41241 NOTES AgriculTurAl & rurAl DEvElOpmENT Food Safety and Agricultural Health management in ciS countries: completing the Transition iSSuE 26 OcTOBEr 2007 After their successful economic recovery, members of systems. This note highlights the main issues involved the Commonwealth of Independent States (CIS)--for- and outlines a reform agenda. mer republics of the Soviet Union--now face chal- lenges to further integrate into the global economy, gOST-BASED STANDArDS to profit more from trade in agricultural products and food, and to compete in domestic food markets. Safety standards are at the core of any country's food Profitable access to global food markets depends much safety and agricultural health management system. on the ability to meet international food safety, plant, What makes the CIS countries unique is their use and animal health standards. of standards based on the GOST (gosudarstvennyy standart, or "state standard") system of the Soviet Since their independence in 1991, the CIS countries Union after their independence. Designed to serve the have experienced significant changes in their agri- planned economy, the GOST system is inconsistent culture and food sectors. After a decade of contrac- with market economy principles. In market economies, tion, agricultural production in most CIS countries while standards related to product safety are mandato- has recovered or stabilized in the past few years. ry, quality standards are usually voluntary. By contrast, Some countries have recorded impressive rates of GOST standards are highly prescriptive mandatory stan- growth. While achieving much progress in transition- dards for both quality and safety, originally designed to ing towards the market economy and integrating into ensure complete compatibility and interchangeability international markets, they face great challenges in of products in the Soviet Union. They are difficult to further unleashing their potentials in the agriculture change and the rigidity of the system stifles product sector and in benefiting more from international innovation, thwarts product diversity and consumer trade. One of the remaining tasks is reforming their choice, and hampers adoption of new technology. food safety and agricultural health management The system is also slow to respond to emerging food safety or agricultural health risks. Moreover, the sheer number of detailed standards (over 20,000) makes it hard for the industry to implement and for government agencies to enforce. Arbitrariness of enforcement and discretionary powers in inspection agencies create room for rent-seeking and informal payments. Not only are the GOST standards significantly differ- ent from international standards, but they also have a different system for implementation. In Organization for Economic Cooperation and Development (OECD) countries, increasingly the private sector has taken on the primary role of ensuring product safety throughout the supply chains, while the government has taken on mainly a supervisory and enforcement role. By contrast, the GOST system relies heavily on the public sector for various control functions. Thus, GOST requires an extensive institutional structure for support. Many CIS government agencies have food safety and agricultural health management functions, and many of their func- tions overlap. As a result, the private sector is subject to multiple--often duplicative--government inspections, which is costly for both the public and private sectors, without actually improving food safety. THE WOrlD BANK THE cHANgiNg standards are likely to become a mArKET source of contention since they ENvirONmENT are not based on scientific risk assessment and include manda- The GOST-based standards system tory quality prescriptions. has become a major barrier to the CIS countries' efforts to further integrate Coming to realize the incom- into the world economy and benefit patibility of their practices and more from international trade. GOST the principles of the multilateral standards are generally not recog- trading system, many CIS coun- nized by OECD countries. Some CIS tries have undertaken to reform countries have good potential for their standard systems and other exporting agro-food products, but aspects of SPS management. For the biggest and potentially best-pay- example, the four WTO mem- ing market, the European Union (EU), bers have modified their frame- has high food safety and quality stan- work laws to make them gener- dards that most producers and pro- ally compliant with broad WTO cessors in the CIS countries cannot principles; Russia, Ukraine, and meet. Moreover, as many Central and Eastern European Kazakhstan have also passed new laws on technical (CEE) countries have joined the EU and replaced their regulations to meet the WTO requirements. However, GOST-type standards with EU standards, foreign markets to translate these general laws into specific regulations that accept products produced to GOST standards have and to implement these regulations will take much more been shrinking. time, effort, and strategic planning. On the other hand, there are more challenges in the domestic market. The CIS consumer markets are chang- rEFOrm EXpEriENcES OF ing rapidly with the growth of personal income and the TrANSiTiON EcONOmiES iN development of modern retailing. Supermarket chains-- cENTrAl AND EASTErN EurOpE many from Western Europe--are rapidly expanding their operations in major cities in Russia and Ukraine, which Many Central and Eastern European countries that often have product safety and quality requirements belonged to the Eastern Bloc also had standards sys- similar to those in EU countries. As more and more urban tems similar to the GOST system. During their transition consumers demand better quality and buy more of their to market economies and as part of their accession to food in supermarkets, products made according to GOST the EU, they have largely finished the transformation standards will find a decreasing market that offers rela- of their food safety and agricultural health systems. tively low prices. Although their reforms have a broader goal than those in the CIS countries--they need to comply with all EU Furthermore, as CIS countries join the World Trade regulations for member states by adopting the Acquis Organization (WTO), they need to comply with the Communautaire1--their experiences provide some gen- WTO rules, including the Agreement on the Application eral lessons for the CIS countries in their reform efforts of Sanitary and Phytosanitary (SPS) Measures (the SPS to establish a system consistent with market-economy Agreement), which requires that measures taken to principles and the WTO requirements. protect food safety and plant and animal health should be based on science and not be used as disguised trade · Replacing GOST-based systems has proven to be more barriers. Four CIS countries--Kyrgyz Republic, Georgia, complex than expected. The reform involves an over- Moldova, and Armenia--have joined the WTO since haul of laws and regulations, which requires between 1998. The remaining countries--except Turkmenistan-- five and ten years of work by teams with thorough have all applied for membership and are in the process knowledge of food safety, plant health, and animal of accession talks. The SPS Agreement recommends health regulations, as well as international standards harmonization of national standards with international and foreign languages. Inspection and monitoring standards, such as food safety standards established programs also need to be revamped based on new by Codex Alimentarius, animal health standards by the regulations and risk evaluations. Few senior policymak- World Organization for Animal Health (OIE), and plant ers in CIS countries understand the scope of work and health standards by the International Plant Protection timeframe required. Convention (IPPC). A member country must have sci- · Strong political leadership is essential to the success entific justification if it decides to use a standard that of such reform. The transformation of the food safety is different from the international standard and if that and agricultural health management system involves standard results in greater restriction to trade. GOST many stakeholders in both the public and the private 2 sectors. Strong leadership is needed to solicit support ate an effective institutional framework and to change and build consensus. the mindset of officials. Ukraine, Moldova, Kazakhstan, · The reform is costly. Over a seven-year period, new EU and the Caucasus countries generally have strong com- member states' accumulated expenditure for upgrad- parative advantage in agriculture, particularly in certain ing agro-processing enterprises and marketing under food products. They have the potential to gain greater the Special Accession Program for Agriculture and access to the demanding and better-paying markets of Rural Development (SAPARD)2 program was equivalent the European Union and the top-end urban markets to 18 percent of their agricultural GDP in 2000. Under in Russia and Ukraine. They could selectively adopt EU the Poland and Hungary: Assistance for Restructuring standards for products with strong export potential Their Economies (PHARE)3 program for institutional while gradually transforming the whole standard sys- reform and capacity building, a considerable amount is tem. For the Central Asia countries, their trade is likely spent on areas related to food safety and agricultural to continue to depend mainly on the Russian market health. Sizable support from the European Commission and other countries in the region, so their transition is channeled through these accession programs. The would best be guided by what happens in these mar- CIS countries will not have access to external assistance kets and by assessing domestic public health and agri- of this scale; thus, careful planning, sequencing, and cultural health risks. Periodic consultations with their prioritizing are critical to the success of the reform. main trading partners can contribute to compliance with the changing market requirements. Also, weak- · Changing the "way of thinking" is crucial. The trans- nesses in the domestic food safety situations need to formation of the standard system and other practices be addressed. in food safety and agricultural health management involves a fundamental shift in people's understanding · Streamline institutions. A common problem in most CIS of the roles of the government and the private sec- countries is the presence of too many agencies involved tor. Staff of government agencies must adapt to their in food safety with overlapping mandates. Therefore, new advisory and supervisory (as opposed to direct clearly dividing the responsibilities among these agen- control) roles to facilitate business activities and protect cies should be a top priority in the restructuring. consumers. Experience in new EU member states has Consolidation of certain functions and resources will shown that these changes are essential but difficult to not only improve efficiency and reduce cost by avoiding accomplish. repetition in inspections, but also enable more targeted capacity building and technological upgrades. rEcOmmENDATiONS FOr · Put in place new inspection and surveillance programs. rEFOrm OF ciS cOuNTriES The old inspection and monitoring programs need to be replaced with new ones based on new regulations Most CIS countries are still at an early stage of transform- and evaluation of public health and agricultural health ing their GOST-based systems or have yet to start the process. Given the importance of this reform to public risks, trade opportunities, and costs and benefits. health and the competitiveness of the agro-food indus- · Consolidate and upgrade laboratories. Many CIS try, policymakers in these countries should work closely countries have a large number of laboratories to sup- with various stakeholders to complete the transition in a port the numerous inspections in the GOST system. smooth and cost-effective manner. The following actions However, testing capacities are generally poor because are recommended to accomplish this: of the lack of recurrent funding and use of outdated · Carefully choose reform goals and strategy. Though equipment or technology. Policymakers often focus on the CIS countries share the common heritage of the investing on expensive laboratory facilities to improve GOST system and the challenge of reform, they have food safety and agricultural health. However, without different opportunities for expanding agricultural trade consolidating and reorganizing the system based beyond the CIS. Their capacities to implement the on new institutional mandates and re-assessing the required changes also vary widely. Therefore, their framework for recurrent cost financing, such uncoor- reform agendas should have focuses and priorities suit- dinated investment would result in huge waste. able to each country's particular needs and interests. · Build up private sector capacities. Ultimately, it is up to The Russian Federation is a big importer of agricultural the producers and processors to produce safe, good- and food products; with its upcoming WTO accession, quality food, and meet the various requirements of the priority would probably be to remove unnecessary their customers. Most food companies in CIS countries, mandatory standards to fulfill its obligations as a mem- however, use old facilities inherited from the Soviet era ber of the WTO and reduce trade interruptions. Since that do not meet modern hygiene requirements. Major it has the extensive financial and technical resources to investments are needed in plant, equipment, water, and make the transition, its most challenging task is to cre- sewage treatment to comply with good manufacturing 3 practice (GMP) requirements. In addition, major efforts · Seek international support. Government officials in are needed to improve hygiene practices and to intro- the CIS countries, particularly the small, lower income duce food safety and quality management systems such countries, have had little exposure to the international as HACCP (hazard analysis and critical control points). standards and food safety and agricultural health On the producers' side, efforts are needed to promote systems in market economies. At the same time, good agricultural practices (GAP) among farmers. these countries generally lack financial resources for · Supply chain management is an important tool for the taking the necessary reform measures. Donor sup- private sector. Modern agricultural product marketing port--financial and technical--can play an important is increasingly characterized by the development of role in facilitating the transformation of their systems coordinated supply chains. Supermarket chains and and upgrading the relevant human skills. agro-food processors often engage in various arrange- ments with suppliers, traders, and producers, rather CONCLUSION than rely on the traditional wholesale market to meet Further integration in the global economy is the obvious their sourcing needs. Compared with on-spot transac- way for CIS countries to unleash their potential in agri- tions, coordinated supply chains not only enable retail- culture and food production. Profitable access to global ers and processors to have reliable supply of products food markets and capacity to compete in the high-end or raw materials, but also make it easier to exercise domestic markets depend much on the ability to meet farm-to-fork control over food safety and quality. international food safety, plant, and animal health stan- Private sector capacity-building and upgrading is large- dards. Replacing the GOST-based standards systems with ly a private sector responsibility, but the government new ones compatible with the market economy and could facilitate such effort by providing information, compliant with the WTO principles has been a difficult training, extension services, and financing, if appro- undertaking for transition economies. It requires strong priate. Experiences also show that foreign direct leadership, careful and clear strategizing, and significant investment (FDI) can play a positive role in introducing investment of financial and human resources. Donors modern technologies and safety and quality manage- and international organizations could facilitate the pro- ment systems (including supply chain development) to cess by providing effective assistance to the CIS countries, the agro-food sector. It is, therefore, important that especially the smaller, poorer ones, to support this impor- the government take measures to improve the general tant aspect of transition. investment climate. SELECTED READINGS · Strengthen regional cooperation. CIS countries will benefit from strong regional coordination and coop- World Bank. 2005. The Dynamics of Vertical Coordination in eration because they share common food safety and ECA Agrifood Chains: Implications for Policy and World Bank Operations. World Bank, Washington, DC. agricultural health problems, have the same legacy of World Bank. 2007. Armenia: Managing Food Safety and Agricultural the GOST system, and face common tasks in trans- Health: An Action Plan. World Bank, Washington, DC. forming it. Potential areas of cooperation include stan- World Bank. 2007. Moldova: Managing Food Safety and Agricultural dards harmonization, border control and quarantine, Health: An Action Plan. World Bank, Washington, DC. joint monitoring, surveillance and contingency pro- World Bank. 2007. Food Safety and Agricultural Health grams, resource sharing in risk assessment, diagnostic Management in CIS Countries: Completing the Transition. Report capacity, training, and advisory services. No.: 40069-RU. World Bank, Washington, DC. 1 The entire body of legislation of the European Union accumulated up to the present. Candidate countries must adopt the Acquis Communautaire before they can join the EU. 2 SAPARD: Special Accession Program for Agriculture and Rural Development. This program ran from 2000 to 2006 and was used mainly to prepare the agricultural sector and rural areas in EU candidate countries for EU membership. 3 PHARE: Poland and Hungary: Assistance for Restructuring Their Economies. Originally designed for Poland and Hungary, this program evolved into a pre-accession program for many more EU candidate countries with the priority on institution building and investing in the Acquis Communautaire. This note is based on the last-mentioned report, written by a team led by Kees van der Meer, consisting of Don Humpal, Cees de Haan, Laura Ignacio, and Xin Qin. The report can be freely downloaded at www.worldbank.org/rural or requested by email from ard@worldbank.org. THE WORLD BANK 1818 H Street. NW Washington, DC 20433 www.worldbank.org/rural