Food Standards & Non-Tariff Barriers on Marine Exports
Food standards are standards imposed by countries to protect human, animal and plant health. They fall under the Sanitary and Phytosanitary Standards (SPS) Agreement of the WTO. The SPS agreement enables countries to set regulations of food safety and other similar standards with a goal of protecting animal & plant health. Overtime, trade in agriculture is being increasingly regulated by SPS standards. As average tariffs are falling across commodities on one hand, SPS standards have been rising on the other, offsetting trade liberalization by tariffs.
Food and Safety Standards (FSS) has different effects on exports as demonstrated in the literature. Some assert that standards act as barrier to exports, especially for those originating from developing economies, as exporting firms tend to incur substantial sunk costs in order to comply with renewed FSS. Sometimes the average investments to comply with standards are as high as 100% of sales. As developing economies are not well equipped with the flow of credit, fluent export import procedures, institutional support, human capital such as financial literacy, small exporters tend to shut down where as others face difficulty in coping up with the standards.
On the other hand, it has been shown that standards act as catalyst to trade as they bring about symmetry in information between buyers and sellers, thus preventing market failure. Standards help developing nations send quality signals to the buyers in developed nations, thus overcoming reputation problems, while supplementing domestic market with improved taste and hygiene. Catalyst effect in developing countries comprises of increased R&D, scale effect (firms growing in size), stronger governance and guidance by institutions and harmonization of domestic standards with international standards. Therefore, it becomes imperative to understand the impact of standards on the exporting firms at developing countries.
Marine products are among the highest traded food commodities across the globe. In the year 2017-18, the value of fish and fishery trade reached $133 billion worldwide, of which Indian Marine exports comprised 3.5%, ranking seventh in the production and exports of fish and fishery items across the world. Indian marine exports have performed significantly well, growing at a compound rate of 9% in quantity and 17% in value for over 7 decades. In the year 2017-18, marine exports reached an all-time high at $5.6 billion due robust demand for frozen fish and frozen shrimp.
In the year 2017-18, major trading partners by value were US (30%), South East Asia (29.91%), European Union (18%) and Japan (6%). Within South East Asia, Vietnam accounted for the largest share of imports in the region (75% in value), followed by Thailand (12.93%), Taiwan (3.8%), Malaysia (2.60%) and Singapore (2.21%). In terms of quantity, Vietnam imported 3.18 lakh MT of seafood, higher than any individual market such as US, Japan or China. Frozen shrimp accounted for 55% and 77% of total exports (in value) to Japan and EU respectively.
Frozen shrimp, the largest export item, amounted to 38.28% in quantity and 64.5% in value of the total marine export basket in the year 2017-18. In the same year, primary markets for frozen shrimp were the US (1.6 lakh MT), followed by EU (77,000 MT), South East Asia (1.65 lakh MT), Japan (31000 MT) and Middle East (19500 MT). Frozen fish maintained the second position in marine export basket, accounting for 26% in quantity and 11.64% in value. The composition of trade within marine products has almost remained the same during 1995-96 to 2017-18.
Consequent to the inception of WTO, trading rules and regulations have evolved in unexpected manner. Decline in tariff barriers have been supplemented with the rise in non-tariff barriers: Presently, the agreement on SPS standards govern the trade in agriculture goods, especially marine products. (Shinoj et al, 2009)
One of indicators of rising non-tariff barriers is the border rejection rate. Despite sufficient food safety measures undertaken by the Indian government, border rejection rate has increased overtime. These rejections are attributed to hygiene issues, antibiotic residues, advancement in scientific knowledge, and consumer apprehensions. However, sometimes political pressures such as ‘tit for tat refusals’ also result in higher border rejections.
Competition in high value commodities such as marine products is dominated by quality differentiation rather than food price. Therefore, marine products, being relatively risky in nature, have to comply with food safety regulations at every stage of production. As these standards upgrade overtime it becomes increasingly complex for producers to procure inputs as well as sell their output within the supply chain. Some of the well-known public standards include ISO 22000, CODEX Alimentarius and few popular private standards are BRC, IFS, FSSC 22000, GAA-BAP.
In conclusion, food standards are important to developing nations as they are associated with the trade in high value commodities. As food standards rise overtime, it is imperative for policy makers and firms to identify different ways for easily and comprehensively adapting to standard while maintaining comparative advantage of the particular industry.