FOOD SAFETY REGULATIONS AND EXPORT RESPONSES OF DEVELOPING COUNTRIES: LESSONS FROM SOUTH AFRICA AND NAMIBIA’S FRESH AND

FROZEN FISH EXPORTS TO EUROPEAN UNION

Mashura, ShingiriraiDepartment of Economics University of ZimbabweP. O. Box MP 167, Mount Pleasant, HarareZimbabweCell: +263 (0) 773 208 523, +263 (0) 715 493 157Email: mashuras@yahoo.com

And

Makochekanwa, Albert, PhD 1

Deputy Dean – Faculty of Social Studies &Chairman - Department of Economics University of ZimbabweP.O. Box MP 167,Mount Pleasant, HarareZimbabweCell: +263 (0) 774 444 390Email: almac772002@yahoo.co.uk

Abstract

1 Corresponding Author

Food safety regulations are attaining more prominence as trade regulation tools in the

international arena. The effects of these standards on trade performance are three-fold: trade

impeding effects, catalyst effects, and neutral effects. While various researches confirm the

trade impeding effect of regulations, the more pessimistic view confirms the catalyst effect

that is due to scale effect. This study outlines the relationship between food safety regulations

and export performance by investigating the changes in exports from South Africa and

Namibia to the European Union (EU) trade partners once the EU regulations were put into

effect, drawing policy implications in terms of food safety-export performance nexus. The

empirical results confirm the trade impeding at both aggregate and country level. Estimating

the pane gravity model with fixed model separately for each seafood product, the results

show that food safety regulations have differential effects across products. For Namibia, both

zero tolerance policy and harmonisation policy negatively impacted the fresh and frozen fish

exports. The results for South Africa were mixed. Fresh fish exports increase as the

regulations were put into effect while frozen fish decrease as the regulations were put into

effect.

Key Words: Food Safety, Seafood, Gravity Model, MRPLs, International Trade

Selected Paper prepared for presentation at the African Economic Conference, Abuja, Nigeria, 5 - 7 December, 2016

Copyright 2016 by Mashura Shingirirai and Makochekanwa Albert. All rights reserved. Readers may make verbatim copies of this document for non-commercial purposes by any means, provided that this copyright notice appears on all such copies.

1. Introduction

International trade in seafood products has more than doubled for the past two decades, and

more than half of these exports come from the developing countries. Nonetheless, these

developing countries face stringent regulatory barriers when exporting seafood to developed

markets such as Europe. These regulations are imposed to protect human health, plants and

animal life in importing countries.

The rapid expansion in seafood exports from developing countries many of whom have not

developed extensive food safety systems has put the European Union (EU) under pressure to

upsurge the regulatory strictness over imports. The potentially fast spread of food borne

hazards in the international seafood trade has motivated the increase in regulatory strictness

and enforcement mechanisms. Seafood products frequently receives the most food safety

violations and import refusals in the European Union (Buzby and Roberts, 2010). In the EU,

expansion in seafood exports coupled with increasing food safety concerns has put the

Commission under pressure to set up more effective inspection and enforcement mechanisms

to guarantee safety in all imported food products. In 2002, the EU implemented the Minimum

Required Performance Limits (MRPLs), which is regarded as the most strict food import

regulation.

The effects of the MRPLs on export flows from developing countries are ambiguous.

Anecdotal evidence suggests that the effects of food safety regulations on export flows from

developing countries are two-fold: trade impeding effect and catalyst effect. Therefore, we

believe it is of paramount importance to understand whether these regulations facilitate trade

by scale effect and harmonisation or primarily act as barriers and result in market loss. This

study investigates the relationship between food safety regulations and export responses

based on the theory and research results, from developing countries’ perspective. In

particular, it aims to examine the changes in export flows from South Africa and Namibia to

the EU partners after the European Union imposes the MRPLs (zero tolerance policy in 2002

and harmonisation policy in 2005), and draws policy implications. The following hypotheses

were tested: the imposition of MRPLs causes loss of market for the exporting countries; and

the regulations have differential effects on differentiated products.

The paper is structured as follows. Section 2 presents the background, that is, export

performance of South Africa and Namibia fish exports and EU food safety regulations.

Section three reviews relevant literature on food safety-export performance interaction.

Section 4 introduces the econometric gravity equation, followed by the description of panel

data set. Results are presented and discussed in section 5 and conclusions in the final section.

2. Background

2.1 South Africa and Namibia export performance in fresh and frozen fish

South Africa and Namibia are the leading exporters in the Southern African Development

Community (SADC) region with data of fish exports almost complete for most years.

Namibia is by far the main exporter of fish products in SADC in terms of volume, accounting

for about 48%, followed by South Africa with 26% (UNCOMTRADE, 2015). This is

understandable because Namibia is the largest fishing nation in the region and about 90

percent of fish landed in the country are exported. The domestic fish consumption in Namibia

is very low and estimated at only 10 percent of the total catch (Namibia’s Ministry of

Fisheries and Marine Resources (MFMR), 2010/11). However, in terms of export value,

South Africa is the leading nation.

2.1.1 South Africa’s export performance in fresh and frozen fish exports

South Africa’s agricultural relationship with the EU is based on the Free Trade Agreement

which entered into force in 2000. In 2000 South Africa’s exports amounted to about 100 000

tons, valued at USD 558.3 million in 2000. In 2001 and 2002 the total exports were about

US$ 673.7 and 348.34 million respectively (TIPS, 2005). In 2003 from total export of USD

358 million the main destination (by volume) were Spain (33%), Italy(17%), exports to the

rest of European Union (EU) represented only 14.5% of total exports, while 3% of the

volume exported went to markets in the SADC region (Democratic Republic of the Congo,

Zimbabwe, Zambia, Mozambique and Mauritius) (TIPS, 2005).

UNComtrade database (2015) reveals that the total value of South Africa’s frozen fish

exports to the EU partner countries increased from US$ 32 million in 2000 to approximately

US$ 64.4 million in 2006. The major export markets for South Africa frozen fish were Spain,

France, Germany, U.K and Portugal. The value of frozen fish exports declined from US$64.4

million in 2006 to US$11.8 million in 2014. In percentage terms, frozen fish exports declined

by 81.7%. Fresh fish exports were subjected to fluctuations. Overall, fresh fish exports from

South Africa increased by 47.9% % between 2000 and 2014. From 2001 to 2002 there was a

decline in exports to approximately US$32 million before it rose to almost US$48 million in

2003. From 2003 to 2005 the export value of fresh fish were constant at around US$48

million. It then declined to about US$35 million in 2006, after which it rose to approximately

US$61 million in 2008. It then sharply dropped to almost US$48million in 2009. From 2009

to 2014 the exports of fresh fish from South Africa to the EU showed increasing trail

(UNComtrade, 2015).

2.1.2 Namibia’s Export Performance in Fresh and Frozen Fish Exports

The fishing industry has grown to the extent that it is currently Namibia’s second biggest

export earner of foreign currency after mining (90% of national output is marketed for

export). In 2010, Namibia harvested about 343,874 tons of fish. Namibia’s international

markets for fish products from Namibia are mainly concentrated in the EU. There are many

European fishing sector joint venture partners in Namibia, and this strengthens the

relationship between Namibia and the EU. Namibia’s hake and monk fish sectors in

particular export to the EU, and have a significant number of joint ventures with EU partners,

involving large investment in vessels at sea and onshore processing. In 2011, about 73% of

hake exports were destined to the EU (MFMR, 2010/11).

The change in Namibia’s export values of fresh and frozen are presented in Figure 1. During

the period, 2000-2003, total Namibian exports of fresh fish to EU partner countries dropped

by 67.1%, from US$21.6 million to US$7.1 million. It then rose to US$27.9 million in 2005,

after which it declined by 58.1% to US$11.7 million in 2011. It then increased to US$29.4

million in 2013 before it declined to 19.4 million in 2014 (UNComtrade, 2015). Total value

of Namibia’s exports of frozen fish to the EU partner countries increased sharply from

US$113 million to US$170 million during the period 2000-2001.It decreased to

approximately US$100 million in 2004 before it peaked up to almost US$250 million in

2009. There was a sharp decreased between 2009 and 2010, from approximately US$250

million to almost US$150 million (UNComtrade, 2015).

Figure 1: Change in Value of Fresh and Frozen Fish Exports of Namibia

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 20140

50

100

150

200

250

300

Frozen Fresh

YEARS

US$

(mill

ions

)

Source: UNComtrade (2015)

Figure 2: Change in value of fresh and frozen fish exports of South Africa

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 20140

10

20

30

40

50

60

70

80

Fresh Frozen

YEARS

US$

(mill

ions

)

Source: UNComtrade (2015)

2.2 EU food safety regulations

The European Union introduced the enhanced food safety restrictions and regulations in an

attempt to ensure safety of the increasing food imports. From the early 1990s the EU has

been working towards the implementation of the Hazard Analysis Critical Control Point

(HACCP), a structure that put down a basis for food safety controls. In a bid to achieve this,

three council directives were implemented, which are: 91/943/EEC; 92/5/EEC and

92/46/EEC. These council directives contained HACCP-like standards for seafood products,

meat products and dairy products (Ropkins and Beck, 2000). These regulations were

advanced by the Council Directive 93/43/EEC which aim to put foundation for HACCP

standards for all food products. The council directive 93/43/EEC was cancelled and

substituted by Regulation No. 852/2004, which furthered the safety and hygiene regulations.

(Food Safety Agency, 2004).

At the end of 2001, the EU detected chloramphenicol and nitrofuran residues in seafood

products imported from Thailand, Vietnam, Myanmar, and in honey imported from China

(Alan, et-al., 2003). This resulted in the EU enforcing a zero tolerance policy to all seafood

products entering EU countries in 2002, that is, “0” became the de facto MRPL level. The

MRPL acts as a "cap" on the worst performing methods to ensure that a minimum standard

was applied across EU members’ laboratories (Li, 2014 and Kennedy, 2004). Laboratories

found it infeasible to uphold a zero tolerance policy (Hanekamp et-al, 2003 and Li, 2014).

Therefore, the EU shifted from zero tolerance policy to harmonisation policy in 2005, and

harmonised the regulation of chloramphenicol at the MRPL level of 0.3 ppb when the

European Commission published a decision on 11 January 2005 (Commission Decision,

2005). Furthermore, the EU destroyed the affected imports to prevent contamination within

its food chain. Only as the EU was revising its zero-tolerance policy, did it consider the

possibility of re-exporting or returning the seafood products with low levels of contamination

(Debaere, 2010).

Because of the trade disruption, the use of MRPLs in the EU generated disputes on the

appropriateness of the policy. MRPLs regulation was criticized because it was not based on a

risk assessment of underlying residues to human health, but on the performance of analytical

equipment (FAO, 2004). In addition, operating and maintaining these equipment require not

only technical investment but scientific expertise, both are scarce in developing countries.

3 Food Safety Regulations and Export Performance

During the last few decades, many researchers2 have been trying to quantify the effects of

stricter food safety standards on trade flows. These regulations were found to affect exports

flows in two main ways: trade impeding effects and catalyst effects. World Bank (2005)

argues that food safety regulations have trade-impeding effect on export flows from

developing countries through high or prohibitive compliance costs and import bans. High

costs of compliance to access the industrialised markets could weaken the competitive edge

of various developing countries. On the other hand, World Bank (2005) asserts that standards

have a trade-catalyst effect on export flows. This is premised on the notion that some

countries could comply with standards through research and development (R&D) to

reposition themselves in the international trade market to increase both competitive edge and

market share in trade.

The view of “standards as barriers” holds that many developing countries do not have

effective food safety control systems in place, so the stringent food safety standards enforced

by major developed-country importers impede trade flows through the creation of prohibitive

costs of compliance (Grant and Anders 2010; Anders and Caswell 2009; Caswell and Bach

2007). A fairly widespread empirical literature offers empirical confirmation for the negative

effect of stringent standards on export flows. For example, Anders and Caswell (2009) found

at aggregate level, developing countries experienced a significant trade decline when the US

implemented the mandatory Hazard Analysis Critical control Points (HACCP) in 1997.

Likewise, Chen et-al., (2008) examined the relationship between food safety regulations and

Chinese agricultural exports and found a negative relationship. In addition, Nguyen and

Wilson (2009) analyses the effects of U.S, EU and Japanese food safety policies on the

export flows of shrimp, fish and molluscs to these markets. Their findings indicated that

standards have differential effects on differentiated seafood products. Among the three

products, shrimp was found to be the most sensitive to food safety policies, and fish was the

least.

2 See: Anders and Caswell (2009), World Bank (2005), Jaffee and Henson (2004), Nguyen and Wilson (2009), Debaere (2010) Baylis et-al (2010), Li and Saghaian (2012 and 2014), Caswell and Bach (2007) and Alavi (2009) for studies on the effects of food safety regulations.

In an article studying HACCP in the EU, Otsuki et-al., (2001a) discover that food safety

standards reduce exports of cereals, dried fruits and nuts from African countries, confirming

the “standards-as-barrier” view. Otsuki et-al., (2001b) employed the gravity model to look at

effect of pre-EU harmonized aflatoxin standards on exports from nine African countries.

Their findings indicated a negative and significant relationship between higher standards and

value of trade flows. Specifically, they showed that 1% reduction in MRL of aflatoxin is

associated with a reduction in trade flow by 1.1 % for cereals and 0.43 % for fruits, nuts and

vegetables. Wilson and Otsuki (2003) and (2004) extended this analysis by showing the trade

effects of food safety regulations on various exporting countries in the world, beyond Africa.

Again, their results confirm that harmonizing standards at a stricter level relative to that

regulated by international standards can significantly reduce trade value. For example, the

authors predicted that if the EU’s high standards are applied globally, world trade will reduce

by $3.1 billion. In the case of banana imports to OECD countries, the authors estimated that a

1% reduction in the level of allowable pesticide chlorpyrifos would reduce trade value by

1.63%.

The view of standards-as-catalysts holds that developing countries could comply with

standards to reposition themselves in the global market to increase their competitiveness and

market share (World Bank, 2005). This is premised on the hypothesis that quality and risk-

free are the central aspect in the competitiveness of agricultural products. Jaffee and Henson

(2004) added that several evolving standards may bring with them some spillovers into

internal food safety system to benefit the local populace and seafood producers. Instead of

reducing the competitive edge of developing countries, costs of compliance to access

industrialised markets which are in the form of investments in technology will increase

competitiveness and profitability in the long-run.

Jaffee and Jabbar (2005) and Henson and Steven (2008) highlighted the potential benefits

provided by stricter emerging standards. The authors argue that tighter standards not only

provide certain countries with a competitive advantage and increased shares from stringent

standards, but they also provide incentives for developing-country producers to adjust their

export industry; these adjustments could benefit poor country consumers through

strengthened food and health standards. Caswell and Bach (2007) pointed out the possible

spillover effects on consumers, but they show that such spillover effects are weak in their

case study of Brazil.

4. Empirical Model and Data

4.1 Model Specification

The empirical method adopted in this study follows panel data econometrics and the gravity

trade model in particular. The gravity trade model is adopted in this study because of its

ability to investigate the interaction between food safety regulations and export flows. In

addition, this approach does not require predetermination of the sign of the standards

variables as it will be estimated. Therefore, this implies that the gravity model can be used to

estimate the trade elasticities in terms of food safety-export performance interaction (Anders

and Caswell, 2009).

This study uses the model with a variant of a typical gravity equation to analyse the effects of

Minimum Required Performance Limits (MRPLs) in the EU on the fish export flows from

South Africa and Namibia to that market. Following the gravity model’s specification

Anderson and van Wincoop (2003), the general model of export flows from exporter

countries to importer countries (i and j respectively) can possibly be specified as follows:

ln X ijt=α0+α1 ln GDP¿+α 2 lnGDP jt+α 3 ln DIST ij+α 4 LANG ij+α 5 ln REX ijt+α6 Reg 2002 jt+α 7 Reg 2005 jt+εijt 3.1

Reg 2002 jt={0 , Before2002 ,(Zero Tolerance Policy : MRPL=0 ppb)3.1 .11 ,¿

2002¿2004 ¿

Reg 2005 jt={0 ,Before 2005 ,(Harmonisation polcy : MRPL=0.3 ppb)1 ,Otherwise

3.1 .2

where, X ij is the seafood exports from country i to country j at time t. GDP¿ and GDP jt are

incomes of exporting country i and importing country j.DIST ij, the proxy for transaction

costs, denotes the geographical distance between exporter i and importer j. LANGij is a

dummy for language, taking the value of 1 if country i and j speak a common language and 0

otherwise. REX ijt represents the exchange rate. Reg 2002 jt and Reg 2005 jt represent zero

tolerance policy and harmonisation policy. The error term being normally distributed is

indicated byε ijt,

Model 3.1 is the standard specification of the general gravity model which controls for the

overall effects EU food safety regulations on South Africa and Namibia seafood export flows

to EU partner countries.

However, the standard gravity model suffers policy endogeneity problems, which comes

from unobserved heterogeneity between countries (Anderson and van Wincoop, 2003; Cheng

and Wall 2005; Baier and Bergstrand 2007; Li and Saghaian, 2012). From the econometric

perspective, these effects can be corrected by treating them as either random variables or

fixed effects. In this study, panel data econometrics is employed through the use of trade

gravity model with fixed effects to control for endogeneity of policy variables. The gravity

model with fixed effects can be improved to take the following form:

ln X ijt=α0+αij+α t+α 1 lnGDP¿+α 2ln GDP jt+α 3ln REX ij 3.2+α 4 Reg 2002 jt+α5 Reg 2005 jt+εijt

where the other variables are as defined in model 3.1. With respect to the three intercepts, the

one common to all years and all pairs is symbolized byα 0. α t represents the time constant

effect, including distance and language.α ij accounts for unobserved country effects.

4.2 Data

The empirical analysis of this study uses a dataset for two exporter countries and 11 EU

importer countries3. The importing EU countries covered in the study are those that joined the

EU by 2000, and with significant imports from the two countries. The exporter countries are

represented by South Africa and Namibia

The data collection consists of annual export flows, GDPs, real exchange rate, distance, and

language and regulation dummies. The dependent variable used in this study is the value of

bilateral exports measured in U.S. dollars from South Africa and Namibia to the EU partners.

They are obtained from the United Nations Commodity Trade Statistics Database

3 Belgium, Denmark, France, Germany, Ireland, Italy, Netherlands, Greece, Portugal, Spain, and United Kingdom

(UNComtrade, 2015). Data were downloaded at the four-digit level of harmonised

commodity description and coding system (HS system) for all fish products. The data for

exchange rate and GDPs of both exporting and exporting countries were obtained from the

database of World Development Indicators (World Bank, 2015). The data for time invariant

variables such as distance and language were obtained from the centre d'Etudes Prospectives

et d'Informations Internationales (CEPII).

The effects of MRPLs on export flows in this study are measured by adding the variables

Reg2002jt and Reg2005jt to represent the EU regulations, which are the policy variables of

bilateral trade costs. Reg2002 represents the “Zero Tolerance Policy” with MRPL level of 0

part per billion (ppb). Reg2005 represents the “Harmonisation Policy” with MRPL equal to

0.3ppb

Table 3-1: Variable descriptions and expected SignsVariable Variable Description Expected

SignXijt Value of seafood exports from country i to country j

lnGDPijt GDPs of both exporting and importing countries which reflects purchasing and output capacity of the importing andexporting country

positive

lnDISTij Geographical distance between exporter country i and the EU importer country j in miles

negative

LANGij Dummy variables to identify common official language, which equals 1 if country i shares the common official language with EU member j, and 0 otherwise

positive

lnREXijt Exchange rate between the EU and domestic currency of country j. It is an index with the first year being 100

positive

Reg2002jt Variable to identify low MRPL enforcement in EU., which equals to 0 before 2002, 1 between 2002 and 2004, and 0 thereafter

To be determined

Reg2005jt Variable to identify MRPL enforcement in EU., which equals to 0 before 2005 and 1 thereafter

To be determined

The descriptive statistics of the data used in this study are presented in table 3-2. Bilateral

export values of aggregate, Namibian and South African seafood exports are averaged at

US$12.6 million, US$16.9 million and US$8.3 million respectively. The standard deviations

are US$28.2 million, US$35.9 million and US$16.4 million, in the same order, are more than

two times larger than means of seafood export value. By differentiating products, means of

fresh and frozen fish for South Africa are close to each other with about US$5.1 million. For

Namibia, the mean of frozen fish (US$15.1 million) almost 3 times that of fresh fish exports

(US$5.9 million).

5.0 Results

Table 4-4 presents the estimated results for two model specifications with pool panel data, the

pooled OLS model and fixed effects model. Typical gravity variables such as GDPs and

distance have the magnitudes and signs that are similar to those in the traditional gravity

literature. However, distance has a positive sign for South. Also the GDP for Namibia has the

negative sign which is contrary to the results in literature. The dummy variable standing for

language is has a negative sign and only significant for South Africa at country level. The

exchange rate has the sign which is consistent with the theory but statistically insignificant

for South Africa.

Considering two key variables indicating average effects of food safety policies in the fixed

effect model, Reg2002 and Reg2005 the hypothesized sign at both country and aggregate

level. The enforcement of the 2002 regulation, EU’s the zero-tolerance policy, is statistically

significant at both aggregate and country level. At aggregate level, it is associated with 71.6%

decrease in annual fish export values. At country level, the implementation of zero tolerance

policy caused an average annual loss of 78.3% (or US$13.2 million) and 64.3% (or US$5.3

million) to South Africa and Namibia fish exports, respectively. This confirms the findings

by Nguyen and Wilson (2009) who reported71.6% reduction in fish exports to EU after the

MRPLs were implemented.

The EU shifted from zero tolerance policy in 2005 and harmonised the control

chloramphenicol at the MRPL level of 0.3 ppb when the European Commission published a

decision on 11 January 2005. The dummy variable capturing the effects of harmonisation

policy in 2005 (Reg2005) is statistically insignificant for aggregate exports. The impact of

the “harmonisation policy” in 2005 (Reg2005) shows that South African fish exports are

significantly lowered by 53.7%4 after the 2005 regulation, but Namibian fish exports were not

4 [(exp(-0.77) – 1)*100] = -53.7%

significantly affected. The findings are supported by Li (2014) who found out that lowering

MRPL would significantly reduce the trade integration between the EU and exporters in

developing countries. Overall, the results imply that the 2002 zero tolerance policy in the EU

has more impact on fish export flows from South Africa and Namibia compared to the 2005

harmonisation policy. In addition, it can be conceptually reasoned that increasing the MRPLs

to higher levels would lead to aggregate increase in fish exporting to the EU thereby

increasing the welfare gains.

Comparing the effects of the two regulations with different MRPL requirement levels it can

be conceptually reasoned that increasing the MRPL would significantly increase the exports

from South Africa and Namibia to the EU partner countries. In other words, EU members

increased the portion of fish imports from South Africa and Namibia after the MRPL level is

increased to 0.3ppb. In particular, the change in MRPL requirement from zero (Reg2002) to

0.3ppb (Reg2005) increased South African fish exports by 10.6%5. On the other hand, the

increase in MRPL increased Namibian fish exports by 29%6. This implies that increase in

MRPL level would decrease bilateral trade costs and increase export flows. The magnitude of

export flow changes resulting from increasing MRPL are far from negligible and suggest that

by shifting from zero tolerance to 0.3ppb, EU dramatically increased the export capacity of

South African and Namibian fish exporters. Most outstandingly, if the MRPL level was

originally set at 0.3ppb in 2002, South Africa and Namibia’s fish exports would have

increased by 10.6% and 29% respectively. This implies that Namibian fish exports are more

sensitive to MRPL changes than South African exports.

5.1 Differential effects of MRPLs on differentiated country products

Differences in MRPL requirement imposed on various commodities suggest that food safety

regulations may have different effects across traded fish products. The study estimated

separate fixed effect models for each product for each country to test the hypothesis that

MRPLs have differential effects on differentiated products.

The estimated results in table 4-5 shows that South African fresh fish exports respond

positively to standards while frozen fish respond negatively. The results confirmed the

hypothesis that MRPLs have different effects on different products. In particular, the

implementation of zero tolerance policy (Reg2002) and harmonisation policy (Reg2005) have

5 [(-53.7%) - (-64.3%)] = 10.6%6 [(-49.3%) - (-78.3%)] = 29%

positive effects on fresh fish exports from South Africa to EU partners. The increase in

MRPL level from zero in 2002 to 0.3 ppb in 2005 have cumulative effects. When the

regression results are compared to Figure 2, it is exciting to note that the value of fresh fish

was increasing regardless of the regulation enforcement. Overall, the results support the

hypothesis that, everything else equal, imposition of MRPLs have differential effects on

differentiated products.

The coefficients of zero tolerance policy (Reg2002) and harmonisation policy (Reg2005)

have a hypothesised sign for Namibia’s fresh and frozen fish exports. The enforcement of the

zero tolerance policy shows that Namibia’s fresh and frozen fish exports are significantly

deterred. The impact of the harmonisation policy shows that Namibian fresh fish exports are

deterred after 2005, but frozen fish exports are not affected significantly. This implies that the

impact of regulations varies depending on the characteristics of the products. Overall, the

results support the hypothesis that the enhanced food safety regulations have differential

effects on differentiated products.

6 Conclusions and policy Implications

The paper examined impact of EU food safety regulations (Minimum Required Performance

Limits) on fresh and frozen fish exports from South Africa and Namibia to the EU-15. The

study used the panel data in a gravity trade model with fixed effects developed by Anderson

and Wincoop (2003) to control for policy endogeneity and time-varying multiple price terms.

The findings show that EU’s introduction of the MRPLs in 2002 significantly reduced the

fish exports from South Africa and Namibia at both country and aggregate level. After the

MRPL was changed from zero to 0.3ppb in 2005 (Reg2005) only fish exports from South

Africa significantly impeded.

Considering the effects of food safety regulation at country-product level, the results show

that

the 2002 regulation of zero tolerance policy positively affected the South African fresh fish

exports. The change in MRPL in 2005 has further increased the exports of fresh fish. This

result infers that South Africa might benefit from the MRPL as the fresh fish exports further

increased when MRPL increased from 0 to 0.3. South African fresh fish exporting companies

may consolidate and increase vertical coordination at different levels of the supply chain to

benefit more from standards. Since the impact of regulations varies depending on the

characteristics of the products, South African frozen fish exports were deterred even when the

MRPL was increased to 0.3ppb. In the case on Namibia, the regulations in general have

significantly deterred fresh and frozen fish exports to the EU.

South Africa and Namibia should increase their level of food safety by adopting advanced

regulations or techniques in order to reduce the loss from trade reduction when they need to

comply with stricter regulation requirements of importers. Since South Africa has adopted the

system of Hazard Analysis Critical Control Point (HACCP), it can make some institutional

adjustments to cement food safety system within the country facilitate the catalyst effect. For

Namibia, HACCP system could enhance the business development of seafood exporting

firms. Although it costs firms a lot to conform to the new standard at the beginning, HACCP

and the MRPL system would benefit firms expanding in the future. Considering the further

investment, trading with developing countries is prior to trading with developed countries in

general. Furthermore, the best choice for managers and policy makers is to export fishery

products to countries that have not applied MRPLs yet or implement food safety system in

the same way with the EU, because standard barriers appear at the lower level in countries

with these standards.

Overall, the results of this study also emphasize the requirement for governments to examine

the effects of food safety regulations at both country and product level. Economic

examination of the trade effects of strict food safety regulations can be useful in the

development of food safety systems in developing countries. In addition, gravity estimations

help policy makers to know whether standards really impact trade and provides a basis for

anticipating market responses. Such examination can also support measurement of the

welfare effects of food safety regulations for individual developing countries. An alternative

for this study may be a model with only one food safety variable - MRPL, which is the

combination of Reg2002 and Reg2005.

Table 3-2.Descriptive statistics of data used in this study

Variable Mean St. Deviation Minimum Maximum

X ($) 12,597,821 28,168,108 1 186,694,702

XNamibia ($) 16,909,764 35,857,289 1 186,694,702

XNamibia-fresh

($)5,929,323 8,639,520 1 27,892,870

XNamibia-

frozen($)15,288,964 31,362,161 1 167,504,370

XS.A ($) 8,285,878 16,387,955 1 74,341,030

XS.A-fresh ($) 5,054,832 12,420,494 1 55,564,658

XS.A-frozen ($) 5,035,296 7 529 194 1 30,622,329

GDPExporter 140,689,640,287 149,170,577,680 3,361,236,317 416,597,000,000

GDPImporter 1,167,756,899,953 1,067,865,609,451 38,648,154,100 3,852,560,000,000

DISTij (km) 8,255.9 827.23 6,748 9,710

LANGij 0.1818 0.3863 0 1

REXij 7.9011 1.1773 6.3605 10.8439

Reg2002jt 0.2000 0.4012 0 1

Reg2005jt 0.6667 0.4728 0 1

Source: Author’s compilation from EViews 9

Table 4-4. Estimated Results for Pooled OLS and Fixed Effects Models

Pooled OLS Fixed Effects Model

lnXijt Aggregate S.A Namibia Aggregate S.A Namibia

Constant 32.52(1.37)

-70.32(-1.21)

185.6***(4.06)

-18.92*(-1.63)

-16.16(-1.46)

-26.4(-1.44)

lnGDPit 0.12(0.81)

0.48(0.27)

-1.06(-0.81)

-0.27(-0.43)

0.57(1.61)

-1.05(-1.19)

lnGDPjt 1.97***(9.62)

1.48***(4.78)

2.20***(8.58)

1.33***(2.82)

0.53**(2.45)

2.12**(2.41)

lnDISTij -8.61***(-3.0)

3.43(0.84)

-23.8***(-5.96)

- - -

LANGij -2.03***(-3.02)

-2.79***(-2.78)

-1.33(-1.56)

- - -

REXijt 1.70(1.25)

0.35(0.17)

3.23*(1.83)

1.52***(2.62)

0.12(0.27)

3.31***(3.79)

Reg2002jt -1.56**(-1.98)

-1.30(-1.05)

-1.55(-1.46)

-1.26***(-5.54)

-1.03***(-5.31)

-1.53***(-3.45)

Reg2005jt -1.40**(-2.16)

-1.28(-0.66)

-0.72(-0.46)

-0.73(-1.44)

-0.78*(-1.69)

-0.68(-0.93)

R2 0.28 0.20 0.45 0.60 0.64 0.58F-statistic 17.9*** 5.77*** 18.6*** 17.5*** 17.7*** 13.6***N 330 165 165 330 165 165

Notes: The numbers in parenthesis are t-statistics. The symbols ***, **, * indicate significance at 1%, 5% and 10% level respectively.

Table 4-5: Estimates of regulations effects on specific country-products

South Africa Namibia

lnXijt Fresh Frozen Fresh FrozenConstant 66.37**

(2.43)-33.54*

(-1.75)-215.3(-1.49)

-21.29(-1.18)

lnGDPit -4.02***

(-4.45)1.38**

(2.24)1.37(0.45)

-1.12(-1.37)

lnGDPjt 2.00**

(2.25)0.44(1.40)

6.70(1.09)

2.08**

(2.34)REXijt -2.73***

(-3.82)-0.51(-0.63)

5.52(1.61)

3.28***

(3.84)Reg2002jt 1.27**

(2.20)-0.60(-1.57)

-5.80**

(-2.40)-1.54***

(-3.79)Reg2005jt 1.98**

(2.38)-1.48**

(-2.04)-8.91**

(-2.37)-0.53(-0.73)

R2 0.62 0.56 0.68 0.58F-statistic 14.8*** 12.4*** 11.4*** 13.6***

N 120 150 45 165Notes: The numbers in parenthesis are t-statistics. The symbols ***, **, * indicate significance at 1%, 5% and 10% level respectively.

4-6 Partial elasticities of regulations for each individual country product

South Africa NamibiaVariable Fresh Frozen Fresh FrozenReg2002 256.1**

(2.20)-45.12(-1.57)

-99.70**(-2.40)

-78.56**(-3.79)

Reg2005 624.3**(2.38)

-77.23**(-2.04)

-99.99**(-2.37)

-41.14(-0.73)

Notes: Numbers in parenthesis are asymptotic t-statistics. The symbols ***, **, * indicate significance at 1%, 5%, and 10% level, respectively

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