1 month ago
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Read Part One, Part Two and Part Three.
The Karoo Lamb that we loaded is now being slaughtered at the abattoir. There it will be classified according to the meat regulations. It may be an A1, A2, A3 or A6 lamb — depending on the fat quality, among other attributes of the meat.
In addition, for Karoo Lamb, the abattoir must verify that the lamb is from a registered farm in the Karoo (in alignment with the Karoo Lamb Geographical Indication regulations published under the Agricultural Products Standards Act).
In the agricultural industry, there are also many private standards that retailers and processors have introduced which must be paid for by private role-players. These include certified organic, natural free range and environmentally friendly.
Most of the general standards and classifications specified for different products under the Agricultural Products Standards Act, including the new regulations for Karoo Lamb, are in the public interest.
Setting standards
This dispatch will highlight some economic principles underlying the critical government function of setting public standards for agricultural produce.
Agricultural markets cannot function without institutions, what is known as the “rules of the game”. The state therefore has an important duty to ensure that institutions (the rules) are in place and enforced.
For agricultural produce and food products in general, the most important “institutions” include grading systems, food safety legislation and sanitary and phytosanitary systems. Other examples include the bylaws and rules governing municipal markets, and information systems in agricultural markets in general and the futures markets in particular.
Grades and standards in agricultural commodities and food products are vital for efficient price discovery and the functioning of markets. Setting grades and standards jointly between industry associations and the government is one matter, but more important is effective government regulation, application and enforcement of grades and standards.
Recently, it has become clear that enforcement and coordination as well as the mechanism of enforcement are problematic and costly to farmers, food processors, retailers and consumers.
Why are grades and standards in agricultural and food products important? We all know that agricultural and food products have specific attributes — you only know the quality and taste of the product when you consume it. This is referred to as “credence attributes”.
In essence, it implies that the information about the quality (or weight, size or grade) of the product is not evenly distributed between producer and consumer. The consumer will only know about the quality (and taste) after consumption and needs to be guided by classification standards or labelling to make the purchase decision. Hopefully, the Class 1 or Class A or free-range product will have the quality or taste that the consumer anticipated.
Critical areas
In addition, there are critical areas where consumers can be short-changed: The 7kg of potatoes which is actually 6.6kg; the animal carcass graded as A1 which should be A3; the “small potatoes” which turn out to be large potatoes.
The Agricultural Products Standards Act (Act 119 of 1990) (APS) regulates most agricultural produce, from dairy to meat, to fresh produce. For each product, there is a set of regulations that specify its definition, classification and grade.
Even claims on labels and packaging related to origin and production practices (such as West Coast or Free Range) need to be clearly defined by production protocols and audited.
In most countries, these regulations are enforced by well-staffed “agricultural inspection services” within the ministry of agriculture. However, in South Africa, these inspections, auditing and enforcement functions are outsourced to “assignees” who are appointed under the APS Act.
No one disputes the importance and role of the “assignees” and their functions, but for the past few years, there has been increasing discomfort about them within the agricultural industries.
Costs
Sometimes it relates to the qualification of the staff or the way the assignees got appointed, but most importantly, it revolves around the fact that the role-players in the food supply chain must pay for the inspection and auditing services of the assignees. In essence, the cost of inspection and auditing services inflates the price of the final product at the retail end and at the same time the producer earns less.
Many of our colleagues who are concerned with the increases in the retail price of food often forget about the large costs passed on to retailers, processors and farmers to comply with agricultural product standards. We estimate that the total cost added to the food supply chain in South Africa by these assignees exceeds R500-million.
Why must the role-players in the food supply chain cover these costs when it should have been the task of the state? This is a fundamental flaw in our agricultural system.
Let us illustrate how bizarre this situation is. The assignees will perform an audit or inspection at the critical points of control in the supply chain. Then they send an invoice to the retailer, packer and fresh produce market for the services performed. If they do not pay the invoice, they will be delisted as traders in the product.
More interesting, it will not be in any of the assignees’ interest to let the specific role-player fail the audit because they will be delisted and therefore not a client in the next inspection round. So, in essence, you would rather do “light inspections” to avoid losing places for invoicing. There is a conflict here.
The main point here is that there is no guarantee that the regulations on product standards are properly enforced, while the incentives and systems are not aligned and lead to opportunistic behaviour which will be to the detriment of the credibility of our product standards.
This needs to be fixed by the Department of Agriculture. DM
