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Deepak K Srivastava
The most common complaint from developing countries like India, is that the environmental and food safety standards are set very high in the developed countries and often unreasonably so. There is also the belief that these standards are strategically kept at high levels so that exports from the developing countries can be banned on such grounds.
Developing countries like India have not sufficient resources for implementing these standards. This may require large investment and better technology that is not available in these countries and which needs to be imported from developed countries. This is likely to negatively affect export firms in developing countries. The production costs of these firms might increase due to measures to bring compliance with these standards and as a result they will lose their competitiveness in foreign markets.
On the other hand developed countries imposing these standards argue that these standards are necessary for the health of their citizens and that they are technologically feasible even in developing countries.
It does seem that environmental and food safety standards of developed countries are an impediment to Indian exports. According to the Annual Report of the Indian Food Processing Ministry of 2004-05, India is the second largest producer of fruits and vegetables in the world. The size of the overall Indian food market is much bigger and includes the production of grains such as wheat and paddy rice, dairy products, fruits and vegetables, marine products etc. India has arable land of 184 million hectares. It produces annually 91 million tones of milk (the highest in the world), 150 million tonnes of fruits & vegetables (second largest), 485 million livestock (largest), 212 million tonnes food grain (third largest), 6.4 million tonnes fish (3rd largest), 489 million poultry and 41,000 million eggs. Nevertheless, India has only a 1 per cent share in the world trade of processed food items.
One of the main reasons for India's small share of the world processed food industry is the rejection of Indian food and manufactured products by the developed countries on the ground of environmental and safety standards. Needless to say, the export competitiveness of the Indian processed food industry depends upon access to the markets of developed countries.
According to a British High Commission funded study by Kajli Bakhshi, SPS Agreement under the WTO: The Indian Experience, the standards of developed countries are negatively affecting Indian exports. This is evident, for example, from the fact that rejections of Indian shipments by the USA increased from 860 during May 1999-April 2000 to 997 during December 2001-November 2002. The USFDA gave various reasons for these rejections.
For example, a consignment of 'egg powder' from India was rejected in the EU. The reason given by authorities in the destination country was the non-compliance with rule of 'Minimum Required Performance Limit (MRPL)'. The basic reality was that the rule was announced just before the date of the consignment reaching the importing country.
Moreover, the effect of ensuring compliance with environmental standards leads to high costs for Small and Medium Enterprises (SMEs). Indian leather exporters were adversely affected when the European Union (EU) banned Toxic Fungicide Penta Chlorophenol. Most Indian tanneries then began using Busan 30, as a substitute for PCP, which was imported from either Germany or the USA and cost several times more. These SMEs also found it to be not viable to install effluent treatment plants in the tanneries sector and the Government had to provide assistance. Indian agriculture exports such as fruit, coffee, meat, rice, etc have also been adversely affected due to these environmental provisions. These products are rejected on the grounds of food safety and quality issues, including concerns regarding food poisoning, antibiotic residuals, etc. For example, the ochratoxin limit on imported coffee enforced by the EU resulted in the rejection of Indian coffee by many EU countries. (Aparna Sawheny, 2003 'How environmental provisions affect Asian developing countries', Management Review, March 2003, p 14.)
A study by the Committee on Trade and Environment under the Commerce Ministry in India found that tea exports have been affected due to developed countries' concerns about pesticide content. Although Indian exporters adhered to the maximum pesticide residue levels recommended by US Environmental Protection Agency (EPA), stricter limits (e.g. 0.01 mg of tetrafidon and 2 mg of ethion per kg of tea) imposed in some European countries became insurmountable, there being, apart from other problems, a cost of US$234 per analysis (www.commerce.nic.in/wto_sub/environ/environ_india.htm).
While food safety and agricultural sustainability are important issues, clearly the interests of developing and developed countries can be at odds regarding implementation of environmental and food safety standards. Developed countries are not adequately taking account of the special needs of, and situations in, developing countries in preparing and applying of these standards. Since these standards are being used as trade barriers, therefore, they are defeating the basic objectives of free trade.
WATCHPOINT: Can the environmental and food safety standards of developed countries be tailored to address the interests of, and situations in, developing countries? More importantly, is there the will in developed countries to do so?
About our company:
AFG Venture Group is an Asia and Australia based corporate advisory and consulting firm with over 20 years experience in creating alliances, relationships and transactions in Australia, South East Asia and India; including a 15 year history of corporate and equities advisory in Australia, undertaking merger, acquisition, divestment, fund raising and consulting for private and public companies.
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