences of following testing and certification procures established by the importing country. Increases in both fixed and variable costs have two effects, firstly exporting firms will cut back on export volumes and secondly the least efficient exporters will completely exit the market as a result of not being able to cover their fixed cost. Under circumstance where such measures are imposed in the absence of a genuine market failure (e.g., political economy considerations or otherwise) consumers in the importing country may lose out as a consequence of a reduction in the variety of goods available and also a rise in prices as a consequence of the reduced supply. It is also important to note that inefficiencies relating to compliance procedure in importing countries such as high testing and certification charges, delays in testing and certification have similar consequences as a result of increased variable costs owing to inefficiencies. It is therefore critical that measures enacted to minimize food safety risks are administered incorrectly/inefficient may lead to reductions in consumer welfare, thus when designing and implementing such measures due prudence should be given to ensure undesired consequences of the use of such measures are kept to a minimal



Food Safety for Consumers: Sri Lankan Context
 Maximum Residue Levels (MRLs) refer to the upper legal levels of a concentration for pesticide residues in or on food or feed-based on good agricultural practices and to ensure the lowest possible consumer exposure. MRLS have been widely adopted by countries around the world; developed countries, compared to developing ones have adopted much higher standards. In the case of Sri Lanka the use of pesticides are governed by the Control of Pesticides Act of 1980. The Act does indicate that food crops should not contain pesticide residues in excess of levels as “may be prescribed.” However, Sri Lanka has yet prescribed a national list of MRLs. Under such circumstances imports are merely subject to the exporting country MRLs or shippers have the discretion to employ the codex standard[v].

 In the absence of MRLs, exporters to do not have any incentive to comply with higher standards and as such there exists a heightened risk that substandard produce with unsafe level of pesticide/chemical residue are consumed by Sri Lankan consumer unwitting. There also exists the very real possibility that food contaminated with chemicals which have been banned in other countries on grounds of serious human health consideration enter the market in the absence of such regulations. In this light is recommended that the government established a national list of acceptable pesticides/chemicals and associated MRLs in harmonization with the codex standards and worldwide best practices to ensure consumer safety to minimize trade-related food safety implications. It is also crucial that laboratories are equipped with modern technology to detect radioactive contaminants and other emerging biological threats.

Whilst establishing of MRLs is considered a priority it is also key that governments bolster the testing and conformity assessment capabilities of local institutions/testing laboratories both private and public through investments in equipment and human resources to complement and enforce regulations. Exporters in Sri Lanka have complained of the lack of adequate testing facilities within the country leading to increased compliance costs and delays owing to having products being tested abroad. Likewise in relation to imports the lack of testing facilities may lead to inefficiencies and as a consequence increase compliance costs leading to a lowering of consumer welfare.

In Sri Lanka, the task of ensuring food safety is conducted in a rather adhoc and piecemeal manner, tasks are dispersed to a number of government agencies and departments such as the Department of Agriculture, the Consumer Affairs Authority, the Sri Lanka Standards Institute, Atomic Energy Authority, Sri Lanka Customs – Quarantine Department, and the Ministry of Health, based on their respective areas of expertise. Food safety is however a more cross-cutting issue and effectively tackling the issue requires collaborative effort by all agencies concerned. In this light it is envisaged that an overarching independent body/institution along the lines of the European Food Safety Authority, The Food and Drug Administration of the United States and the Canadian Food Inspection Agency be established to better identify and coordinate actions to address perceived food safety risks.



Way Forward
With the growing incidence of food safety risks it is fundamental that regulation be introduced to regulate the flow of imported produce. Sri Lanka has a long way to go in effectively tackling the issue. A good first step would be to introduce a nationally acceptable list of pesticides/chemicals and their MRLs. Due prudence however must be exercised to when designing such regulations to ensure unwarranted outcomes do not materialize.  Investments must be made in testing and certification facilities to ensure effective implementation of regulations. Yet, the need of the hour isthe establishment of an overarching body, as discussed earlier, to better coordinate all these issues so that consumers in Sri Lanka can be ensured better food safety.

(The writer is Research Assistant at Institute of Policy Studies (IPS). The article was originally published in IPS blog Talking Economics)