Problems associated with TSRs

At the same time, there are several major problems associated with TSRs. Perhaps the area of greatest concern with respect to TSRs is that they tend to behave like states, or perhaps better, like quasi-states. They are like states in that each TSR issues its own set of rules and regulations, and each has its own enforcement mechanism, generally relying on denial of market access to violators of the rules.⁵⁸ While technically TSRs are voluntary, in many instances they are de facto mandatory, as no market actors outside the TSR exist in a given locale. But TSRs are unlike states

56 In some instances this is a zero-sum game. Some get to participate as a result of the TSR, even as others are excluded.

57 For a positive view of the role of private voluntary organisations in promoting TSRs, see: Conroy, M.E., 2007. Branded! How the ‘certification revolution’ is transforming global corporations. New Society Publishers, Gabriola Island, Canada; for a more critical view, see Gereffi, G., Garcia-Johnson, R. and Sasser, E., 2001. The NGO-industrial complex. Foreign Relations 125(July-August): 56-65.

58 Denial of market access is arguably less consequential in industrialized nations, where other less discriminating buyers may be available. In contrast, in many poor nations, there are often local monopolies, making denial of market access tantamount to business failure.

in that they generally have few or inadequate appeals mechanisms. They are also unlike states in that they are not territorial in their authority but extraterritorial.

And, and as noted above, they depend on states for enforcement of certain legal obligations, but at the same time, they are often able to enforce rules far beyond the boundaries of any given state.

Moreover, they are certainly not like democratic states. They generally have little separation of powers, rarely represent more than a small fraction of those in a given supply chain (generally those who are most powerful), and they may apply their rules in a highly capricious manner. Some are reminiscent of George Orwell’s Animal Farm,⁵⁹ where all animals are equal, but some animals are more equal than others.

The state-like character of TSRs, as well as their democratic deficit, poses a number of other problems as well. These include questions about accountability, effectiveness, transparency, innovation, fairness, and legitimacy.⁶⁰ Let us consider each of these briefly in turn.

Accountability. It is not clear to whom the participants in TSRs are accountable.

TSRs are designed such that they promote (a form of) trust among the private actors within a given supply chain.⁶¹ However, at the same time, TSRs perform functions traditionally reserved to states (e.g. food safety). As such, they are at least partially responsible for certain public goods. Moreover, as one observer has noted, ‘... most private safety regulation currently faces northward. It protects developed country interests, and has only haltingly and partially incorporated the voices and interests of developing country producers and publics’.⁶² In addition, the very plurality of standards tends to dilute accountability.

Effectiveness. As one observer notes, ‘… whether private standards benefit consumers and society ultimately depends on the actual improvement that they generate with respect to the previous situation’.⁶³ The effectiveness of the now widespread

59 Orwell, G., 1984 [1945]. Animal farm. Folio Society, London, UK.

60 In addition, there is some concern about the compatibility of private standards with the WTO and especially the SPS and TBT agreements. I leave it to others to address this issue. See, e.g. Schroder, H.Z., 2009. Definition of the concept 'international standard' in the TBT Agreement. Journal of World Trade 43(6): 1223-1254; see also Chapter 6 by Marinus Huige.

61 The IAF claims that promoting trust is central to its aims: International Accreditation Forum, Inc., http://www.iaf.nu/. Cf. O’Neill, O., 2002. A question of trust. Cambridge University Press, Cambridge, UK.

62 Meidinger, E., 2009. Private import safety regulation and transnational new governance. In:

Coglianese, C., Finkel, A.M. and Zaring, D. (eds.). Import safety: regulatory governance in the global economy, University of Pennsylvania Press, Philadelphia, PA, USA, p. 233.

63 Liu, P., 2009. Private standards in international trade: issues, opportunities and long-term prospects.

In: Sarris, A. and Morrison, J. (eds.). The evolving structure of world agricultural trade: implications for trade policy and trade agreements. Food and Agriculture Organization of The United Nations, Trade and Markets Division, Rome, Italy, p. 218.

Quasi-states? The unexpected rise of private food law

use of HACCP, ISO 9000, and other management-oriented schemes assumes that the participants are competent and want to improve the quality and safety of their businesses. Clearly, if the control points chosen do not include all those of relevance, then HACCP is of little value. Indeed, in some quarters the initials HACCP are spelled out as ‘Have another cup of coffee and pray.’

One can make similar observations with respect to certification. The recent problems with salmonella in peanut butter in the United States provide a rare glimpse of the nature of the problem. The now-defunct Peanut Corporation of America was an ingredient supplier to a number of food manufacturers. It was inspected by Eugene A. Hatfield, who worked for the well-known and long-established food certifier, AIB International. According to its website, AIB International is accredited by ANSI and UKAS, the US and UK national accreditors.⁶⁴ The company knew when the audit would take place and had plenty of time to prepare. Moreover, Mr.

Hatfield had less than one day to review the large plant which processed several million pounds of peanuts each month.

Mr. Hatfield was hardly a novice, but at age 66 a seasoned plant inspector.

Nevertheless, his expertise was in the fresh produce sector, not in groundnuts.

He gave the plant a rating of ‘Superior’ in the certification process. Yet,

‘Federal investigators later discovered that the dilapidated plant was ravaged by Salmonella and had been shipping tainted peanuts and paste for at least nine months. But they were too late to prevent what has become one of the nation’s worst known outbreaks of food-borne disease in recent years, in which nine are believed to have died and an estimated 22,500 were sickened.’⁶⁵

Firms buying the ingredients were also forced to recall potentially dangerous products. Although there was no evidence of any form of collusion or fraud, clearly the audit was woefully inadequate. But the problem goes further than this would suggest: ‘If the certifier is a for-profit company, it may have an interest in not interpreting the standard in too strict a manner, lest some clients switch to competitors who have a more flexible interpretation. Also, withdrawing certification in case of non-compliance means losing a customer.’⁶⁶

Indeed, all of this took place in an industrial nation with a strong state and generally high relations of trust among both buyers and the general public. In

64 AIB International, https://www.aibonline.org/.

65 The New York Times, 6 March 2009, A1. See also: Stier, R.F., 2009. Third party audits: what the food industry really needs. Food Safety Magazine 15(5): 43-44, 46, 48-49, 60.

66 Liu, P., 2009. Private standards in international trade: issues, opportunities and long-term prospects.

In: Sarris, A. and Morrison, J. (eds.). The evolving structure of world agricultural trade: implications for trade policy and trade agreements. Food and Agriculture Organization of The United Nations, Trade and Markets Division, Rome, Italy, p. 224.

nations with weak states and widespread distrust, the problem may be far greater.

For example, one of the few studies of the effectiveness of a TSR in a weak state, the ‘safe vegetable production system’ in Vietnam, concludes that it is largely ineffective.⁶⁷

It should also be noted that the very obverse situation may prevail, where – usually for reasons of non-price competition and/or due diligence – buyers will not only demand that high quality standards be met, but that safety standards exceed those deemed necessary by health authorities. This is especially problematic for producers of fresh fruits and vegetables, since they have little or no control over the (apparently harmless) small quantities of microorganisms that are commonly found on such items. Moreover, these are perishable products that must be sold before they lose value. For example, one study found that blueberry buyers were demanding seemingly arbitrary bacterial counts for organisms not implicated in disease outbreaks; moreover, in one instance one buyer’s threshold was 20 times higher than another.⁶⁸ This and similar demands certainly do not make the delivery of public or private goods more effective, but they do add to costs.

Transparency. While Kafkaesque legal regimes certainly exist, in most states, most commercial law is publicly available and known (or knowable) to all. But many standards regimes are deliberately made quite opaque.⁶⁹ That opacity has several aspects. First, most SDOs sell their standards; indeed, that is their major source of income. Hence, they have a vested interest in limiting circulation to paying customers. Second, in some instances standards may actually be a trade secret, such that using them requires signing a non-disclosure agreement. Finally, the standards may regularly change based (usually) on the changing demands of the buyer. This lack of transparency is particularly troublesome.

Innovation. TSRs can and often do block innovation. This is particularly true when they are based on process standards. For example, many current TSRs in the agrifood sector demand that producers follow rigidly defined calendars for planting, spraying, fertilising, and harvesting crops, or similarly rigid rules for livestock management. While such rules certainly help to produce uniform products according to a fixed schedule, they are also quite inflexible with respect to innovation. They presume, often wrongly, that all innovation must come from those in charge of the supply chain; conversely, they limit the managerial capacities of suppliers. Similar problems may exist in the processing sector.

67 Pham Van Hoi, Mol, A.P.J. and Oosterveer, P.J.M., 2009. Market governance for safe food in developing countries: the case of low-pesticide vegetables in Vietnam. Journal of Environmental Management 91(2): 380-388.

68 Bain, C. and Busch, L., 2004. Standards and strategies in the Michigan blueberry industry. Michigan Agricultural Experiment Station, East Lansing, MI, USA.

69 Kaplinsky, R., 2010. The role of standards in global value chains. The World Bank, International Trade Department, Washington, DC, USA.

Quasi-states? The unexpected rise of private food law

Fairness. One problem frequently noted in the literature is the negative impacts on small producers. Indeed, it is worth noting that both ends of the continuum are biased against small producers. On the one hand, small producers may lack the funds necessary to invest in specialised equipment; on the other hand, without technical help, they may find themselves squeezed out of the market. Many aid agencies, both public and private, have attempted to grapple with these issues, with a mixed record of success. In some instances producer cooperatives and similar organisations have been able to successfully meet buyer requirements,⁷⁰ while in other situations this goal has been unachievable. Furthermore, when the standards change rapidly or are rather opaque, they would seem to require the permanent presence of some advisory group to maintain fairness. This seems a highly unlikely prospect.

Legitimacy. TSRs pose a number of legitimacy problems. First, legitimacy is undermined when suppliers are required to meet ever higher specifications.⁷¹ This is often the case as downstream actors usually have the ability to squeeze upstream actors.⁷² It is possible that in the future climate change and high oil prices will change this situation, but that remains to be seen. Moreover, it might have the unintended consequence of provoking food riots in poor nations.

Second, even so-called ethical standards (e.g. fair trade, sustainability) pose legitimacy problems. While the private voluntary organisations that promulgate these standards doubtless have noble goals in mind, they are often imposed on producers who have little say in their use and enforcement.⁷³

Third, each TSR or each supply chain develops its own rules, and creates its own market with its own outcomes. These outcomes not only include those persons within a given TSR, but may also include those connected to, but not quite part of the TSR. Put differently, a TSR may (deliberately or inadvertently) create two classes of ‘citizens’ – those who are within the domain of the TSR and those who are excluded and hence ignored. For example, Bain has shown how contract labour is systematically excluded from labour protections in a Chilean table grape TSR.⁷⁴ Moreover, on a national scale, as standards pluralise law, they also make it more and more difficult to calculate, channel, or forecast the behaviour of markets. As such, they undermine national and even international policies.

70 In this book, see for example Chapter 8 by Margret Will.

71 This problem is exacerbated when there is little or no price premium for higher standards.

72 This point was officially recognised in Great Britain by the Competition Commission, 2000.

Supermarkets: a report on the supply of groceries from multiple stores in the United Kingdom. Available at: http://www.competition-commission.org.uk/rep_pub/reports/2000/446super.htm. It noted that even as consumers benefitted from low prices, suppliers were often squeezed by supermarkets.

73 Gereffi, G., Garcia-Johnson, R. and Sasser, E., The NGO-industrial complex. Foreign Relations 125(July-August): 56-65.

74 Bain, C., 2010. Structuring the flexible and feminized labor market: Globalgap standards for agricultural labor in Chile. Signs: Journal of Women in Culture and Society 35(2): 343-370.

Finally, the proliferation of TSRs seems to have given state regulators the mistaken notion that they can now sit back and relax. The lack of adequate regulation of new food technologies, e.g. nanotechnologies, suggests that we now have (at least in some areas) a laissez-faire state, in which the normally reactive character of law is taken to the point of leaving things alone – or not having the wherewithal to act – even in the face of genuine concerns.⁷⁵ Likely it will take a serious nano disaster to prod state agencies into serious action. In short, there are now legitimacy problems for both states and TSRs.

2.6 Conclusions

The ostensibly voluntary character of standards suggests that the resolution of the problems associated with standards, certifications, and accreditations lie neither in voice or loyalty, but in exit.⁷⁶ Put differently, one might argue that those unable or unwilling to participate in marketing to the industrial world might still be able to sell their products to the middle and low income nations whose standards are lower. Doubtless, there are such opportunities at the present. And, given the rising purchasing power of nations such as India, China, and Brazil, one might see this as a reasonable alternative. Yet, both buyers and governments in these nations also appear to be rapidly adopting higher quality and safety standards because (1) these nations are also suppliers to the world market and are aware of the economic and safety advantages of higher quality products, and (2) articulate and well-educated middle class consumers in these nations are demanding protection from unscrupulous local producers in the light of various food scares.⁷⁷

Of course, it would be naïve to think of state-led governance as always perfect. It is far from that. But plural governance by various quasi-states raises fundamental issues for democracy. It appears to me that there are, grosso modo, four options:

75 Busch, L., 2008. Nanotechnologies, food, and agriculture: next big thing or flash in the pan? Agriculture and Human Values 25(2): 215-218; House of Lords, 2010. Nanotechnologies and food: evidence. House of Lords, Committee on Science and Technology, London, UK; Institute for Food and Agricultural Standards, 2007. An issues landscape for nanotechnology standards: report of a workshop. Institute for Food and Agricultural Standards, Michigan State University, East Lansing, MI, USA; Taylor, M., 2006.

Regulating the products of nanotechnology: Does FDA have the tools it needs? Woodrow Wilson Center for International Scholars, Project on Emerging Nanotechnologies, Washington, DC, USA.

76 Hirschman, A.O.,1970. Exit, voice, and loyalty: responses to decline in firms, organizations, and states.

Harvard University Press, Cambridge, MA, USA.

77 In China quasi-private certification schemes are already being explored. See: Yamei, Q., Zhihua, Y., Weijun, Z., Heshan, T., Hongping, F. and Busch, L., 2008. Third-party certification of agro-products in China: a study of agro-product producers in Guangzhou, Shenzhen, Hangzhou and Qingdao. Food Protection Trends 28(11): 765-770. Moreover, the melamine scandal has caused the state to enhance its food safety laws and to encourage certification schemes.

Quasi-states? The unexpected rise of private food law