Pesticide Regulation: Global Divergence Impacts Competitiveness, Consumers
Uniform standards would stimulate trade. Large differences in the protection of people and the environment increase costs for food importers and consumers.
Pesticides are an integral part of modern agriculture and protect plants from pests and diseases. However, their excessive use can contaminate groundwater, endanger biodiversity, for example by killing non-target species such as bees, and increase the risk of cancer and pesticide poisoning in humans. Politicians and voters are calling for stricter regulations, especially in Europe, where initiatives aim to ban or limit the use of synthetic pesticides and halve their risk and use by 2030.
To manage risks, many countries and multinational organizations regulate food safety with regard to pesticides. For example, the Codex Alimentarius Commission, led by the Food and Agriculture Organization (FAO) and the World Trade Organization (WTO), sets Maximum Residue Limits (MRLs), which determine the maximum permissible pesticide residue in food or feedstock. In other words, MRLs are public standards that regulate the use of pesticides on plants in order to protect human health and the environment.
However, what is considered standard in one country is often not standard in another. This applies not only to everyday objects such as electric sockets or cables for cellphones, but also to crop protection. Although food safety is regulated at international level by the Codex Alimentarius, MRLs vary greatly from country to country depending on the pesticide and the crop to which it is applied.
No “standard” for standards
One example is the use of the insecticide carbaryl in the cultivation of mandarin oranges. In Switzerland and the EU, the use of carbaryl is not permitted. The permitted maximum residue for imported products is only 0.01 parts per million (ppm), which reflects a strict approach to food safety. The Codex Alimentarius Commission recommends 15 ppm as the maximum residue level. In contrast, the USA and Canada allow up to 10 ppm and Japan 7 ppm. Therefore, mandarins grown according to US or Japanese standards would not reach the European market as they do not meet European standards.
At the same time, a significant proportion of the food consumed in Europe is provided by imports, some of which come from countries with different standards or non-existent pesticide regulations. There are often reports of residues of pesticides banned in Europe that end up on European tables via imported food. It is the responsibility of importers to ensure that the products they import do not contain any banned substances. If imports are rejected at the EU border due to poor quality, this damages the importer's reputation – and has a negative effect on revenue. The HACCP (Hazard Analysis and Critical Control Point) protocols in the USA are comparable, although in that country the enforcement of food safety standards is decentralized to participants all along the agricultural and food value chain.
In a recent study in the American Journal of Agricultural Economics, we examine how differences in pesticide regulations across countries affect the decisions of agricultural and food companies importing food from abroad.
Inconsistent pesticide regulations hurt business
To ensure that products are not rejected at the border, importers must look for producers in source countries who can produce within the framework set by the import market. For foreign producers, too, costs increase if they want to meet the importer's standards. Our research shows that the turnover of both companies is affected by these expensive measures. Using data from around 10,200 Swiss agricultural and food importers, we establish that differences in pesticide regulations between countries have a negative impact on business. Swiss companies import up to 18% less from countries with weaker pesticide regulations than in Switzerland – which does not mean that they stop importing from these countries at all. However, they import relatively few products, and at higher prices.
Greater effect on smaller companies
This situation leads to a redistribution of market share between companies based on their productivity. For smaller, less productive companies the regulatory burden is harder to bear. These small companies as a rule only import one or two products from a handful of countries. If standards change unexpectedly, they cannot switch to other sources quickly enough. In the EU in particular, the permitted residues are changed annually; in 2022 there were 75 MRLs, a year later this had increased to 82. Larger multinational companies and others that are more productive are more resilient – their supply chains and business models are more diversified.
Less productive and often small companies that are unable to comply with the standards are therefore the first to leave the market. This makes supply chains less inclusive overall and leads to greater concentration – in other words, less competition among food processors.
What does this mean for consumers?
For consumers, stricter pesticide regulations promise safer food. However, these benefits come with trade-offs. As compliance costs rise, so do food prices, putting consumers under additional financial pressure. In addition, increasing concentration in the food industry leads to decreasing competition and a reduction in choices consumers have. The key question is whether health and environmental benefits due to stricter regulations justify the additional costs incurred by both consumers and small businesses. This should be the key factor in deciding whether MRLs should be stricter or less strict.
The Codex Alimentarius routinely makes science-based recommendations that are widely regarded as sound. Any deviation from these guidelines, particularly in the form of stricter national regulations, should be carefully scrutinized to determine whether it is really necessary and in proportion to the risks it intends to mitigate.
Currently, both the number of food safety regulations and their stringency are increasing in industrialized countries. As our study shows, this leads to a concentration of supply chains in a few countries of origin. Such supply chains are less resilient than diversified ones – that is, they are more vulnerable to unforeseen shocks such as a global pandemic or regional conflict. If we want more resilient food supply chains, we should facilitate the participation of a great diversity of companies from various countries in global the global value chains for agricultural products and food.
How to solve the problem?
The solution to the problem is obvious but challenging: it lies in harmonizing standards. However, the question arises as to whose standard should be used as a benchmark? The United Nations-led Codex Alimentarius already provides us with plenty of common ground by issuing science-based recommendations that reflect cultural and community preferences worldwide. However, the continued disregard for Codex rules demonstrates that many countries are primarily concerned with their own regulations.
Even between culturally and economically similar regions such as Switzerland and the EU, the difference in pesticide limits is significant. As our results show, this results in total Swiss imports being 14 percent lower than with harmonized regulations. While our analysis cannot help countries agree on what is safe and healthy and what is not, it does show what the potential benefits of greater regulatory harmonization would be.
