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Certification and agricultural exports: Can Indian farmers cope?

Even as Indian cultivators are exposed to import competition from highly subsidised agricultural production, especially from developed countries, they are being told to diversify production and increase export capabilities in order to survive. But, quite apart from other problems, agricultural exports are increasingly subject to certification and labelling processes which are cumbersome and expensive. In this edition of Macroscan, C. P. Chandrasekhar and Jayati Ghosh examine the kinds of national and in ternational regulation which govern world agricultural trade, and consider the implications for Indian farmers.

WORLD trade in agricultural commodities has been far less buoyant over the second half of the decade of the 1990s, than was earlier predicted. Not only have world prices of many such agricultural commodities slumped, but even volumes of trade have not gr own much, to the point where in the past few years, the total dollar value of trade in many commodities has actually fallen.

There are many reasons for this, including reduced or changing patterns of food demand across the world. One important factor has been the growing role of different types of national and international regulation -- and associated requirements for certifi cation and labelling -- in governing agricultural trade generally. Such regulatory regimes attempt to balance the health, safety and preference needs of consumers with the requirements of producers. However, the balance is not an easy one, and all too of ten the ones who are worst affected are small holding cultivators of developing countries, who find that they are either unable to afford or lack the technical expertise to undertake and fulfil, the complex requirements of certification.

These issues are becoming especially important for Indian agriculture, which is subject to growing competition (at the margin, and often implicit rather than actual) from highly subsidised imports in the domestic market, and at the same time increasingly has to deal with complicated regulatory practices in the case of exports. The share of agriculture in total exports fell quite sharply even in the period between 1998-99 and 2000-01.

Many commodities remained relatively stagnant in terms of exports. On the other hand, some of the more buoyant exports, such as coffee, spices, and fruits vegetables and pulses, are precisely those in which certification and labelling are likely to play a growing role in future in world markets.

The regulatory measures that proliferate in agricultural trade are not only complex and manifold, but also tend to vary a great deal between countries.

International regulatory regimes

The Codex Alimentarius Commission is a joint creation of the Food and Agriculture Organization (FAO) and the World Health Organization (WHO) to implement the Joint FAO/WHO Food Standards Programme. The stated purpose of this is: a) protecting the health of the consumers and ensuring fair practices in the food trade; b) promoting coordination of all food standards work undertaken by international governmental and non-governmental organisations; c) determining priorities and initiating and guiding the pre paration of draft standards through and with the aid of appropriate organisations; (d) finalising standards elaborated as above and, after acceptance by governments, publishing them in a Codex Alimentarius either as regional or world wide standards, toge ther with international standards already finalised by other bodies, wherever this is practicable; and e) amending published standards, after appropriate survey in the light of developments.

The Codex has proved to be an important means of harmonising standards with a view to satisfying consumers of different countries. Nevertheless, it is true that the standards so specified often mean a substantial increase in costs of cultivation/processi ng/distribution, which in turn tends to increase concentration in this sphere of economic activity. It is hard for agricultural small holders to meet or to prove that they meet such standards.

Some foreign regulations which affect Indian farm exports

There are many examples of how regulation in other countries has affected the ability of Indian exporters to access foreign markets. This example from Europe shows how even relatively small measures can have far-reaching effects. The European Union has b rought in stricter quality legislation on imported food products, including animal feeds specially pertaining to permissible levels of aflatoxin, hexane and pesticide residues and other harmful foreign material that enter agricultural produce during post -harvest handling and processing. This is expected to affect India's exports negatively, particularly those of groundnut, cashewnuts, walnuts, pepper, chilies, oilcakes and marine products.

Aflatoxins are potent carcinogenic, immuno-suppressive bio-chemicals produced when the aspergillus fungus invades certain agricultural commodities. They tend to pose very serious problems for many agricultural commodities, including maize, chilies, sesam e and groundnut. The products affected in this case include HPS groundnuts, extractions, spice oils, essential oils, derived from flowers, and so on, besides others.

In HPS groundnuts the aflatoxin level has been brought down to 10 ppb in raw nuts and 4 ppb in consumer-ready processed nuts from 10-30 ppb allowed earlier. The levels of aflatoxin in foodstuffs develop mostly when moist unsterilised agricultural product s, whether raw or processed, are stored in confined space with improper air ventilation.

The aflatoxin level in HPS groundnut ranges from a low of 10 to over 130-150 and is linked to the quality of groundnuts. The lower count groundnut generally is of better quality as it is picked by workers adept at this job. The EU has set a maximum level of B1 aflatoxin at 5 ppb for nuts not meant for direct consumption and at 2 ppb for nuts meant for direct consumption. This is a substantial tightening compared to current norms in most other parts of the world. Earlier, India had set the B1 level at 30 ppb and many countries, including China, the US, Vietnam and Argentina, at 20 ppb. This new norm is likely increase the price of imported nuts substantially within the EU.

In addition, the EU has limited the levels of hexane in cocoa butter fat and oil to 1 ppm, in defatted protein products and flours to 10 ppm, defatted soyabean products to 30 ppm and cereal germs to 5 ppm. Already, in 1997, the EU had reduced the permiss ible levels of residues in oil extractions of various flowers and spices. The products cover exotic oils derived from jasmine and tuberose, bud oils like cinnamon bark and turmeric root, and seed oils like ajwain, star anise, cardamom, cumin, coriander, fennel, fenugreek, kalonji, and so on.

The need for state assistance

The basic point about dealing with certification and meeting of various international standards is, of course, that it is very expensive. Therefore, almost by definition, it excludes the millions of small cultivators who do not have the resources, knowle dge or technical expertise to meet standards or to go through processes of certification. In addition, for all producers, the process itself can be lengthy and quite cumbersome and bureaucratic, creating delays in shipment and often disrupting the distri bution process. In general, therefore, it means an increase in costs and therefore possibly in prices.

Obviously, there is a critical role for the state in this, in terms of providing both internationally-recognised certification and accreditation agencies, and the technical and financial resources for farmers to meet such requirements. Unfortunately, whi le there has been some attempts, especially through the Bureau of Indian Standards and APEDA, to meet the first role, the second and probably the more crucial role has been mostly neglected or underfulfilled.

Thus, agricultural extension services across rural India typically do not provide either knowledge or technical expertise about prevailing national and international standards, nor are they designed to assist farmers in changing cultivation practices to meet these standards. Information about certification and assistance in certification of products is very limited and inefficient, so much so that those few farmers who can afford it take the help of profit-oriented private companies for this. And of cou rse, resources for such activities are not provided to farmers in the form of financial assistance, which puts our cultivators at a clear disadvantage relative to those from other countries with more organised and financially secure systems.

There is, therefore, much that needs to be done in this regard by the government now especially, in order both to protect Indian farmers and to allow them to use whatever opportunities do exist in international markets.

The organic food market and organic labelling

The concept of food quality has changed dramatically in recent years. It now refers not only to the characteristics of the final product, but also to the way in which it is produced, processed and transported. Retailers and importers in developed country markets are applying their own quality standards, which are often more stringent than the national quality regulations. Consumers in developed countries and a few in developing countries have become more health conscious and they have restored spending to greener, healthy and natural foodstuffs. They are willing to spend more on organically produced and labelled products. As a result, farmers in developed countries are encouraged to convert their existing farm into organic farms and are often fully sup ported with financial incentives and technical assistance.

Of course, a basic issue is defining what exactly is meant by ``organic farming.'' Among the more stringent definitions is that of the US Department of Agriculture, which has defined it as follows: ``A system that is designed and mailed to produce agricu ltural products by the use of methods and substances that maintain the integrity of organic agricultural products until they reach the consumer. This is accomplished by using, where possible, cultural, biological, and mechanical methods, as opposed to us ing substances, to fulfil any specific fluctuation within the system so as to: maintain long-term soil biological activity; ensure effective peak management; recycle wastes to return nutrients to the land; provide attentive care for farm animals; and han dle the agricultural products without the use of extraneous synthetic additives or processing in accordance with the act and the regulations in this part.''

But it is also true that consumer perception on the organic production method may, in certain detailed but important provisions, differ from region to region in the world. That is why both national and international norms for the definition of organic fa rming and organic foodstuffs become necessary.

In many developed countries as well as in some of the higher income developing countries, the sale counters of retail chains and supermarkets have been given special `green status' to promote and sell organic and natural foods.

The organic food-processing companies are being nurtured and labelled as environmental friendly companies. This is already a huge market -- even in 1997, the size of the US organic food market was valued at $4.2 billion, while the German market was estim ated at $1.2 billion and that of Japan at $2.5 billion. It is also a rapidly growing market all over the world and particularly in the developed countries. The rapid growth in market estimates by 2000 indicate a much larger market now, especially as the recent food scares relating to the products of `industrial' agriculture and livestock rearing make consumers more willing to pay more to ensure food safety.

Further, organically grown food commands higher prices, with premiums for organic products ranging from 10 to 100 per cent. However, it should be remembered that these can disappear when supply increases, especially in those countries with policies to en courage organic farming.

Partly because of this growing demand, many countries are in process of developing their own `organic food' standards and regulations. The US and the European Union have already announced comprehensive National Organic Programs. Japan, Canada and Austral ia have national standard for organic products in practice since the early 1990s. New Zealand, Israel and Brazil have almost attained the equivalency status with the standards of the European Union and the US. China, Thailand, South Korea, the Philippine s, Turkey and Mexico have established credible organic certifying agencies and are on the verge of deciphering organic policy.

The major organic products sold in global markets include (in order of importance) dried fruits and nuts, processed fruits and vegetables, cocoa, spices, herbs, oil crops, and derived products, sweeteners, dried leguminous products, meat, dairy products, alcoholic beverages, processed food and fruit preparations. Non-food items include cotton, cut flowers, animals and pot plants.

Certain very large organic food markets such as the US present particular problems for exporters because of the rigid requirements for labelling. In the US, products are accepted as `organic' only if they conform to US Department of Agriculture requireme nts, which are fairly stringent and require certification which can be costly and cumbersome for exporters form poor countries.

The process of certification is as follows : A grower or handler seeking organic certification submits an organic farm plan or organic handling plan to a USDA-accredited private or state certification program. The organic plan must detail all current gro wing or handling methods, and any materials which will be used. The plan must also cover future intentions and improvements to all areas of production. Even growers or harvesters of organic wild crops must develop a plan showing that harvesting practices will not be destructive to the environment or to the future productivity of the crop.

The USDA further requires that records of all management practices and materials used in organic production must be kept for five years. In order to be certified as organic, crops must be grown on land which has been free of prohibited substances for thr ee years prior to harvest. Crops grown on land in transition to organic (during the first three years after switching from conventional farming) cannot be labelled as organic. The Organic Foods Production Act (OFPA) makes no provision for a USDA-sanction ed `transitional' label.

OFPA covers organic agricultural methods and materials in great detail, including soil fertility, the application of manure, crop rotation, and composting. Compost ingredients recommended by the National Organic Standards Board (NOSB) include crop residu es, crop waste from food-processing operations, animal manure, yard waste from private or municipal sources, or other vegetable by-products. NOSB recommends prohibiting municipal solid waste compost and sewage sludge compost, and the use of any prohibite d material as a compost ingredient.

OFPA also establishes a National List of acceptable and prohibited materials. These can include pest control treatments as well as other agricultural inputs such as fertilisers and seed treatments. NOSB recommends that all agricultural inputs be evaluate d for their long-term effect on the environment and not simply whether they are synthetic or natural.

It is obvious that these are fairly stringent requirements and so not at all easy to meet. Apart from this, it is extremely difficult for small growers in other countries in particular, who may well meet all of these criteria in actuality, to establish c onclusively that they do so, especially through maintaining records, and so on.

On an international level, the FAO in collaboration with the WHO has developed the Codex Alimentarius for organic products. FAO has declared that it will give increasing support to organic farming and wants to achieve harmonisation of different national organic standards to spur international trade with organic products. There is already an International Federation for Organic Agriculture Movements (IFOAM), which is an international umbrella of organic agricultural accreditation programmes.

The IFOAM was established in 1972 in France. There are 600 organisational members of IFOAM from 120 countries, including India.

The main thrust of IFOAM was to define the concept of organic farming through their basic standards. Another important task of IFOAM is to harmonise certification programmes through accreditation system. The other activities of IFOAM include participatio n in the UN and contact with international NGOs and communication through seminars, magazines, and so on.

Organic farming and certification in India

In India, the relative lack of national rules, regulations and specific standards relating to organic food production, inadequate certifying agencies and unrecognised `green' marketing and retailing channels have not only been confusing for producers and consumers alike, but have prevented farmers from exploiting the export market advantages of organic production.

This is a major missed opportunity because most small and marginal farmers in India have actually been practicing organic farming as part of traditional cultivation practice. Thus they have used local or own-farm derived renewable resources and managing self-regulating ecological and biological processes. In fact, this is usually found to be absolutely necessary simply in order to cultivate acceptable levels of crop, livestock and human nutrition products while protecting them from pests and diseases th rough bio-chemicals and bio-fertilisers (such as neem extract). However, it is true that the higher cost of such inputs and processes compared to industrially generated fertilisers and pesticides has encouraged many farmers to shift production patterns.

It is true that the Government of India has now woken up -- if belatedly -- to this problem and is now attempting to establish at least the basic rules and accreditation processes which are necessary. In March 2000, the Ministry of Commerce launched the National Programme for Organic Production (NPOP), designed to establish national standards for organic products which could then be sold under the logo `India Organic'. To ensure the implementation of NPOP, the National Accreditation Policy and Programm e (NAPP) has been formulated, with Accreditation Regulations announced in May 2001. These make it mandatory that all certification bodies, whether already engaged or proposing to engage in inspection and certification of organic crops and products, shoul d be accredited by an accreditation agency. Foreign certification bodies operating in the country must also be accredited.

The appointed accreditation agencies are the Agricultural & Processed Food Products Export Development Authority (APEDA), Coffee Board, Tea Board and Spices Board. At present, only APEDA has invited applications for accreditation. An appointed evaluation agency is to ascertain the programmes and credentials of the implementing agencies and submit its report to the accreditation agency. According to information from APEDA, to avoid duplication a common Evaluation Agency and Committee for Accreditation wi ll be formed with experts and members drawn from other accreditation agencies.

The regulations also make a provision for export, import and local trade of organic products. Currently, however, only the export of organic products comes under the government regulation, while imports and local trade do not. Thus, an agricultural produ ct can only be exported as an `Organic Product' if it is certified by a certification body duly accredited by APEDA as one of the accreditation agencies. The categories of products covered under accreditation are organic crop production, organic animal p roduction, organic processing operations, wild products and forestry.

The World Bank has organised a project designed to empower rural communities to export organic spices. The main programmes envisaged under the project are improvement and promotion of organic production of spices, certification and export of selected spi ces such as black pepper, white pepper, ginger, turmeric, cardamom, clove, nutmeg and western herbal spices such as rosemary, thyme, oregano and parsley. The programmes are being taken up in selected project sites in Idukki and Wynad districts in Kerala, Nilgiris district of Tamil Nadu and Kandhmal district of Orissa, and implemented through locally based NGOs, from the year 2000 to 2003.

The salient features of the project are, imparting training to NGOs and farmers on basic standards, organic production methods, documentation, inspection and certification. The project also envisages empowerment of NGOs by providing PCs and software for market promotion of organic products. The ITC will conduct market survey in potential markets of organic products and disseminate the information to the potential producers in India. Certification of the project areas as organic is also envisaged under t he project.

Only 30 per cent of India's total cultivable area is covered with fertiliser where irrigation facilities are available and the remaining 70 per cent of the arable land, which is mainly rainfed area, has not been using any fertiliser. Also, it is estimate d that around 600 to 700 million tonnes of agricultural waste is available in the country every year but most of it is not properly used. There are several alternatives for supply of soil nutrients from organic sources such as wormi-compost, biofertilise rs, and so on. Technologies have been developed to produce large quantities of wormi-compost. There are specific biofertilisers for cereals, millets, pulses and oilseeds.

However, such biofertilisers and biopesticides have not become very popular in India for two reasons. The first is the lack of marketing and distributing network. Retailers are typically not interested in selling bio inputs because their demand is low, s upply is erratic and farmers are ignorant about bio inputs. The second reason is because of the presence of chemical fertilisers and pesticides, with their heavy advertisement, public support and higher margin for retailers. All these problems also need to be addressed if a more comprehensive state support for organic farming is to be considered.

The many aspects of such a project make it clear that such a process of encouraging a shift to organic farming along internationally-accepted lines, and producing organic food for export, is a very expensive process. It can only be attempted even by deve lopment agencies and NGOS, in specific pockets or villages, and extending it over wide areas and a sizeable number of cultivators would require large resources that are not easy to raise or access.

There is no doubt that organic agriculture is in many ways an eminently preferable pattern for developing agriculture and countries such as India in particular. Organic agriculture can offer multiple benefits. These include price premiums, natural resour ce conservation (for example, improved soil fertility and water quality, prevention of soil erosion, preservation of natural and agro-biodiversity) and social effects (for example, generation of rural employment and corresponding lower urban migration, i mproved household nutrition and local food security, reduced dependence on external inputs).

But to take advantage of trade opportunities, developing countries must contend with a plethora of national and regional standards, and high certification costs. It is not just that active international efforts are needed to reduce these costs, particula rly for small-holders, and facilitate market access. In addition, a big role has to be played by developing country governments to develop supportive policies for encouraging organic agriculture, both for exports and to enhance local food security.

In a country like India, this can imply tensions between pricing policy, input supply and the priorities of ensuring that the public distribution system actually meets the food needs of all the population.