Looking Beyond the Direct Trade Effects of Public and Private Food Standards in the Crops sector

Abstract

While tariff barriers are decreasing over time and across countries, non-tariff barriers such as food safety, quality and sustainability standards are increasing. Since these affect import and exports decisions, the analysis of trade effects of such standards has become an important topic. However, most empirical studies have focused on the direct trade effect of public or private food safety standards. In our first essay, we analyse the trade effect of a private voluntary sustainability standard. This is especially relevant in the cocoa sector because large chocolate manufacturers have committed themselves to only using certified cocoa beans and some governments want to increase the share of certified cocoa products consumed in their countries. Thus, sustainability standards become quasi-mandatory for cocoa producers to ensure market access. It is important to understand whether these standards are trade-facilitating or trade-impeding. Therefore, we use a unique dataset that contains the UTZ Certified cocoa production quantity of cocoa-producing countries from 2010 to 2016. We estimate a gravity model to analyse the effect of the share of UTZ Certified cocoa production quantity in a country on the trade volume of raw cocoa beans, cocoa powder, cocoa paste and cocoa butter. Our results show that UTZ certification only enhances bilateral exports of cocoa beans and paste, while it reduces exports of cocoa butter and has mixed effects on cocoa powder exports. In our second essay, we place the focus on another private voluntary sustainability standard - Rainforest Alliance Certified - and include data on coffee and cocoa. This allows us to analyse the direct trade effect of Rainforest Alliance Certified on the two most important crops of this certification scheme and the indirect trade effect through the interplay with public standards, namely Maximum Residue Levels (MRLs). MRLs are regulated at the international level by Codex Alimentarius, although national regulations can deviate from it. Most countries that set their own national standards are located in the Global North and they set stricter MRLs as suggested by Codex Alimentarius or add regulations on further pesticides. Since many cocoa- or coffee-producing countries do not have the institutional capacity to tighten their MRLs, certification to a private standard such as Rainforest Alliance Certified could be a means to bridge the occurring regulatory distance. This private standard is a good example because it refers to different regional and national legislations on MRLs. An extended gravity model of trade is used to empirically analyse the interplay of a voluntary sustainability standard and the relative stringency of public MRLs set by trading partners. Our results show that while increasing regulatory heterogeneity hinders bilateral trade, certification according to a private voluntary sustainability standard can partially moderate the trade-inhibiting effect of public standards. This effect is only significant at the intensive margin of certification (share of certified crop area) but not at the extensive margin of certification (turning from no certification to having at least one farmer certified). In our third essay, we analyse the determinants of the extensive and intensive margin of certification in more detail. Here, we focus on another popular private agri-food standard: Global G.A.P. Compliance with this food safety standard has become a key requirement for farmers to access high-value global markets. Nonetheless, the global spread of certification is highly uneven among countries. We assess the drivers and dynamics behind these unequal patterns, applying panel data regressions. The findings show that global agricultural trade networks and urbanisation remain relevant, but are no longer sufficient in explaining certification. Fostering a favourable business environment – via providing secure land tenure and a functioning judicial system – as well as investing in transportation and information infrastructure may facilitate farmers’ participation in certification schemes. Stringency of existing public regulations in non-EU countries is helpful for overcoming entry barriers.