August 2, 2013

Fifteen-percent of the total U.S. food supply is imported – more than double the amount imported just a decade ago.  Twenty-percent of vegetables are imported, 50% of fruit, 80% of seafood, and nearly 100% of spices.  Currently, inspectors only have the capability to inspect, at most, 2% of foods that reach the U.S. border.

On July 26, 2013, the U.S. Food and Drug Administration (FDA) proposed two new regulations under the Food Safety and Modernization Act (FSMA), which was signed into law in 2011 and is the most comprehensive food safety reform in 70 years. The first rule, known as the Foreign Supplier Verification Program (FSVP), would require food importers to verify that the products they import adhere to the same safety standards as domestically produced products. The second rule establishes provisions for certified third party audits within the exporting country. Under the proposed regulations, foreign importers would be required to:

• Identify possible hazards associated with each food item;
• Perform risk-based activities to verify that each imported food item has been produced in a manner concurrent with U.S. public health protections;
• Conduct periodic reassessments of the FSVP; and
• Maintain an importer ID numbers. 

Additionally, importers would also be required to keep records, which would be subject to audits performed by private firms, accredited by an FDA-sanctioned body. If certain importers have a record of compliance, however, there will be opportunities to move their products through the importation process more swiftly.

Food safety in the U.S. is becoming more of a global problem as supply chains become more decentralized. Emerging economies, with less developed safety regulations in place, are stepping into the global agricultural trade arena.

Recent Outbreaks

Imported foods tied to illnesses since January 2011:

• Pomegranate seeds from Turkey; hepatitis A
• Tahini sesame paste from Turkey; salmonella
• Ricotta cheese from Italy; listeriosis
• Papayas from Mexico; salmonella
• Mangoes from Mexico; salmonella

Source: Centers for Disease Control and Prevention; Pew Charitable Trusts

In China, 70% of farmland is affected by pollution with an estimate of between 25 million and 60 million acres contaminated by heavy metals.  Sixty-percent of the pesticides being used are done so incorrectly and are contaminating the food chain. In March 2013, 16,000 dead pigs were found floating in the Huangpu River, followed closely by 1,000 dead ducks found floating in the Nanhe River.   

Recently, a coalition, made up of 17 U.S. farm and food safety groups, has publically opposed the sale of Smithfield Foods to the Chinese firm Shuanghui International Holdings, Ltd. – a deal worth $7.1 billion.  The coalition worries that the deal would threaten the safety of the U.S. food supply if the Shuanghui group pursued the domestic sale of Asian pork – in essence reversing the flow of the global trade of meat. 

In light of China’s ever-expanding population and the country’s struggles to meet its domestic demand for food (which will only increase with time), it is highly unlikely that Shuanghui will begin importing meat into the U.S. and away from its own market. Imported meat from China is not of great concern to U.S. food safety. Currently, China imports virtually no meat into the U.S.  However, China is a major supplier of fish and shellfish to the U.S.  In 2012, the U.S. imported 2,632,900 MT of fish and shellfish from China – followed by Canada at 2,484,400 MT, Thailand at 2,024,200 MT, and Indonesia at 1,267,100 MT.  If the pollution occurring in China were to contaminate the seafood supply chain in Asia, that would be a cause for concern.  But let’s take a second look at the actual cases of dangerous foodborne contaminations that have happened in the U.S. since 2011 – pomegranate seeds, tahini paste, ricotta cheese, papayas and mangoes – fruits, vegetables and cheese from countries such as Turkey, Italy and Mexico.  The two largest importers of vegetables and vegetable preparations are Mexico and Canada, importing 4,761,200 MT and 2,118,500 MT of vegetables, respectively.  The top foreign suppliers of fruits and fruit preparations to the U.S. are Mexico, shipping 3,513,300 MT, and Chile which ships 1,517,800 MT of fruit.

Although it might seem evident that the increased globalization and decentralization of food supplies would necessitate regulation reforms, according to the Office of Management and Budget, the cost to industry for the first year of implementation of the FSVP will be nearly $500 million with an annualized cost of $450 million. The first year cost to industry for enactment of 3^rd part certified auditors would be approximately $480 million, with an annualized cost of $462 million. This translates to a total cost to industry of almost $1 billion in just the first year. Some the costs resulting from the adoption and implementation of these new regulations will affect the sphere of agricultural investments: changes to the due diligence process when considering foreign companies that export food to the U.S. or the added costs of operations for compliance to the FSVP for such companies.  

Taking into consideration the inherent lack of transparency in many emerging markets, inefficient bureaucracies, and rampant fraud, the question must be asked, would those who these rules are designed to regulate, even comply? While food safety in the U.S. is an issue that desperately need to be addressed, imposing new regulations to the tune of $1 billion annually, which will be passed on to consumers and industry participants, at time of such sluggish economic growth, does not seem to be the answer to food safety that neither the U.S. nor the world needs at this time.  

– The GAI Research & Insight Team