by
Aurora Zugarramurdi
CEMSUR-CITEP. Southern Regional Center (INTI-CIC)
Marcelo T. de Alvear 1168. (7600) Mar del Plata
Argentina. E-mail: [email protected]
1. Introduction
Consumers are increasingly concerned about nutrition, food safety and health. Marketers face a set of environmental issues that substantially determine customer acceptance of their products. To avoid that these diverse changes affecting the fishery sector will result in new barriers to trade, the international trade and marketing of seafood products have been covered under several WTO agreements: the Agreement on Technical Barriers to Trade (TBT) and the Agreement on Sanitary and Phytosanitary measures (SPS). These agreements have stipulated rules restricting the use of food quality and technical standards as non-tariff barriers. Nevertheless, such conflicts increasingly involve developing countries.
2. Import requirements: HACCP, SPS agreement
The basic aim of the SPS Agreement is to maintain the sovereign right of any government to provide the level of health protection it deems appropriate based on scientific evidence, but to ensure that these sovereign rights are not misused for protectionist purposes and do not result in unnecessary barriers to international trade. The SPS Agreement specifies that countries should base their SPS measures on 'international standards, guidelines and recommendations'. Countries shall ensure that their sanitary and phytosanitary measures are based on an assessment, as appropriate to the circumstances, of the risks to human, animal or plant life or health, taking into account risk assessment techniques developed by the relevant international organizations, this is the Codex Alimentarius Commission. Industry in developing countries will have to adopt risk analysis to assess process conditions (including the use of HACCP) and governments will have to adopt risk analysis to take decisions on control procedures. Upgrading existing standards or developing new ones and performing risk assessments is a costly and difficult procedure, and is neither technically feasible nor economically affordable for most developing countries.
From the audit point of view, it is not possible in the current situation to evaluate the effectiveness of HACCP systems. HACCP systems may have in practice a large degree of variability (in terms of risk distribution for a given hazard. This variability is not accounted for in ordinary HACCP systems (even if they accomplish with the current regulations). HACCP results cannot be expressed in terms of risk. Quantitative risk assessment can change this situation (Lupin, 2000).
3. Costs of compliance
Upgrading existing standards or developing new ones and performing risk assessments is a costly and difficult procedure, and is neither technically feasible nor economically affordable for most developing countries (Michalopoulos, 2001; Finger and Schuler, 2002).
Preliminary results from an analysis of USFDA detention records for fish products, fruits and vegetable imports over the twelve-month period from May 2001 to April 2002 (Athukorala and Jayasuriya, 2003) provide data by trading partner country (exporting country) on total detentions, total value of food exports (excluding meat and poultry products) and export value per detention. The data clearly show the incidence of detention is greater on developing country imports relative to their trading significance compared to developed countries. On average, developing country firms experienced a detention for every $1 530 thousand worth of imports to the US. This figure was much higher, over $2 300 thousand, for developed country firms.
According to other information from the same source, most detentions of imports from developing countries are for 'insanitariness' (contamination with insects and rodent filth), followed by microbiological contamination, while exporters from developed countries show detentions for easily rectifiable reasons such as deficiency in labelling and provision of inadequate information.
The above inferences are generally consistent with those of some recent studies, which have looked at selected episodes of trade disruption caused by SPS concerns of importing countries. For instance, during the period from August to December in 1997, the European Union banned fishery product imports from Bangladesh because of concerns about hygienic standards in processing facilities; in other words, they did not comply with HACCP regulations. The estimated cost of the loss of revenue to shrimp processors as a result of the ban was mentioning losses that amounted to US$65 million and increased unemployment (Grote, 2002). This episode highlights the importance of ensuring that standards are met and the need for setting up a suitable institutional framework for maintaining required quality standards in low-income countries like Bangladesh.
The cost of upgrading sanitary conditions in the Bangladesh frozen shrimp industry to satisfy European Union (EU) and US hygiene requirements is estimated to have been $17.6 million over the period 1997-1998 (Cato, 1998; Cato and Lima dos Santos, 1998). The cost of maintaining a hazard analysis and critical control point (HACCP) program in each of these facilities is estimated to be $225 000 per annum.
In January 1998, the EU imposed a similar ban on the importation of fresh fish and fish products from Kenya, Mozambique, Tanzania and Uganda to safeguard EU consumers from the risk of cholera. The EU justified the ban on grounds of lack of a credible system in Kenya to safeguard the product from possible contamination. This move by the EU resulted in considerable export losses as the ban was imposed without giving exporting countries the chance to put in place measures that eliminate the health risk and a time frame for compliance (Henson, Brouder and Mitullah, 2000; Wilson, 2002).
When exports of fresh fish were prohibited in Kenya for a period of six months, the volume of exports was 29 percent lower than in 1996, while exports to the EU were 69 percent lower. Similarly, in 1999 total fish exports were 21 percent lower than in 1996, while exports to the EU were 64 percent lower. This indicates a significant trade diversion effect, whereby Kenyan exporters were able to partially offset the impact of the EU's restrictions by pursuing alternative markets, in particular Israel, Singapore, Japan, and the United Arab Emirates. Despite this, however, (in nominal terms) the total value of fish exports was significantly lower in 1998 (37 percent) and in 1999 (24 percent) than in 1996 (Henson, Brouder and Mitullah, 2000).
In addition to constraining the realization of full export potential, SPS standards can have an impact on the ownership and size distribution of firms in a given export industry with redistribution and efficiency implications. Relatively large companies are naturally better placed to undertake additional investments needed to meet international SPS standards. Moreover, firms with foreign capital participation are likely to be better placed, compared to purely locally owned firms, to meet SPS standards and/or to circumvent stringent standards (Silva, 2001). There is evidence that industrial adjustment triggered by recent SPS crises in India, Bangladesh and Thailand pushed many small- and medium-scale firms into bankruptcy while strengthening the relative position of large scale firms in the affected industries (Cato and dos Santos, 1998; Nidhiprabha, 2003).
The European standards are higher than the HACCP standards. The Seafood Exporters Association of India claims to have spent US$25 million on upgrading their facilities to meet the regulations. Appropriate training of the personnel involved in various stages of production and processing were also addressed (Saqib and George, 2003). World Bank project experience over the past five years in helping a number of developing countries to build their capabilities in this area suggests that the financial resources needed to implement the WTO rules would amount to "an entire year's development budget" for most of the developing and transitory economies (Finger and Schuler, 2002).
4. Quality costs
The main challenge that fish industry in developing countries faces is to comply with foreign consumer expectations, particularly quality. Many factors influence each other: better handling of fish not only produces products of better quality but also improves yields and lowers production costs; improved yields make fish products more competitive on the food market; training of workers mainly affects productivity of fish processing plants. In terms of costs, the reduction in yield and the increase in productivity are extremely important since raw material and labour costs in fish processing plants can account about 85 percent of the total production costs. Generally speaking, raw material quality is the key factor governing the final product quality. Although the market for food quality is not perfect for consumers, mainly because of imperfection in information about quality attribute, there is a relationship between the final product quality and its selling price.
Results from a comparative study of quality relationships observed in products made of lean or fatty species showed that a greater influence of raw material quality on labour productivity and yield is observed when fatty fish is compared with lean species. It was also found that as raw material quality level rises, these variables increase as well as operating costs decrease (Giannini et al., 2001; Zugarramurdi et al., 2002; 2003). The results indicated that the quality of raw material has a direct correspondence to the quality of the product. A linear correlation between raw material and final product quality was found, with a lower slope in the case of white fish, when compared in dimensionless scale with pelagic species like anchovy, as shown in Figure 1.
Figure 1. Influence of raw material quality on final product quality for fishery products
The high regression coefficient obtained for both correlation (R2 = 0.936 for white fish and 0,96 for salted anchovy) show that differences in the quality of the raw material influences the final quality, despite if the poor quality is due to biological conditions or to poor handling prior processing and/or on board.
4.1 Quality costs model
A mathematical model that allows the calculation of the costs associated with a specific quality level was developed for the fish industry (Zugarramurdi et. al, 1999). Quality-related costs are divided into three categories: prevention costs, appraisal costs and failure costs. The model assumes that quality costs can be calculated from ten different components. Each component is affected by coefficients that depend on the type and size of the fish processing plant.
Resultant values from the application of the model along with value from fish processing plants are presented. The quality costs for frozen blocks of hake fillets (Merluccius hubbsi), salted anchovy (Engraulis anchoita) and results obtained at Cuban plants for frozen lobster (Panulirus argus) were analyzed. The resultant correlation for the data obtained from real plants and from the model is shown in Figure 2. The following are the regression coefficients for curve fits in Figure 2.
R2 = 0.9638 (Controllable costs)
R2 = 0.9738 (Resultant costs)
R2 = 0.9557 (Total quality costs)
Figure 2. Total quality costs, resultant costs and controllable costs for fish processing
The increase in the controllable costs is correlated with a decrease in the internal failure costs. For the fish processing plants analyzed, it is observed that when product quality level increases from fairly poor to very good:
Controllable costs increase from 5 to 73 percent of the Total Quality Cost
Resultant costs decrease from 95 to 27 percent of the Total Quality Cost
It is necessary to remark that these total quality costs are the maximum that may occur due to the assumption that no quality program was running. After a HACCP-based quality plan is running successfully, some components of the quality costs model will decrease.
4.2 The cost of implementing a HACCP-based system in fish processing plants
In fact, the cost of applying HACCP-based system in the seafood processing plants depends on a number of variables such as: type of product, market requirements, current and future legislation, existing facilities, plant size, initial operating conditions, present and future level of qualities. To estimate these costs is difficult due to the flexibility of the system; there are no equal HACCP plans for processors. It is also necessary to make several assumptions to simplify the cost analysis. Up to the present, only the plants currently exporting fishery products are those that have implemented HACCP plans to meet trade requirements. It is assumed that the analysis will be applied to those plants that already have proper GMP and SSOPs, the previous steps required by HACCP.
There are two ways of calculating the cost of implementing a HACCP plan:
1) As usually referred in the literature, including only the costs to comply with regulations;
2) Making the calculation on an annual basis as the sum of the prevention and appraisal costs, which also includes the costs referred in 1).
The results for a hake freezing plant are presented, using the proposed model. It is necessary to emphasize that alternative 2) includes not only all the expenses to implement a HACCP plan, but also the cost to improve the product quality.
A freezing plant with a design capacity of 20 tonnes/day was analyzed in order to calculate quality costs. When improving quality from standard to very good, profitability increased from 3.3 percent to 9.9 percent, due to a better utilization of plant capacity, higher yields and productivity, a decrease in quality costs and production costs as well as higher prices that can be obtained for a better quality product. The additional investment can be defined as the amount invested by the processor for implementing a HACCP-based system at the initial condition.
When the difference between Net Benefit for both quality levels is related to the additional investment defined above, a profitability of 24.3 percent is obtained. It is also important to highlight that the values obtained for this case study are low when compared with cases for other products. This is due to the commodity character of frozen hake blocks.
Industries that operate within a HACCP program should consider adopting an integrated approach with a quality management system. Both systems are required to bring the benefits of ensuring food safety and improving the business itself. Integrating these systems can strengthen the focus on customer and food safety requirements, while at the same time reduce burden administration and increase overall profitability.
5. Conclusions and recommendations
· FAO technical assistance facilities should be used to help countries prepare for the next negotiations.
· FAO has come out with many training programmes in order to help developing countries implementing HACCP plans. Examples: FAO-DANIDA training courses (Latin America, African and Asian countries).
· International organizations began to provide this kind of technical assistance to strengthen the institutional capacity of developing countries.
· This should not be a technical assistance fund administered by the WTO for seminars, workshops, or technical training. A program of infrastructure modernization is needed - a concrete program of assistance to the least developed countries.
· Special concern should be encouraged on the fact that it would be possible for the larger firms to implement SPS measures with a reasonable cost, however, it would be very difficult for small enterprises to implement the same for basically two reasons: (a) lack of knowledge and (b) cost-benefit ratio. Emphasis should be given to the fact that it will be necessary to enforce the association of these small firms.
· Assuming that middle and high income developing countries have implemented HACCP in the fishing industry, least developed countries may need technical assistance in order to enhance HACCP implementation, while risk assessment is in their early stages for all developing and even developed countries.
· Developing countries should develop an advisory group of experts, scientific capability and capacities of human resources required to monitor and argue the SPS procedures. There has to be a close interaction between the Governments, experts of SPS and trade on revision/updating of the standards.
· Governments should very seriously study the environmental and animal welfare issues, which will be potentially used by developed countries.
· There is a need in designing appropriate administrative procedures, norms and rules, which increase transparency. More coordination and cooperation including monitoring at the national level would help to find internally solutions to institutional problems and new challenges on the international seafood market. It may also facilitate participation, thus contributing to increased ownership and more responsibility taken over by individuals. As a result, representatives can better express their views and describe their situation in international organizations thus leading to effective participation.
· Improving quality standards especially in fish products should represent a high priority for developing countries, not only to protect the health of their own population but also to enable them to export products to countries with increasingly higher hygiene and quality requirements.
· Since Microbial Risk Assessment is a developing science, implementation of these guidelines may require a period of time and may also require specialized training in the countries that consider it necessary. This may be the case of developing countries, which also will need to be aware of the cost involved in this process.
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Zugarramurdi, A., Parin, M.A., Gadaleta, L. & Lupin, H.M. 1999. Development of Quality Costs Models. Session 4, Abstract #3. Presented at the FAO/DANIDA Advanced Seminar on the Implementation and Economics of HACCP-based Systems in the Fishery industry, Hirshals, Denmark.
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