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Financing EU food and feed controls: Recent developments and implications for the ACP

17 January 2015

Introduction

The OECD, in its publication ‘Non-tariff measures in agri-food trade: Improving policy coherence for development’ of January 2013, has highlighted that as classical tariff barriers to trade have been dismantled, so non-tariff measures (NTMs) have taken on greater significance. According to the OECD analysis, “the trade cost impact of NTMs [is] more important than prevailing tariff rates in obstructing trade.” These non-tariff measures take a wide variety of forms and may seek to serve a variety of legitimate purposes. However, UNCTAD has noted in its publication ‘Non-tariff measures to trade: Economic and policy issues for developing countries’, published in August 2013, that these measures can have unintended yet “restrictive and distortionary effects” which “may be systematically biased… against developing countries and more so against low-income and least developed countries”.

Many ACP countries fall into this latter category of low-income and least developed countries (LDCs). Significantly UNCTAD highlighted how “NTMs can have quite diverse effects, depending not only on their type and scope, but also on the economic framework in which they are applied” (see Agritrade article ‘ ACP agro-food exports: The growing importance of NTMs and SPS dispute se...’, 26 May 2014).

The worldwide economic and financial crisis of recent years has transformed the economic context within which EU member states undertake the official controls required to ensure biosecurity and the safety of imported food placed on the EU market. This has led some EU member states, most notably the UK, to initiate reforms of how they manage and finance official sanitary and phytosanitary (SPS) and food and feed controls.

In terms of SPS controls, the UK authorities have increased staffing levels of the relevant inspectorate and increased the frequency of inspections of imports requiring a phytosanitary certificate, in order to bring the frequency of inspections more into line with EU requirements. Since April 2012 this has been accompanied by progressive moves to full recovery of the costs of the import inspections undertaken.

This carries important financial implications for ACP exporters of the affected products whose primary market is the UK. New exporters with no established track record of exports, or with limited volumes for export, face particular challenges.

In response to mounting fiscal pressure across the EU and concerns over competition arising from differences in inspection fees charged, in May 2013 the European Commission (EC) put forward proposals to ensure “a more consistent approach to official controls” throughout the EU food and agriculture sector and to change “the way official controls are funded”, through moves to full recovery of inspection costs (see Agritrade article ‘ ACP agricultural exports and proposed changes to the EU Regulation on fo...’, 12 May 2014).

With specific reference to SPS controls on cut flowers and certain fruit and vegetable imports requiring a phytosanitary certificate, this special report seeks to outline and explore:

  • the EU framework for SPS inspections of imported products;
  • the UK experience of moving to recover the full costs of official SPS-related import controls;
  • the background and status of the EC’s May 2013 proposals to reform the financing of official food and feed controls;
  • the implications for ACP exporters of the affected products and the scope for ACP initiatives to address the cost-increasing effects of these reforms.

The EU framework for SPS inspections

The level of charges for SPS inspections undertaken by EU member states control authorities is based on a framework provided by the EC. However, there is considerable variation in how import inspection services are organised and financed across EU member states.

For products where a phytosanitary certificate is a prerequisite for imports to take place, EU regulations require both documentary and identity checks and physical inspections, with the costs of physical inspections being the most significant charge levied. This requirement applies to a range of cut flowers and some fruit and vegetable products (e.g. aubergines).

For imports of “plants for planting”, 100% inspection is required of all consignments, and no exceptions are granted. For other products, reduced levels of inspection are possible in cases where:

  • a risk assessment has been undertaken; and
  • the biosecurity risk is deemed low.

Where the risk assessment shows that the biosecurity risk from a particular product from a particular country is low, a reduced level of physical inspections may be approved, with a corresponding reduction in the fees levied.

These reductions on the standard fees charged can be substantial. For example, for Kenyan cut-flower exports the charges levied can be as low as 5% of the standard charge. This, along with the reduced frequency of inspections, can represent a significant proportional saving on the cost of SPS inspections for imported products.

For such a risk assessment to take place it is required that at least 200 consignments have been imported into the EU in each of the preceding 3 years. This has cost implications for ACP countries with no established track record of exports to the EU or which have only a limited number of consignments each year.

Applying a reduced level of inspections is optional, not obligatory, with EU member states allowed to maintain higher levels of inspection and higher charges for each inspection.

The frequency of inspections can be varied every 3 months, based on the risk assessment ( see Table 1), with this leading to dramatic increases or decreases in both the frequency of inspections and – particularly under moves to recovery of full costs – the overall costs of SPS inspections. There have been cases of third-country exporters abandoning exports to the EU where the frequency of inspections has been increased when the volume of exports has been insufficient to qualify for reduced levels of inspections.

Table 1: Minimum percentage of consignments of cut flowers to be inspected (Commission regulation (EC) 1759/2004) – Decision of 30 August 2013

Genus Country of origin Tariff code Minimum percentage of consignments to be checked Date effective Revised min. percentage of consignments to be checked Date effective
Aster Zimbabwe 0603199090 75 1/1/2013 100 1/1/2014
Dianthus Kenya 060312 5 1/1/2011 - -
Rosa Ethiopia 060311 10 1/1/2013 - -
Rosa Kenya 060311 5 1/1/2011 - -
Rosa Tanzania 060311 10 1/1/2011 15 1/1/2014
Rosa Uganda 060311 25 1/1/2011 100 1/9/2013
Rosa Zambia 060311 25 1/1/2011 - -

Source: EC, ‘Notification of reduced plant health checks for certain products: Commission Regulation (EC) 1756/2004, Period: 01.07.2013–2014, 30 August 2013’ (see below)

In terms of competition between different points of entry to the EU market, fees charged for SPS inspections are just one component of the costs arising during the process of clearing imported goods. Different EU points of entry may have different procedures and offer different levels of efficiency in clearing consignments (see box ‘Differing import clearance efficiencies: Some considerations’), with this strongly affecting the net costs of SPS clearance of imports. No consideration of the implications of moves to recovery of full cost for official SPS controls can be undertaken without considering these broader factors.

The UK experience of moves to full recovery of inspection costs

In the UK, fees for physical SPS inspections are differentiated into four fee categories:

  • standard fees for daytime working;
  • standard fees for non-daytime working;
  • reduced fees for daytime working;
  • reduced fees for non-daytime working.

From April 2012, the UK initiated moves towards achieving recovery of full costs for all official SPS controls carried out on products requiring a phytosanitary certificate prior to import. This saw an initial two-stage increase in fees across these four categories of around 250%. However, in April 2014 some reductions in the fees charged were introduced, in the light of the actual costs incurred in carrying out inspections within the new reformed framework. This brought the fee increase introduced since 2012 down to around 236% (with some country-specific increases above this level).

Box 1: Differing import clearance efficiencies – some considerations

European ports of entry may operate different procedures with regard to factors such as:

  • pre-notification requirements;
  • procedures for documentary checks;
  • the use of samples provided by trusted forwarders;
  • provisions for visual identification of pests by inspectors, which remove the need for laboratory testing and expedite consignment clearance;
  • the use of new technologies to improve the efficiency of inspection services, thereby expediting clearance and final delivery to retailers.

Overall, a range of factors may affect the efficiency of import clearance and hence the commercial value of cleared consignments of perishable goods delivered to retailers. These considerations, which impact on the acceptability of consignments and prospects for future contracts, may be more important than the fees charged for SPS import inspections. These broader factors thus need to be taken into account in determining the impact of moves to full cost recovery on patterns of imports of ACP products into the EU.

Box 2: An illustrative example of the costs to different ACP exporters of the UK’s move to full recovery of inspection costs

For imports of consignments of cut flowers of up to 20,000 stems from an established exporter such as Kenya, which benefits from reduced rates of inspection given its risk assessment, the fee increases are relatively small: some £1.68 for daytime and £2.53 for non-daytime inspections. However, for new ACP exporters without a 3-year track record or with export volumes below 200 consignments a year, the fee increase is £33.59 for daytime and £50.38 for non-daytime inspections. This is a far more substantial increase and could potentially act as a disincentive to the development of non-traditional exports. This is particularly the case since as part of the UK reforms the average frequency of inspections has been doubled in the past 5 years in order to bring the UK’s inspections in line with formal EU requirements.

Thus, not only have the unit costs of inspections increased, but also the frequency of inspections has on average doubled, suggesting an almost fivefold (236% x 2) increase in SPS inspection fees charged on imports of products requiring a phytosanitary certificate.

According to UK officials, the increase in the costs of inspections of imports into the UK was not as high as initially expected. This was in part linked to the efficiency improvements that have been achieved following the deployment of more staff at points of entry, and the introduction of new technologies and procedures. In this context, it should be noted that for importers the total costs to trade of the interventions by the regulatory authority may be more important than the individual level of fees charged per inspection, since delays to customs clearance, movement of goods to inspection areas and the holding of goods pending analysis can all add costs to the supply chain and thus affect the commercial value of imported products delivered to the final retail outlet. These efficiency gains, it is argued, have in part offset the fee increases introduced.

In terms of fees for documentary inspections and identity checks, these fees were initially reduced by approximately 25%, but they were subsequently reinstated in 2014 at 2010 levels (£5.71 per documentary and identity check).

To date it is unclear what the impact of the UK fee increases has been on patterns of ACP exports to the EU, particularly for cut flowers, since the Netherlands authorities (home to the major European cut-flower auction houses) have also been undertaking moves to full recovery of inspection costs.

According to UK government officials there has been no significant pattern of a decrease in the number of consignments imported into the UK as a result of the increase in fees levied. The UK Fresh Produce Consortium (FPC) has indicated examples of trade moving to other EU points of entry rather than coming direct to UK airports or sea ports, but acknowledges that this may not be directly attributable to the SPS fee increases.

More broadly, in terms of the principle of moving to full recovery of the costs of SPS inspections carried out, while this is intended to be non-discriminatory and to apply equally to domestic producers, in reality no SPS inspection fees have been charged to individual UK producers growing products that directly compete with the imports subject to fee increases. Since traditionally no fees have been charged and the costs of SPS inspections have been borne by the public purse, UK producers are unaffected by moves to full cost recovery in the fees charged.

Thus, the UK moves to full cost recovery for SPS inspections carried out are falling only on imported products, and not on domestic producers of competing products. This is significantly at variance with the objective of EC proposals to spread the full costs of SPS and food safety inspections along the whole of the supply chain.

This could potentially carry implications for the price competitiveness of imported products vis-à-vis domestic producers. However, the implications of full cost recovery for SPS inspections for the competitiveness of imports is likely to vary from product to product, from country to country and even seasonally (given the impact that seasonality can have on market prices and hence the commercial significance of SPS inspection charges).

The EU May 2013 proposal on financing of food and feed controls

The EC’s May 2013 proposal on financing of food and feed controls sought to introduce full cost recovery for all official SPS and food safety controls across the whole food and feed supply chain (i.e. domestic production and imports). The aim of the proposal was to ensure sufficient resources for effective official control systems and address “known shortcomings”. The draft regulation proposed the charging of mandatory fees “to all registered food and feed businesses… so as to spread the cost of controls across the entire chain”, ensuring that future fees “enable the competent authorities to fully recover the costs incurred” while rewarding business operators that consistently comply with reduced fee rates.

In an earlier evaluation of official control systems, it was estimated that EU member states collect between 20 and 80% of the costs of carrying out official controls, depending on national policy decisions. Given the economic and financial difficulties facing many EU member states, it was considered that this situation could potentially undermine essential control functions. It was estimated that extending the scope of mandatory fees and introducing full cost recovery could increase the funding for official control by between €2.3 billion and €37 billion per annum, depending on the basis on which fees are levied (see Agritrade article ‘ EU farmers find new fees for official inspections unacceptable’, 23 March 2014). It was considered therefore that this would strengthen the implementation of effective SPS and food safety controls.

The draft EC proposal included “detailed measures for the calculation of fees”, and “a mandatory exemption for micro-businesses” from fees, but not from controls. The exemption for microbusinesses was proposed in recognition of the impact that such fees could have on the competitiveness of microenterprises.

Extensive lobbying took place around these proposals seeking to limit the scope of moves to full cost recovery for the extended range of mandatory official controls proposed by the EC. For example, the EU farmers’ organisation Copa-Cogeca maintained that cost recovery for every on-farm inspection would be disproportionately expensive, with farmers unable to pass these cost along the supply chain. The EC proposals were therefore condemned as “unacceptable”, with Copa-Cogeca calling for reforms that would allow recognition of independently verified private quality assurance schemes by official inspection bodies, in order to avoid unnecessary duplication of inspections.

By April 2014 no agreement had been reached in the European Parliament on a range of the EC proposals, including those relating to mandatory full cost recovery. This means that neither moves to mandatory full cost recovery nor the granting of “mandatory exemption for micro-enterprises” have been approved. Instead it remains up to member state governments to determine whether or not they move to full cost recovery and to strengthen their official controls in line with EU level requirements.

The debate around the EC proposals continues. In all probability, the issue of establishing a common approach to the application and financing of SPS and food safety controls will resurface in the coming years as issues related to unfair competition between EU points of entry begin to emerge.

Implications for the ACP

A systematic bias against non-traditional and small exporters

The fact that Kenya has a long-established track record of exporting cut flowers to the EU means that Kenyan exports are currently subject to lower levels of SPS inspections than non-traditional suppliers, who may face levels of SPS inspections up to 20 times higher than Kenyan exporters ( see Table 1), at a unit cost up to 20 times higher than the charges levied on Kenyan exporters (see Tables 2 and 3). In the context of the UK’s moves towards full cost recovery, which has seen fees increase by 236% since March 2012, this can act as a disincentive to the development of non-traditional exports.

In addition, the changes in inspection levels which may take place every 3 months ( see Table 1) can lead to substantial increases in inspection costs. Press reports indicate that a small-scale exporter from a non-ACP country, who exported single consignments on a weekly basis (i.e. well below the 200 consignments per annum required for a risk assessment and possibly lower inspection charges), resulted in the exporter exiting EU supply chains purely on the basis of the increased inspection costs incurred due to a doubling of the percentage of consignments subject to inspection (see Agritrade article ‘ EU MRL and retailer standards affect more than ACP exporters’, 29 June 2014).

For small, low-income and least developed ACP countries considering how to diversify their exports, calls could be made for authorities to set an upper limit on the fees charged for SPS inspections, so as not to discourage export diversification. Where necessary, this could be covered by “aid for trade” support.

At a minimum, consideration should be given to capping fees for the first 5 years, during which a track record for risk assessment is built up and access to reduced inspection levels becomes possible. For small-scale exporters, this may need to include reducing the annual minimum level of consignments required for a risk assessment and spreading the assessment over a longer period of time (while still maintaining the requirement for “no more than 1%” frequency of violations).

The impact of cost increases on different types of companies

Analysis from ODI has suggested that increased costs of accessing the EU market (whether arising from tariff changes or increased inspection charges) may well fall more heavily on small and medium-sized firms, which are locally owned, rather than large firms which are foreign owned and vertically integrated. It is maintained that larger firms and those more directly integrated with buyers, are better placed to absorb increased costs through sharing the burden of increased costs (see Agritrade article ‘ Analysis throws light on the differential impact on companies of increas...’, 11 August 2014).

Anecdotal evidence suggests that the financial burden along integrated supply chains involving large foreign-owned firms arising from the 236% increase in UK SPS inspection fees is in fact being shared between importers and exporters (see Agritrade article ‘ UK moves to full cost recovery for SPS inspections, but no agreement yet...’, 9 June 2014 ). In addition national schemes such as the unofficial UK “Assured Trader Scheme”, which allows reduced numbers of inspections for established reputable importers with a proven good record of compliance, is likely to further reduce the cost-increasing effects of moves to full cost recovery borne by larger foreign-owned firms.

It is far from clear whether similar cost savings are available to smaller and medium-sized, locally owned firms which enjoy less integrated supply arrangements. This potentially carries implications for ownership patterns in export-oriented supply chains for the affected commodities in ACP countries.

This potentially poses challenges to ACP governments seeking to develop indigenous entrepreneurs in the affected sectors, and may require policy initiatives to encourage and support collective marketing and the building up of long-term supply arrangements.

The impact of different rates of inspection in different EU member states on risk assessment

An important by-product of the EC’s failure to secure agreement on the establishment of a more consistent approach to official controls across the EU, and the unilateral implementation of stricter SPS controls on imports by the UK authorities, has been a dramatic increase in the UK’s share of interceptions on SPS grounds. The share of the UK in total interceptions of consignments on plant health grounds rose from 6.5% in 2009 to 20.3% of the EU total in 2013. Similarly, while the rate of interceptions of harmful organisms rose 33% in the EU overall, during this period interceptions of harmful organisms increased in the UK fivefold (see Agritrade article ‘ EU annual report on plant health interceptions from third-country suppliers’, 18 August 2014).

This has seen a corresponding increase in the frequency of interceptions on plant health grounds of exports to the EU from Kenya, Ghana and the Dominican Republic. ACP exporters to other EU markets with less rigorous import inspection regimes have experienced fewer interceptions on plant health grounds. This potentially carries important financial implications for ACP exporters to the UK market, since the EU Europhyt notification system of SPS-related interceptions provides the basis for assessing risk and establishing inspection schedules for each country/commodity combination.

This could result in ACP countries whose primary market in the EU is the UK facing more frequent inspections (at higher overall cost), not necessarily because their exports are more likely to carry harmful organisms, but simply because UK inspection services are more likely than other EU member state plant health inspection services to detect such harmful organisms, due to the reforms carried out since 2010.

An ACP–EU dialogue could usefully be launched to ensure that difference in the rates and efficiency of SPS inspections among EU member states do not impose unfair inspection cost levels on specific trade flows when not justified by the underlying biosecurity risk.

Recognising the value of private standards in determining inspection requirements

It is widely recognised that the biosecurity and pest management measures applied by producers for some products under private certification schemes mitigate shortcomings in official control systems. This raises the question of whether greater recognition could not be given to risk mitigation arising from private sector controls when determining the level of official controls – and hence inspection charges – levied on imports into the EU.

There is already an unofficial precedent for this in the UK’s “Assured Trader Scheme”, which “recognises the high standards of reputable traders” by reducing the levels of inspection. A case would appear to exist for exploring the formal incorporation of this approach into the EU regulatory framework. This could form part of a broader package of EU measures designed to ensure that full recovery of inspection costs and stricter enforcement of import inspection regimes do not undermine the commercial viability of established and emerging ACP horticultural exporters.

Promoting increased size of consignments

Given that the financial burden of moves to full cost recovery for SPS inspections can fall particularly heavily on small-scale producers/exporters with no established track record, consideration may need to be given to supporting the “bulking up” of export consignments by promoting increased collaboration between exporting companies. This may need to be taken on board in the design of national export promotion programmes.

However, if this process is to be facilitated there will be a need for common standards for export-oriented production of the affected commodities, so that exports of products from one company are not undermined by inferior quality products from another company.

There would appear to be some scope for government-supported initiatives in this area to assist national exporters in taking steps to minimise the impact of inspection fee increases in OECD markets.

Reviewing routes to market

In a context of moves to full cost recovery in the UK and the Netherlands, and given that EU member states charge widely differing fees for SPS inspections, it may be appropriate for the ACP to support a review of the SPS fees levied in different EU member states, alongside a review of the efficiency of SPS clearance procedures at the principal ports of entry. This would provide useful information for newly emerging exporters of the affected products, as they plot their routes to European markets.

Establishing an ACP–EU dialogue on the application of SPS measures to minimise trade disruptions

Given the widespread recognition of the growing importance of how NTMs are applied to exports of agro-food products from least developed and low-income countries to the EU, the question arises over the need to intensify ACP–EU dialogue on this important issue. It could be addressed by broadening out the mandate of the established structures of ACP–EU dialogue dealing with trade issues, which could offer an ideal mechanism for ensuring greater coherence between internal EU policies (e.g. biosecurity policy) and EU development policy objectives. In addition, it would need to focus on ways of maintaining EU biosecurity while reducing the negative effect on ACP exports of the implementation of EU SPS biosecurity measures.

Establishing such dialogue structures with the EU on issues of SPS implementation could then offer a model for similar arrangements between ACP countries and non-EU trade partners, towards which ACP agro-food sector exports are increasingly being targeted in response to evolving patterns of global demand (see Agritrade article ‘ US moves to full cost recovery for agricultural quarantine inspections’, 14 July 2014).

Table 2: Schedule 1 – UK plant health inspection fees for cut flowers and fresh fruit and vegetables (£)

  1 Jan 2011 6 April 2012 6 April 2013 6 April 2014 % change 2011/14
Cut flowers
Up to 20,000 stems
Daytime 14.28 46.98 49.66 47.87 +235.2
Non-daytime 21.42 70.47 74.50 71.80 +235.2
Each additional 1,000 stems

Daytime

Up to max. of

0.11

114.24

0.36

375.84

0.38

397.31

0.37

382.92

+236.4

Non-daytime

Up to max. of

0.16

171.36

0.54

563.76

0.57

595.97

0.55

574.38

+243.8
Fresh fruit and vegetables
Up to 25 tonnes
Daytime 14.28 46.98 49.66 47.87 +235.2
Non-daytime 21.42 70.47 74.50 71.80 +235.2
Each additional tonne
Daytime 0.57 1.88 1.98 1.91 +235.1
Non-daytime 0.85 2.81 2.97 2.87 +237.6

Source: Extracted from Plant Health (Fees) (England) Regulations (various – see below)  

Table 3: Schedule 2 – UK reduced-rate plant health inspections fees for roses from selected East African countries (£ per 20,000 stems)

  1 Jan 2011 6 April 2012 6 April 2013 6 April 2014 % change 2011/14
Kenya

Daytime

Non-daytime

0.71

1.06

2.35

3.52

2.48

3.72

2.39

3.59

+236.6

+238.7

Zambia

Daytime

Non-daytime

3.57

5.35

11.74

17.62

12.42

18.62

11.96

17.95

+235.0

+235.5

Uganda

Daytime

Non-daytime

3.57

5.35

11.74

17.62

12.42

18.62

not available  
Tanzania

Daytime

Non-daytime

1.42

2.13

4.70

7.05

4.96

7.42

7.18

10.77

+505.6

+505.6

Ethiopia

Daytime

Non-daytime

0.71

1.06

2.35

3.52

4.96

7.41

4.78

7.18

+ 598.6

+577.4

Source: Extracted from Plant Health (Fees) (England) Regulations (various – see below)

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