Some Implications of the EU Code of Conduct on Responsible Food Business and Marketing Practices for ACP Producers

–          General Observations

Given the need for increased collaboration along the value chain the question arises as to what form this collaboration along import supply chains will take. Specifically:

· Will it simply consist of new production process requirements which third country
suppliers will have to meet if they are to remain part of EU market focussed supply
chains?

· Or will it involve some level of consideration of the cost implications for 3^rd country
primary producers and exporters and a collaborative dialogue on the distribution of
the costs and revenues along the supply chain, so as to ensure the social and
commercial sustainability of the changes required to transform production,
processing packaging, and shipping, on a more climate and environmentally
friendly basis?

· Will it include appropriate public policy and consumer engagement with the issue of
cost sharing in the areas of innovation required?

Given the focus of aspirational objective 5 on ‘sustained, inclusive and sustainable economic growth, employment and decent work for all’, the framing of the objectives of the Code would suggest some level of collaborative dialogue on the distribution of the costs and revenues along supply chains will need to be promoted under the Code of Conduct if its implementation is not to become unbalanced.

This would appear to be an important area for ACP governments and producers associations to emphasise in discussions with the EC, as the EU moves ahead with the operational application of its new Code of Conduct on Responsible Food Business and Marketing Practices.

–          Aspirational Objective 1: Healthy, Balanced, Sustainable Diets for All
European Consumers

From and ACP perspective, there are four important aspects to this particular aspirational objective. The first of these relates to the aim of reducing sugar consumption. In December 2019 the EC projected a 6.4% decline in EU28 sugar consumption by 2030, with a larger a 7.6% decline in human consumption (7). Public health reports in the UK (8), suggest the required reduction in sugar consumption in food and drink products (which could be taken up within the EU Code of Conduct) is a 25% decline from current levels. Given 70% of sugar consumed in Europe is consumed in the form of processed food and drinks, the promotion of such targets would have a major impact on overall EU sugar market demand.

This would be likely to carry very real implications for ACP sugar exports to the EU market. This will be compounded by the new EU/GB rules of origin complications in the sugar and high sugar content food and drink sectors. These new rules of origin requirements are encouraging manufacturers of high sugar content food and drink products produced for both EU and UK markets, to turn their back on imported cane sugar in favour in EU or UK produced beet sugar.

The second aspect of this dimension of aspirational objective 1, is the emphasis on promoting consumption of fruit and vegetables. If such promotional actions are effective, this could substantially boost EU demand for fruit and vegetables, given the current low levels of per capita consumption which are well below those required for a healthy diet.

However, a cautionary note is warranted in this regard. Despite existing efforts to promote greater consumption of fresh fruit and vegetables, per capita consumption continues to fall in the EU. It is unclear what a voluntary code can do to reverse this worrying trend. While heightened health awareness linked to the Covid-19 pandemic, could potentially provide an opportunity for new initiatives to boost consumption of fresh fruit and vegetables, the economic effects of the pandemic on household incomes could serve to encourage increased levels of consumption of low cost ‘super-processed’ foods. This would appear to require the introduction of fiscal measures aimed at changing the price balance between fresh produce and ‘super processed’ food. However, this reaches well beyond the scope of the current voluntary Code of Conduct.

The third aspect of aspirational objective 1 of particular relevance to the ACP is the focus on promoting sustainably produced organic food. In recent years, not only has the overall volume of ACP organic product exports to the EU increased considerably (+26% from 2018 to 2019 and +22% from 2019 to 2020) but the contribution of ACP suppliers to overall EU imports of organic products has also increased from 13.6% in 2018 to 15.2% in 2019 and 18.9% in 2020 (see companion epamonitoring.net articles, ‘Growth Continues in EU27 Imports in Organic Products Where ACP Producers Have an Export Interest’, 27 July 2021 and ‘Dominican Republic and Bananas Dominate ACP Organic Products Exports to the EU28’, 18 August 2020).

However, it needs to be recognised that there are now threats to this continued expansion of ACP organic exports to the EU. This is not only linked to the Brexit process, which has created new complications for ACP exporters serving the UK market (see companion epamonitoring.net article, ‘Lack of UK IT Systems for Organic Imports Poses Challenges for ACP Fresh Produce Exporters’, 17 June 2021), but also how the EU’s new organic regulation will be implemented. It is unclear what implications the EU’s commitment to strengthening control systems for organic products and ensuring third country producers ‘comply with the same set of rules as those producing in the EU’, will carry for the administrative complexities faced by ACP organic producers in serving EU market.

Most ACP organic suppliers are small scale exporters with limited capacities to deal with more complex trade administration requirement (with this having been clearly demonstrated by the problems arising from the UK’s reversion to a paper-based system of organic trade administration). Against this background, if the EU is to promote sustainably produced organic food production in third countries, the implementation modalities for the EU’s new organic regulation will need to be carefully designed, with the administrative constraints of smaller scale ACP organic exporters in mind.

The EC will need to remain receptive to problems as they arise and be open to practical solutions which maintain and promote trade in ACP organic products onto EU markets, while ensuring the continued integrity of the EU’s organic certification system.

To date the EC has a relatively good track record in this regard (see comment in epamonitoring.net article ‘Lack of UK IT Systems for Organic Imports Poses Challenges for ACP Fresh Produce Exporters’, 17 June 2021). This however will need to continue, with the policy implementation dimension needing to be kept constantly in mind.

The fourth aspect of aspirational objective 1 of particular relevance to the ACP is the focus on improving the environmental footprint of products placed for sale on the EU market. This potentially throws down a challenge to ACP producers’ associations to begin mapping their environmental footprint, to identify areas where improvements can be made to reduce their environmental footprint. Proactive engagement in this issue by ACP producers associations could potentially pre-empt adverse consumer reaction as initiatives to reduce the climate and environmental impact of food production gain traction amongst EU consumers (for the potential impact of this emerging trend see epamonitoring.net article, ‘Demand for Cane Sugar Likely to Come Under Further Pressure Now Based on Climate Concerns’, 11 May 2021).

–          Aspirational Objective 2: Prevention and Reduction of Food Waste

It should be noted that in terms of reducing food waste, there are a range of unresolved Brexit related trade issues which are increasing waste along fresh produce supply chains both shipping directly to the UK (e.g., in the organic sector) and shipping to either EU or UK markets along triangular supply chains. Practical, unilateral actions need to be taken by the EU to address these sources of delay in the transportation and delivery of goods to final markets, where these are giving rise to increased levels of food waste. To date this issue has not been recognised.

Areas where specific unilateral EU initiatives would appear possible include:

·  An offer to temporarily re-admit the UK to the E-COI system used for the
electronic administration of organic product trade documentation, so as to
facilitate the continued trade in more environmentally friendly organic products to
Europe.

· The early establishment of expedited procedures for the issuing of the
  phytosanitary re-export certificates, which will be required from July 2022, so
as to establish a precedent for the kinds of administrative measures required to
ensure the continued smooth flow of fresh produce along triangular supply chains.

· The establishment of stakeholder led ‘Groupage cargo working groups’, to address
the pre-border documentation preparation requirements for the efficient low-cost
movement of ‘groupage’ cargoes across EU/GB borders; with this requiring the
active engagement of both UK and EU border clearance authorities, so as to ensure
  officially expedited border clearance processes for cargoes subject to agreed
pre-border documentation preparation and authentication processes.

· The careful crafting of the operational modalities for the implementation of the new
EU organic product regulation, so as to avoid the creation of any disincentives to
the further expansion of ACP production and export of more environmentally
friendly organic products.

–          Aspirational Objective 3: Climate Neutral Food Chain:

While the focus on establishing a ‘climate neutral food chain’ by 2050 appears to be focussed on the EU food chain, this would appear to include 3^rd country suppliers who feed into EU food chains. Against this background there would appear to be a need for ACP agri-food exporters serving the EU market to highlight just how their individual ACP supply chains are contributing to these energy reduction objectives at the production and distribution levels. The aim of such proactive ACP engagement should be to highlight energy conservation best practices.

This should be seen as a prelude to efforts to engage with EU and national public sector bodies on how to effectively promote the generalised uptake of energy conservation best practices (including through the mobilisation of financial assistance).

–          Aspirational Objective 4: Optimising the Circular Economy in the
European Food Chain

This objective appears to be primarily related to the operation of European food operators. However, in some EU sectors there is a heavy dependence on third country inputs (e.g., in the cocoa sector and palm oil sectors). This raises the question: how can supply chains such as cocoa, commit to circular carbon neutral operations if their major raw material inputs are not included in this calculation?

It is therefore unclear how this issue will be dealt with under the new Code of Conduct. This being noted the focus on companies submitting commitments which are ambitious and tangible in at least one specific area, provides scope for signatory companies to focus exclusively on their internal European operations.

–          Aspirational Objective 5: Sustainable Economic Growth, and Decent
Work for all

It is unclear to what extent aspirational objectives in the sphere of sustainable economic growth, and decent work for all extend to third country supply chains supplying the EU market or even the operations of EU registered companies in third countries.

In some policy areas such as due diligence commitments with regard to child labour and deforestation the EC is certainly contemplating EU regulatory initiatives which will extend to third countries (e.g., in cocoa supply chains).

However, recent experiences related to the efforts of certain corporate players to circumvent the bottom line implications of the Living income Differential (LID) payment introduced by the governments of Ghana and Cote d’Ivoire (by reducing other areas of cocoa payments), highlight the practical difficulties faced when relying solely on voluntary corporate commitments (see epamonitoring.net article ‘Challenge Thrown Down on Inclusion of Living Income Requirements Under Pending EU Due Diligence Regulations in the Cocoa Sector’, 18 May 2021).

–          Aspirational Objective 6: Sustainable value creation through
partnership

The focus on supporting climate adaptation while contributing to improved farmer livelihoods would appear to be particularly relevant for ACP producers within this aspirational objective. However, ultimately there will be a need to address the difficult issue of the distribution of the costs and benefits of the introduction of more climate and environmentally friendly production processes within individual supply chains. This is extremely difficult to do within the framework of a voluntary non-legally binding code of conduct.

In this area the contribution of such Codes of Conduct would appear to be limited to providing a point of reference for exhortations in regard to improving corporate practices within individual supply chains.

–          Aspirational Objective 7: Sustainable sourcing in food supply chains

Objectives and commitments in this area potentially have a major significance for ACP producers serving EU markets, given the proposed indicative actions include the promotion of ‘sustainable sourcing of materials in relation with (direct) suppliers, inside or outside of the EU’, and the promotion of collaboration in identification of ‘appropriate solutions and strategies’ for: ‘supporting, conserving or protecting natural habitats and biodiversity’; ‘preventing, reducing or remedying negative impacts of operations on air, land, soil, water, forests’; supporting afforestation and sustainable land use.

However noticeably absent are any indicative actions in regard the social sustainability of sourcing practices. Given the commitment to promoting decent wages and livelihoods, in ways which lift individuals and families out of poverty, this can be seen as a significant oversight.

This is a critical area on which ACP governments and producers association will need to focus as the EU moves towards the operational implementation of the ‘EU Code of Conduct on Responsible Food Business and Marketing Practices.’