The Island - 01/03/2015 By Janaka WijayasiriOver the last two decades, there has been a tightening of public standards, a shift from product standards to process standards, an increase in theimportance of private standards and a widening scope of standards. These developments haveraised concerns amongst developing countries, as standards can become non-tariff measures with falling tariffs. Failure to comply with standards could potentially result in loss of international market, a decrease in employment and a decline of an industry. However, compliance offers the possibility of enhancing international competitiveness and encourages the advancement of an industry.
Sri Lanka's tea industry, which is predominately export oriented, is increasingly governed by strict and complex standards. Thisreflects the evolving trends in the standards environment globally.
In order to export tea, companieshave to comply with local and foreign standards and regulations pertaining to food quality and safety. These are usually mandatory, product standards. In this regard, tea has to comply with ISO3720 product standard for black tea. In addition to ISO3720, the Sri Lanka Tea Board requires tea exports to comply with other product standards, including foreign matter, micro-biological contamination, heavy metal and pesticide residue limits, which are specified and monitored by the Tea Board.
International food assurancestandards such as Hazard Analysis and Critical Control Point (HACCP) and ISO22000 (Food Safety Management System) are also increasingly becoming important in the tea trade. While these standards are voluntary at the moment, compliance with either HACCP or ISO22000 is becoming necessary and considered as de facto mandatory standards. Initially, companies selected ISO9001, which is a quality management system (QMS) but with the introduction of HACCP and subsequently ISO22000, which are more relevant to the food industry, tea exporters are switching to HACCP and/or ISO22000 certifications. The drive towards obtaining these standards in the tea industry gathered momentum when the EU stipulated in 2006 that food imports including tea into Europe must meet the HACCP standard.
In addition to the mandatory and voluntary public standards, there are a number of private standards which have been voluntarily adopted by tea exporters.These go beyond the realm of public standards in food quality and safety, and cover a gamut of issues including social and environmental concerns. Commonly stated private standards by tea exporters include: BRC (British Retail Consortium) Global Standard, Organic, Fair Trade (FT), Ethical Tea Partnership (ETP), and Rainforest Alliance (RA), which have been collectively set and monitored by third party agencies. There are also private standards or private codes of conduct, specific to individual buyers; for example, supermarkets (i.e., Japanese supermarkets) and fast-food chains (i.e., McDonalds) have their own set of standards and requirements. The emergence of private standards reflects a growing interest by buyers, and ultimately consumers, about the conditions under which tea is produced.
Compliance Challenges
So far, tea exporters from Sri Lanka have been able to meet various standards, and ship tea to some of the most stringent markets in the world. However, they still face a number of difficulties in complying with such standards, which needs to be addressed in order to ensure that Sri Lanka remains one of the leading tea producing and exporting countries.
Lack of testing infrastructure and human resources: Although there are a number of laboratories operating in country - both government and privately run - they are not accredited to undertake tests for certain chemicals. For example, the Tea Board has set up a state of the art laboratory, but it is not accredited while the government-run Industrial Technology Institute's (ITI) laboratory can analyze only certain chemicals. Similarly, private laboratories are not accredited for certain chemicals. As a result, it is sometimes necessary to send tea samples abroad - to either to Singapore or to India - for testing. The absence of fully-accredited laboratories is compounded by lack of qualified scientific personnel to conduct tests. In the case of Tea Board, not only is the laboratory not accredited but the Analytical Laboratory Division does not have qualified staff to do testing despite the huge demand to get tea samples screened.
Compliance costs: The most common challenge faced by the exporters was the compliance cost which involved upgrading factories, audit/certification fees, consultant fees, training costs, etc. All of these add up to a substantial amount and contribute towards increasing the total cost of production. They are unable to pass this cost to the buyers as it makes them uncompetitive in the market. Whilst exporters were willing to bear various costs associated with standards, they were frustrated about the lack of monetary return for compliance.
Changing the mindset of workers: Apart fromimplementation costs, many companies faced internal resistance to their adoption.Initially, exporters found it difficult to change the mindset of workers to fall in line with the standards,although they are now more or less compliant. Training has to be continuous as workers tend to revert back to their old ways.
Proliferation of standards: This is also becoming increasingly challenging for exporters, as there is multiplication of costs (certification and audit fees, etc.) and effort (in maintaining various documents). Exporters are also disillusioned that different versions of the same standard are brought out regularly, requiring them to continuously upgrade in order to comply with the latest version of the standard. While there have been some efforts towards harmonization between various private standards, proliferation of private standards is likely to continue in the foreseeable future.
Assistance for Compliance
While tea exporters have managed to comply with standards and regulations, they still have to overcome a number of challenges in order to stay competitive in international markets. In this regard, exporters require assistance to comply with the changing standards environment.
Forms of assistance required include financial assistance (loans with low interest rates, and longer pay back periods), and technical assistance to comply (training). There is also the need to harmonize standards as there is duplication of costs and an effort to comply with different requirements of various countries and buyers, and obtain accreditation for laboratories operating in the country.
Given that standards are likely to multiply and become further complicated in the future, the government and the industry should provide exporters the necessary support to comply withsuch standards and ensure continued access to the global tea value chain.
(Janaka Wijayasiri is a Research Fellow and the Head of International Economic Policy research at the Institute of Policy Studies of Sri Lanka (IPS).This article is based on his PhD thesis on 'Food Standards and Governance in the Tea Industry in Sri Lanka: A Value Chain Analysis' from Monash University.To view the article online and comment, visit the IPS blog 'Talking Economics' - www.ips.lk/talkingeconomics)
