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Who Does Bear the Costs of Compliance with Sanitary and Phytosanitary Measures in Poor Countries?

Shafaeddin, Mehdi (2007): Who Does Bear the Costs of Compliance with Sanitary and Phytosanitary Measures in Poor Countries?

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Abstract This article is a part of a twin study. Drawing on the available evidence, in this paper the author examines the cost of compliance with Sanitary and Phytosanitary (SPS) measures for poor countries with reference to Africa. He shows that the burden of cost of compliance is entirely on the exporters despite the fact that their capacity for the compliance is limited. He further indicate that that, in fact, the literature often disregards the cost of loss of exports, or rejection of products at the border of an importing country, let alone the cost of reorganization of the supply chain; the existing organization of supply chain in poor countries would result in the lack of export expansion. The purpose of the paper is not to have an exhaustive literature survey, but to draw on the scanty evidence related to the main argument of the study. More specifically, it is shown that the main characteristics of the SPS Agreement and the related measures applied by main importing countries are such that they require a complex, difficult and high cost “SPS” system. Such a system involves regulatory measures, policy re-orientation, and development of the necessary infrastructure, re-organization of the supply chain, enhanced capacity building and a forward looking strategy, particularly for exports. The preparation for the compliance is also difficult for the poor countries as it is knowledge intensive, requires a learning period, training and a close cooperation between the public and private sector in various stages of the supply chain. Yet the socio-economic cost of the lack of compliance is enormous. Generally speaking, the operational cost, alone, of compliance is estimated to be between 2 to 11 percent of value of export in the case of Africa; in each case it depends, however, on the type of product, the destination of exports, the capacity of the country for the compliance and the size of farm holdings and exporting enterprises and the organization of the supply chain. Further, the investment cost can be colossal; in some cases (e.g Mozambique) exceeding the total food exports of the country. The available studies provide estimates for the administrative cost of control, inspection, testing and certification at the border; but disregard more important costs such as the costs of delays in exportation or rejection at the port of importing countries. Thus they downplay the need for taking preventive measures and the related cost of reorganization of the supply chain. In a separate paper the author proposes alternative organization of the supply chain for reducing the cost of compliance while increasing its benefits (Shafaeddin, 2007). 2

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