It highlights two weaknesses of the food hygiene control system. The first weakness was that the remit of the Food Safety Authority of Ireland, the agency established to enforce food law, does not cover the whole food chain. It was only given responsibility for food safety from the farm gate onwards, while animal feed and animal health controls on the farm remain the responsibility of the Department of Agriculture and Food. The Department argued that the plant, which converted food waste into animal feed, was low-risk and it was inspected annually to determine that it was in compliance with the hygiene regulations. However, HACCP programmes have not included oil contamination as a potential hazard, and there are no EU regulations requiring the sampling of oil used in feed processing.

A second weakness concerned the food traceability system. This was introduced as a legal requirement in the EU food system in the 1990s in the context of dealing with animal health, disease control and disease eradication. The legal requirement on the food business operator is to be able to trace one step forward and one step back. The system worked exactly as it should have at farm level. When the contaminated pork was identified at factory level, this could be traced back to the farmer suppliers, who in turn could identify the source of their feed, and in turn, the other customers of this feed plant in both the Republic and Northern Ireland could be traced.

The difficulty concerned the traceability system beyond slaughter. Although less than 10% of pork products were potentially affected by the contamination (sourced from the nine farms which had purchased contaminated feed from the single mill), 100% of product had to be recalled. In Denmark, a sophisticated traceability system would allow Danish rashers purchased by a customer to be traced back to a particular process in a particular plant at a particular time on a particular day. No such system operates in Ireland. Although the Department of Agriculture and Food has set up a review group to consider what improvements can be made, it highlights the extra costs this would imply for processors and the tight profit margins in which they operate.

However, it is not acceptable that an industry can externalise the costs of the risk of a food safety breakdown in this way. In the recent Irish supplementary budget in April 2009, the Minister confirmed that he was setting aside €200 million to compensate processors for the cost of the product recall (of which €20.7 million is being provided by the EU). The farmgate value of the output of the pig sector was €293 million in 2007. The value of exports (which account for 67% of total output) was €367 million in that year, so we might estimate that the value of processed pigmeat on the home market was around €183 million. The value of the €50 million exports of live pigs mainly to Northern Ireland should be added to this, giving a total industry value of output of around €600 million. Seen against this figure, the €200 million which the product recall may cost the Irish (and EU) taxpayers is a not insignificant subsidy to the industry to protect its reputation in overseas markets.

Nonetheless, even in a context where most attention is focused on dealing with the financial crisis and the strengthening recession hitting Europe, Europe’s agricultural and food industries continue to be required to address regulatory issues affecting the governance of the sector. One of these issues concerns the regulatory environment for genetically modified products (GMPs), and I am indebted to EurActiv for drawing my attention to the outcome of a meeting of the Environmental Council in early December which gave a series of political directions to the Commission on this issue.

The regulatory issues around GMOs concern the rules for approval, coexistence and labelling. I listened to an excellent plenary paper by GianCarlo Moschini at the European Association of Agricultural Economists’ Congress in Ghent last August which surveyed some of the economic implications of these rules.

The Environment Council Conclusions on GMOs were reached after a six-month process by the French Presidency which aimed to overcome the Council’s inability to take authorisation decisions on new GM products for cultivation within the EU.

The Council upheld the current approval framework while calling for the strengthening of environmental assessment and monitoring arrangements undertaken by authorisation holders. It also asked the Commission, in conjunction with the Member States, to prepare a report by January 2010 on the socio-economic implications of the release and placing on the market of GMPs.

The Council did not add anything to existing rules on co-existence (which currently put all of the onus on the farmer introducing a GM crop) while noting that the Commission will produce a report later this year on the implementation of national co-existence strategies.

The Council also did little more than reiterate the existing position on the vexed question of declaring GM-free zones. It noted that, under existing legislation, restrictions could be placed on GM cultivation in protected and sensitive areas, including prohibition, provided there was sufficient scientific justification. It also noted that GM-free zones can be created by volunary agreement, provided all concerned operators are given adequate notice. This is hardly different to the position in 2003 when the Commisison rejected a request from Upper Austria to ban the use of genetically-modified seeds.

Whether this will be sufficient to break the political impasse surrounding the approval of GMOs particularly for cultivation is a moot point. But this remains an important element in the response of European agriculture to the challenges posed by the food price crisis in the years 2006-08. We need to make use of modern biotechnology in a properly regulated way if Europe is to be able to maintain and increase its food production capacity in the years ahead.

In response, the Commission has proposed a measure to contribute to the cost of disposal of pigs that come from farms that used contaminated feed and the destruction of fresh, frozen and chilled pigmeat that may have been derived from such animals and that remain under the control of the primary processors. The measure also covers the relatively small number of cattle affected by the issue.  The measure allows for maximum EU support of EUR 20.7 million This is additional to the EUR 15m already being made available in the form of aid to private storage.

This move represents a new departure for the EU agricultural budget. The EU Emergency Veterinary Fund can provide EU co-financing for the costs involved in coping with an animal disease outbreak, including compensation to farmers, costs of disinfection, emergency vaccination, etc. But the Irish pigmeat crisis involved a food safety breakdown, not an animal disease outbreak. On previous occasions, such as in the Belgian dioxin crisis in 1999, the Commission refused to provide EU funding towards the Belgian compensation package and indeed initially rejected the Belgian national compensation package on state aid grounds.

Perhaps the European Council’s generosity towards the Irish was influenced by the Christmas season, but there may also be an element of realpolitik in the agreement. In welcoming the decision when announcing the Irish national compensation package to the Irish Parliament on 17 December last, the Irish Minister for Agriculture, Fisheries and Food noted that “these measures exemplify the solidarity and support that the Members of the Union give when another member, Ireland on this occasion, finds itself in difficulty.” Mrs Mariann Fishcer Boel, the Agriculture and Rural Development Commissioner, is quoted as saying “This is another concrete example of how the European Union can help Irish farmers at this difficult time.” Presumably Irish farmers will be reminded of this when voting takes place on the second Lisbon referendum.

In my earlier post raising questions about the consequences of the Irish pigmeat crisis, I predicted that a national compensation package would be provided to Irish pig producers and processors. Following a number of days of negotiation, this has now been agreed up to a ceiling of €180 million. It appears that, if the total costs were to exceed this amount, the government envisages introducing a levy on unspecified products to fund this amount.

Much of this amount appears to be a safeguard against contingencies. Compensation to producers for pigs slaughtered due to feed contamination and to the processors for meat destroyed which remained in their ownership would amount only to a fraction of this. The main unknown is not the additional cost of the recall from retailers, but possible claims by manufacturers of highly processed foods (such as pizza toppings with pork ingredients) where the pigmeat component is only a tiny part of the overall product value. This risk may have been diminished by the decision of the Standing Committee on the Food Chain and Animal Health (SCoFCAH) that composite foods, such as pizzas and sauces, containing up to 20% Irish pork and fat can still be consumed. However, some beef markets have also been disrupted by the crisis so there may be other actors in the compensation queue.

From an insurance viewpoint, this product recall goes well beyond the product liability risk of normal business operations. Insurance companies classify it as an ‘act of God’, and thus something they are not expected to contribute towards. With the certainty that food crises of this kind will occur in the future at regular, if unpredictable, intervals, there is now an urgent need to put the funding of these liabilities on a more structured basis than simply assuming that the taxpayer will always be there to pick up the tab.

Already in June this year the French had circulated a memorandum on Food, feed, animal and plant imports: safety and compliance with Community rules which identified four main problems.

* Differences between member states in the practices applying to food imports concerning the performance and frequency of checks (a harmonisation deficit);

* The need to base monitoring of food imports on a more comprehensive sanitary and phytosanitary risk assessment (better use of risk analysis);

* Differences in the requirements facing EU producers and imported foodstuffs (the memorandum highlighted examples where a ban on the use of chemical substances and their residues in foodstuffs in the EU might not apply to imported foods, the burdens of traceability on EU producers, or higher standards applying to animal feed manufacture in the EU (distortion of competition).

* The need to amend the WTO SPS agreement to allow import restrictions not only on the basis of scientific assessment of health risks but also other legitimate factors and collective preferences as, for example, with respect to animal welfare.

In its Conclusions, the Council welcomed the Commission’s moves already in train for more effective veterinary and health checks on imports into the Community. It also supported the French proposal for use of comprehensive risk analysis in designing import protection policies, and approved greater coordination between member state border inspection services.

The Council Conclusions were more cautious on the other two issues. While it agreed to promote European standards and regulatory criteria (my italics) within international standardisation organisations in the fields of animal health, plant health and food safety, and in negotiations for bilateral agreements with third countries, this is to be “in compliance with the SPS Agreement” which of course only recognises scientific concerns. On collective preferences, the Council only sought better information for consumers, presumably through labelling, in accordance with international trade rules.

Regarding the use of trade barriers to compensate for the higher standards supposedly met by Community producers, the Commission was asked to produce a report in the economic impact of differences in standards. The Conclusions read:

in compliance with the SPS Agreement, to continue to promote European standards and regulatory criteria within international standardisation organisations (e.g. OIE, IPPC, EPPO, Codex alimentarius) in the fields of animal health, plant health and food safety, and in negotiations for bilateral agreements with third countries;

…

to begin considering appropriate mechanisms for consumer information that would provide much greater transparency on the methods and conditions of production and characteristics of products, in accordance with international trade rules;

to explore what impacts any differences in standards between EU producers and key international trading partners actually have on Community trade, and to analyse, as a basis for further discussion, how international and bilateral trade rules can better interact with EU societal concerns and legitimate factors.”

The potential importance of SPS barriers in the case of food trade was underlined by the Council decision taken at the same meeting not to allow the use of antimicrobial substances to treat poultry. Food manufacturers in Europe are only allowed to use water to remove surface contamination from animal products, whereas the US permits the use of chlorine disinfectant to wash poultry carcases. This has long been a thorn in the side of US poultry exporters, and the US requested an assessment by the European Food Safety Authority of the health effects of using these antimicrobial substances.

The scientific advice of the European Food Safety Authority was that there was no evidence of any risk to human health or risk of greater resistence to therapeutic antimicrobials. On this basis, the Commission had proposed to approve the use these antimicrobial substances under strict conditions. However, the EU’s Standing Committee on the Food Chain and Animal Health (a regulatory committee which consists of representatives of the member states) had voted 26-1 against approving these substances in June, and this decision has now been upheld in the Agricultural Council.

The importance of this issue to the US is shown by its prominence in the agenda of the Transatlantic Economic Council which is the principal bilateral US-EU body to discuss transatlantic economic relations. The refusal of the Agricultural Council to accept this recommendation now opens the possibility of a trade dispute before the WTO.

French Agriculture Minister, Michel Barnier, is reported as saying that the decision had nothing to do with preventing competition. “No, it isn’t protectionism,” he said. “Don’t mistake protection for protectionism. The Americans and the Chinese and others will just have to get used to Europeans saying that not only is our system better, but it is different and we value that difference.”

Europe’s lastest food safety incident stems from the confirmation of elevated levels of dioxins in Irish pigmeat last Saturday. As a result, all Irish pork and bacon products from pigs slaughtered in Ireland since 1st September 2008 have been recalled. Consumers have been advised, as a precautionary measure, not to consume Irish pork and bacon products at this time and to dispose of any purchased since the 1st of September 2008. The discovery of this contamination – which has been sourced back to a small feed mill recycling bakery and confectionery waste for animal feed – is a calamity for the Irish pig sector and could yet have major adverse consequences for the Irish food processing sector as a whole. There is a good account of the background to the incident on Wikipedia. I have given my own initial reaction to the events in an Irish Independent article today. Here I want to explore three questions which the crisis has thrown up.

It is important to stress that the public health advice is that no one is likely to become ill, let alone die, from the contaminated pigmeat. The product recall has been take as a precautionary measure, mindful of the mishandling of the similar Belgian dioxin case in 1999 which led to the fall of the government there, and to reassure consumers that public health is being given priority in the handling of the incident. Nonetheless, at least three questions now press for answers:

• why, despite the revamped food and feed controls introduced as part of the EU’s hygiene package in 2005, was the problem not detected earlier?
• what will be the overall cost of the contamination to the agricultural sector and the national economy?
• who will bear this cost – the industry or the taxpayer?

The overhaul of EU “farm to fork” food safety legislation begun in 2002 introduced traceability as the basic concept. The new EU food hygiene rules place primary responsibility for food safety on food establishments, while requiring the public authorities to have a risk-based control system in place to verify compliance with food law and food hygiene regulations. Animal feed mills were brought within this system of legislation with effect from 1 January 2006.

There is now evidence that feed compounders on the continent of Europe noticed elevated dioxin levels in pig fat as far back as September, although it was not possible immediately to identify the source. The alarm was raised early last week by a routine food safety control of pigmeat in Ireland by Department of Agriculture and Food inspectors. How was it that the mill’s own HACCP procedures did not pick up the problem before it emerged in animal products? Given that many of the major recent food scares have been associated with animal feed, is there sufficient control and regulation even in the revised legislation?

The second question concerns the cost. The pig industry in Ireland produces around 3 million pigs a year from 400 farms, and has a farm level value of around €250 million, but a processed value of more than double that. Estimates in the Irish newspapers today suggested the total cost of the contamination could be anything between €125 million to €1 billion, but any estimates must be very imprecise at this stage. The costs involved include, in increasing order of uncertainty:

• the slaughter of around 100,000 pigs on the 9 pig farms which purchased the contaminated feed;
• the cost of the product recall, the loss of product and the cost of disposal;
• the potential loss of consumer markets both at home (which accounts for around 55% of Irish pigmeat output) and in export markets (around half in the UK, the rest spread over 25 or so countries). While some of the drop in domestic consumption will lead to a switch to the purchase of other types of Irish farm produce (such as beef, poultrymeat or lamb), the loss of export markets is an unmitigated cost.
• whether markets for other Irish food products will be closed or affected because of a perceived loss of reputation for Irish food.

The third issue relates to who is going to bear this cost. Given EU food law that food sold for consumption must be fit for purpose, consumers have been given refunds by the supermarkets for returned pigmeat. Presumably, the retailers, in turn, are entitled to seek refunds from the processors. But the processing sector is not in a position to bear the cost.

The Irish government, now that the source of the contamination has been identified, is hoping to get new stocks of Irish pork on the supermarket shelves in the next few days. But the processors have refused to resume slaughtering the 90% of pigs from farms which were not involved in purchasing the contaminated feed until they get a promise of compensation from the government. Already, tonight, 850 workers have been laid off and trade union sources are predicting that up to 6,000 jobs could be lost.

The call for compensation throws into relief the hidden costs of the convenience-driven, industrialised food processing and distribution system which has come to dominate our food supply. In many ways, this system is an incredible accomplishment. It has driven food costs down to their lowest ever in real terms while increasing variety and availability. But the silent weakness of the system, with its growing concentration of supply chains, is its increasing vulnerability to risk, and the increasingly catastrophic nature of that risk. if something goes wrong. In this instance, we have a single relatively small feed mill which has been able to close down an entire sector of the agri-food industry.

As a general principle, it is unacceptable that the taxpayer should be asked to foot the bill if a problem occurs. The food industry has successfully externalised the cost of this risk to other agents. If the cost of this risk was properly factored into the operations of food companies, the vaunted efficiency costs and economies of scale might appear less convincing, and the playing field relative to smaller, more local and more decentralised food systems would be levelled.

How to require the food system to recognise and internalise this catastrophic risk is a question for another day. In the meantime, the Irish government is faced with the collapse of a significant agri-food sector at a time when the public deficit is ballooning and the macro-economy is collapsing. The Belgian government compensated farmers up to 80 per cent of their losses following the 1999 dioxin scare there. We can expect to see some kind of compensation package on the table for Irish producers and processors in the next few days.