Belrose, Inc.
Belrose, Inc.
So what is there not to like about traceability? Why do growers and shippers of produce squirm when the latest suggestion to ratchet up traceability is voiced? Why are so many fruit and vegetable associations around the world debating how to deal with this difficult issue.
Reason to Squirm
The reasons for the squirming are obvious. First, growers and shippers feel
that they are powerless to stem the tide of demands for additional traceability
that is rolling towards them. Second, they know that each new traceability
demand will bring new mandates, new recordkeeping and new costs. Not so obvious
are the potential returns to the industry from increased traceability. Also
less obvious is the level of traceability that will be optimal for the system
as a whole or for individual suppliers.
Elements of Traceability
Both the costs and the benefits of traceability are affected by (1) what attributes
of a product are traced, (2) what methods are used to measure those attributes,
(3) what records must be kept of the traceability measures, and (4) what verification
is required by government, buyers or others that the right attributes have
been properly measured, correctly recorded and promptly communicated up the
supply chain.
The potential cost of tracing any single attribute is relatively easy to measure. For example, one can easily calculate the direct labor cost involved in recordkeeping, or the costs of equipment and materials used in any measurement. One can use standard accounting methods to allocate managerial or supervisory costs to the traceability activity. However, suppliers have no way of estimating their eventual liability as the demands for traceability accumulate. There is no definite end in sight.
The potential benefits are less easily measured. The first firm or district to trace a particular attribute may get a temporary competitive advantage with customers. However, if tracing that attribute is made mandatory for all suppliers, no single one can gain a competitive advantage. The mandatory requirement becomes another inescapable cost of being in business, like telephone or energy costs. However, there may be benefits over competing commodities that do not trace that attribute. There may even be cumulative benefits for the whole produce sector or the whole food system if trust in the supply system is enhanced by improved traceability. We really don't know.
Reasons for Advocating Traceability
The major motive for advocating traceability in the produce system is fear
of food-borne illnesses that may be carried by the produce. The two major
perceived threats are those arising from pesticide poisoning and those resulting
from transmission of pathogens such as e-coli. A related motive among advocates
of traceability is that when growers and shippers know that a problem can
be traced back to them, they are less likely to permit hazardous practices
in their orchard or packing house.
A second motive for advocating traceability is to improve supply chain management. In general, net margins in the food business are relatively low. If a retailer can increase average stock turns from 26 per year to 28 per year, it can increase its net margin by 7.7 percent without using any additional capital. Traceability can help it to detect and correct bottlenecks and inefficiencies in the system.
In a recent paper in Choices magazine, Golan et al cite a third motive for traceability, namely, to differentiate and market foods with subtle or undetectable quality attributes. The most relevant example in produce is organic products. Another example would be tree-ripened fruit.
What Attributes of Produce Should
be Traced?
The answer to this question is what alarms growers and shippers most about
traceability. The number of attributes of a product that might be traced is
infinite. For a perennial crop like apples, aspects of the growing environment
may be relevant; items such as the soil-type, water source, air flow, prevailing
climate, production history, past chemical use, etc. Other site information,
such as location downwind of a nuclear plant, or past use of a persistent
chemical like arsenic, could also be an issue for retail buyers or consumers.
Practices during the current growing season are also likely candidates. For example, the Eurepgap standards for growers adopted by a consortium driven largely by major European retailers advise that "All growers should be able to demonstrate their commitment to: (a) maintaining consumer confidence in food quality and safety, (b) minimizing detrimental impact on the environment, whilst conserving nature and wildlife, (c) reducing the use of agrochemicals, (d) improving the efficiency of natural resource use, and (e) ensuring a responsible attitude towards worker health and safety." All of these would be very desirable if they were costless.
Certain interactions of weather, crop and practices may also be relevant. For example, the incidence and severity of fire blight is affected by weather. Weather, in turn, affects which chemical treatments might be used, the efficacy of those treatments and the rate of decay of the active ingredients in those chemicals. Such information may be critical for product acceptance in certain export markets. Different varieties may also need to be monitored separately since they frequently react differently to different weather conditions or treatment programs.
Many attributes beyond the orchard may also be of interest. The use of fumigation or irradiation or of different postharvest chemicals, storage regimes, waxes, treated wrapping papers, pack types, brands, labels, transportation methods and other logistical procedures may be of concern to some customers. For example, many consumers of organic products want to know how far these products have been shipped. They tend to favor products that have used the least possible amount of nonrenewable energy resources in their distribution.
The above sampling of attributes only scratches the surface of all the attributes that someone or other might consider as necessary for an adequate traceability system. It is simply intended to show that the list of attributes can be very long and the eventual burden on suppliers indeterminate.
How should Attributes of Produce
be Traced?
Golan et al describe three aspects of how attributes might be traced, breadth,
depth and precision. By "breadth" they mean the number of attributes
that need to be traced. As discussed above, the number of potential candidates
is large and is likely to keep growing as long as the present critical attitude
towards the food system continues. For example, fear of terrorism has led
to the addition of new worries and new demands for traceability on produce
suppliers.
By "depth" they mean how far along the supply chain a particular attribute needs to be traced. For example, in organic vegetables, traceability will need to go back to the vegetable seed. In an item like fumigation, traceability in some cases may go back to the packing house, in others fumigation may only occur at the port of import. The deeper the traceability system, the more complexity will be involved in communicating to all parties involved that traceability has occurred.
The final aspect of how traceability is measured relates to "precision." The precision needed is determined by the acceptable error rate in measurement and by the unit of analysis. For example, the EU has set a very low tolerance (0.9 percent) for genetically modified ingredients beyond which a special label will be required. Accordingly, the error rate for GMO content will be very low, and the equipment and tests needed will be very costly.
The unit of analysis also influences precision. For example, testing apples for chemical residues could be done on every apple or every carton or every truck load or every shift or every plant. The smaller the unit of analysis, the greater the precision, but the higher the cost. Conversely, the larger the unit studied, the more necessary it will be to have a sound sampling scheme so that the results are reliable. The smaller the margin of error that is acceptable, the bigger the sample will have to be, and the higher the cost.
How does Traceability get Credibility?
Traceability gets credibility from evidence that growers or shippers are actually
doing what they agreed to do. The cheapest method is to use the honor system
where suppliers police themselves. This system will work best where participants
are interested in outcomes (for example, zero residues) rather than in the
processes by which the outcomes were achieved. A supplier can be trusted until
one or more products are found to be out of compliance. The evidence may be
positive (for example, more beneficial insects present). Or, it may be negative
(for example, the consistent absence of residues from prohibited chemicals).
However, few advocates of traceability would accept the honor system as sufficient. Most demand that participants follow a detailed set of practices. Not only must suppliers follow the recommended procedures, they must also be able to document in detail that they have done so. This is the principle behind Eurepgap standards, organic standards and many of the standards mandated by individual retailers.
Costs and Who Will Bear Them
It is clear that if all the proposed items to be traced that governments and
major buyers are now discussing are imposed on the produce system, the costs
could amount to a significant percentage of total production, harvesting and
marketing costs. In many cases, they could eat up all the net income that
would otherwise be achieved.
Since retailers and consumers and society in general are the main beneficiaries of traceability systems, it would seem only right and just that they should bear most of the costs. However, that rarely happens for a number of reasons. Governments have become accustomed to passing unfunded mandates. That is, governments rule that it is in the national interest that businesses carry out certain activities, but they do not provide any money from the general tax revenues to cover the costs and may use the police powers of the state to enforce those mandates.
If a business is large enough, has a big enough market share, or is an effective monopoly, it can build those increased costs into its prices to consumers. The costs of the regulations effectively get passed on to consumers. In the food distribution system, this is not likely to happen. Firms like apple growers and shippers must sell their products to very large businesses such as giant retailers. Without collusion among apple suppliers, if even one supplier breaks ranks, it becomes impossible to pass on many of these costs. In addition, in many countries, such collusion is illegal.
The Urgent Need for a Philosophy
on Traceability
The fresh produce industry, including the apple and pear sectors, cannot survive
if additional requirements for traceability continue to be piled upon them
willy-nilly. The food system needs to develop a coherent policy on when traceability
is justified and when it is not. It needs a system of traceability that meets
sound business principles of being efficient and effective.
The basis for such a policy is already in place in the WTO and NAFTA regulations on sanitary and phytosanitary standards. These stipulate that a government standard must be based on sound scientific principles and be subjected to adequate risk assessment. Otherwise, it is an unjustified barrier to trade. The same principles need to be applied to traceability standards imposed on both domestic and international commerce.
The first principle requires that a regulation be scientifically sound. For example, a requirement that certain products must be fumigated would have to demonstrate that fumigation actually worked on the pathogen in question. The second principle requires a risk assessment to determine, if the product were not fumigated, what the probability would be of certain adverse effects occurring. Would there be one chance in a thousand or one chance in a million that ill effects would occur. What would be the costs if that effect occurred and how do those costs compare with the actual costs of fumigation? It also needs to take into account offsetting risks. For example, if an additional regulation leads to an increase in the price or a reduction in the availability of fruits, that in itself may increase health risks, especially to the poor.
It is true that in many cases, reasonable people might disagree about the scientific basis for any concern, about the level of risk involved and about the costs of an occurrence. However, unless participants are willing to submit their concerns to be ranked in the order of priority, those concerns should not be built into standards. In addition, when a pressure group comes up with a new concern for which they wish to beat the drums, they need to indicate what its priority is relative to existing requirements. If necessary, they may need to indicate which requirements have lower priority and should be omitted
For example, under the Eurepgap protocol, which items are more important, the safety of food or conserving nature or worker health? Secondly, which of these items are more under the control of the individual supplier? Eurepgap, and all other protocols have to recognize that agriculture's resources are limited, too. Those resources should be devoted to the most critical issues in the order of priority.
Time to Call a Halt to Unlimited
Traceability
The whole concept of traceability has exploded without being subjected to
adequate business, economic or social analysis. In every economic endeavor,
there is an optimal point where the marginal benefits of an action exactly
offset the marginal costs. That point, or a reasonable approximation of it,
must be found soon or the whole food system will sink into economic chaos.
The disaster that the Canadian beef industry faces as the result of the discovery of one cow infected with BSE (Mad Cow disease) is a warning of where the current zeal for traceability is leading the food industry. We should not let that happen to the produce industry.
For more information on any of our publications, email belrose@pullman.com
Belrose, Inc.
1045 NE Creston Lane
Pullman, WA 99163, USA
Tel: 509-332-1754
Fax: 509-334-5209
Belrose, Inc.
1045 NE Creston Lane
Pullman, WA 99163, USA
Email: belrose@pullman.com
Tel: 509-332-1754
Fax: 509-334-5209