In developed countries, talk of food safety regulations centers on public health – how to prevent outbreaks of food-borne illness and ensure high quality, nutritious food. For developing countries, though, increasing food safety regulations in food-importing countries can have significant economic implications as well. On the one hand, complying with higher food safety standards can be prohibitively costly, making it difficult for small farmers to access lucrative, high-value markets. On the other hand, higher standards can spur improvements in management techniques, technology adoption, and production, leading to increased incomes in the long run. And while the cost of meeting importing countries’ food safety standards can be daunting, the cost of not complying with those standards could be even higher – complete exclusion from developed country markets and a subsequent loss of exports.
A new note from the Investment Climate Department of the World Bank Group finds that three key factors need to be considered when discussing the economic and market impact of higher food safety standards: the effects of public standards (i.e., regulations imposed by importing countries’ governments), the effects of private standards (regulations imposed by individual private companies), and the impact of technical assistance to help farmers comply with both types of regulations.
In a review of 10 studies of high-value horticultural exports conducted in 14 countries, the note’s authors find that compliance with private food safety standards led to higher export sales and prices, revenues, and incomes. Firms’ adoption of new technologies to help them meet higher importer standards also had important effects on other agricultural sectors. The use of improved technologies often spilled over into staple crops as well, increasing production of important domestic food sources, reducing farm workers’ exposure to pesticides, and stabilizing or even increasing incomes for farm laborers. The cost of meeting private standards can sometimes exclude smallholders, but research also suggests that transaction costs decline over time, allowing small farmers to adapt.
Compliance with public standards can be more costly, but these standards are also riskier to neglect. Recent history is rife with cases of high-income countries excluding developing country firms, and even some countries as a whole, from their markets because of a failure to comply with higher safety standards (for example, the EU ban on fishery products from Kenya in 1997-2000 and the US ban on raspberries from Guatemala in 1997-98). Such exclusion can result in a significant loss of revenue in the exporting country and has caused many developing country firms to go out of business. For firms that do manage to comply with the importing country’s stricter standards, the high cost of doing so can mean lower profits.
Whether the standards are set by importing country governments or by private buyers, technical assistance – from governments, donor institutions, or farmers’ groups and exporting firms – can go a long way toward helping smallholders improve the quality of their product and break into higher value markets. The note concludes with a call for further research to look into how public-private partnerships can be used to increase smallholders’ ability to break into higher value markets, as well as to spur regional and South-South trade as markets modernize in developing countries.