## Food Safety News

### Pathway to Partnership? Private Food Standards in Canada

Pathway to Partnership? Private Food Standards in Canada

http://www.conferenceboard.ca/cfic/research/2013/pathwaytopatnership.aspx

by Michael Grant, James Stuckey, and Dr. Jean-Charles Le Vallée

The food system is becoming more complex, and the challenges of governing it are multiplying. At the same time, consumers continue to expect foods that are safer, higher in quality, and produced in an environmentally friendlier manner. As the demands for quality assurance rise, many companies have identified the need to go beyond the controls of public regulation. Private standards—voluntary systems that set process and product requirements as well as the means of demonstrating conformity with these requirements—are becoming more prevalent in the food economy in order to manage risk and differentiate products.

Arguably, the emergence of private standards has raised more questions than answers about their value to the food system. On the one hand, many view private standards as an important way to help achieve food system objectives such as food safety, given the system’s increasingly complex and globalized nature, and the constraints of public regulatory bodies. On the other hand, the proliferation of private standards puts new burdens on food businesses, which bear the costs of audits and certifications in addition to the costs of existing regulatory compliance. There is also the question of how much the multiplicity of private standards can be counted on to protect the public interest.

Given the growing importance of private standards, the time is ripe to assess the challenges and opportunities that private standards hold for the Canadian food system. To accomplish this, this report answers the following questions: What are the main features of private standards; what are the economic forces that shape them; how are they being applied in Canada; and what are the opportunities for leveraging private standards to address the public interest? In doing so, the report provides a conceptual and empirical foundation for future discussions about private standards in Canada, and to inform development of the Centre for Food in Canada’s Canadian Food Strategy.

## Private Standards: The What and the Why

Private standards typically involve the certification, verification, and enforcement of specified production practices. Their power comes from being incorporated into supply chain contracts, where they effectively become contractual commitments for businesses to operate in specified ways. They are an evolution of the management practices that businesses have long employed internally to manage quality. Against this backdrop, private standards have evolved to add objectives, such as supplementing public regulation, improving control over suppliers, expanding consumer choice and loyalty, managing reputational risk, and guarding against tort liability.

To accomplish these objectives, private standards specify outcome benchmarks (e.g., pathogen tolerances) or production design requirements (structural specifications such as manure storage requirements, or process specifications such as hand washing protocols). Private standards sometimes set higher outcome benchmarks than do their public regulatory counterparts. However, most private standards specify processes—the how rather than the what—and do not set additional numerical tolerances beyond those of relevant public regulations and guidelines. Rather, they provide detailed guidance for firms on how to comply with regulatory requirements and achieve other quality objectives.

Private standards adoption is shaped largely by market structure—that is, by the position that firms occupy in the supply chain and the market power that they possess. This has a differential effect on the costs and benefits of private standards adoption for individual firms. Larger firms close to the consumer (such as retailers) are highly motivated to implement private standards across their supply chain, increasing their span of control over quality and minimizing the risk of failures that would tarnish their reputation and brand image. Suppliers, which typically bear the costs of private standards audits and certification, must weigh the benefits of private standards adoption (e.g., improved access to large retailers) with the costs—which, for a small processor, have been conservatively estimated to be up to $12,050 for implementation and$6,713 every year for ongoing operation, administration, and re-certification.

## Private Standards Coverage in Canada

There are three main types of private standards systems. Collective-national systems are developed and implemented by sector and industry groups within Canada; collective-international systems are developed and implemented globally; and inter-company systems are developed by individual companies and administered to their upstream suppliers. Each of these has seen uptake across Canada.

The Global Food Safety Initiative is a benchmarking system based on leading international standards, and has been adopted by major Canadian food retailers.

For example, national producer organizations in Canada have been active in developing and implementing collective-national systems, particularly in the area of on-farm food safety, under the Canadian On-Farm Food Safety (OFFS) program. OFFS programs have been established for 29 commodity groups and sub-groups.

Collective-international standards systems have also seen uptake among Canadian food businesses. They include the British Retail Council (BRC) series of private standards, Safe Quality Food (SQF), International Featured Standards (IFS-Food), the Foundation for Food Safety Certification (FSSC22000), and the Marine Stewardship Council (MSC) for sustainable fisheries. Many private standards in Canada and elsewhere are coalescing around the Global Food Safety Initiative (GFSI), a benchmarking system based on leading international standards, now adopted by major Canadian food retailers.

Inter-company standards systems are also common among Canadian food businesses—particularly among large food service providers, food retailers, and processors. In light of the high degree of concentration in these sectors—for example, with the top five retailers accounting for approximately 80 per cent of food sales—private standards adoption by these firms has an outsized impact in terms of the overall coverage of private standards. Indeed, food passing through concentrated integration, processing, and retailing points has likely gone through one or more private standards quality control systems before reaching the plates of Canadians.

## Pathway to Partnership?

Achieving food system objectives requires contributions by both private and public sectors, and those of the private sector will likely become more important in the future. Private standards seem to offer a pathway for improved public–private cooperation to help address these challenges. Improved cooperation, however, depends on several conditions.

First, for private standards systems to play a greater role in food governance in a given area, they must be able to show that they can effectively and reliably contribute to public policy objectives such as food safety. There is no doubt that market-based enforcement mechanisms provide powerful incentives for compliance. If a vendor fails a private audit from a buyer or experiences a large product recall, the result can be a loss of market share and profit that far exceeds corresponding regulatory penalties. In addition, some data suggest that private standards are effective at improving outcomes, including a reduction of regulatory issues, product defects, and recalls. Demonstrating effectiveness and reliability will be critical to maximizing the potential benefits of private standards to food system governance.

It is also necessary that the benefits of cooperation—for regulators, businesses, and the public—outweigh the costs. It is not clear that businesses in certain areas of the food economy currently see value in greater cooperation, especially where regulatory interventions do not impose significant cost burdens and in light of the fact that some businesses are unwilling to have the details of their supply chains (such as the results of audits) exposed to scrutiny. In other areas of the food economy, it appears that some businesses are satisfied with the current model of regulation and oversight, and are unwilling to shoulder a greater degree of responsibility.

Where private standards can be shown to be reliable and effective, and where there is sufficient mutual benefit to greater cooperation, private standards represent an opportunity for more efficient and effective food system governance. This would involve a better integration of private standards, audits, and certification systems with public regulatory control and oversight. Such integration could begin in areas where private standards and public regulation systems work in parallel (for example, where a business is compliant with a GFSI-recognized standard for food safety), contributing to the same objectives without the benefit of coordination. Reducing these inefficiencies could free up regulatory resources that may be better allocated to areas of greater priority.

## A National Concurrence System: Defining a Road Map

Achieving improved cooperation requires work among stakeholders to better define areas of opportunity and the steps necessary to achieve progress. Given the diversity of risks, strategies, systems, and the varying incentives for industry and government to cooperate, it makes little sense to seek a universal co-regulation approach for Canada’s food system in order to improve overall food system governance. Rather, there is a need for cooperation and harmonization in select areas where there is mutual benefit.

We provide a road map for the private and public sectors to increase their cooperation incrementally over time. At the end of the road, a national concurrence system represents the best possible strategy for maximizing public–private cooperation in food governance. By a national concurrence system, we mean a system in which public and private efforts are aligned and coordinated to identify and manage risks such as food safety. Concurrence has three important senses: agreeing on desired results; acting together or cooperatively; and acting at the same time. It entails the following steps.

## Rationalize Existing Standards

• Federal and provincial governments should jointly agree to develop a national concurrence system that would eliminate unnecessary costs and system duplication, and begin to incorporate formal recognition of private standards systems.
• Government and industry should agree on and fund a clear process for benchmarking private standard systems to public systems (both federal and provincial) in order to determine what and where overlaps exist, as a basis for rationalization and harmonization.
• All commodity, industry, or inter-company systems would be studied to determine their overlap with public systems.
• Especially in Canada’s export-oriented sectors, benchmarking would take into account leading international standards (e.g., GFSI) to facilitate improved international market access and reduced cross-border redundancies.

## Rationalize Roles and Responsibilities

• Separate roles should be delegated to both private and public systems, as part of a national concurrence system, to ensure full and effective coverage of certification, verification, and enforcement.
• Public systems should continue to set base content requirements, register operators, and strengthen processes for monitoring and auditing private standards systems to ensure rigor.
• Public systems should develop a recognition/concurrence program for private standards at the federal and provincial levels in order to break down interprovincial trade barriers.
• Public responsibilities include reaching agreements with trading partners, preferably through multilateral bodies.
• Private standards systems should cooperate with government programs as a way to monitor compliance, and develop concurrence between private systems.
• Industry commodity groups and inter-company systems should continue to develop their own private standard systems for certification by regulators.
• Government should adjust public systems to take greater responsibility for those parts that are not well covered by private systems (including modifying current farm- and firm-based verification and enforcement processes).

## Improve System Management

• System performance measures should be assessed annually by independent third-party auditors against each criterion and based on targets. Performing such assessments would require additional investments in the licensing of auditors to ensure that auditing capabilities meet the system’s requirements.
• Enforcement approaches to non-compliance should be shifted toward incentives, facilitation, and encouragement.
• Public regulatory efforts should be reasserted where private systems fail audits. This would result in an evolving private–public partnership. In cases where private standards governance proves reliable, private systems of certification, verification, and enforcement would continue; where there are weaknesses, the public authorities would need to re-establish public governance.