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Der Open-Access-Publikationsserver der ZBW – Leibniz-Informationszentrum Wirtschaft

The Open Access Publication Server of the ZBW – Leibniz Information Centre for Economics

Jongwanich, Juthathip

Working Paper

Impact of Food Safety Standards on Processed Food

Exports from Developing Countries

ADB Economics Working Paper Series, No. 154

Provided in Cooperation with:

Asian Development Bank (ADB), Manila

Suggested Citation: Jongwanich, Juthathip (2009) : Impact of Food Safety Standards on Processed Food Exports from Developing Countries, ADB Economics Working Paper Series, No. 154, http://hdl.handle.net/11540/1807

This Version is available at:

http://hdl.handle.net/10419/109346

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zbw Leibniz-Informationszentrum Wirtschaft Leibniz Information Centre for Economics ADB Economics Working Paper Series Impact of Food Safety Standards on Processed Food Exports from Developing Countries Juthathip Jongwanich No. 154 | April 2009 ADB Economics Working Paper Series No. 154 Impact of Food Safety Standards on Processed Food Exports from Developing Countries Juthathip Jongwanich April 2009 Juthathip Jongwanich is Economist, Macroeconomics and Finance Research Division, Economics and Research Department, Asian Development Bank. Comments and suggestions from Prema-chandra Athukorala, William E. James, Archanun Kohpaiboon, and participants in the 4th Australasian Development Economics Workshop held on 5–6 June 2008, Australian National University, Canberra are appreciated.

Asian Development Bank 6 ADB Avenue, Mandaluyong City 1550 Metro Manila, Philippines www.adb.org/economics ©2008 by Asian Development Bank April 2009 ISSN 1655-5252

Publication Stock No.:

The views expressed in this paper are those of the author(s) and do not necessarily reflect the views or policies of the Asian Development Bank.

The ADB Economics Working Paper Series is a forum for stimulating discussion and eliciting feedback on ongoing and recently completed research and policy studies undertaken by the Asian Development Bank (ADB) staff, consultants, or resource persons. The series deals with key economic and development problems, particularly those facing the Asia and Pacific region; as well as conceptual, analytical, or methodological issues relating to project/program economic analysis, and statistical data and measurement. The series aims to enhance the knowledge on Asia’s development and policy challenges; strengthen analytical rigor and quality of ADB’s country partnership strategies, and its subregional and country operations; and improve the quality and availability of statistical data and development indicators for monitoring development effectiveness.

The ADB Economics Working Paper Series is a quick-disseminating, informal publication whose titles could subsequently be revised for publication as articles in professional journals or chapters in books. The series is maintained by the Economics and Research Department.

Contents

Abstract

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This paper examines the impact of food safety standards on processed food exports in developing countries. An intercountry cross-sectional econometric analysis of processed food exports in developing countries was undertaken.

The Sanitary and Phytosanitary Standard (SPS) is incorporated into the model to capture the impact of food safety standards. The empirical model shows that food safety standards imposed by developed countries tend to have a negative implication for processed food exports from developing countries. Since SPS is less transparent than tariffs or quotas, practically, there is ample room for developed countries to tweak the standards to be stronger than necessary to achieve optimal levels of social protection, and to twist the related testing and certification procedures to make their own competing products competitive with imports. However, because of the potential benefits that could emerge from imposing food safety standards such as a reduction of transaction costs and trade friction, developing countries should view SPS not just as a trade barrier but an opportunity to upgrade quality standard and market sophistication.





Multilateral efforts are needed to mobilize additional financial and technical assistance to help redress constraints in developing countries in meeting the required food safety standards imposed by developed countries.

I. Introduction There has been a structural change in the composition of agriculture trade in developing countries over the past three decades. Traditional (unprocessed) food exports have continuously declined and have been replaced by processed food exports. Developed country markets have been a major destination of processed food exports from many developing countries. However, access to developed country markets poses many challenges. One of the key challenges is the ability of developing countries to meet increasingly more stringent food safety standards imposed by developed countries. In principle, the Sanitary and Phytosanitary Standard (SPS) Agreement and the associated World Trade Organization (WTO) dispute settlement mechanism could ensure that food safety standards are not abused or misused for protectionist aims. Although these standards are subject to frequent changes and often difficult and costly to meet, such changes are to be expected, given advances in scientific knowledge about health hazards and improvements in food processing technology. Imposing food standards could, therefore, improve market performance by reducing transaction costs and trade frictions as exporters could use such standard as a guide to realize the expectations of importers concerning food quality and safety. In addition, they could also increase elasticity of substitution between similar goods produced in different countries so that relatively more efficient producers would be permitted to thrive through export expansion. However, in practice, there have been provoked suspicions that food safety standards are being used as a nontransparent, trade impeding protectionist tool, rather than as a legitimate instrument for the protection of human, plant, and animal health. In particular, developing countries are usually at a disadvantage in making use of these procedures, because of their limited capacity to access and absorb best practice technology and information.

They are also constrained by inadequate resources from challenging perceived inequities (Athukorala and Jayasuriya 2003 and 2005). Therefore, the impact of food safety standards on processed food exports in developing countries is still inconclusive.

The SPS has become a more important issue since demand for a more stringent SPS in developed countries tends to increase following their rising incomes and growing health consciousness. Particularly, as traditional trade barriers such as tariffs and quantitative restrictions continue to decline, food safety standards have become an interesting tool for protectionists to block trade.

 | ADB Economics Working Paper Series No. 154 The purpose of this paper is to examine the impact of food safety standards on processed food exports in developing countries. An intercountry cross-sectional econometric analysis of determinants of processed food exports in developing countries was undertaken. The SPS is incorporated into the model to capture the impact of food safety standards. The paper is organized as follows. Section II presents trends and patterns of processed food exports in developing countries over the past four decades.

An overview of SPS is provided in Section III. Section IV discusses determinants of intercountry differentials in export performance of processed food. Variable measurements and econometric procedures are presented in Section V. The results are discussed in Section VI. The final section provides conclusions and policy inferences.

II. Trends and Patterns of Processed Food Trade:

A First Look Over the past three decades, there has been a notable composition shift in world food trade. The relative importance of “classical” food products, such as coffee, tea, sugar, and cocoa, has been eroded and replaced by the processed food trade (see Appendix 1 for a list of processed food products).1, 2 An increase in world demand for processed food has been associated with evidence of diet upgrades. Changes in internationalization of food habits have been shaped mainly by rising incomes, growing health consciousness, and urbanization. Factors such as international migration, communication revolutions, and international tourism also contribute to the diet upgrades. In addition, declines in tariff and nontariff barriers, through many rounds of international negotiations both in developed and developing countries have facilitated the expansion of processed food trade.

The share of processed food exports in total world food exports increased from 44% in 1980 to around 63% in 2006. The composition shift has been attributed mainly to developing countries, particularly since the early 1990s. While the share of processed food exports in total world food exports tripled in developing countries during 1980–2006, the share was rather stable in developed countries (Figure 1).3 The increasing importance  While international trade in many of these processed food products is not entirely “new”, their trade has experienced very rapid expansion in recent years, and they are often described as “new food exports” or “nontraditional food exports”. To maintain the focus on these new dynamic export items, traditional beverages (such as tea and coffee) and cereal grains (wheat, maze, rice, etc.) exported in bulk are excluded from the analysis.

2 Generally, the definition of processed food products is based on the International Standard Industry Classification (ISIC). All commodities that belong to ISIC Section 3 are all classified as processed food. However, export data used in the analysis are reported under the Standard International Trade Classification (SITC). Thus, the SITC commodities listing at 5-digit level is cross referenced to that of the ISIC listing at 4-digit level. See Athukorala and Jayasuriya (2005) for detailed discussion and definition of processed food.

3 Developed countries refer to high-income countries according to the World Bank classification. Note that the results are not significantly different when developed countries are defined to include only US, Canada, EU5, Japan, Australia, New Zealand, and East Asia Tigers. Developing countries refer to low- and middle-income countries according to the World Bank classification.

Impact of Food Safety Standards on Processed Food Exports from Developing Countries | 3 of processed food exports has also resulted in a structural shift in world agriculture trade.

The share of processed food exports in world agriculture exports increased to 51% in 2006 from only 32% in 1980 (Figure 2).

Figure 1: Share of Processed Food Exports in Total World Food Exports (percent) High Income Total Low and Middle Income (Right axis) Note: Food exports include SITC 0++4+22-2. See Appendix  for descriptions of processed food.

Source: United Nations Comtrade database (Rev.2), DESA/UNSD, all downloaded April 2008.

Figure 2: Share of Processed Food Exports in Total World Agriculture Exports (percent) High Income Total Low and Middle Income (Right axis) Note: Agriculture exports include SITC 0++2+4-27-28. See Appendix  for descriptions of processed food.

Source: United Nations Comtrade database (Rev.2), DESA/UNSD, all downloaded April 2008.

4 | ADB Economics Working Paper Series No. 154 Although processed food exports in developing countries have continuously increased, not all countries have shared in the benefits. In general, countries belonging to uppermiddle and middle-income countries according to the World Bank classification have performed better in expanding processed food exports than low-income countries.

Figure 3 shows that more than 90% of total developing countries’ processed food exports are contributed by upper-middle and middle-income countries. The share of processed food exports in these countries accounted for more than half of total food exports. After the late 1980s, the gap between upper-middle and middle-income countries contributing to processed food exports has become narrow. This resulted from the faster growth of processed food exports in middle-income countries. On average, annual growth rate of processed food exports in middle-income countries was 10% during 1980–2006, compared to 11.2% in upper-middle income countries and 7.1% in low-income countries.

Figure 3: Share of Processed Food Exports in Low, Middle, and Upper-Middle Income Countries, 1980−2006 (percent)

–  –  –

Source: United Nations Comtrade database (Rev.2), DESA/UNSD, all downloaded April 2008.



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