Cost-Benefit Analysis of the Effects of Federal Government Regulation for Organic Products Produced in Canada or Imported

Transcription

1 Cost-Benefit Analysis of the Effects of Federal Government Regulation for Organic Products Produced in Canada or Imported 1. Background The Government of Canada (AAFC and CFIA) has been working with the organic industry to develop and assess options for mandatory organic regulations. The CFIA is evaluating options where it would oversee a regime which ensures a consistent compliance plan for the production, exportation, importation, handling, and management practices for organic products. The CFIA is contemplating introducing user fees as called for by its Cost Recovery Policy since most of the benefits are expected to be accrued by industry. A cost-benefit analysis on the impacts of alternative regulatory options on industry, government and consumers is required by the Government of Canada Regulatory Policy and the CFIA regulatory development process. Furthermore, this study will assist in the CFIA developing a fair and effective regulatory regime based on sound science for the organic industry. 2. Government of Canada Regulatory Policy The Government of Canada Regulatory Policy requires that regulations result in the greatest net benefit to Canadian society 1. The CFIA has officially adopted this policy through its 2001 Regulatory Development Guide. This policy requires that when regulations are developed: 1. Canadians are consulted 2. Demonstration that a problem or risk exists, federal government intervention is justified and regulation is the best alternative 3. The benefits outweigh the costs to Canadians, their governments and businesses 4. Adverse impacts on the capacity of the economy to generate wealth and employment are minimized and no unnecessary regulatory burden is imposed 1 Page 1 of 8

2 5. International and intergovernmental agreements are respected and full advantage is taken of opportunities for coordination with other governments and agencies 6. Compliance and enforcement policies are articulated, as appropriate; and resources have been approved and are adequate to discharge enforcement responsibilities effectively and to ensure compliance 7. Other directives from Cabinet concerning policy and lawmaking are followed The focus of this study will be to address requirements 2, 3, 4 and Issue/Problem Food safety, consumer protection and market access are the three main issues or problems that face the Canadian organic industry. Food Safety - The Census of Agriculture in 2001 reported 2,230 farmers in Canada working on about 340,000 hectares of land producing certified organic products. There were 46 certifying bodies and 150 processors and distributors in Canada. Farm cash receipts for organic were about $500 million, representing 1.5% of agriculture s total farm cash receipts. The large numbers of farmers, processors and certifying bodies raise on-farm food safety concerns related to consistency of application of standards. Consumer Protection - Demand for organic products in Canada has increased by about 15% per year for the past ten years. Canadian production of products has also increased by 15% annually. Imports of organic products represent about 75% of Canadian consumption. Enforcement of label claims is seen as the critical factor for recognizing the equivalency of the Canadian voluntary standard. There is no single labeling system or trade mark to assure consumers that products marked organic are in compliance with a national standard. This may lead to confusion for consumers. Fraud may also be a concern, as product may be labeled organic while it is not, and there is no mechanism to enforce a national standard. Furthermore, since no federal regulation on organics exists, there is the possibility that Canada could become a dumping ground for product from the US and EU that does not meet the standards for these regions, but is exported to Canada to be sold here as organic. This could have a negative impact on Canadian producers and consumers. Market Access - The National Standard for Organic Agriculture was published in 1999 by the Canadian General Standards Board, an internationally recognized accreditation body which works in accordance with the International Standards Organization. This National Standard is voluntary, not mandatory. According to the Canadian Organic Industry, voluntary standard cannot be enforced and voluntary standards may create a lack of consistency and uniformity in Canadian produced products. This voluntary standard is unlikely to be acceptable to the USA, Page 2 of 8

3 who recently implemented their own mandatory organic standards. Voluntary standards may not be acceptable to other trading partners, such as the European Union, China, Japan and others who currently have, or are developing regulations. The EU policy on organic products calls for a deadline for acceptance of imports. After December 31, 2005 Canada must be on the EU s Third Country List or Canadian producers will lose access to the European market. To be included in the Third Country List, Canada s organic standards and regulations must be recognized by the EU. A time line of significant recent events related to the organic industry follows: At the request of the Canadian organic industry, draft regulations were developed to govern organic agriculture in 1995, but consensus was never reached In 1996 the House of Commons Standing Committee on Agriculture recommended that the organic industry develop a set of voluntary guidelines In 1997 the CFIA contracted the Canadian Organic Advisory board to develop a national standard and an accreditation mechanism In 1999 the Canadian General Standards Board published a national standard for organic agriculture which established minimum criteria for agricultural practices, management practices and requirements for making organic claims on foods In 2002 the National Organic Program was fully implemented by the USDA. In 2002 the Prime Minister s Caucus Task Force On Future Opportunities in Farming recommended that The federal government provide targeted assistance to organic farmers in the areas of research, pest control, the certification process and exploration of export markets. In 2004 a revised standard is being developed by the Canadian General Standards Board with a ballot scheduled for April of In 2004 there are no mandatory federal regulations specific to organics in Canada. Quebec which has provincial mandatory standards and British Columbia has a mandatory standard for use of the BC Organic stamp. In 2005 EU import regulations will require organic products to come from countries having an inspection system equivalent to or recognized by the EU. (Third Country List) In November, 2003 the CFIA attended a National Organic Workshop at which industry decided only mandatory regulation would meet the options proposed. (Eight options were discussed, and one selected as the preferred option.) Five additional workshops are scheduled throughout Canada in early Statement of Need for Regulations The Canadian organic industry has requested regulation twice - in 1995 and again in The 1995 request did not result in establishment of regulation and this costbenefit analysis is part of the 2002 request. There is strong support for a regulatory Page 3 of 8

4 approach by representatives of those organizations that deal with international markets. The need for clear and harmonized rules has not only been taken up by private bodies, IFOAM (International Federation of Organic Agriculture Movements) and state authorities (e.g. EU regulation 2092/91 within the European Union), but also by the UNas Organizations FAO and WHO (Codex Alimentarius). FAO and WHO have officially declared that international guidelines on organically produced food products are seen important for consumer protection and information, and because they facilitate trade (FAO, 1999). 5. Aims and Objectives The overall aim of this study is to conduct a quantitative analysis of the costs and benefits of regulating the organics industry and to determine a viable, fair, economically and scientifically sound approach to the regulation of the industry. 6. Scope of Study This cost-benefit analysis will consider the organic production of food as a whole and look at economic impacts on all fronts, including the costs to the CFIA, consumers, tax payers, and industry. The benefits to these stakeholders will also be considered. Regional and seasonal differences in running the program, and the impact to Canadian industry should also be assessed. This study will endeavor to explore all reasonable scenarios for the creation and implementation of a cost-recovered regulatory management strategy for the organics industry. In doing the analysis, multiple aspects of the industry must be considered, including domestic production, imports, and exports. Harmonization of regulation with existing regulations (mandatory regulations in Quebec) or trading partners such as the US and EU should be compared with selected scenarios and analyzed. There have been preliminary discussions among the CFIA, AAFC and the organics industry about the establishment of a third party verification body. This is a form of alternative service delivery - the CFIA would maintain an auditing, enforcement, import control and emergency response role while a third party delivers services such as accreditation, inspection and certification. These alternative service delivery arrangements work well (the Canadian Beef Grading Agency is an example) and lower the costs to industry and to the CFIA. To accommodate small business and provide a phase-in period for all businesses, a stepped series of user fees or tiered fee structure may be necessary. The study must address the short and long term impacts of stepped or tiered fee implementation. The Page 4 of 8

5 system in Quebec, where the provincial government pays 80% of the cost of the mandatory regulation system may serve as an example. 7. Options The analysis of this study will be done in the context of the following 4 options: 1. Status Quo: Continue Voluntary System There is no federal government support to administer this system. 2. Voluntary but equivalent with international systems Federal government support of the voluntary system to attempt to have it recognized as equivalent based on compliance with international systems such as ISO-61 (3) for accreditation bodies and ISO-65 for certification bodies and standards. 3. Development and Implementation of Mandatory Organic Regulation CFIA oversight of third party who delivers the program: development of a delivery model in which the CFIA would maintain an auditing, enforcement, import control and emergency response role while a third party delivers services such as accreditation, inspection and certification. 4. Development and Implementation of Mandatory Organic Regulation CFIA full program delivery with no third party: development of a model in which the CFIA provides all services - auditing, certification, emergency response, accreditation, inspection, enforcement, import control, training, and there is no third party involvement Alternative options and variations on these options should be analyzed as deemed appropriate by this study. 8. Elements of the Study The study will present, in a written report, the inter-related elements as detailed below: Background literature: A comprehensive review and critical analysis of the published literature, viewpoints and analysis from academia, government, industry, and other relevant sources in Canada, the USA, and European Union. Page 5 of 8

6 Industry description: An outline of the structure, function, philosophy, history, products, future outlook and operation of the organics industry in Canada. Problem: Define the problem and a statement of need for government intervention to address the problem. International trade and domestic industry analysis: A comparison of the 4 options outlined in Section 7. Estimate the potential impact on imports and exports. Industry benefits: Estimate the benefits to industry of the 4 options outlined in Section 7. Environmental, animal welfare & health benefits: Based on the literature review, an assessment of any potential environmental, animal welfare and health benefits. Costs (market and non-market): Quantify the cost to industry, producers, consumers and government of the 4 options outlined in Section 7. Costs to CFIA will be provided by the CFIA. Impact on small business: Evaluate the impact on small business and propose alternative solution to reduce the regulatory burden such as an exemption. Cost-benefit analysis: Compare the benefits and costs of the 4 options outlined in Section 7 2. Distributional effects: Distributional effects need to be considered (winners and losers, private good vs. public good). 9. Methodology The analysis will follow the EPA Guidelines for Preparing Economic Analysis see: Literature Review - a comprehensive review of the published literature in Canada, the USA, and EU will be done. This will include formal research as well as viewpoints and analyses from industry organizations, governments, etc. Trade analysis - Use of trade and industry statistics and/or trade models to estimate the potential impact on imports and exports. Use marketing research to estimate the ability of the industry to pass cost recovery charges on to their customers or to others. Cost-benefit analysis - A quantitative (qualitative where data is not available) cost-benefit analysis. Seminar in Ottawa to receive comments of the draft report and stimulate further 2 The analysis is required to follow the EPA Guidelines for Preparing Economic Analysis see: Page 6 of 8

7 discussion. 10. Timetable and Deliverables Milestones Literature Review Consultation with industry / CFIA Cost-benefit Analysis - interim report Seminar in Ottawa Cost-benefit Analysis - final report 11. Budget The total budget for the project, including GST is $?. 12. Project Team The contracted project leader will provide a CV for each member of the team participating in the study. 13. Interim Deliverable It is expected that the study will include a consultation deliverable (item 10) which will consist of a written interim report and a presentation of the material in a seminar in Ottawa. The audience for the initial report and seminar will be the CFIA/AAFC project team, provincial government stakeholders and representatives from the organics industry. Comments and concerns generated from this seminar must be addressed in the final report. 14. Final Report Upon completion of the contract, the final report will become the property of the Page 7 of 8

8 Canadian Food Inspection Agency and Agriculture and Agri-Food Canada. 15. Contact at CFIA The contact at CFIA in regard to this cost benefit analysis is: Page 8 of 8