Training module

Trade of Perishable Products

Keywords: Perishable Products, Commercial Production System, Fair Trade, Organic Production System,

Protective Tariffs, Standards, Taxes, Trade Regulation, Processed Products, International Trade Regulation,

Domestic Trade Regulation, Human Health, Food Safety, Agriculture, Large Scale Industrial Production,

Smallholder Production, Banana Industry.

After completion of this sub module, you would have learnt about the definition of perishable products and

their specific challenges within international trade and domestic trade. In addition, the reader would be able to

familiarize with the current production system, to understand the areas of agreement in the international trade,

and also to differentiate the difference between international and domestic regulations in the international

trade. Besides that, be knowledgeable of the structure of the banana industry in terms of distinguishing large

scale commercial plantation from small scale holder production.

Hamburg University of Applied Sciences May 2009

This project is funded by the European Union.

Trade of Perishable Products

In this sub module, you will learn about the definition of perishable products and their specific

challenges within international trade and domestic trade. Besides that, this section also explains the

current production system which is currently used such as commercial, fair trade and organic

production system, the areas and agreements involved. You will also be exposed to the different

current regulations in terms of protective tariffs, standards, taxes, trade regulations for processed

products. In addition to that, it also discusses the international and domestic trade regulations with

regards to human health and food safety and ideas that impact international trade. The case study in

the banana industry discusses about the comparison between large-scale industrial production and

smallholder production.

1. Perishable Products and their specific challenges

Perishable products are predominantly foodstuffs which have their origins in the flora and fauna

kingdom. These goods may encounter lost of quality rapidly at normal temperatures, over-

ripeness, mold, loss of aroma and vitamins, rancidity which also includes formation of toxic

substances which constitutes typical changes whereby within a short span time may render

them inedible.

These perishable products are divided into three categories based on the human body’s

nutritional requirements which are proteins and minerals, carbohydrates and fats, and vitamins.

These requirements are essential and a necessity to ensure the development and growth of the

human body is not stumped, produce more energy and stamina when there is a lacking of the

system in the body and the vitamins traces the elements to regulate biological processes.

The principal cause of a product being termed perishable is that all living plant parts which

contains about 65 to 95 percent of water continues their living processes after harvest. Its post-

harvest life is dependent on the rate at which it uses up its stored food reserves and rate of

water loss in them/1/. Anything that increases the rate of this process would cause, for example,

bananas to be inedible before it can be used or consumed. The product perishes because of

physiological deterioration, mechanical or physical damage, diseases and pests.

Physiological deterioration is one of the causes of post harvest losses of perishable products. For

example, bananas are known as perishable products as when the fruit is separated from the

parent plant, the degradation processes predominates. This occurs due to the cut off of their

supply of new nutrients/2/.

The mechanical or physical damage is caused by careless handling of the product whereby

internal bruising may result the product to have splitting or breakage of its skin, which then

increases water loss and the rate of normal physiology breakdown rapidly, secondary

metabolite accumulations and microbial growth.

All living things are subject to parasite attacks. Pre harvest and post harvest loss can be caused

by diseases and pests. Some diseases are able to infect via air, soil and water without the need

to penetrate broken skin of the produce, whereas some diseases requires an injury in order to

cause an infection.

The effects of the principal causes of loss can be minimized with appropriate cultivar selection,

crop management, post-cutting treatments and packaging/3/. The specific challenge in this area

of industry is that a practitioner of fresh-cut produce needs to integrate the physiological

information that is available and can be applied to the product and to determine the

information that cannot be applied directly. In addition to that, researchers are also challenged

to fill the existing gap of knowledge so that critical information can be made available to the

fresh-cut industry.

2. Commercial, Fair Trade and Organic Production System – areas

and agreements

There are several ways of producing perishable commodities. This can be done by means of

conventional production, fair trade and/or organic production systems.

Conventional production refers to a plantation economy, an economy based on agricultural

mass production where usually a few staple crops are grown on large often commercial farms.

Commercial plantations are made up of blocks of trees whereby they originate from the same

species and age. It is also planted based on fixed spacing allocated for it. Commercial production

is risky in terms of outbreaks of diseases or pests which causes the industry to incur heavy

losses.

Fair trade production is characterized by fair terms of trade for farmers and workers in the less

developed world resulting in higher income, improved working conditions and local

sustainability offered. The fair trade system addresses the injustice of conventional trade by

requiring companies to pay a premium so that the price is above the market price. Fair trade

standards comprise economic, social and environmental requirements whereby producers must

meet these standards to become certified. The fair trade concept leads continuous

improvement to develop farmers’ and farm workers capacities and working conditions. It

promises accountability, community support and most of all a stable market for its contracted

farmers/4/.

For example, St. Lucia National Fair-trade Organization is formed of 13 Fair-trade groups

scattered around the island, including the Roseau Model Farm Group which is located in the

west of the island, south of the capital, Castries/5/. The agreement is that it guarantees farmers

a long-term fixed price for their crop whether the world market is facing a financial crisis or not.

The plan also covers a social premium invested in community projects such as schools and

healthcare programs. Farmers with a Fair Trade agreement are paid higher price with addition

of the agreed Fair Trade premium when the world market price goes above the Fair Trade

minimum. To identify which are Fair Trade products, every cluster of bananas are labeled with a

Fair Trade label such as shown below in Figure 1 and Figure 2 respectively.

Figure 2.1: Fair Trade Logo

Source: http://www.fairtrade.org.uk/

Figure 2.2: Package of Fair Trade Bananas

Source:

http://www.mysupermarket.co.uk/sainsburys-price-comparison/Fruit/Sainsburys_Kids_Fairtrade_Bananas_8.html

With the ongoing production system of fair trade and commercialization of the perishable

commodities industry, there is also another production system known as organic farming

practice. Organic products are produced through this procedure which aims at nurturing the

ecosystem and attaining sustainable productivity. This practice exclude the use of pesticides,

insecticides and fertilizers of chemical origin and for a product to be considered organic, it

usually needs to be produced in a land that has been kept fertilizer-free for at least two

years/6/. Organic produce is not necessarily any different from other conventionally produced

products, however the difference is in the production process whereby organic products is

produced without endangering the environment as it re-cycles the animal or plant waste as its

fertilizer instead of the usual chemical fertilizer.

Fair trade products has made its market share become more significant in Europe as it has been

growing at an average of 20% per year since 2000 with an annual net retail value in sales which

exceeds €660 million/7/. Organic food production accounts for 1-2% of total food sales

worldwide and it is growing rapidly in both developed and developing nations. For example,

world organic food sales has jumped from US$23 billion in 2002/8/ to $40 billion in 2006 /9/.

The prospects of the organic market and fair trade market especially for fair trade bananas look

positive due to consumer awareness towards organic products and recognition of the fair trade

mark. However, as fair trade and organic importers are relatively small-scale enterprises

compared to conventional importers, the abolition of the quota licenses could be an

improvement because they would no longer need to provide bank guarantees, which currently

can be three times the expected turnover /10/.

3. Protective Tariffs, Standards, Taxes including Trade Regulations

for Fresh Produce and Processed Products

The purpose of a protective tariff is to protect home industry, agriculture, and labor against

foreign competitors by trying to keep foreign goods out of the country/11/. It is also known as a

duty tax for imports which is calculated as a percent of the price charged to the foreign suppliers

for the goods. Although it is used as a protection for the country against foreign competition,

this tariff can be used as a source of revenue for the governments.

Domestic consumers are encouraged to buy domestic processed products rather than foreign

processed products. This is achievable by using the protective tariff as by raising prices of

imported processed goods relative to the processed goods produced domestically, it will protect

the domestic industry.

Protective measures include standards of quality, food safety, and environmental standards

which must follow appropriate production procedures such as ensuring the identity and labeling

of processed products. These standards for processed products are aimed at consumers’

protection against deception and fraud claims in the marketplace and promote fair competition

which is done by differencing those products produced according to the standard from those

produced by other means. It is also meant to harmonize national provisions for the production,

certification, processing, identification and labeling of the processed products. The standard is

used to provide a transparent reliable framework or a practical guide line for the industry.

Generally, processed products are always subject to the European Union’s General Product

Safety Directive with possible additional national requirements such as performance or quality

marks, and product certification to determine safety or health concerns which are to be

addressed. However, tariff escalation is apparent in the fruit and vegetable sector, with tariffs

on imported processed produce generally higher than fresh produce. Fruit juice and fruit

preparations are subject to higher tariffs than fresh produce in the EU, Easter Europe, North

America and Southern Africa /12/.

In addition to the protective tariff and standards, there are export taxes and import taxes. Some

countries such as Switzerland and Japan proposes to use export taxes and import taxes instead

of restricting exports or imports products that would hamper the development of processing

industries in order to improve their food securities. This measure would give those countries

more confidence in their ability to secure supplies for importing/13/. On the other hand, import

tax is a tax set by the Country Administration which increases the selling price of items at the

marketplace when the company selling processed product or fresh produce is not based in the

country. The tax revenue is then added into the country’s national account.

Trade regulations for processed products and fresh produce were enacted to ensure a free and

competitive economy. This is to insure that the best prices, quality and resources will be

provided to general public with unrestrained competition amongst businesses. In terms of

processed products and also fresh produce which is traded, it must be labeled with the

following: country of origin, production and expiration dates, shelf life, net weight in metric

units, list of ingredients and additives in descending order of importance, and storage

temperature. In Malaysia, certain processed product such as meat and poultry products must

receive halal (produced in accordance with Islamic practices) certification from Pusat Islam (the

Islamic Center)/14/.

4. International and Domestic Regulations

World market for perishable commodities is rapidly changing. For example, meat was

traditionally a product on its own, but currently it is being represented in the global trade as a

wide range of primary and packaged food products. In many countries, there are international

and domestic regulations in terms of health and safety regulations. This is because consumers

consequently are faced with food or food ingredients that may derive from distant countries or

continents, and with a less transparent food supply/15/. Food borne illness occurs in every

country which is caused by contaminated food.

International trade in perishable commodities is governed by Agreements of the World Trade

Organization. In terms of food safety matters, the Agreement on the Application of Sanitary and

Phytosanitary Measures (SPS Agreement) applies/1/. The main aim of this agreement is to allow

countries to take legitimate measures to protect the life and health of their consumers in

regards of food safety matters, while prohibiting them from using those measures in a way that

unjustifiably restricts trade. The Agreement calls on Members to harmonize sanitary and

phytosanitary measures on a wide basis of international standards, guidelines and

recommendations where they exist. Sanity measures which conform to standards, guidelines

and recommendations of the Codex Alimentarius Commission are presumed to be consistent

with the provision of the SPS Agreement for human health and food safety/16/

Each government would have domestic regulations regarding health and safety standards of

perishable commodities that are being imported. Therefore exporting countries and the

companies behind it have to be aware of these different standards that need to be complied

before exporting their commodities.

The European Union, United States and many developed countries represent countries which

have high standards in food and health safety. The European Union has comprehensive

regulations to ensure only the highest quality of food imports is accepted. The EU is also the

world’s largest importer of food from developing countries. In 2002, the General Food Law was

implemented in the European Union. Products exported must have the traceability factor. The

whole life cycle of the exported product must be traced from cradle to its grave/17/.

The chemicals additives used in the preparation of the perishable products must be those

approved for usage in food. To obtain approval, the exporters and their produce must undergo

an extensive assessment by the European Food and Safety Authority. The amounts of pesticides

hormones or veterinary residues in perishable meat products are strictly prohibited. Those that

do not pass the test are rejected entry to the EU. Not only are the contents of the food

examined but also the production of the food. The EU would only accept hygienic production

1 See AGIL training module “Theory and Practice of International Trade” for detailed information on the specific

agreements and regulations.

systems to prevent salmonella and listeria attacks. Genetically modified foods are to be labeled

and treated with care so that consumers can make the informed choice/17/.

The EU has also developed logos for protected designations of origin and protected geographical

indications (PDO’s and PGI’s) where it applies to agricultural perishable products with a high

connection to a particular region or place.

Figure 4-1: Examples of Protected Designation of Origin Logo (PDO) and Protected Graphical

Indication (PGI).

Source: World Trade Organization Official Website. The WTO Agreement on the Application of Sanitary

and Phytosanitary Measures (SPS Agreement).

Imported perishable commodities used in domestic production are governed by different

domestic standards. An example of domestic regulation is the labeling of country of origin on

perishable products/18/. Most of the time, perishable commodities from a foreign country do

not tell its consumers anything about its quality for human health or safety. Hence the cause of

the food-borne illness such as food poisoning or food-borne diseases such as mad cow diseases,

and bacterial or virus infected product.

In January 2006, the European Commission implemented a new regulation for the import of

bananas into the European Union. A higher tariff on bananas imported from Latin America was

imposed and at the same time a duty free annual import quota of 775,000 tons for bananas

from certain African, Caribbean and Pacific countries were allowed./19/ In addition to this, the

Single Market in bananas and EU’s obligation to African, Caribbean and Pacific countries were

fulfilled under Protocol 5 of the Lomé Convention. The Lomé Convention is a trade and aid

agreement between the European Union (EU) and 71 African, Caribbean and Pacific countries

which was first signed in February 1975 is Lomé, Togo /20/. As for Single Market, it came into

force in 1993, establishing the free movement of goods, people, services and capital /21/.

The current EU regime for banana sector consists of quality standards, compensatory aid for EU

production and restructuring incentives/22/

5. Case study Banana Industry – Large Scale Industrial Production

versus Smallholder Production

The banana is a very good example of a highly perishable commodity involved in international

trade. It has a short period between ripening and spoilage. Factors that need to be considered

are such as timing, transportation. The time between harvesting to consumption is about four to

five weeks and once it reaches the shelves of the importing country it has a shelf life of about

five to six days/23/. There is a worldwide demand for bananas especially from non-tropical

countries like the European Union and United States of America who are the major importers of

this delicious fruit.

The major exporters of banana in the world are mostly from Latin American countries like

Ecuador, Costa Rica, Colombia, Panama, Honduras and Guatemala. Due to the sheer quantity of

bananas produced in this countries and the importance of the banana trade in the world,

transnational and multinational companies invested in the banana trade in Latin America

especially from the United States of America/23/. Currently, there are only five transnational

companies that control 85% of the world’s banana trade. Multinational banana companies open

large commercial plantations of banana monoculture. This could lead to deforestation or

environmental degradation of soil and other environmental impacts before and after cultivation.

Therefore large scale commercial plantations are required by international and national law to

do an environmental impact assessment before cultivation and production of bananas can

occur. Another factor is that multinational companies needs to make as much profit as possible

thus it makes use of cheap labor. Multinational companies do a lot of investment in making sure

their products achieve a certain quality before exports and there are five different certification

schemes available for banana exports that promotes better environmental, health and safety

banana production systems/24/.

Small and medium production companies cultivated by local farmers are mostly from the

African, Caribbean and Pacific Countries like the Windward Islands including Saint Lucia.

Fairtrade Labeling Organization International have introduced a fair trade market system for

small scale a banana producers and independent producers which acts as the last frontier for

these producers as a critical export outlet for the bananas. This is so that they can continue to

exist against the competition of the multinational companies. It acts as a brand so that

consumers know that they are supporting small medium industries and there are regulations in

how the bananas are cultivated and misuse of labor is not allowed. Fair trade guarantees that

the farmers get back at least a minimum price to cover their costs of sustainable

production/25/. However, not all small scale producers have opted, or are able, to use this fair

trade system/24/.

A system of Fair trade certification and labeling is applied to the small medium industry bananas

being traded. To get the certification, the bananas need to meet the standards. Organic bananas

are encouraged to be cultivated by these banana producers to open up another market. This is a

niche that is harder for a multinational banana company to follow. Challenges faced by the small

independent producers are the lack of capital for expensive state of the art technologies. The

farmers need to meet the international market quality demands which include the cosmetic

quality of the bananas. Sometimes the rejections are more than 50% of the bananas grown as

they are defective in some ways. There are technical aspects as well regarding the timing to cut

the stems of the banana so that it will arrive at the port at the right time. Therefore farmers

with the most good quality bananas benefit the most/24/.

6. Summary

Perishable products represent foodstuffs which may be rendered inedible due to typical changes

such as over-ripeness, rancidity and others. The product perishes due to physiological

deterioration, mechanical or physical damage, diseases and pests. The effects of these principal

causes of loss can be minimized with appropriate cultivar selection, crop management, post-

cutting treatments and packaging.

Perishable commodities can be produced via commercial plantation, fair trade and organic

production systems. Commercial planting is a form of pursuit of profit as it is done in a large

scale. However there is a risk involved as it is prone to having an outbreak of diseases or pests

which causes the industry to incur heavy losses. Fair trade is defined as fair terms of trade for

farmers and workers in the second and third world country which is noted by better prices,

decent working conditions and local sustainability offered. It promises accountability,

community support and most of all a stable market for the contract farmers. In addition to that,

organic production system is making its name in the farming world and world market. This

practice exclude the use of pesticides, insecticides and fertilizers of chemical origin to avoid

endangering the environment. For a product to be considered organic, the land has to be free

from fertilizers for at least two years.

Protective tariff, standards and taxes are enacted to protect home industry, agriculture and

labor against foreign competitors by trying to keep foreign goods out of the country. Tariff can

be used as a source of revenue for the governments and a protection for the domestic industry.

The standards in international trade include standards of quality, food safety and environmental

standards which is crucial when identifying and labeling the processed products. This is to

ensure that consumers are protected from deception and fraud claims in the marketplace and

also promote fair competition within the industry. Taxes are divided into two kinds, export taxes

and import taxes. These tax revenues are added into the country's account.

In many countries, there are two kinds of trade regulations which are known as international

trade regulation and domestic trade regulation with regards to food safety and human health.

International trade regulation for food safety and human health is governed by Agreements of

the World Trade Organization, Agreement on the Application of Sanitary and Phytosanitary

Measures (SPS Agreement) and Codex Alimentarius Commission. On the other hand, domestic

trade regulation for human health and food safety is also important as it is the second filter for

its country's consumers. Every country has a domestic regulation on labeling whereby the

processed product must state it country of origin. This is to avoid further chaos caused by

foodborne illness or diseases.

/1/ J Thompson, P Brecht, T Hinsch, 2002. Refrigerated Trailer Transport of Perishable Products, University of

California Agriculture and Natural Resources Publication, pg 2.

/2/ Abe, K. Tanase, M., and Chachin, K. 1998. “Studies on the physiological and chemical changes of fresh-cut

bananas (Part 1). Effect of cutting modes on the changes of physiological activity and deterioration in fresh-cut

green tip bananas.” J. Japan. Soc. Hort. Sci. 67:123-129.

/3/ Lamikanra, O. 2002. Fresh-cut fruits and vegetables: science, technology, and market. CRC Press, pg. 117.

/4/ Daniel Joffee, 2007, Brewing Justice – Fair Trade Coffee, Sustainability and Survival, Blackwell, page 27—30.

/5/ http://www.fairtrade.org.uk/producers/bananas/winfa/conrad_james.aspx

/6/ ESCR, Commodities and Trade Division FAO, Nov 23-24, 1998, Banana Exports from Latin America and The

Caribbean; The market, the evolving policy framework and development options.,

URL:http://www.unctad.org/infocomm/anglais/banana/Doc/bananaexports.pdf

/7/ Press Release: New Research Reveals Success of Fair Trade in Europe, Brussels, 20th

February 2006.

URL:http://www.traidcraft.co.uk/news_and_events/press_room/press_releases/archive/fair_trade/fair_trade_eur

opean_success.htm

/8/ The Global Market for Organic Food & Drink, Organic Monitor 2002.

URL: http://www.organicmonitor.com/700140.htm

/9/ The Global Market for Organic Food & Drink, Organic Monitor 2006.

URL: http://www.organicmonitor.com/700240.htm

/10/ Food and Agriculture Organization of United Nations official Website. Production and Markets.

URL: http://www.fao.org/docrep/006/y5136e/y5136e09.htm

/11/ Sak, O, John, J.S. 2004. International marketing: analysis and strategy, Routledge, pg 59.

/12/ Food and Agriculture Organization of United Nations official Webstie. Important commodities in agricultural

trade: fruits and vegetables.

URL: http://www.fao.org/docrep/005/y4852e/y4852e13.htm

/13/ World Trade Organization Official Website. Agricultural Negotiations: Backgrounder Export Restrictions and

Taxes.

URL:http://www.wto.org/english/tratop_e/agric_e/negs_bkgrnd09_taxes_e.htm

/14/ 2005. National Trade Estimate Report on Foreign Trade Barriers, DIANE Publishing.Pg 403

/15/ Veen, T.W.S.V. 2005. International trade and food safety in developing countries. Food Control 16: 491-496

/16/ World Trade Organization Official Website. The WTO Agreement on the Application of Sanitary and

Phytosanitary Measures (SPS Agreement).

URL: http://www.wto.org/english/tratop_e/sps_e/spsagr_e.htm

/17/ European Union. 2004. From Farm to Fork: Safe Food for European Consumers. European

Commission.Belgium.

/18/ Noah, L. 1994. The Imperative to Warn: Disentangling the “Right to Know” from the “Need to Know” about

Consumer Product Hazards. Yale Journal on Regulation 11 (2): 293-400

/19/ Food Navigator-USA Official Website. US trade harmed by EU banana regime, rules WTO.

URL: http://www.foodnavigator-usa.com/Financial-Industry/US-trade-harmed-by-EU-banana-regime-rules-WTO

/20 / Wikipedia official website. Lomé Convention.

URL: http://en.wikipedia.org/wiki/Lom%C3%A9_Convention

/21/ BBC News official website: Single Market.

URL: http://news.bbc.co.uk/2/hi/in_depth/europe/euro-glossary/1256396.stm

/22/ The EU Banana Regime.

URL: http://www.erylmcnaalymep.org.uk/eu_banana_regime.htm

/23/ Wiley, J. 2008. The banana: empires, trade wars and globalization. University of Nebraska Press

/24/Shreck, A. 2002. Just Bananas? Fair Trade Banana Production in the Dominican Republic. International Journal

of Sociology of Agriculture and Food 10(2):13-23

/25/Fairtrade Labelling International Organization Official Website. Bananas.

URL: http://www.fairtrade.net/bananas.html