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Caribbean agro-food operators’ competitiveness concerns highlighted

28 October 2012

It has been reported in the Caribbean press that a visit by representatives of 22 Caribbean manufacturing companies to the EU has led to increased concern over the state of preparedness of the local food processing sector to compete within the framework of the new EPA arrangements. Following the visit to Europe, Sonya Dunstan, CEO of Taste of Caribbean Ltd, said that local companies ‘are not yet ready’ for the EPA, since they lack the economies of scale to compete.

Particular concerns were expressed about EU food safety standards. Ms Dunstan argued that ‘the food-safety standards of these European countries are extremely high and some of us labour and borrow money from the banks to attain or meet these food-safety standards.’ Reaching these standards has, however, proved ‘elusive, as the bar is raised higher and higher’. She maintained that ‘a few small companies that are exporting will soon not be able to.’

This point is illustrated by the acknowledgement in August 2012 by Jamaican Agriculture Minister Roger Clarke that Jamaican fresh product exporters were ‘losing ground’ on the UK market as a result of their failure to keep up with product standards. It was further illustrated in September by the press report that ‘95% of Jamaican exporters still don’t have Hazard Analysis and Critical Control Point (HAACP) plans’ in place, as required under the US Food Safety Modernisation Act. This is despite activities begun over the preceding 12 months and the initiation of a National Food Safety Compliance pilot project. However, former export industry leaders have expressed optimism that the Jamaican agro-food sector is ‘on track to comply with the new [US] rules’ before the end of 2012.

In addition, the European tour exposed Caribbean entrepreneurs to their ‘weaknesses in marketing and product packaging’, compared to their European counterparts. It was recognised by the manufacturers’ representatives that ‘Caribbean agro-processors need to improve [their] packaging to match what obtains in the EU market,’ if the potential of the EU market under the EPA is to be realised.

In addition, Donna Bromfield, the manager of Southern Fruits and Food Processors, argued that in order to be competitive, Caribbean agro-processors needed to ‘reduce operational costs or improve efficiencies’, since ‘some retail prices there are lower than our ex-factory prices’.

In discussions on the implementation of EPA commitments, the Caribbean representatives highlighted the importance of ‘taking into account our state of development in the Caribbean and our ability to compete profitably’, in the implementation of EPA agreements.

Meanwhile, issues of unfair competition have arisen in Caribbean trade with the US, following the granting by the US of excise duty rebates to rum producers in Puerto Rico and the US Virgin Islands, according to a report on the website Caribbean360. These excise rebates, worth US$452 million and US$133.5 million respectively to producers in Puerto Rico and the US Virgin islands, are encouraging a major expansion of rum production by multinational companies based in these US territories, with production expansion in the US Virgin Islands alone expected to be equivalent to 80% of the US rum market.

Legal opinions prepared at the request of Caribbean trade officials suggest that ‘these subsidies violate the US government’s international obligations as a member of the World Trade Organization.’ While to date US officials have not questioned this legal analysis, no immediate review of the current policy is foreseen while the US presidential election is pending. It is thought that Caribbean rum producers could lose rum supply contracts, as they will be unable to compete on price with US producers receiving such substantial tax rebates.

Analysts have called for CARICOM governments to follow the lead of the Dominican Republic and initiate both direct lobbying of US policy makers and a WTO action on these allegedly illegal WTO subsidies. 

Editorial comment

The competitiveness concerns following the recent Caribbean manufacturers’ visit to the EU and the current challenges faced on the US rum market both highlight the challenges facing smaller ACP economies when trying to engage in agro-food sector exports. These relate to the vast differences in size and levels of public sector support measures for agro-food sector enterprises.

The issue of compliance with evolving SPS and food safety standards is a particular problem. On the issue of standards, the Caribbean region always seems to be playing ‘catch-up’, making it difficult to achieve and consolidate access to EU and US markets.

Lessons from elsewhere in the ACP, notably the Namibian beef sector, highlight the need to get ahead of the SPS and food safety agenda, so that the necessary SPS and food safety related investments can be built into routine reinvestment plans. This requires a detailed understanding of how standards are evolving and the planning of investments that do not just meet current standards but get two or three ‘generations’ ahead of current standards, complemented by enhanced marketing efforts to ensure that the full commercial benefit of higher standards is secured.

While there are great expectations for the 10th EDF financed ‘Technical Barriers to Trade’ project, it is unclear whether the programme is structured in a way that will enable Caribbean producers to make the necessary leap to compliance with third-generation standards.

In terms of US/Caribbean rum sector issues, while the case for concerted Caribbean action in response to current US support programmes is strong, the question arises: do national governments really want to get into such a trade conflict with the US at a time when the rigorous interpretation and application of the new US food safety law could de facto close the US market to the majority of the region’s agro-food exports?

Enforceable global rules disciplining both direct and indirect financial support measures in OECD countries are clearly essential. However, in view of the stalled WTO negotiations, it seems unlikely that the negotiations will address such key agro-food sector trade issues.

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