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Agriculture and Rural Development Discussion Paper 19 Cost of Compliance with SPS Standards Public Disclosure Authorized The World Bank Delivering and Taking the Heat Indian Spices and Evolving Product and Process Standards Public Disclosure Authorized Public Disclosure Authorized Steven Jaffee Public Disclosure Authorized First printing or web posting: 2005 © 2004 The International Bank for Reconstruction and Development / The World Bank 1818 H Street, NW Washington, DC 20433 Telephone 202-473-1000 Internet www.worldbank.org E-mail [email protected] All rights reserved. Agriculture and Rural Development Discussion Papers is an informal series produced by the Agriculture and Rural Development Department of the World Bank. These papers raise concepts and issues for discussion in the broader development community and describe ongoing research and/or implementation experiences from the Bank. The findings, interpretations, and conclusions expressed herein are those of the author(s) and do not necessarily reflect the views of the Board of Executive Directors of the World Bank, the governments they represent, or the organizations of contributing authors. The World Bank does not guarantee the accuracy of the data included in this work. Rights and Permissions The material in this work is copyrighted. Copying and/or transmitting portions or all of this work without permission may be a violation of applicable law. The World Bank encourages dissemination of its work and will normally grant permission promptly. For permission to photocopy or reprint any part of this work, please send a request with complete information to the Copyright Clearance Center, Inc., 222 Rosewood Drive, Danvers, MA 01923, USA, telephone 978-750-8400, fax 978-750-4470, www.copyright.com. All other queries on rights and licenses, including subsidiary rights, should be addressed to the Office of the Publisher, World Bank, 1818 H Street NW, Washington, DC 20433, USA, fax 202- 522-2422, e-mail [email protected]. ii Contents Foreword........................................................................................................................................ v Acronyms...................................................................................................................................... vi Executive Summary...................................................................................................................... 1 Historical Background.................................................................................................................. 2 International Spice Market Context ........................................................................................... 3 Evolving International Regulatory and Standards Environment.......................................... 11 Traditional Foci on Qualitative and Physical Characteristics................................................. 11 Growing Attention to Food Safety, Plant Health, and Environmental Parameters ................. 12 Comparison of Prevailing Official and Commercial Requirements......................................... 15 Structure of the Indian Spice Supply Chain and Exports ...................................................... 18 Production................................................................................................................................. 18 Trade and Distribution ............................................................................................................. 19 Challenges, Strategies, and Costs of Compliance with Sanitary and Phytosanitary Standards..................................................................................................................................... 24 Black Pepper Cleanliness ......................................................................................................... 24 Chilies, Pesticide Residues, and Aflatoxin................................................................................ 26 Sudan 1 in Chili and Curry Powder ......................................................................................... 32 Costs and Benefits of Quality and SPS Compliance................................................................. 34 Conclusions.................................................................................................................................. 38 References.................................................................................................................................... 41 Figures Figure 1. Indian spice exports, 1960–2003..................................................................................... 3 Figure 2. World black and white pepper exports............................................................................ 4 Figure 3. Average unit FOB price for world black and white pepper export (US$/t) .................... 5 Figure 4. Distribution channels for spice products in Japan........................................................... 9 Figure 5. US spice imports, 1981–2000 (millions of pounds) ...................................................... 10 Figure 6. Marketing channels for Indian chilies ........................................................................... 21 Figure 7. Indian spice exports in whole vs. value-added forms ($ millions)................................ 22 Figure 8. Exports of chilies from India (MT)................................................................................ 32 Tables Table 1. Value of world spice exports (US$ millions).................................................................... 4 Table 2. Share of world spice imports by commodity (%) ............................................................. 6 Table 3. Market share of leading spice exporters (% of world import value) ................................ 6 Table 4. Process and system requirements for dry chilies............................................................ 16 Table 5. Process and system requirements for whole/ground black pepper................................. 17 Table 6. Process and system requirements for spice oils/oleoresins ............................................ 17 iii Table 7. Estimated number of Indian growers and average planted area for selected spices....... 18 Table 8. Changing product composition of Indian spice exports (% of totals)* .......................... 22 Table 9. Destinations for Indian spice and spice product exports (% of export value, 2001–02) 23 Table 10. Commonly used pesticides for Indian chilies and external market regulatory status... 30 Table 11. Changing cost composition for chili powder................................................................ 37 Table 12. Order of magnitude estimate of investments made in spice quality/food safety enhancement and testing, mid-1990s to 2003 (US$ millions) .............................................. 38 iv Foreword Food and agricultural trade is the vital link in the mutual dependency of the global trade system and developing countries. Developing countries derive a substantial portion of their income from food and agricultural trade. The emergence of food safety and agricultural health issues and the related tightening of market requirements form challenges to further gains from trade due to the lack of technical and financial capacities of many developing economies. As part of a joint program between the World Bank’s Agriculture and Rural Development Department (ARD) and International Trade Department (PRMTR), a survey on the Cost of Compliance of exporting developing countries was undertaken. The survey was focused on the supply chains of high-value food products (horticulture, fish, meat, spices, and nuts). The study quantified the costs incurred by both the public and private sectors; identified the coping strategies employed by the various stakeholders in the supply chains; determined the constraints that hinder compliance; examined the structural changes in the supply chain resulting from compliance with the safety standards; and evaluated the impact of these standards on small-scale enterprises and producers. The survey included Ethiopia (animal products), India (fish and spices), Jamaica (nontraditional agricultural exports), Kenya (fish and horticulture), Latin America Southern Cone (animal products), Morocco (fruits and vegetables), Nicaragua (shrimp), Senegal (fish and groundnuts), and Thailand (shrimp and horticulture). This working paper is one of a series of such case studies that examined the strategies and costs of compliance of the various stakeholders in developing countries with international agro-food standards. This paper was prepared by Steven Jaffee (PRMTR) of the World Bank. A complementary perspective is provided by the companion series of buyer surveys involving representative importers, brokers, retailers, and distributors in the European Union, Japan, and the United States. This series, in turn, discusses the buyers’ perception of the strengths and weaknesses of their suppliers and describes the assistance and/or interventions offered by the buyers to their developing country suppliers. The findings and conclusions derived from these country studies are discussed in a synthesis report that seeks to identify possible points of intervention by the World Bank and other donor agencies and to determine the types of technical assistance that would be most efficient and appropriate. This synthesis report can be found at www.worldbank.org/trade/standards. It is hoped that the experiences