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Olayinka Idowu Kareem_2023 AGRODEP Annual Conference

  1. Team Leader, GIZ ECOWAS Project, University of Hohenheim, Germany The Transatlantic Food Safety Regulations: the emerging impact on Africa’s fruit exports Olayinka Idowu Kareem
  2. #2023 AGRODEP CONFERENCE Outline Introduction The context State of the art The model Empirical findings Conclusion
  3. DIGRESSION: The Taxonomy of Trade Policy Trade Policy Non-Tariff Measures Exports Measures Technical Measures Tariffs Ad- Valorem Non-Technical Measures • Sanitary and Phytosanitary Measures • Technical Barrier to Trade • Pre-Shipment Inspection and Other Formalities • Contingent Trade- Protective Measures • Quantity Control Measures • Subsidies, Intellectual Property, Rule of Origin, etc. Export-Related Measures Specific Tax Compound Tariffs, etc. 22/03/2023 3
  4. #2023 AGRODEP CONFERENCE 1. Introduction Macroeconomic Policies Trade Policies Tariffs NTMs Economic, Political and Socio-cultural Philosophy
  5. #2023 AGRODEP CONFERENCE Introduction Cont.  Trade policy is increasingly used as a soft/bargaining power to pursue non-trade external policy goals.  This enunciates the importance of trade policy in the context of global trade.  Food safety regulations (FSRs) stand out as relatively more important among the non-tariff measures (NTMs) for Africa to access the transatlantic region’s markets.  FSRs enable countries to control the flow of unsafe food and feed.  The incidences/effects of FSRs have been aggravated and pronounced in the past few decades. - because of the continuous tariffs’ decline.  Evidence indicates rising in FSRs since the global health pandemics such as COVID-19, Ebola, etc.,  The imposed transatlantic region’s FSRs have consequences for market access, particularly for Africa.
  6. #2023 AGRODEP CONFERENCE Introduction Cont.  FSRs impact magnitude is still an issue for an empirical investigation., especially for the US. - due to the dearth of empirical evidence. - the deficiency is affecting evidence-based and research-oriented policies that can stimulate compliance and increase market access. - impacting Africa’s fruit trade policy design, implementation and strategic planning/actions. - impact the extent to which Africa can adequately negotiate trade arrangement.  Improved accessibility of Africa’s fruit exports to the EU and the US has the potential of increasing the economic activities in the fruit subsector, which impact unemployment and poverty.  Africa’s attainment of sustainable development is linked in part to its export market access.  Hence, this study investigates the effects of the transatlantic region’s (the EU and US) food safety regulations on Africa’s fruit exports.
  7. • The US sets eligibility criteria to its market access. - based on conformity to the import treatment requirements. • 24 African countries are eligible for fruits imports. For fruits imports: - South Africa (13), Morocco (12) & Tunisia (9) had the highest number of eligible commodities. • North Africa has more market access than others. - in terms of intensive & extensive margins of export. 7 2 2 2 2 2 2 4 2 2 1 3 2 2 12 1 2 2 2 2 13 2 9 6 Figure 1: List of Eligible African Countries and the Number of Fruits Exports to the United States as of 2014 Fruits Source: Compiled from USDA, Animal and Plant Health Inspection Service. The United States Market 2. The Context: FSRs Impact
  8. • In terms of the eligible commodities: - 16 Africa’s fruits items are eligible. • Bulk of the countries export banana (20) and pineapple (22). - the least exported commodities are cranberry, kiwi and strawberry. • Not all the eligible exporters actual export to the US. • Out of the 20 eligible banana exporters, - only 35% of them exported (7). • Pineapple recorded 18% of exporters. • For grapefruits and oranges were 100%. 0 5 10 15 20 25 Apple Apricots Banana Cherries Cranberry Grapefruits Grapes Kiwi Lemons Oranges Peaches Pears Pineapple Plums Strawberry Tangerines 2 3 20 1 1 4 6 1 3 4 4 6 22 5 1 4 Fig. 2a: Eligible Africa's Fruits to the United States as of 2014 Eligible Country Source: Compiled from USDA, Animal and Plant Health Inspection Service. The United States Market Cont. 0 1 2 3 4 5 6 7 Fig. 2b: Number of African Countries that Actually Exported Fruits to the United States, by 10 Top Eligible Fruits as of 2014
  9. • Consistent rise in Africa’s food exports to the EU. - except for 2012 & 2016. • An oscillatory trend in the EU rejections of Africa’s food exports. • not always the case that the EU rejection increases with rise in export. - indicating no feedback relationship. - owing to the MFN principle of FSRs. - FSRs not directed to Africa. 0 5 10 15 20 25 30 35 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Fig. 3: Africa's Food Exports($'Billion) and the Corresponding Incidence of Border Rejection Rejection FoodExport 22/03/2023 9 The EU Market
  10. • Some similarities exist in the FSRs in both markets. - 15 similar food safety measures exist. - but the tolerant levels differ. • EU imposes 9 FSRs that are not in the US portfolio. • 25 US agri-food import treatments not in the EU. - 9 of them are FSRs. - 16 remaining measures are non-technical. • The US has different layers of regulations. - at the states and federal levels. - with multiple agencies’ regulating on same items. • EU has harmonised their FSRs. -25 -20 -15 -10 -5 0 5 10 15 Figure 4: Regulatory Similarity and Differential between the EU and the US European Union United States The EU and US Regulatory Differential and Similarity Source: Compiled from RASFF and USDA, Animal and Plant Health Inspection Service.
  11. #2023 AGRODEP CONFERENCE 3. State of the art FSRs Literature Review Strands of Findings Trade- Enhancing Mixed-Impact Trade- Inhibiting Ignacio (2008), Jaffee and Henson (2004), Henson and Jaffee (2009), Henson and Humphrey (2008), Maertens and Swinnen (2009), etc. McCullough, Pingali, and Stamoulis (2008), Swinnen (2007), Kareem (2016b), Henson (2006), etc. Otsuki et al. (2001), Kareem (2019), Okello and Roy (2007), Kareem and Rau (2018), Shepherd and Wilson (2010), Kareem et al. (2016) etc.
  12. #2023 AGRODEP CONFERENCE 4. The Model  This study investigates the effects of the transatlantic region’s FSRs on Africa’s fruit exports using the augmented HMR theoretical framework with a two-stage selection model.  The first stage involves the specification of the probit model at the extensive margin of trade – the probability or the decision to trade. 𝑌𝑖𝑗𝑡 = 𝛽1 + 𝛾𝑖𝑡 + 𝜌𝑗𝑡 + 𝐶𝑖𝑗𝜗 + 𝜋𝐸𝑖𝑗𝑡 + 𝛼𝐹𝑆𝑅𝑗𝑡 + 𝜀𝑖𝑗𝑡 1  The second stage is the intensive margin of trade – the actual trade – model that is specified using a linear regression model: 𝑄𝑖𝑗𝑡 = 𝛽2 + 𝛾𝑖𝑡 + 𝜌𝑗𝑡 + 𝜋𝐹𝑆𝑅𝑗𝑡 + 𝐶𝑖𝑗𝜗 + 𝜑𝜎𝑖𝑗 + 𝜏𝑖𝑗 + 𝜀𝑖𝑗𝑡 2
  13. #2023 AGRODEP CONFERENCE 4. The Model  Where 𝑌𝑖𝑗𝑡 is a dichotomous variable that takes 1 if the export from country i to j (the EU and the US) at time t is nonzero, otherwise it is 0,  𝑄𝑖𝑗𝑡 is the export value from country i to j at time t.  The intercepts are 𝛽1and 𝛽2; importers' and exporters' fixed effects are 𝛾𝑖𝑡 and 𝜌𝑗𝑡, respectively.  𝐶𝑖𝑗 is the vector of pair-varying control variables such as economic size, distance, etc.  𝐸𝑖𝑗𝑡 stands for the exclusion variable which will not enter the second-stage regression.  𝜏𝑖𝑗 represents the unobservable firm heterogeneity - the number of firms exporting from country i to j.  The inverse mills' ratio is 𝜎𝑖𝑗, which is from the first-stage regression. Data  It covers the period from 1995 to 2017 for 45 African countries in all the estimations – panel data.  Data sourced from the WITS database, WDI, Eurostat, etc.  Africa's aggregate exports of fruits are considered at the H-2-digit level and at the disaggregated HS-6- digit level for the banana, which was obtained from WITS.
  14. #2023 AGRODEP CONFERENCE 5. The Empirical Findings Extensive margin: Fruits  The economic mass of the trading partners significantly propels fruit exports to the EU (0.2) and US (0.8). - such that economic prosperity stimulates fruit exports more to the US than the EU.  The EU FSRs serve as inhibiting factors to the probability of exporting – 4.3%. - implying that new and disappearing fruit exporters are discouraged to explore the EU market.  The US FSRs are not export-impeding and they did not discourage the probability of exporting. - an additional per cent rise in the US FSR leads to 1.6% more fruit exports.  Trade regulatory institutions in Africa propel fruit export to the US (0.3%) but not to the EU (0.1%)
  15. #2023 AGRODEP CONFERENCE Extensive margin: Banana 5. Empirical Findings Cont.  The propensity to export bananas is significantly propelled by the GDP of the trading partners. - the EU and US increased by 0.6% and 0.3%, respectively, for every per cent rise in GDP.  The EU FSRs on bananas did not adversely affect the propensity to export – enhanced by 0.6%. - exporters are well informed about FSR requirements, upgraded and conform.  However, the US FSRs for bananas adversely impacted the probability to export - by 3.0% for an additional per cent rise in the regulations.  Trade institutions significantly double (2.0%) the propensity to export to the EU but their enforcement are insufficient for the US market.
  16. #2023 AGRODEP CONFERENCE 5. Empirical Findings Cont. Intensive margin: Fruits  Economic mass enhances fruit export to the EU (0.7%) and US (0.9%) - implies that Africa’s economic size and the level of absorption of the commodity in the export markets are sufficient to stimulate export.  The EU FSRs are not trade-inhibiting such that an additional per cent increase in FSR enhances export by 5.3%. - access to improved seeds and market information stimulates compliance via upgrading.  However, the US FSRs significantly inhibit fruit export by 4.3% for every per cent rise in FSRs. - the inadequate synergy between retailing outlets and exporters contributed to non-compliance to the US FSRs.  Trade regulatory institutions significantly enhance export access to the US but not to the EU market.
  17. #2023 AGRODEP CONFERENCE 5. Empirical Findings Cont. Intensive margin: Banana  The export is significantly propelled by the economic size. - banana export to the EU is more than doubled (2.2%) for every per cent rise in the GDP.  However, for the US market, the economic size of Africa and the US is not a significant factor.  The EU FSRs on bananas did not significantly inhibit export flows – export was enhanced by 5.4%. - this is partly attributed to the technical support from retailing firms, GLOBAL GAP, etc.  The US FSR adversely hinder banana export, though the US FSR is limited in preponderance. - however, they are stringent in the content requirements and the costs of compliance.  Exporters significantly explore regulatory inefficiency and porous enforcement to export bananas to the EU.  The institution is insignificant for the US market access.
  18. #2023 AGRODEP CONFERENCE 6. The Conclusions  This study finds evidence for neither simultaneous export-impeding nor export-enhancing effects of FSR at the extensive and intensive export margins in the EU and US markets.  This implies that FSR cannot be referred to as trade barriers for Africa – particularly in the EU market.  The strengthening of the trade regulatory institution can propel fruit export to these markets.  Hence, an improved institutional capacity to inspect and enforce quality standards will reduce the trade regulations challenges faced by Africa’s fruit exports in the EU and US and thereby enhance market access that could contribute to sustainable development.