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Environmental Management in Agriculture and the Rural Industries

Voluntary approaches to sustainability and globalisation imperatives

RIRDC Publication No. 09/023

RIRDCInnovation for rural Australia

Environmental Management in Agriculture and the Rural

Industries Voluntary approaches to sustainability and globalisation

imperatives

by Thea Williams

February 2009

RIRDC Publication Number 09/023 RIRDC Project No CSL-15A

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© 2009 Rural Industries Research and Development Corporation. All rights reserved.

ISBN 1 74151 266 2 ISSN 1440-6845

Environmental management in agriculture and the rural industries: Voluntary approaches to sustainability and globalisation imperatives Publication No. 09/023 Project No. CSL-15A

The information contained in this publication is intended for general use to assist public knowledge and discussion and to help improve the development of sustainable regions. You must not rely on any information contained in this publication without taking specialist advice relevant to your particular circumstances.

While reasonable care has been taken in preparing this publication to ensure that information is true and correct, the Commonwealth of Australia gives no assurance as to the accuracy of any information in this publication.

The Commonwealth of Australia, the Rural Industries Research and Development Corporation (RIRDC), the authors or contributors expressly disclaim, to the maximum extent permitted by law, all responsibility and liability to any person, arising directly or indirectly from any act or omission, or for any consequences of any such act or omission, made in reliance on the contents of this publication, whether or not caused by any negligence on the part of the Commonwealth of Australia, RIRDC, the authors or contributors.

The Commonwealth of Australia does not necessarily endorse the views in this publication.

This publication is copyright. Apart from any use as permitted under the Copyright Act 1968, all other rights are reserved. However, wide dissemination is encouraged. Requests and inquiries concerning reproduction and rights should be addressed to the RIRDC Publications Manager on phone 02 6271 4165

Researcher Contact Details

The research was conducted while the author was at CSIRO Land and Water Gate 4 Waite Road Urrbrae SA 5064

The author may be contacted at: Name: Dr Thea Williams Address: Department of Regional Development, Primary Industry, Fisheries and Resources, Northern Territory Government

Phone: 08 8999 2220 Fax: 08 8999 2049 Email: [email protected]

In submitting this report, the researcher has agreed to RIRDC publishing this material in its edited form.

RIRDC Contact Details

Rural Industries Research and Development Corporation Level 2, 15 National Circuit BARTON ACT 2600

PO Box 4776 KINGSTON ACT 2604

Phone: 02 6271 4100 Fax: 02 6271 4199 Email: [email protected]. Web: http://www.rirdc.gov.au

Published in February 2009 Printed by Union Offset Printing, Canberra

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Foreword This final report presents the findings of research into a range of voluntary approaches to environmental and quality management for application to agriculture and allied rural industries.

The report focuses primarily on a range of voluntary (non-legislated) approaches to environmental management in agricultural and rural industries, the development of which is being driven by sustainability and globalisation imperatives. These voluntary approaches to environmental management in agriculture (voluntary environmental management arrangements, or VEMAs) are undertaken for the purposes of environmental and quality assurance, food safety and animal welfare. Interest in diverse VEMAs is gathering momentum in Australia and overseas.

This research sheds light on international developments in a rapidly evolving area that holds much promise for agriculture and rural industries.

This project was funded from RIRDC Core Funds which are provided by the Australian Government.

This report, an addition to RIRDC’s diverse range of over 1800 research publications, forms part of our Environment and Farm Management R&D program, which aims to foster agri-industry systems that have sufficient diversity, flexibility and robustness to be resilient and respond to challenges and opportunities.

Most of our publications are available for viewing, downloading or purchasing online through our website:

• downloads at www.rirdc.gov.au/fullreports/index.html

• purchases at www.rirdc.gov.au

Peter O’Brien Managing Director Rural Industries Research and Development Corporation

http://www.rirdc.gov.au/fullreports/index.html

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Acknowledgments Acknowledgements and thanks are given to the Rural Industries Research and Development Corporation (RIRDC) and CSIRO Land and Water for the opportunity to pursue this research. Special thanks are due to Dr George Wilson, Research Manager of the RIRDC Resilient Agricultural Systems Research Sub-Program (latterly the Environment and Farm Management Sub-Program), and Professor Mike Young of the Policy and Economic Research Unit of CSIRO Land and Water.

Reports of this nature are heavily dependent upon the opportunity to interact with colleagues engaged and experienced in the subject area. In this regard, I would like to acknowledge and thank Dr Lyndal Hugo of Agricultural Environmental Management Systems (AEMS) Pty Ltd, Professor Neil Gunningham of the Australian National University (ANU), Mr David Baker of Lapwing Consulting, Mr Phillip Toyne of EcoFutures Pty Ltd, Ms Claudia Cowell of Environmental Resource Management (ERM) Pty Ltd, Mr Elliot Dwyer and Ms Megan Howard of Primary Industries and Resources South Australia (PIRSA), Dr Kim Lowe of the Victorian Department of Sustainability and Environment (DSE), Ms Anne Cole, Ms Eloise Seymour and Dr Anna Ridley of the Victorian Department of Primary Industries (DPI), Dr Lester Pahl and his colleagues at the Queensland Department of Primary Industries, Ms Genevieve Carruthers of NSW Agriculture, Mr Peter Thomas, Dr Lesley Rogers, Ms Philippa Rowland, Mr Craig Burns, and Dr Sallie James of the Australian Government Department of Agriculture, Fisheries and Forestry (DAFF), as well as Mr Fred and Ms Sheba Williams.

I also wish to acknowledge and thank fellow members of, both, the EMS Working Group, and the EMS Implementation Working Group, whose work led to the development of the National Framework for EMS in Agriculture, as well as the National EMS Implementation Plan.

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Abbreviations AARES Australian Agricultural and Resource Economics Society

ABARE Australian Bureau of Agricultural and Resource Economics

ACC American Chemistry Council

ACEL Australian Centre for Environmental Law

ACP African, Caribbean and Pacific Group of States

AFFA Agriculture, Fisheries and Forestry – Australia

AFPA American Forest and Paper Association

ALMS Australian Landcare Management System

ANU Australian National University

ANZECC Australian and New Zealand Environment and Conservation Council

ARMCANZ Agriculture and Resource Management Council of Australia and New Zealand

BFA Biological Farmers of Australia

BMP best management practice

BSI British Standards Institute

CAC command and control

CAP Common Agricultural Policy

CBD Convention on Biological Diversity

CCFICS Codex Committee on Food Import and Export Inspection and Certification Systems

CCNASWP Codex Coordinating Committee for North America and the South West Pacific

CCP Critical Control Point

CERFLOR the Brazilian forest certification scheme

CITES Convention on International Trade in Endangered Species of Wild Fauna and Flora

CJD Creutzfeldt-Jakob Disease

COAG Council of Australian Governments

CRC Cooperative Research Centre

CSA Canadian Standards Association

CSD Commission for Sustainable Development

CSIRO Commonwealth Scientific and Industrial Research Organisation

CTE Committee on Trade and Environment a WTO committee established in 1994 following the Decision on Trade and

Environment (the Marrakesh Decision)

DAFF Department of Agriculture, Fisheries and Forestry formerly Agriculture, Fisheries, Foresty - Australia (AFFA)

DSE Department of Sustainability and Environment

DSU Dispute Resolution Understanding

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EC European Community

EFTA European Free Trade Association

EIA environmental impact assessment

EMAS Eco-Management and Auditing Scheme

EMS Environmental Management System

EMSIWG Environmental Management System Implementation Working Group

EMSWG EMS Working Group

ESCD environmental supply chain dynamics

ESD ecologically sustainable development

EU European Union

EUREP-GAP Euro-Retailer Produce Working Group - Good Agricultural Practice

FAO Food and Agriculture Organization (FAO) of the United Nations

FBAP Farm Biodiversity Action Plans

FFCS Finnish Forestry Certification Scheme

FSC Forest Stewardship Council

GATS General Agreement on Trade in Services

GATT General Agreement of Trade and Tariffs

GMO genetically modified organism

HACCP Hazard Analysis and Critical Control Point a methodology for systematically identifying, evaluating and controlling hazards significant for food safety with a focus on preventative measures rather than end-product testing. HACCP is an internationally recognised effective food safety risk management methodology

ICC International Chamber of Commerce

ICM integrated catchment management or integrated crop management

IEEP Institute for European Environmental Policy

IFOAM International Federation of Organic Agriculture Movements

IFP Integrated Fruit Production protocols

IGAE Intergovernmental Agreement on the Environment approved by all spheres of Australian Government in 1992

IISD International Institute for Sustainable Development

IPGRI International Plant Genetic Resources Institute

IPM integrated pest management

IPPC International Plant Protection Convention

ISO International Organization for Standardization

ISPMs International Standards for Phytosanitary Measures

ITC International Trade Centre

IWRC Iowa Waste Reduction Center, University of Northern Iowa

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JAS-ANZ Joint Accreditation System of Australia and New Zealand

LCA life cycle analysis

LEAF Linking Environment and Farming a scheme of environmental guidelines and self-assessment in UK agriculture

LMO living genetically modified organism

MBI market-based instrument

MEA multilateral environmental agreement

MRL maximum residue limit

MSC Marine Stewardship Council

NAP National Action Plan for Salinity and Water Quality

NFU National Farmers’ Union the UK farmers’ union

NGO non-governmental organisation

NRM natural resource management

NRM Natural Resource Management Ministerial Council

NRS National Residue Survey

OECD Organisation for Economic Cooperation and Development

OFGA Organic Farmers and Growers Association

OIE Office International de Epizooties the Paris-based World Organisation for Animal Health

PIRSA Primary Industries and Resources South Australia

PPMs processes and production methods unrelated to product characteristics

QA quality assurance

QMS Quality Management System

RIRDC Rural Industries Research and Development Corporation

SCARM Standing Committee on Agriculture and Resource Management a committee with Commonwealth and State government membership

SCM Subsidies and Countervailing Measures

SELA Latin American Economic System

SFI Sustainable Forestry Initiative

SLWRMC Sustainable Land and Water Resources Management Committee a subcommittee of SCARM SPS Sanitary and Phytosanitary SQF Safe Quality Food SQF 1000 and SQF 2000 are quality and food safety codes developed by

Agriculture Western Australia

TBT Technical Barriers to Trade

TED turtle excluder device

TRIPS Trade-Related Intellectual Property Rights

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UK United Kingdom

UKWAS UK Woodland Assurance Scheme

UN United Nations

UNCED United Nations Conference on Environment and Development

UNCTAD United Nations Conference on Trade and Development

UNDP United Nations Development Programme

UNEP United Nations Environment Programme

UNIDO United Nations Industrial Development Organization

US United States

VA voluntary approach

VCMC Victorian Catchment Management Council

VEMA voluntary environmental management arrangement

WCO World Customs Organization

WHO World Health Organization of the United Nations

WIPO World Intellectual Property Organization

WTO World Trade Organisation

WWF World Wide Fund for Nature

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Contents

Foreword ............................................................................................................................................... iii Acknowledgments................................................................................................................................. iv Abbreviations......................................................................................................................................... v List of Tables......................................................................................................................................... xi Executive Summary............................................................................................................................. xii 1.Environmental management in agriculture and rural industries .................................................. 1

1.1 Background..................................................................................................................................1 1.2 The growth of voluntary approaches to environmental management..........................................3 1.3 Limitations of orthodox government regulation in achieving environmental outcomes

in agriculture ........................................................................................................................4 1.4 What is a voluntary environmental management arrangement?..................................................5 1.5 VEMAs in the context of other environmental management approaches taken and

instruments used...................................................................................................................7 1.6 VEMAs in the context of partnerships between different stakeholder groups ............................8

2. Markets for Sustainable Agricultural Produce ............................................................................ 10 2.1 Background................................................................................................................................10 2.2 Consumer demand for environmentally labelled food and fibre products ................................11 2.3 The role of the supply chain in delivering green consumer preferences ...................................15

3. Key Design Features of Standards-Based Voluntary Arrangements for Environmental and Quality Management ................................................................................................................... 16

3.1 Background................................................................................................................................17 3.2 Definition of terms relating to key design features of VEMAs.................................................17 3.3 Assembling key design features to yield different VEMAs ......................................................22

4. Examples of Standards-based Voluntary Arrangements for Environmental and Quality Management........................................................................................................................... 26

4.1 VEMAs based on organisation-oriented (process) standards: environmental management systems..........................................................................................................27

4.2 VEMAs based on production-oriented (product and performance) standards ..........................31 4.3 VEMAs based on organisation-oriented (process) and production-oriented (product

and performance) standards ...............................................................................................31 4.4 Environmental labelling and eco-labelling................................................................................38 4.5 Voluntary arrangements for quality assurance, food safety and animal welfare .......................39 4.6 Untangling the web....................................................................................................................43

5. Factors Affecting the Design of VEMAs for Agriculture and Allied Rural Industries............. 47 5.1 Environmental, marketplace and community objectives of VEMAs ........................................47 5.2 Design objectives and design strategies of VEMAs..................................................................48 5.3 The institutions in which VEMAs are embedded......................................................................50 5.4 Supply chain management.........................................................................................................55 5.5 Family farms, corporate farms and downstream agri-business: The nature of the

organisational structures participating in VEMAs.............................................................56 5.6 Costs and benefits......................................................................................................................56

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6. Environmental Management Systems Implementation in Australian Agriculture: Identifying and Overcoming the Barriers ......................................................................................... 57

6.1 The potential of EMS in agriculture ..........................................................................................59 6.2 Identifying the barriers to EMS implementation in agriculture.................................................59 6.3 Overcoming the barriers ............................................................................................................62 6.4 Making EMS in agriculture work..............................................................................................66

7. Linking Environmental Improvement in Agriculture with Marketplace Benefits: The Role of Environmental Standards...................................................................................................... 68

7.1 Market drivers of environmental improvement in agriculture...................................................69 7.2 Emergence of market-based mechanisms as drivers of agri-environmental

improvement ......................................................................................................................70 7.3 Linking environmental improvement in agriculture with market benefits ................................71 7.4 Future environmental standards development ...........................................................................74 7.5 International standards relevant to agriculture and allied rural industries.................................74

8. International Trade and the Environment: Recent Developments of Relevance to Primary Industries .............................................................................................................................. 77

8.1 Background................................................................................................................................78 8.2 Existing environment-related measures and arrangements that apply across

international borders ..........................................................................................................78 8.3 Trade and environment issues in the WTO ...............................................................................79 8.4 Provisions in WTO agreements that relate to the environment .................................................80 8.5 Environmental disputes in the GATT 1947 and in the WTO....................................................86 8.6 The Committee on Trade and Environment ..............................................................................88 8.7 Multilateral Environmental Agreements ...................................................................................88 8.8 Recent trade and environment developments ............................................................................90 8.9 Reform of the EU’s Common Agricultural Policy ....................................................................91

9. Future Opportunities for Voluntary Approaches to Environmental Management for Agriculture and Allied Rural Industries ........................................................................................... 93

9.1 Likely future trajectories in the design and development of VEMAs for agriculture and allied rural industries..........................................................................................................94

9.2 A constellation of alternative options for designing VEMAs: the choice of alternatives .........97 9.3 Opportunities for the role of government ..................................................................................99 9.4 A final word.............................................................................................................................101

References .......................................................................................................................................... 102

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List of Tables Table 1 Key design features of specific VEMAs............................................................................... 24 Table 2 Extracts from the EUREP-GAP protocol for fresh fruits and vegetables .............................. 33

List of Figures Figure 1 VEMAs and the different environmental standards they incorporate.................................... 25 Figure 2. The EMS cycle for continual environmental improvement ................................................... 27 Figure 3 Growth in participation in Tesco’s Nature’s Choice.............................................................. 96

List of Boxes Box 1 Summary of terms used to denote key design features of VEMAs........................................ 23 Box 2 Why a farmer may wish to implement an EMS..................................................................... 30 Box 3 Environmental and biodiversity management in BFA’s Australian Organic Standard ......... 35 Box 4 The Marine Stewardship Council .......................................................................................... 36 Box 5 The seven principles and fifteen steps of HACCP................................................................. 41 Box 6 Environmental, marketplace and community objectives of VEMAs..................................... 47 Box 7 The National EMS Pilot Program in Australian agriculture .................................................. 58 Box 8 Ecosystem services ................................................................................................................ 73 Box 9 What does the WTO do?........................................................................................................ 80 Box 10 Summary of environmental provisions in WTO agreements relevant to

agriculture and food ............................................................................................................... 85 Box 11 A regulatory relief initiative of the Victorian EPA.............................................................. 101

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Executive Summary What the report is about

This report is a synthesis of the current activity in regard to non-legislated standards-based approaches to environmental management in agriculture, known as voluntary environmental management arrangements (VEMAs).

Who is the report targeted at?

The report is targeted at individual producers or groups of producers, industry bodies, retailers, public agencies and non-governmental organisations.

Background

Environmental considerations are becoming increasingly important in how food is produced, traded internationally, marketed and sold in retail outlets. This recognition of sustainability and globalisation imperatives has, in a global context, underpinned the rising development and use of voluntary approaches to environmental management in agriculture and rural industries that are based on a diversity of environmental standards, guidelines and protocols. In a domestic context, it has driven industry and government co-investments in environmental management systems (EMS) implementation in Australian agriculture.

Aims/objectives

Agricultural and rural industries, industry, conservation and community groups will benefit from this research which aims to provide a global view of existing voluntary environmental management arrangements (VEMAs), bring clarity to a confusing array of information and nomenclature and to present options for integrating voluntary arrangements in the related areas of environmental and quality management.

The research was carried out in response to calls from industry, government and the community for new approaches to environmental protection and natural resource management that may provide solutions to community concerns about agriculture’s long-term capacity to deliver output in a sustainable way.

It also aims to highlight the role and potential of voluntary environmental performance standards in delivering linked environmental and market benefits for agri-food producers and to explore the implications of international agreements on trade in agri-food goods and suggest measures to prevent detrimental environmental and economic impacts.

Methods used

The research surveys a wide range of existing national and international research on voluntary standards based approaches to environmental management in agriculture and rural industries including the factors that shape their design, the barriers to implementation and existing and potential marketplace benefits.

The report focuses on voluntary environmental management arrangements (VEMAs) that set out to provide public assurance through the award of a certificate or label that demonstrates compliance against specified standards and criteria.

Key design features of different voluntary arrangements are explored and some common confusion about their operation and terminology are clarified.

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The findings are placed in the context of environment-related measures and arrangements that are negotiated internationally by governments and that presently apply across international borders and voluntary arrangements negotiated by producers and suppliers.

Results/key findings

The increasing adoption rates of diverse voluntary arrangements in agricultural and rural industries, and the growing importance of supply chain driven environmental change are responses of industry and business to increasingly strong consumer preferences for safe, clean and green food.

VEMAs hold promise as a possible means of addressing complex environmental and national resource management issues but there are limitations and a mix of approaches is likely to be most successful. There is low environmental management system certification in agriculture but rising use of standards-based VEMAs.

To ensure the environmental and commercial sustainability of agricultural and rural industries there are challenges in identifying the optimum mix of voluntary and formal approaches, and creating an enabling environment for industry and business to embrace voluntary approaches to environmental management.

Additional findings

The design features of VEMAs need to be assembled in the most appropriate way to achieve the environmental, economic and social outcomes sought.

To provide certainty in supply chains the confusion surrounding labelling needs to be clarified so consumers understand ‘environmental labelling’ as labelling to denote any type of environmental information provided to consumers, and ‘eco-labelling’ as labelling specifically denoting life-cycle analysis (LCA)information

Implications

Industry needs to meet consumer demand for clean, green, safe food by focusing on VEMAs that set out to provide public assurance of environmental protection or natural resource management outcomes through the award of a certificate or label that means a firm, or other organisation, can demonstrate compliance against specified standards or criteria.

Communities of agricultural and rural industries need to explore the possibilities of using existing VEMAs and group certification to overcome cost barriers to meeting consumer demand for clean, green, safe food that that has been demonstrated to comply with specified standards or criteria.

Policy makers

Government could foster the formation of partnerships between stakeholder groups to reduce the costs of VEMAs and further assist by making environmental information readily available and free.

It is suggested that a ‘ Guide to Environmental Regulation for Agriculture and the Rural Industries in Australia’ be sponsored by State and Federal governments for the public good to reduce transaction costs of gathering and disseminating information

Recommendations

Family farms, corporate farms and downstream agri-businesses should take organisational structures into account when designing new VEMAs. When considering the appropriateness of an existing VEMA, it needs to align with their objectives and meet their needs in terms of time, commitment and cost.

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Suppliers need to prepare to meet specified performance standards and criteria to allow companies, and the consumers they supply, to discriminate between products using high standards, and those using lower standards, for example through the use of a label.

An optimum mix of voluntary industry-led and community-led approaches coupled with formal government-led approaches should be formed to offer the best environmental, marketplace and social outcomes.

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1. Environmental management in agriculture and rural industries

An introduction to voluntary approaches to sustainability and globalisation imperatives

Summary

Environmental considerations are becoming increasingly important in how food is produced, traded internationally, marketed and sold in retail outlets. This recognition of sustainability and globalisation imperatives has:

• in a global context, underpinned the rising development and use of voluntary approaches to environmental management in agriculture and rural industries that are based on a diversity of environmental standards, guidelines and protocols

• in a domestic context, driven industry and government co-investments in environmental management systems (EMS) implementation in Australian agriculture.

A paradigm shift in how natural resource management (NRM) and environmental protection are being thought about and approached is taking place. This shift is characterised by a search for new management tools and policy instruments that represent a departure from orthodox government programs and regulation. The new agenda stresses industry’s potential to develop its own solutions. In the search for new and innovative ways of dealing with environmental problems, the potential of various voluntary environmental management arrangements (VEMAs) is being discussed.

VEMAs are a diverse range of arrangements in which firms, and in some cases other organisational structures, may voluntarily choose to participate for the purposes of enhancing environmental management. As their name implies, all VEMAs share two common features: they are concerned with environmental management, and they are undertaken voluntarily. Thus, ‘VEMA’ is an umbrella term embracing many very different types of arrangements including environmental management systems (EMSs), as well as various production protocols that may be part of environmental certification schemes and environmental labelling initiatives. It is acknowledged that some VEMAs do not necessarily result in certification or labelling, though this report focuses on those that do.

VEMAs are ‘voluntary’ in the sense that participation in them is not prescribed by law. By contrast, government legislation and regulations constitute ‘formal’ or legally-binding arrangements. Although participation in VEMAs, and in other schemes concerned with quality assurance, food safety and animal welfare, is voluntary, access to some markets may require proof of participation in such schemes through third-party verification of compliance against specific standards and criteria. Thus, while such arrangements are voluntary, their uptake including verifiable compliance against specific criteria and standards may be a precondition of entry to some markets.

1.1 Background

Environmental considerations are becoming increasingly important in how food is produced, traded internationally, marketed and sold in retail outlets. This recognition of sustainability and globalisation imperatives has:

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• in a global context, underpinned the rising development and use of voluntary approaches to environmental management in agriculture and rural industries that are based on a diversity of environmental standards, guidelines and protocols

• in a domestic context, driven industry and government co-investments in environmental management systems1 (EMS) implementation in Australian agriculture.

Synopsis of report structure

This report is a synthesis of the current state-of-play surrounding voluntary (non-legislated) standards-based approaches to environmental management in agriculture known as voluntary environmental management arrangements (VEMAs). Specifically, the report:

• Provides a global and domestic context to the growth in standards-based voluntary approaches to environmental management in agriculture, including discussion on the limitations of orthodox government approaches in achieving agri-environmental outcomes (Chapter 1).

• Presents a summary on the world market for sustainably-produced food and fibre products, including coverage of future patterns of food consumption in OECD countries, and trends among international food retailers (Chapter 2).

• Defines key design features of different voluntary arrangements for environmental management, as well as for the management of quality, food safety and animal welfare, and explains the differences among various types of environmental standards, auditing procedures, and certification and labelling schemes (Chapter 3).

• Gives specific examples of voluntary arrangements for environmental management, and for the management of quality, food safety and animal welfare, and clarifies some common confusions surrounding VEMAs explaining, amongst other things, why EMS may not result in product labelling (Chapter 4).

• Explores the factors and objectives shaping the design of VEMAs. Two aspects of modern industrial organisation in the primary industries that affect preferences for different VEMAs, and the ease and enthusiasm with which these are adopted are covered: first, supply chains, which provide pathways along which environmental innovations may take place; and second, the nature of different organisational structures in agri-food production, such as family farms, corporate farms or downstream agri-businesses (Chapter 5).

• Identifies barriers to the implementation of environmental management systems (EMS) in Australian agriculture, and discusses some ways of overcoming these barriers (Chapter 6).

• Discusses the role of environmental standards in linking environmental improvement with marketplace benefits. Environmental standards provide the basis for verifiably differentiating agri-food products, and production methods, on environmental grounds and, therefore, the basis for rewarding primary producers via price premiums and/or market access, or via payments for ecosystem services provision (Chapter 7).

• Overviews environment-related measures and arrangements that are negotiated internationally by governments and that presently apply across international borders. Recent trade and environment developments germane to agriculture, including synopses of key trade disputes fought on environmental grounds, are also summarised (Chapter 8).

1 Environmental management systems (EMS) are one specific example of many different standards-based voluntary (i.e.: non-legislated) approaches to environmental management.

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• Concludes by exploring future opportunities for voluntary standards-based approaches to environmental management for agriculture and allied rural industries (Chapter 9).

1.2 The growth of voluntary approaches to environmental management

A paradigm shift in how natural resource management (NRM) and environmental protection are being thought about and approached is taking place. This shift is characterised by a search for new management tools and policy instruments that represent a departure from orthodox government programs and regulation. The new agenda stresses the potential of industry to develop its own solutions.

In this search for new and innovative ways of dealing with environmental problems, voluntary environmental management arrangements (VEMAs) are being discussed. VEMAs include a diverse range of environmental certification schemes and labelling initiatives, including environmental management systems (EMSs) and various production protocols that may be certified and/or labelled.2 Collectively, these industry-based approaches offer enormous promise.

While the principal objectives of VEMAs are concerned with environmental outcomes, VEMAs also have the potential to deliver marketplace and community outcomes. Industry, conservation and community groups and governments are all exploring ways to harness their potential. Many producers are seeking ways to use VEMAs to increase or maintain profits.

This report assembles and organises what is known in this rapidly evolving area, and attempts to bring clarity to a confusing array of information and nomenclature.

1.2.1 The global context

• Globally, growing interest in VEMAs is demonstrated by the fact that on-the-ground activities, research inquiry, and policy development in this area are gathering momentum. Internationally, the rising interest in VEMAs is illustrated by the increasing use of voluntary approaches to achieving environmental goals in a range of industries. According to the OECD (1999):

• in the European Union (EU), more than 300 environmental agreements have been negotiated

• in Japan, some 30 000 local pollution control agreements have been negotiated

• in the USA, the federal government has recently surveyed over 40 voluntary programs that it manages.

Other indicators of increasing use and acceptance of voluntary approaches to environmental management are that, since the origin of the ISO 14000 series of environmental management standards in September 1996, the number of certificates awarded to firms in diverse industry sectors has grown to 22 897 worldwide (ISO 2000). Also, the number of corporations voluntarily engaging in environmental performance reporting has grown. Similarly, the growing interest in quality, food safety and animal welfare practices, indeed even their emerging mainstream acceptance, indicates the strong likelihood of increasingly prominent roles of these voluntary arrangements in the future.

Environmental and quality management issues sometimes share common ground. Importantly, this report recognises and draws attention to the nexus between environmental considerations on the one hand, and quality, food safety and animal welfare considerations on the other. The interconnectedness

2 Thus, EMSs are a subset of the full suite of VEMAs under consideration.

4

of environmental, quality and food safety issues represents a point of departure towards identifying possible ways of integrating environmental and quality considerations in the design of future voluntary arrangements.

1.2.2 The domestic context

In Australia, the growing interest by Federal and State Governments to explore the potential that EMS has to offer agriculture in terms of delivering environmental and marketplace outcomes has resulted in national policy on EMS in agriculture as embodied in the National Framework for EMS in Agriculture (EMSWG 2002; and EMSWG 2001), the National EMS Implementation Plan (EMSIWG 2003), as well as the $8.5 million National EMS Pilot Program (www.daff.gov.au). This program involves 15 pilot projects in a range of primary industries across Australia (Box 1).

Outside the bounds of the National EMS Pilot Program, agri-food companies, family farm businesses and various rural industry groups are also engaged in EMS development (www.aemsaustralia.com.au).

Agricultural sustainability challenges

In Australia and across the world, farming activities incur environmental costs. These raise community concerns about agriculture’s long-term capacity to deliver output in a sustainable way. Environmental impacts of primary production activities are wide-ranging and include habitat loss and degradation from altered land use and clearing, associated biodiversity decline and loss, incursions of exotic biota, soil erosion and sedimentation, water resources depletion, deteriorating hydrological balances at landscape scale, land and water salinity, releases of agrochemicals and animal wastes, non-point source water pollution, altered nutrient and carbon cycling, air pollution and overfishing (Hamblin 2001; Ruhl 2000; and Tilman et al. 2002; in Mech et al. 2003).

These environmental impacts occur in Australian agriculture. Farming’s impacts on water resources and environmental flows, soil erosion, ongoing land clearing, the effects of habitat loss on biodiversity decline, the extent and cost of salinity, agriculture’s high contribution to greenhouse gas emissions, and fisheries overexploitation, persist at levels that jeopardise the long-term productivity and economic viability of primary production, and weaken the biophysical resilience of the natural resource base and its capacity to provide ecosystem services. (Mech et al. 2003).

1.3 Limitations of orthodox government regulation in achieving environmental outcomes in agriculture

Public regulatory and related incentive approaches to environmental protection have resulted in improvements to aspects of environmental quality in a wide range of industry sectors. However, there are limits to what these orthodox approaches can achieve on their own. A key limitation of orthodox regulation lies in the rigid, inflexible and prescriptive nature of its command and control (CAC) approach which tends to stifle an organisation’s attempts to develop innovative approaches to environmental management (Coglianese and Nash 2001).

Generally speaking, most significant improvements resulting from public environmental regulation have taken place in non-agricultural sectors characterised by point-source pollution problems that respond to end-of-pipe regulatory solutions.

By contrast, non-point source pollution and natural resource consumption continue to present environmental management challenges as they tend to fall outside the purview of orthodox regulation and, owing to their often complex nature, do not easily lend themselves to traditional regulatory control (Elliot and Charnley 1998, in Coglianese and Nash 2001). Some traditional regulatory approaches are expensive to administer, especially when the goals pursued are complex. Similarly, high transaction costs tend to be characteristic of government environmental programs that offer

http://www.daff.gov.au/

http://www.aemsaustralia.com.au/

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incentives, such as payments or regulatory relief, to encourage program uptake. Moreover, governments may often be faced with political difficulties when it comes to checking compliance and enforcing the penalties necessary to internalise environmental costs incurred.

Recognition of the limitations of orthodox approaches to environmental management in agricultural and non-agricultural sectors has been accompanied by calls from industry, government and the community alike for new approaches to environmental protection and natural resource management (Ayres and Braithwaite 1992; Chertow and Esty 1997; Coglianese and Nash 2001; Gunningham et al. 1999; and OECD 1999). This call to explore new approaches to environmental management is especially pertinent to the case of agriculture and allied rural industries and forms the subject of this report.

In this report, the term VEMA has been coined to denote these new approaches to environmental management. The report focuses on how VEMAs should be designed in order to overcome some of the key limitations inherent in orthodox regulatory approaches to environmental management, as well as on possible ways of integrating voluntary arrangements in the related areas of environmental and quality management.

1.4 What is a voluntary environmental management arrangement?

1.4.1 Definition of a VEMA

Voluntary environmental management arrangements (VEMAs) are defined, quite simply, as a diverse range of arrangements in which firms, and in some cases other organisational structures, may voluntarily choose to participate for the purposes of enhancing environmental management. Thus, ‘VEMA’ is an umbrella term denoting many very different types of arrangements such as environmental management systems (EMS), and diverse production protocols that may be part of environmental certification schemes and environmental labelling and eco-labelling initiatives3.

Although the focus of this report is on voluntary arrangements that result in certification and/or labelling, it is important to appreciate that some VEMAs do not necessarily result in certification or labelling. As their name implies, all VEMAs share two common features: they are concerned with environmental management, and they are undertaken voluntarily. However, the similarity between different VEMAs ends there, and it is important to appreciate that while the term VEMA is a generic one, terms such as ‘EMS’ or ‘eco-label’ are very specific in meaning.

1.4.2 How VEMAs enhance environmental management

To understand how VEMAs enhance environmental management, it is necessary to understand the precise meanings of terms such as ‘standards’, ‘auditing’, ‘certification’ and ‘labelling’, amongst others, which denote key design features of VEMAs.4 Furthermore, it is important to appreciate that each of these key design features has a number of possible variations. For example, different types of standards exist, as do different types of auditing, certification and labelling. It is also important to appreciate that it is possible for diverse stakeholder groups and authorities to assemble these key design features in different combinations to yield differently designed VEMAs. The challenge, which

3 Although VEMAs intend to enhance environmental management, it is recognised that this does not always necessarily occur. For example, the use of an environmental label may, in some cases, not necessarily mean that enhanced environmental management has actually taken place, a fact that fuels consumer concerns about ‘greenwashing’.

4 Definitions of the terms used to describe the design features of such VEMAs are presented in Chapter 3.

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this report seeks to address, is the need to assemble these features in the most appropriate way to achieve the environmental, economic and social outcomes sought.

Thus, while the term VEMA broadly defines any voluntary activity concerned with environmental management, the specifics of the key design features are critical. The ‘devil is in the detail’, and subtle differences in design choices can have major implications in terms of the likelihood that outcomes will be achieved.

Depending on the design of the specific arrangement in question, a VEMA may aim to enhance environmental management by improving the way environmental impacts are managed, by lifting the firm’s level of environmental performance, or by seeking to deliver specific environmental outcomes.

Depending on the nature of a given arrangement, a VEMA may aid firms, or other organisations, to achieve compliance with formal environmental regulation, or it may even enable firms to demonstrate environmental management practice that goes ‘beyond compliance’. In instances where formal environmental regulation and other non-legislated government programs simply do not exist, VEMAs may provide informal environmental management guidelines5, or, effectively, surrogate environmental regulation and policy. This is especially pertinent to the case of agriculture where, generally speaking, the environmental impacts arising from agricultural activities tend not to respond to orthodox government approaches. The reasons for this tend to be complex but are typically characterised by complex institutional and socio-political forces that present additional barriers to the use of instruments commonly used in non-agricultural sectors.

1.4.3 The distinction between voluntary and formal arrangements

VEMAs are ‘voluntary’ in the sense that participation in them is not prescribed by law. By contrast, pieces of legislation along with the regulations that exist under legislation constitute ‘formal’ or legally-binding arrangements. It is mandatory to comply with such formal arrangements, with failure to comply potentially resulting in penalties enforceable by law.

Although participation in VEMAs, as well as in various other schemes concerned with quality assurance, food safety and animal welfare, is voluntary, access to some markets may require proof of participation in such schemes including third-party verification of compliance against specific natural resource management, environmental protection, food safety and quality, and animal welfare criteria. Different markets, and even different buyers within the same market, may specify different environmental, quality and welfare requirements. Thus, while such arrangements are voluntary in the sense that their uptake is not prescribed by law, their uptake including verifiable compliance against specific criteria and standards may be a precondition of entry to some markets.

Thus, in line with literature in this emerging area, the words ‘formal’ and ‘voluntary’ are used throughout this report to distinguish between arrangements that are prescribed by law, and those that are not, respectively (Coglianese and Nash 2001; OECD 1999). However, it is recognised that third party verification of compliance against VEMAs and other voluntary arrangements relating to food safety, quality and animal welfare is, in some cases, effectively prescribed by markets.

5 For example, a VEMA such as an EMS provides guidelines for the development of a management system to improve the way environmental impacts are managed, but does not prescribe specific production protocols and environmental performance requirements. By contrast, other VEMAs provide guidelines relating to production protocols and to environmental performance. Such VEMAs include, amongst others, organic farming guidelines and the EUREP-GAP protocols. In other words, depending on the specific VEMA in question, the environmental management guidelines may relate to management systems processes or to environmental aspects of production and environmental performance.

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Although participation in VEMAs, and in different quality assurance, food safety and animal welfare schemes is voluntary, governments in some countries have been exploring the potential of regulatory and financial relief initiatives as an incentive to encourage the adoption of voluntary arrangements.

1.4.4 VEMAs, quality assurance, food safety and animal welfare

Environmental, quality, food safety and animal welfare aspects of productive activities in agriculture and the rural industries may often be interconnected. In other words, the way in which agri-food goods are produced determines both their environmental and quality credentials, as poor environmental and quality management practices potentially result in products that impact negatively on the environment as well as on human, animal and plant health. For example, with respect to agro-chemical use, poor management practices may result in environmental contamination problems and in residue-containing products that pose health risks to consumers. The nexus among environmental, quality and food safety issues represents a point of departure towards identifying possible ways of integrating environmental and quality considerations in the design of future voluntary arrangements.

1.5 VEMAs in the context of other environmental management approaches taken and instruments used

Alternative environmental management approaches and instruments are designed to have specific features depending on their objectives and the nature of the environmental problem being addressed. Thus, different types of instruments for achieving environmental outcomes are used within the context of different approaches to environmental management. Environmental management approaches may be classified into three broad categories according to the type of instruments used to achieve environmental outcomes (OECD 1999; Environment Australia 1997).

First, regulatory instruments are tools designed and administered in the context of formal government legislation and regulation, and include mandatory rules such as emission standards, as well as bans relating to certain products or production methods. Second, market-based instruments are designed to provide economic or financial incentives to improve environmental management practice and outcomes. Market-based instruments include environmental levies and charges, tradeable licences and permits, as well as refund systems and regulatory relief initiatives. Market-based instruments may be designed and administered either in the contexts of formal public regulation or voluntary initiatives. Third, voluntary instruments are tools for enhancing environmental management that firms and other organisations may voluntarily choose to use. VEMAs are voluntary instruments which, as noted above, are usually designed and administered in the context of partnerships among stakeholder groups, though may also take place as a unilateral commitment by industry.

While different categories of environmental management approaches and instruments exist each with something valuable to offer, the use of single types of approaches and instruments ‘has substantial limitations as a “stand alone” strategy’, with no single approach or instrument working ‘across the board’ (Sinclair et al. 1998). In other words, an optimum mix of approaches and instruments is likely to deliver the best environmental, marketplace and community outcomes (Sinclair et al. 1998; OECD 1999).

Although VEMAs hold enormous promise as a possible means of addressing complex environmental and NRM issues, the premature view of VEMAs as an environmental management panacea is cautioned. Just as orthodox regulation has limitations, so too do VEMAs. The very fact of their voluntariness means that high participation rates cannot be guaranteed. Moreover, high participation rates in VEMAs are not necessarily synonymous with good environmental performance or outcomes. Indeed, gauging a VEMA’s impact on enhanced environmental quality on the basis of participation rates is problematic.

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Research evidence suggests that schemes with low requirements for environmental performance and outcomes tend to have relatively high adoption rates, and that low participation is associated with programs demanding high environmental performance and outcomes (Nash and Ehrenfeld 2001).

Therefore, the design conundrum for architects of VEMAs is how to design schemes that both attract high participation and deliver meaningful improvements in environmental quality.

For this reason, it is advocated that the potential contribution of VEMAs in achieving meaningful environmental management outcomes should ideally be viewed as complementary to other available environmental management approaches and instruments. In other words, to gauge the long-term potential of VEMAs in achieving meaningful outcomes, their optimal design and implementation should be considered alongside the use of other instruments and approaches. Furthermore, the long-term potential of VEMAs should be considered in the context of likely future trajectories of agri-food sector and economy-wide development, nationally and internationally, as well as in the context of society’s increasing understanding of, and concern about, environmental problems.

1.6 VEMAs in the context of partnerships between different stakeholder groups

VEMAs usually take place within a context of diverse partnerships among different stakeholder groups sharing a mutual desire to enhance environmental management, but setting different environmental objectives, employing alternative strategies and approaches with varying environmental outcomes. Indeed, an important indicator of the growing interest in VEMAs is the degree of interest in them shown by non-governmental organisations (NGOs) such as environmental and community groups, as well as by business and industry. In the development of different VEMAs, it can be generalised that different interests drive these different stakeholder groups. For example, environmental and community groups may be driven by environmental concerns and the desire to accelerate adoption of environmentally-friendly practices, whereas industry stakeholders may be driven by new opportunities to compete for market share.

Partnerships may include, in various combinations, individual producers or groups of producers, industry bodies, retailers, public agencies and non-governmental organisations (NGOs) and, although entered into voluntarily, may be designed to be legally or contractually binding. NGOs involved in VEMAs include, amongst others, the World Wide Fund for Nature (WWF), the International Organization for Standardization (ISO) and the International Federation of Organic Agriculture Movements (IFOAM). Such VEMAs include the ISO 14000 series of standards for environmental management, the European Eco-Management and Auditing Scheme (EMAS), the Euro-Retailer Produce Working Group – Good Agricultural Practice (EUREP-GAP) protocols, organic and biodynamic farming standards and protocols, the UK initiative Linking Environment and Farming (LEAF), the Marine Stewardship Council (MSC) and the Forest Stewardship Council (FSC) schemes, and a range of other forestry certification initiatives.

Although most VEMAs take place within the context of partnerships among different stakeholder groups, VEMAs may also take the form of unilateral commitments set within a single industry stakeholder group independently of government involvement. The American Chemistry Council’s (ACC) Responsible Care program is a well-known example of a unilateral commitment to enhance environmental management in the US chemical industry (Nash and Ehrenfeld 2001; and OECD 1999). Other VEMAs may take place within a supply chain context, again, independently of government involvement.

This is an interesting feature of the EUREP-GAP protocols developed by large supermarket chains and imposed upon suppliers of fresh fruit and vegetables, cut flowers, coffee and, imminently, livestock products.

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Some VEMAs involve negotiated agreements between a specific industry, or even a specific industry operator, and a public environmental authority. A prominent example of an industry-government partnership involving negotiated agreements for environmental management is given by the Dutch negotiated agreements, also called environmental covenants, for pollution abatement (OECD 1999).

Finally, it is recognised that voluntary activities undertaken by individuals, firms and other groups to enhance environmental management practice and outcomes may take place outside organised schemes involving set standards, auditing, certification or eco-labelling. Clearly, such voluntary activities constitute what has been defined as a VEMA, and the importance of the contribution of such voluntary approaches to environmental management and to the wider community is fully acknowledged. However, these VEMAs are not detailed in this report. Rather, this report focuses on VEMAs that set out to provide public assurance of environmental protection or NRM outcomes through the award of a certificate or label that means a firm, or other organisation, can demonstrate compliance against specified standards and criteria. The VEMAs described in this report include environmental management systems (EMSs) and production protocols, which, if successfully audited, may result in certification and/or labelling. Some voluntary arrangements relating to quality assurance, food safety and animal welfare are also described.

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2. Markets for Sustainable Agricultural Produce

Summary

Growing consumer demand for environmentally labelled produce is widely reported, and the emergence of agri-food goods marketed as being sustainable is both demand-driven by consumers and supply-driven by retailers. A number of major international food retailers are supplying customers with environmentally differentiated, including organic, food products. These retailers include ICA Supermarkets in Sweden, and Sainsbury’s, Tesco and Waitrose in the UK, amongst others. Indeed, these major food retailers are seeking to differentiate themselves on environmental grounds in the drive for market share.

A variety of factors, both real and perceived, have conspired to raise consumer awareness and demand for environmentally sustainable and healthful food and fibre products. These include well-publicised food safety scares, concerns over genetically-modified organisms (GMOs) in the food chain, increasing awareness of health issues surrounding food, greater information availability and education of consumers regarding environmental and animal welfare issues.

2.1 Background

This Chapter6 presents summary information on the world market for sustainably produced food and fibre goods, with a view to placing in context the potential for Australian primary industries to grow and maintain a share in this global market via the development of an Australian environmental labelling system for food and fibre products.7 The reasons for assessing the potential of an Australian environmental labelling system for food and fibre products are twofold:

• First, from a market perspective, although projected future patterns of food consumption in OECD countries look stable, a significant diversification and fragmentation of consumer patterns is emerging with environmental, health, food safety and ethical issues set to become defining features of future consumer behaviour (section 2.2.1). Clearly there is strategic sense in evaluating how this future diversification of food consumption patterns in global agricultural markets may benefit exporting Australian primary industries.

• Second, from an environmental perspective, there are pressing needs to evaluate the potential of environmental labelling and branding to deliver environmental outcomes, and to assess the role of voluntary labelling alongside other regulatory and market-based approaches to environmental management. Given the range and scale of Australia’s agricultural sustainability challenges (section 1.2.2), a commensurate range and scale of approaches, and imagination in how to use these approaches practically, is required.

6 This Chapter is drawn from the RIRDC report: Toyne, Phillip, Claudia Cowell and Thea Mech (2004). Marketing Agricultural Sustainability. Driving Environmental Improvement with Marketplace Benefits from Environmental Labelling. Report for the Rural Industries Research and Development Corporation (RIRDC). RIRDC Project No. EAR-1A.

7 It is noted that, owing to commercial sensitivity, there is a dearth of publicly available and empirically well-founded information and literature on, both overseas markets for environmentally labelled agri-food products from Australia, as well as on the potential domestic Australian market for such goods.

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2.2 Consumer demand for environmentally labelled food and fibre products

The emergence of agri-food goods marketed as being sustainable is both demand-driven by consumers and supply-driven by retailers. Consumers are demanding a greater amount of agriculturally sustainable food be supplied in mainstream retail stores, and retailers are in turn responding to the growing consumer demand by expanding the amount of environmentally labelled and branded food available to consumers. Similarly, an OECD (1998) report indicated that retailers, who specifically choose to stock environmentally labelled agri-food goods are increasingly generating the consumer demand for agriculturally sustainable eco-labelled products.

Consumer demand for environmentally labelled agricultural products varies significantly among countries, depending on public awareness of environmental issues generally, and environmentally labelled products specifically, as well as on consumer attitudes towards environmentally labelled products (OECD, 1998). Consumers’ attitudes to environmental labelling are dependent on factors such as the transparency and credibility of the labelling schemes. Mech and Young (2001) note that the environmental standards, or criteria, audited in different environmental labelling schemes determine the nature of the green claims that can be made in the event of a successful third party audit. Also, the nature of the audit, that is whether it is conducted internally or externally or both, and the nature and identity of the body or authority conducting external auditing and making labelling recommendations and decisions, convey different messages in the marketplace regarding the levels of certainty, even trustworthiness, associated with the environmental claims made.

The design specifics of different labelling schemes determine the level of consumer confidence and marketplace recognition associated with diverse labelling initiatives. Consumer demand for environmentally labelled agri-food produce is also influenced by media and consumer awareness campaigns. These assist in raising consumer awareness of environmental issues, the labelling system and certification process, as well as trust in labelling schemes, which, in turn, assists in increasing market demand for the products.

2.2.1 Future patterns of food consumption in OECD countries

Food consumption in OECD countries is likely to stagnate, or else rise only modestly in coming years, such that ‘the share of food and beverages in total consumption could be substantially lower than in the mid-1990s. In Japan, for example, it is projected to fall from 19 per cent in 1995 to just over 14 per cent in 2010, and in the United Kingdom from about 18 per cent in 1994 to 15 per cent in 2005’ (OECD 1998). Interestingly, ‘behind this broadly stable picture of overall food consumption, a significant diversification and fragmentation of consumer patterns is unfolding’ with environmental issues, health, food safety and ethical concerns ‘set to become essential features of consumer behaviour, not least as breakthroughs in biotechnology applications accumulate’ (OECD 1998). Other aspects of this diversification and fragmentation of future consumer patterns relate to the growing ageing population, the rising number of single parent families and higher levels of female participation in the workforce, all of which increase demand for convenience food and eating out, as well as for services such as delivery and catering.

Growing consumer demand for environmentally labelled produce is widely reported by Heinze (2000), J Sainsbury plc (2000), Mech (2002), OECD (1998 and 1999), Unilever (2002), and many others. The OECD’s (1998) overview of trends and key issues regarding the future of food globally observes that ‘the evolution of consumer tastes and diets may gain in importance at the expense of traditional determinants of demand, in particular in OECD countries. It is possible, for instance, that growing [food] safety and ecological concerns may lead to a sustained demand for products with certain organic attributes (‘semi-organic’ produce), although it is generally assumed that the market for purely organic produce will remain marginal’ (OECD 1998).

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2.2.2 Factors driving consumer demand

A variety of factors, both real and perceived, have conspired to raise consumer awareness and demand for environmentally sustainable and healthful food and fibre products. These include well-publicised food safety scares, concerns over genetically-modified organisms (GMOs) in the food chain, increasing awareness of health issues surrounding food, greater information availability and education of consumers regarding environmental and animal welfare issues.

Disease scares

By August 2002, Creutzfeldt-Jakob Disease (CJD) had claimed 115 lives in the UK, with a further 10 people dying after this date. In France, 6 people were dead or dying, whereas in each of the countries Ireland, Italy, Hong Kong, Canada and the United States, 1 person was dead or dying. In addition, cows infected with Mad Cow Disease, which carries CJD, have been found in Europe, Scandinavia, the Middle East and Japan.

Concerns over genetically-modified food

The application of biotechnology to food production promises much in terms of enhanced agricultural productivity through yield enhancement, reduction in chemical inputs, adaptation to specific natural conditions, and disease management. The implications for global agricultural productivity are enormous. There are, however, significant consumer concerns over the presence of GMOs in the food chain, most notably in developed countries. The OECD (1998) notes that ‘[a]s products using genetic engineering are increasingly developed in OECD countries by private companies, the focus is expected to shift gradually from the technical feasibility of such products to competition and market conditions, safety and environmental consequences, and the reaction of consumers.’

Owing to this, the OECD (1998) observes the need for the cautious and credible assessment of existing and potential safety, and the environmental impacts of agricultural biotechnology applications in agriculture. ‘[L]abelling and more generally providing adequate information to the consumer will be essential ingredients of success for such techniques. A hasty rejection of biotechnology applications by consumers or governments which remains possible for example in Europe, could severely damage the development of these techniques and therefore hamper the productivity growth of agriculture in the future.’ (OECD 1998).

2.2.3 Trends among international food retailers

A number of major international food retailers are supplying customers with environmentally differentiated, including organic, food products. These retailers include ICA Supermarkets in Sweden, and Sainsbury’s, Tesco and Waitrose in the UK, amongst others. Indeed, in the UK, it may be said that all the major food retailers are seeking to differentiate themselves on environmental grounds in the drive for market share. The following illustrates the growing demand, and market mainstreaming, for food differentiated on environmental and health grounds, most notably in Europe. Importantly, the retail locations where such food products are available are changing, with the sale of environmentally differentiated food (including organic products) diverting from traditional suppliers such as health food stores to larger and more mainstream supermarkets.

ICA Supermarket, Sweden

In Sweden, retailers have played a major role in promoting environmental labelling. ICA, a major Swedish retail chain, identified the importance of environmental issues in its business strategy, and decided to target the environmentally aware consumer. The business strategy identified environmental issues surrounding packaging, product range, and consumer information as being important to the development of the store. The supply of environmentally labelled products was identified as a growth market for the company.

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The increased supply of environmentally labelled products was assisted by the implementation of the Swedish Regional Environmental Award Diplomas in 1994. The Diplomas were presented to Swedish stores that presented the customer with a range of green products.

To achieve the Diploma, the ICA Supermarket had to stock a certain proportion of environmentally labelled items. This resulted in an increased number of environmentally labelled products in the ICA stores. The success of the Diplomas is evident in the fact that products with the ‘Good Environmental Choice’ and the ‘Nordic Swan’ labels increased sales by 30 per cent during 1995.

The supply of environmentally labelled products was assisted by government schemes, and by identification of environmental issues in the company’s business plan. Consumer demand was raised by providing information on the environmental initiatives.

Sainsbury’s, UK

Sainsbury’s, a UK supermarket chain, began reporting on the environmental performance of its UK retail businesses, namely Sainsbury’s Supermarkets Limited and Homebase Limited8, in 1995. In 1999-2000, the company included the environmental performance targets for Sainsbury’s Bank and Shaw’s, Sainsbury’s US supermarkets business (J Sainsbury plc 2000). In 2000, the company’s environmental management activities included:

• working with suppliers to trial an environmental management guide prior to launching the guide to 1200 own-brand suppliers. The guide is based on Business in the Environment’s Index of Corporate Environmental Engagement and incorporates the principles of The Natural Step

• encouraging wildlife conservation via the implementation of Farm Biodiversity Action Plans (FBAP), with all farms supplying Sainsbury’s premium range products envisaged to have FBAPs by 2006

• pesticide reduction via integrated crop management (ICM) protocols for all UK fresh and frozen fruit and vegetables. These protocols were being verified in 2000 under the Assured Produce Scheme. Also, in 1999, Sainsbury’s launched the EUREP-GAP standards to all its overseas growers of fresh and frozen produce

• sourcing sustainable seafood, including Thames herring and Australian rock lobster, from fisheries certified as sustainable by the Marine Stewardship Council (MSC) in 2000. From 2001, both Sainsbury’s and Shaw’s planned to be selling Alaskan Salmon from the first US fishery certified as sustainable

• specifying stringent organic standards, and certifying all own-brand organic products under the organic standard of the International Federation of Organic Agricultural Movements (IFOAM) by 2003. (J Sainsbury plc 2000).

Tesco, UK

Tesco is a UK supermarket chain, proclaiming to be the leading organic retailer in the UK. Tesco states that they are ‘committed to protecting all varieties of animal and plant life in areas used for farming, and maintaining the natural balance to [the] environment.’ (www.tesco.com).

Tesco stores have supported the agriculturally sustainable food market by introducing their own label, as well as stocking various environmental labels available in the marketplace.

8 Homebase is a UK hardware store.

http://www.tesco.com/

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Tesco launched its own ‘Nature’s Choice’ product range, which seeks to differentiate food products on environmental grounds. It also stocks sustainable seafood produce, certified under the MSC scheme, which recognises that the fishery from which the seafood is derived has been managed responsibly and in a sustainable fashion. Tesco stores have declared that they will continue to stock MSC labelled products, and continue with their Nature’s Choice range, and that they will increase the supply of environmentally labelled and certified products as more farms and fisheries participate in the Nature’s Choice and MSC schemes. (www.tesco.com).

Waitrose

Waitrose is another UK supermarket chain (www.waitrose.com). They stock a number of organic products, including organic pork certified by the Organic Farmers and Growers Association (OFGA), organic beef and lamb certified under the UK Register of Organic Food Standards, and the Waitrose own-label for organic eggs. The promotion of organic goods is assisted through Waitrose OrganicsDirect, which allows consumers to purchase organic goods online. This is the first online supermarket organic delivery service. The ease of access to products has increased consumer access to organic foods. Rising demand for agriculturally sustainable goods in Waitrose supermarkets is clearly illustrated by the fact that the number of organic foods stocked by the company has increased sixfold in four years.

Waitrose also stock products that have been grown using the integrated crop management (ICM) systems, which takes into account best horticultural management practices, site selection, husbandry and chemical controls.

MSC certified produce is included in the product range stocked at the Waitrose supermarkets. Furthermore, the LEAF system is compulsory for Waitrose growers.

The LEAF certification requires an audit of the whole farm, which is undertaken by an independent certifier to show that the farm is minimising the impact of its operations and proactively encouraging on-farm biodiversity (www.waitrose.com).

Consumer demand for organic produce

The increase in organic food sales in the UK is illustrated by the fact that in 1996 less than 100 organic lines were stocked by Waitrose supermarkets, which by 1999 had grown to about 300 organic foods, further increasing 625 by 2000. Waitrose now accounts for 10 per cent of the organic market, with more than 1400 organic lines (www.waitrose.com.au). Similarly impressive growth statistics exist for the US. For example, the number of organic products sold by Shaw’s grew from 10 in the mid 1990s to nearly 1000 different types of organic fruits and vegetables in 2000, with the majority being sourced from California.

Growth in demand for organic food is attributed to consumers taking charge of their health and wellbeing through awareness of the link between health and improved eating habits, consumer concern over the purity and safety of foods due to the use of pesticide residues, artificial ingredients and other chemicals, as well as general consumer awareness of environmental issues.

Worldwide, there are approximately 130 countries producing and trading certified organic produce (UNESCO 2002), with global trade in organic produce strengthening substantially in recent years. Global trade in organic farm produce was worth some US$11 billion in 1997, and organic foods have been the fastest growing sector of food industries in the USA, Japan and parts of Europe. Specifically, Europe and Japan have had the fastest growing consumer demand for organic produce, and US and New Zealand producers have been the quickest to respond to these market demands (McCoy and Parlevliet 2000).

Although Australian organic produce has established a good international reputation, McCoy and Parlevliet (2000) note that Australia has been slow in providing a supply response to organic market


http://www.waitrose.com/

http://www.waitrose.com/

http://www.waitrose.com.au/

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demands. Industry sources estimate the value of Australian organic farming to be between A$200 and A$250 million, with exports accounting for approximately A$30 to A$50 million. Australia’s relatively limited organic production presents the key obstacle to capturing a greater share of this fast-expanding market (McCoy and Parlevliet 2000). According to the Queensland Department of Primary Industries, Australian supply of organic produce is not enough to keep up with market demand, notably to Japan, which is expected to become the largest organic market on a per capita basis (www.dpi.qld.gov.au).

2.3 The role of the supply chain in delivering green consumer preferences

Ultimately, green consumer preferences drive environmental innovations along supply chains,9 which provide pathways along which environmental innovations may be made and along which environmental change may happen. Hall (2000) investigates the circumstances under which ‘environmental innovations diffuse from a customer firm to a supplier firm’ a phenomenon he defines as environmental supply chain dynamics (ESCD). Buyer-supplier relationships are central to decision-making processes of most suppliers, wherein lies the potential to stimulate environmental change along the supply chain.

An agri-food sector example of environmental innovations taking place along supply chains is given by Sainsbury’s supermarkets, which have demanded that all suppliers of fresh fruit and vegetables comply with the EUREP-GAP protocols. Using the example of a case study from the British and Japanese food retail sectors,10 Hall (2000) shows that environmental innovations emerge and are passed along supply chains:

• first, if there are leaders with sufficient power over downstream suppliers in the chain

• second, if there is sufficient technical knowledge along the chain to be able to innovate

• third, where the leaders are themselves under pressure to demonstrate good environmental credentials.

9 Supply chains and increasing vertical integration in the agri-food sector are key features of modern industrial organisation and market structures. Understanding how supply chains work is key if they are to be harnessed for environmental management purposes. (Mech and Young 2001).

10 See also Chapter 5, section 5.4.

http://www.dpi.qld.gov.au/

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3. Key Design Features of Standards-Based Voluntary Arrangements for Environmental and Quality Management

Summary

Individual VEMAs are distinguished from one another by differences in their key design features. Key design features are denoted by terms such as ‘standards’, ‘auditing’, ‘certification’ and ‘labelling’. The design specifics of different VEMAs, notably the standards they incorporate, as well as the ways in which these are audited, certified and/or labelled, and by whom, define the differences among VEMAs. Importantly, a given VEMA’s design specifics determine whether and, if so, how, and by how much, environmental management and outcomes may be enhanced by the implementation of that VEMA.

Standards are ‘accepted specifications or codes of practice which define materials, methods, processes and practices that, when effectively implemented, ensure that consistent and acceptable levels of quality, performance, safety and reliability are achieved.’ (Standards Australia 2001). Different types of environmental standards exist, and according to Ure’s (1999) categorisation, there are two groups of environmental standards:

• organisation-oriented standards, also called process standards

• production-oriented standards, which may be product standards or performance standards.

Process standards specify management processes and procedures to be followed by an organisation for the purposes of environmental management. Product standards may define specific features of a final product and may also define how that product must have been produced. Performance standards specify acceptable or required levels of performance to be met. Environmental performance standards may relate to the production process, as well as to environmental externalities stemming from the production process.

Auditing is the systematic examination of an entity, such as an organisation, facility or site, to determine whether, and to what extent, it conforms to specified standards. A first-party audit is a self-audit, or internal audit, carried out by staff within the organisation. A second-party audit is an external audit of an organisation carried out by customers or buyers. A third-party audit is an external audit carried out by an independent organisation (the third party) on another organisation, for example, for certification purposes. Thus, the essential difference between first, second and third party audits concerns the level of independence of the person carrying out the audit.

Certification and accreditation are different though connected, with accreditation providing public confidence in certification. Specifically, certification is the successful result of the procedure whereby a third party gives written assurance that compliance against a clearly identified standard has been achieved, and accreditation assures the public that a certifying body is able to carry out its duties independently, competently and consistently. To provide this assurance, accreditation bodies assess certification bodies against given criteria and, once accredited, the certification body undergoes regular checks. Provided that a certification body is accredited as being independent, competent and consistent, then third party certification can be used to provide public assurance that certain standards have been met. The governance arrangements under which accreditation and certification bodies operate are crucially important in allaying ‘greenwashing’ concerns, and in ensuring international marketplace recognition for certified goods.

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When a third-party audit results in certification, it is common for that to be accompanied by a statement that effectively allows the certified entity to use a label, or some sort of logo to show that compliance against a particular standard has been achieved. There is a difference, and sometimes confusion, surrounding the meaning of the terms ‘environmental labelling’ and ‘eco-labelling’. ‘Environmental labelling’ denotes any type of environmental information to consumers, and ‘eco-labelling’ specifically denotes life-cycle analysis (LCA) information.

The key to understanding VEMAs lies in understanding the standards or criteria that are audited in different environmental certification and labelling schemes. These standards determine the nature of the green claims that can be made in the event of a successful third-party audit. Also, the nature of the audit, that is to say whether it is conducted internally or externally or both, and the nature and identity of the body or authority conducting external auditing and making labelling recommendations and decisions, convey different messages in the marketplace regarding the levels of certainty, even trustworthiness, associated with the environmental claims made. Thus, the design specifics determine the level of consumer confidence and marketplace recognition associated with different schemes.

3.1 Background

As their name implies, all voluntary environmental management arrangements, or VEMAs, share two broad features in common: they are concerned with environmental management, and they are undertaken voluntarily. Looking beyond these two generic common features, individual VEMAs may be distinguished from one another by differences in their key design features. That is to say, the design specifics of different VEMAs, notably the standards they incorporate, as well as the ways in which these are audited, certified and/or labelled, and by whom, define the differences among VEMAs. Importantly, moreover, the design specifics of a given VEMA determine whether and, if so, how, and by how much, environmental management may be enhanced by the implementation of that VEMA.

This chapter describes the key design features of different voluntary arrangements for environmental management, as well as for the management of quality, food safety and animal welfare. In other words, the building blocks used to assemble different voluntary arrangements are described. In so doing, the chapter aims to clarify the potential confusion that arises from the fact that some of the words that are often used to describe types of VEMAs (environmental certification schemes, environmental auditing schemes, environmental labelling initiatives) are also used to describe their key design features (auditing, certification and labelling).

3.2 Definition of terms relating to key design features of VEMAs

Key design features of VEMAs are denoted by terms such as ‘standards’, ‘auditing’, ‘certification’ and ‘labelling’. Different types of standards exist, as do different types of auditing, certification and labelling. These terms are defined and explained in this section.

3.2.1 Standards

Standards Australia (2001) defines standards as ‘accepted specifications or codes of practice which define materials, methods, processes and practices that, when effectively implemented, ensure that consistent and acceptable levels of quality, performance, safety and reliability are achieved.’ Different types of standards exist and, according to Ure’s (1999) categorisation, environmental standards may be placed into two main groups:

• First, ‘organisation-oriented standards’ provide specifications relating to management processes followed by an organisation for the purposes of environmental management. The term ‘process standard’ commonly denotes environmental management processes and procedures to be followed and, as such, is synonymous with ‘organisation-oriented standard’.

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• Second, ‘production-oriented standards’ provide specifications relating to aspects of the production process, or to the product itself. That is to say, ‘production-oriented standards’ are, effectively, production protocols, defining either how a product must be produced, or specifying features of a final product. In defining how a product must be produced, a standard may effectively be specifying acceptable levels of environmental impacts or, in other words, required levels of environmental performance. Thus, ‘production-oriented standards’ embrace both ‘product standards’ and ‘performance standards’.

To summarise, there are two groups of environmental standards: organisation-oriented standards, also called process standards, which specify environmental management processes and procedures to be followed by an organisation; and production-oriented standards, which may be product standards or performance standards. The former define specific features of a final product and may also define how that product must have been produced, whereas the latter specify acceptable or required levels of environmental performance. Performance standards may sometimes specify required environmental outcomes. A VEMA will incorporate different types of standards depending on its objectives and intended outcomes. Standards Australia (2001) also notes that standards are ‘voluntary compliance documents that only become mandatory if called up through legislation or contractual obligation’.

Process standards

Process standards specify procedures to be followed for the purposes of environmental management.

Examples of process standards are the ISO 14001 and ISO 14004 standards. These standards detail the processes that a firm, or other organisation, may choose to follow for the purposes of managing environmental impacts. The ISO 14001 standard provides the EMS specification, and the ISO 14004 standard provides guidelines on the EMS’s component parts, how it is implemented, and discusses principal issues involved. These process standards have also been referred to as ‘organisation-oriented standards’ since they address ‘organisation-wide environmental systems and functions’ and because they ‘provide comprehensive guidance for establishing, maintaining and evaluating an environmental management system (EMS)’ (Ure 1999). Thus, the emphasis is on management processes, tracking internal events, continual improvement and learning-by-doing.

Product standards

Product standards, also termed production protocols, define specific features associated with a marketed product. These features can be either identified in the final product or in the way it was produced. Product standards for agricultural and rural industry products, which include environmental management elements, may make specifications regarding pesticide use, the use of other agro-chemicals, and various permitted animal and crop husbandry practices.

Integrating an EMS process standard with a product standard that specifies environmental features of the production process, and not just features of the final product, is an intuitively obvious step towards efficiency gains and cost reduction. However, that is not to say that an EMS process standard could not be used in addition to, or alongside, a product standard that only specifies features of the final product. Indeed, in the interests of efficiency, there is a real opportunity to integrate environmental standards with those that focus on product quality.

Performance standards

A performance standard specifies a level of environmental performance to be met. Environmental performance standards may relate to the production process, as well as to environmental externalities that may stem from the production process.

Environmental performance standards for application at an enterprise level may be designed with ‘higher level’, or ‘bigger scale’, performance targets in mind. Classical examples include issues

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associated with impacts of agricultural practices on surface and groundwater quality and on the air. For example, industry bodies may set industry level environmental performance targets which may be translated into enterprise-level performance standards. Or, a catchment management authority may set catchment scale environmental performance targets which may be translated into enterprise-level performance standards. In other words, the macro-level identification of areas and issues for environmental management attention may provide a point of departure for defining micro-level performance standards and criteria.

With the exception of formal regulations under Acts such as state Environment Protection Acts where intensive agricultural and rural industries such as pig, beef, poultry and aquaculture enterprises are subject to end-of-pipe type regulations with respect to their waste and water management practices, there is a paucity of environmental and NRM performance standards in most agricultural industries. However, with regard to VEMAs, it is acknowledged that in the case of the forestry and wood products industries two forestry certification schemes do specify performance standards. These include the Forest Stewardship Council (FSC) scheme and the Finnish Forest Certification Scheme (FFCS) (Kanowski et al. 1999).

3.2.2 Auditing

Auditing refers to the systematic examination of an entity, such as a firm, organisation, facility or site, to determine whether, and to what extent, it has been and is conforming to specified standards. Once again, the terms used to discuss different types of audits have specific meanings. There are self-audits, second-party audits and third-party audits.

First-party audit or self-audit

A first-party audit, or self-audit, is an internal audit. It is an audit carried out by an organisation on itself. Periodic self-audit is a mandatory feature of some VEMAs, such as ISO 14001, regardless of whether third-party auditing and certification are sought.

Second-party audit

A second-party audit is an external audit. It is an audit carried out by one organisation, working on its own behalf, on another.

For example, a second-party audit of an entity may be carried out either by that entity’s clients, or buyers, or financiers. Clients may wish to second-party audit a firm to be assured that goods and services comply against specified standards. Where VEMAs are implemented along supply chains, suppliers use second-party audits as a means to provide assurance to their customers and, also, to manage risk.

Third-party audit

A third-party audit is also an external audit of an entity. It is an audit by an independent organisation (the third party) on another organisation. Third-party audits may be carried out by regulators, financiers, or by accredited certification bodies. For example, when a need for a certification has been perceived, a third-party audit may be carried out.

In such a case, a certification body that is accredited to perform the task carries out the audit. Third-party auditors are required to act in an independent, competent and consistent manner.

3.2.3 Certification

Certification is the successful result of the procedure whereby a third-party gives written assurance that they have methodically assessed the extent of compliance with a clearly identified set of process

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standards, performance standards and/or product standards and have adequate confidence that the processes and practices followed conform with the VEMA’s standards.

Provided that a certification body is accredited as being independent, competent and consistent, then third-party certification can be used to provide public assurance that certain standards, such as process, performance or product standards, have been met.

3.2.4 Accreditation

The purpose of accreditation is to provide confidence in certification (JAS-ANZ website, www.jas.anz.com.au). In other words, accreditation provides public assurance that a certifying body is able to carry out its duties independently, competently and consistently. To provide this assurance, accreditation bodies assess certification bodies against given criteria11 and, once accredited, the certification body is subject to regular surveillance (Brockway 1997). Strict governance arrangements and administrative procedures may be used to give credibility to the accreditation processes used. Thus, accreditation is the formal recognition of competence that an authoritative body gives to another body or person in order to empower them to perform specified tasks such as third-party auditing against given standards for the purposes of certification.

Harmonised accreditation

Accreditation operates primarily at the national level. If a VEMA to be certified consistently across the world, it is necessary for national accreditation systems to harmonize the criteria used for accrediting certification bodies. It is also necessary to examine differing standards across the world and to clarify differences between standards to the market.

The roles of certification and accreditation in ensuring international marketplace recognition

The governance arrangements under which accreditation and certification bodies carry out their duties intend to ensure international marketplace recognition for certified goods. In order to provide public assurance of environmental outcomes of VEMAs, and to reap marketplace rewards from implementing VEMAs, it is critical for VEMA certification processes to be independent and competent,12 as well as consistent. As noted above, it is the role of the accreditation body to ensure these criteria are met (Brockway 1997).

Independent certification ensures that certification decisions are made by impartial individuals with no interest, pecuniary or otherwise, in the result of the certification process.

To ensure independence of certification decisions, investigation of potential conflicts of interest affecting all parties in auditing and certification processes should be made transparent in order to enable it to be appropriately managed.

To provide third party certification of compliance against a VEMA’s standards, the certification body must be competent. In other words, it must possess relevant specialist competencies including:

• understanding the standards to which an organisation is being certified, understanding pertinent NRM and environmental protection issues

11 In the case of ISO, these criteria are based on international standards. 12 Although the same independence requirements can apply to certification bodies acting in different fields, this

is not the case with competence requirements, which must be tailored to a given specialist field (Brockway 1997).

http://www.jas.anz.com.au/

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• demonstrating technical knowledge of the activities undertaken by the organisation being certified

• demonstrating knowledge of NRM and environmental legislation with which the organisation being certified must comply

• management system assessment skills.

To be accredited, a certification body must show that it possesses these competencies at both management level, and at the audit personnel level. At management level, a certification body must have the competence to appoint an appropriate audit team, and to make a certification decision based on the audit team’s report. Due to the need for competent certification, certification bodies are only accredited to work in defined areas limited by their ability to demonstrate competent skills and availability of personnel. Assessing the competence of a certification body’s audit team is central to the accreditation process, and is done by witnessing audit teams at work. A range of competencies is required in an audit and it is therefore unusual for a certification audit to be conducted by a single person. For any given audit, emphasis must be given to selecting appropriate audit teams (Brockway 1997).

3.2.5 Environmental labelling and eco-labelling

There is a difference, and considerable confusion, surrounding the meaning of the terms ‘environmental labelling’ and ‘eco-labelling’, accompanied by a lack of clarity regarding the classification of different labelling schemes. Appleton (1997) writes that the 1991 study ‘Environmental Labelling in OECD Countries’ defined environmental labelling as the ‘voluntary granting of labels by a private or public body in order to inform consumers and thereby promote consumer products which are determined to be environmentally more friendly than other functionally and competitively similar products’. In 1993, the Secretariat of the United Nations Conference on Trade and Development (UNCTAD) offered a similar definition, namely that environmental labelling is ‘the use of labels in order to inform consumers that a labelled product is environmentally more friendly relative to other products in the same category’ (Appleton 1997). Although both the OECD and UNCTAD recognise three broad categories of labels, including life-cycle labels, single-issue labels and negative labels the latter two were excluded from their definitions of environmental labelling. Indeed, UNCTAD explicitly equated both environmental labelling and eco-labelling with product labels that communicated the results of life cycle analyses (LCAs).

By contrast, the 1992 definition of environmental labelling offered by the GATT Secretariat as ‘systems for the usually voluntary granting of labels by a private or public body in order to inform consumers’ encompassed all single issue labels and negative labels, as well as the life-cycle labels (Appleton 1997). The inclusion of all three label categories in the GATT definition stems from the GATT Secretariat’s interest in the trade implications of labelling. In 1993, the GATT Secretariat differentiated between environmental labelling and eco-labelling, with environmental labelling referring to all three label categories, that is life-cycle labels, single issue labels and negative labels, and eco-labelling denoting labels reflecting the results of LCAs. Similarly, an OECD study conducted in 1994 used environmental labelling as an umbrella term to denote three subgroups of labels, including eco-labels communicating information from life-cycle schemes, as well as single issue voluntary labels, and single issue mandatory, or negative, labels. Although as Salzman (1994; in Appleton 1997) acknowledges ‘that much of the [environmental labelling and eco-labelling] debate is “confused”, and that there are many ways to classify environmental labels’, there appears to be an emerging consensus that environmental labels provide any type of environmental information, whereas eco-labels are a specific type of environmental label awarded on the basis of LCA.

In line with the emerging consensus among the OECD, and the UNCTAD and GATT Secretariats, this report defines:

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• ‘environmental labelling’ as labelling to denote any type of environmental information provided to consumers

• ‘eco-labelling’ as labelling specifically denoting life-cycle analysis (LCA) information.

When a third-party audit results in certification, it is common for that to be accompanied with a statement that effectively licences the entity to use a label, or some sort of logo to show that compliance against a particular standard has been achieved. That is, typically, there is a close nexus between a certificate and a label. Like environmental certification, environmental labelling reduces the cost of assuring the public about an environmental claim.

Typically, environmental labelling schemes are supported by communication strategies that seek to convince the public and consumers that the claims made are genuine.

As in the case of environmental certification, the standards or criteria that are audited in environmental labelling schemes determine what claims can be made and how much public assurance can be provided. Significantly, the nature of the audit, that is to say whether it is conducted internally or externally or both, and the nature and identity of the body or authority conducting external auditing and making labelling recommendations and decisions, conveys different messages in the marketplace regarding the levels of certainty, even trustworthiness, associated with the environmental claims made. Thus, the design specifics, in other words the details, tend to determine the level of consumer confidence associated with different schemes.

3.3 Assembling key design features to yield different VEMAs

The key design features described above and summarised in Box 1 may be assembled in different ways to build different VEMAs that intend to achieve different outcomes. Choices about the best way to do this depend primarily upon the reason for establishing the VEMA.

Table 1 describes specific and well-known VEMAs according to the types of standards they incorporate (process, performance and product standards), their auditing requirements (by first, second and/or third parties), and whether they result in certification and/or labelling. Figure 1 illustrates the different types of standards that VEMAs incorporate.

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Box 1 Summary of terms used to denote key design features of VEMAs

Standards are ‘accepted specifications or codes of practice which define materials, methods, processes and practices that, when effectively implemented, ensure that consistent and acceptable levels of quality, performance, safety and reliability are achieved’ (Standards Australia, 2001). Different types of standards exist. Process standards specify procedures to be followed for the purposes of environmental management. Product standards define specific features of a final product, and may also define how that product must have been produced in order to comply with the standard. An environmental performance standard specifies a level of environmental performance to be met.

Auditing is the systematic examination of an entity, such as an organisation, facility or site, to determine whether, and to what extent, it conforms to specified standards. A first-party audit is a self-audit or an internal audit. It is an audit carried out by staff within a firm, or other organisation. A second-party audit is an external audit of a firm, or other organisation, carried out by customers or buyers. A third-party audit is an external audit carried out by an independent organisation (the third party) on another organisation. Third-party audits are carried out by regulators and financiers. Third-party audits are also carried out for the purposes of certification, in which case they are carried out by accredited certification bodies to ensure that the decision to recommend certification is made independently, competently and consistently. The essential difference between first, second and third party audits concerns the level of independence of the person carrying out the audit.

Certification is the successful result of the procedure whereby a third-party gives written assurance that compliance against a clearly identified standard, or standards, has been achieved.

Accreditation is the formal recognition of competence that an authoritative body gives to another body or person to empower them to perform specified tasks such as third-party auditing against given standards for the purposes of certification. Accreditation assures the public that a certifying body is able to carry out its duties independently, competently and consistently. In other words, accreditation provides confidence in certification.

Environmental labelling denotes any type of environmental information to consumers, whereas eco-labelling is a specific type of environmental labelling denoting life-cycle analysis (LCA) information (Appleton 1997).

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Table 1 Key design features of specific VEMAs

Key design feature VEMA Standards1 Auditing2 Certification3 Labelling4

ISO 14001 Organisation-oriented standard, ie: process standard. Option to

integrate product and performance standards

Not possible to use as a product label.

However, a mark or a logo may be used in

recognition of certification

EMAS Organisation-oriented standard, ie: process

standard, with option to integrate product and

performance standards

Not possible to use as a product label

EUREP-GAP

Production-oriented standards, ie: production

protocols/product standards, with a recently

integrated process standard

Compliance against EUREP-GAP protocols

required by some supermarkets which

may use own label to make green claims

Organic and biodynamic farming standards

Production-oriented standards, ie: production

protocols/product standards

Various organic labels exist

IFP Production-oriented standards, ie: production

protocols/product standards

-

Marine Stewardship Council, MSC

Blend of organisation- and production-oriented

standards

MSC logo used to discriminate products for market advantage

Forest Stewardship Council, FSC


standards

FSC logo used to discriminate products for market advantage

Finnish Forest Certification Scheme, FFCS


standards

1st and 2nd party auditing possible,

and 3rd party auditing necessary

if certification and/or labelling

are sought

Certification possible following successful

3rd party audit

-

1 Standards are defined as ‘accepted specifications or codes of practice which define materials, methods, processes and practices that, when effectively implemented, ensure that consistent and acceptable levels of quality, performance, safety and reliability are achieved’ (Standards Australia 2001). With regard to matters environmental, standards may relate to management processes, performance, and product specifications.

2 Auditing refers to the systematic examination of an entity, such as a firm, organisation, facility or site, to determine whether, and to what extent, it has and is conforming to specified standards.

3 Certification is the successful result of the procedure whereby a third-party gives written assurance that compliance against a clearly identified standard, or standards, has been achieved.

4 Labelling is labelling to denote any type of environmental information to consumers.

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Figure 1 VEMAs and the different environmental standards they incorporate

VOLUNTARY ENVIRONMENTAL MANAGEMENT ARRANGEMENTS

VEMAs• Diverse arrangements undertaken

voluntarily to enhance NRM• Composed of standards, which,

if successfully audited, may be certified and/or labelled

PROCESS STANDARDSmake specifications

|relating to management processes that an organisation

uses to manage its environmental impacts

PRODUCTS STANDARDSmake specifications

|relating to the end product,and may also define how that

product must have been produced. Also called production protocols

PERFORMANCE STANDARDSmake specifications

about levels of environmental performance or

outcome to be met

ORGANISATION-ORIENTATEDSTANDARDS

PRODUCTION-ORIENTATEDSTANDARDS

ISO 14001EMAS

are examples ofVEMAs incorporating

organisation-orientated standards

EUREP – GAPORGANICS,

MSC, FSC, FFCSare examples of

VEMAs incorporatingboth organisation and production

orientated standards

VEMAs = Environmental Auditing Certification &/orStandards Labelling + +

IFPis an example of a

VEMAs incorporatingproduction-orientated

standards

VOLUNTARY ENVIRONMENTAL MANAGEMENT ARRANGEMENTS

VEMAs• Diverse arrangements undertaken

voluntarily to enhance NRM• Composed of standards, which,

if successfully audited, may be certified and/or labelled

PROCESS STANDARDSmake specifications

|relating to management processes that an organisation

uses to manage its environmental impacts

PRODUCTS STANDARDSmake specifications

|relating to the end product,and may also define how that

product must have been produced. Also called production protocols

PERFORMANCE STANDARDSmake specifications

about levels of environmental performance or

outcome to be met

ORGANISATION-ORIENTATEDSTANDARDS

PRODUCTION-ORIENTATEDSTANDARDS

ISO 14001EMAS

are examples ofVEMAs incorporating

organisation-orientated standards

EUREP – GAPORGANICS,

MSC, FSC, FFCSare examples of

VEMAs incorporatingboth organisation and production

orientated standards

VEMAs = Environmental Auditing Certification &/orStandards Labelling + +

IFPis an example of a

VEMAs incorporatingproduction-orientated

standards

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4. Examples of Standards-based Voluntary Arrangements for Environmental and Quality Management

Summary

Specific examples of voluntary arrangements for environmental management, and for the management of quality, food safety and animal welfare, are described in this Chapter, and some common confusions surrounding EMSs and other VEMAs, and related concepts, are clarified. The specific examples of voluntary arrangements that are presented include:

• VEMAs based on organisation-oriented standards, or process standards. These are environmental management systems (EMS), and include ISO 14001 and the European Union’s Eco-Management and Auditing Scheme (EMAS) (section 4.1)

• VEMAs based on production-oriented standards, or product and performance standards13. VEMAs based on production-oriented standards include the Integrated Fruit Production (IFP) protocols (section 4.2)

• VEMAs based on a blend of organisation-oriented and production-oriented standards. These VEMAs include EUREP-GAP, Organic Standards, and several environmental certification schemes including the Marine Stewardship Council’s (MSC) scheme, the Forest Stewardship Council (FSC) and the Finnish Forest Certification Scheme (FFCS) (section 4.3)

• a group of environmental labelling and eco-labelling schemes in the ISO 14020 series of standards that allow for three environmental labelling possibilities known as Type I, Type II and Type III labelling (section 4.4)

• voluntary arrangements for quality assurance, food safety and animal welfare, including Hazard Analysis Critical Control Point (HACCP) food safety assurance, the Safe Quality Food (SQF) initiative, the ISO 9000 series of standards for quality assurance (QA), three QA codes of practice for Australian agriculture, and the Model Codes of Practice for the Welfare of Animals (section 4.5).

Wider and additional discussion of different types of environmental labelling schemes for food and fibre products is given Toyne et al. (2004).

13 In other words, these VEMAs are based on product standards, also termed production protocols. These standards make specifications about the final product itself, as well as the way in which it was produced. Production-oriented standards also include performance standards that specify required levels of environmental performance. Environmental performance standards may relate both to the production process, and to environmental externalities arising from it.

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4.1 VEMAs based on organisation-oriented (process) standards: environmental management systems

An EMS is a management tool that an organisation uses to reach environmental goals. All EMSs are cyclical and iterative management processes designed to achieve continual environmental improvement. An EMS may only be implemented by an organisation to improve the management of environmental impacts over which it has control.

Prior to implementing an EMS, an organisation identifies its legal and regulatory obligations, which may include compliance against minimum standards, and also identifies environmental aspects, impacts and risks of its operations. Having done this, the EMS may be implemented.

An EMS consists, quite simply, of a cyclical management process where an organisation: first, defines its environmental policy and makes a commitment to work towards specified environmental goals; second, establishes a plan to work towards its environmental goals; third, implements the plan by, where necessary, assigning responsibilities, allocating resources and acquiring new skills; fourth, checks progress through systematic measurement and evaluation; and fifth, reviews its progress and acts to correct problems. The organisation then returns to the first step and revisits its environmental policy with a view to improving it, and to committing itself to working towards improved environmental goals, and so on. Thus, the EMS is designed to achieve continual environmental improvement. This cyclical management process is summarised in Figure 2. Importantly, an EMS requires an internal audit to be made with external auditing being optional.

Figure 2 The EMS cycle for continual environmental improvement

ManagementReview

Commitmentand Policy

Measurementand Evaluation Planning

Implementation

The EMS Cycle for Continual Environmental Improvement

ManagementReview

Commitmentand Policy

Measurementand Evaluation Planning

Implementation

The EMS Cycle for Continual Environmental Improvement

Source: Baker and Boland (2001). Adapted from AS/NZS ISO 14004

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The EMS tool works by creating internal rules and organisational structures and, importantly, by fostering new behavioural norms within an organisation. Thus, EMSs are defined as ‘formal structures of rules and resources that managers adopt to establish organisational routines that help achieve corporate environmental goals. They are a subset of management systems in general’ (Nash and Ehrenfeld 2001). While public regulation imposes on organisations from the outside, an EMS constitutes ‘regulation from the inside’. In other words, it is ‘a regulatory structure that arises from within an organisation” and it is comprised of ‘a collection of internal efforts at policymaking, planning, and implementation that yields benefits for the organisation as well as potential benefits for society at large’ (Coglianese and Nash 2001).

Different types of EMS

Broadly speaking, three different types of EMSs have been developed during the 1990s by individual firms, trade associations and standards organisations, respectively (Nash and Ehrenfeld 2001). These are:

• first, firm-structured EMSs which have arisen endogenously within firms and corporations to address corporate environmental goals

• second, environmental codes of practice developed by industry or trade associations have, in turn, been developed into EMSs. Perhaps the best-known example of a trade association EMS is given by the Responsible Care Initiative of the American Chemistry Council (ACC)

• third, standards for EMSs have been developed by standards organisations, notably by ISO, which has developed the ISO 14000 series of standards.

These three different types of EMSs all conform to the EMS definition given above. As such, all three EMS types conform to the ISO 14001 process standard and, arguably therefore, there is no such thing as an EMS that does not conform with ISO 14001. That is to say, there is no such thing as an EMS that would be incompatible with the ISO 14001 process standard. Of all VEMAs, EMSs in particular, are designed and developed to deliver solutions to environmental problems in a flexible manner, and the variability, even malleability, of EMSs contrasts dramatically with the rigidity usually associated with government regulation, or indeed, some other VEMAs. Given the flexibility of their design, standards for EMSs may be implemented in a range of agricultural and rural industries. Two well-known examples of EMSs, ISO 14001 and EMAS, both of which are standardised EMSs, are described below.

4.1.1 ISO 14001 and ISO 14004

The ISO 14001 standard provides the EMS specification of the International Organization for Standardization (ISO), and the ISO 1400414 provides guidelines on the EMS’s component parts, how it is implemented, and discusses principal issues involved. Essentially, these standards detail the processes that a firm, or other organisation, may choose to follow for the purposes of managing its environmental impacts. This is an internationally recognised standard for EMS, and is illustrated by the EMS cycle for continual improvement, shown in Figure 2.

ISO 14001 and the accompanying ISO 14004 guidelines are well designed for several reasons. First, they may be used by organisations that differ widely in structure and function. Second, the fact that these standards are designed as process standards, rather than performance standards, means that they do not stifle an organisation’s attempts to develop innovative approaches to managing environmental impacts. As noted by Coglianese and Nash (2001), flexibility in deciding how to address

14 The ISO 14004 EMS guidelines are general guidelines on principles, system and supporting techniques (Standards Australia 1996).

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environmental impacts encourages innovation. Third, the ISO 14000 series of standards is recognised up and down supply chains, across sectors, and internationally. This is important for agricultural and rural industries in the light of increasing vertical integration along agri-food supply chains, and because agri-food products are inputs to other non-agricultural non-rural industries. It is also important given the level of Australian agricultural exports. For example, according to ABARE (2001), between 1999 and 2000, 64 per cent of Australia’s farm output, equivalent in value terms to over $18 billion, was traded internationally.15

A common criticism of ISO 14001 is that it is only a process standard and, as such, does not specify performance criteria or standards.

While it is true that ISO 14001 is a process standard, it is important to understand that this standard’s accompanying guidelines, namely the ISO 14004 guidelines, clearly state that requirements of the ISO 14001 process standard include compliance with prevailing environmental legislation and regulations, as well as with ‘other requirements to which the organization subscribes, that are applicable to the environmental aspects of its activities, products or services’ (Standards Australia 1996). Also, with respect to the setting of objectives and targets, the ISO 14004 guidelines state that ‘[w]hen establishing and reviewing its objectives, an organization shall consider the legal and other requirements, its significant environmental aspects, its technological options and its financial, operational and business requirements, and the views of interested parties’ (Standards Australia 1996). The ISO 14004 guidelines elaborate that these ‘other requirements’ may include industry codes of practice, agreements with public authorities and non-regulatory guidelines, as well as international environmental guiding principles16 (Standards Australia 1996).

In further response to the criticism that ISO 14001 is a process standard, the fact that it is actually gives enormous flexibility, adaptability and innovation potential. As a process-based management tool, ISO 14001 works best when combined with relevant code of practice information, Best Management Practice (BMP) guidelines or with specific performance guidelines, standards and benchmarks tailored to the industry and enterprise in question. It is acknowledged that such codes of practice, BMPs and performance criteria for environmental management are currently being developed in diverse agricultural and rural industry sectors in Australia and overseas.

4.1.2 The Eco-Management and Auditing Scheme (EMAS)

The European Union (EU) Council Regulation (EEC) No. 1836/93 allows voluntary participation by companies in an EU-wide Eco-Management and Auditing Scheme, commonly called EMAS. Although a formal Regulation, EMAS specifies that participation is voluntary.

Making EMAS a formal Regulation reflects the EU’s market-oriented approach to environmental policy. Essentially, EMAS is an ISO 14001-consistent EMS (Figure 2) and, as such it is committed to continual improvement in the way that environmental impacts are managed. However, there are some differences. Honkasalo (1998) notes that although EMAS and ISO 14001 resemble each other closely, EMAS differs from ISO 14001 in that it requires a greater degree of transparency to the public than does ISO 14001. Also, the certification process of ISO 14001 covers only the management system. By contrast, in EMAS, information dealing with emissions and levels of environmental impacts, in

15 According to ABARE (2001), between 1999 and 2000, the gross value of farm production amounted to $30 807 million. Of this total, sales within the farm sector amounted to $2 156 million. Therefore, the gross value of farm sales to other sectors equated to $28 650 million. Of this $28 650 million, $18 379 million (64 per cent) was exported.

16 The ISO 14004 EMS guidelines clearly recognise the relevance of applying international environmental guiding principles including, first, the Rio Declaration on Environment and Development and, second, the International Chamber of Commerce (ICC) Business Charter for Sustainable Development to EMS. These principles are included in an Annex to the ISO 14004 guidelines.

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other words performance-related information, is also checked. A very important difference between ISO 14001 and EMAS is that ISO 14001 may be applied to all organisations, whereas only industrial-type sites and organisations can participate in EMAS. Thus, while the vast majority of companies participating in EMAS are in non-agricultural sectors, there are some industrial-type rural industry firms participating in this scheme.

Box 2 Why a farmer may wish to implement an EMS

Farmers have stated their desire to:

• prove that they are good stewards and demonstrate due diligence

• have flexibility in selecting the environmental issues of importance to them, and to use their own suite of indicators for monitoring progress toward management of these issues

• be in control of the process and make it work for them

• gain some sort of recognition (either community support and/or market benefit) for their good resource management

• provide a point of differentiation between themselves and other producers

• position themselves to gain regulatory relief and/or market access as well as to answer any criticisms on environmental grounds from competitors

• have some guidance in adopting improved resource management that also allows them to achieve some of the other outcomes above

• use management approaches that are compatible with other management work, such as quality assurance (QA) and minimise the amount of paperwork and time spent in managing a complex system.

EMS addresses these myriad considerations by providing a flexible process with direction but without being prescriptive. Importantly, flexibility allows for individual innovation in developing solutions to problems.

Source: Carruthers (2000)

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4.2 VEMAs based on production-oriented (product and performance) standards

4.2.1 Integrated Fruit Production (IFP) for apples and pears

Another example of production protocols for the farm sector is given by the IFP guidelines for apples and pears. Fruit growers in the Adelaide Hills are successfully complying with these protocols, which are EUREP-GAP consistent.

4.2.2 Linking Environment and Farming (LEAF)

LEAF is a VEMA from the UK. Even though it does not incorporate actual standards,17 it does provide production-oriented guidelines to farmers, and for this reason has been included. LEAF is an ICM initiative that sets BMP guidelines for crop rotation, variety selection, cultivation techniques, plant nutrition, crop protection and wildlife and landscape management, and conducts a farming-tailored environmental audit called the LEAF audit. This is divided into seven individual modules including planning, soil management and crop nutrition, crop protection, pollution control and waste management, energy efficiency, landscape and wildlife features and animal husbandry.

4.3 VEMAs based on organisation-oriented (process) and production-oriented (product and performance) standards

4.3.1 The EUREP-GAP protocol for fresh fruit and vegetables

An example of a production protocol for agricultural and rural industry products, which includes environmental management elements, is given by the European EUREP-GAP production protocol for fresh fruit and vegetables, where GAP denotes good agricultural practice. This protocol specifies environmental management aspects relating to fruit and vegetable production. Critically, this protocol is designed for integration with quality assurance protocols.

According to the March 2001 version of EUREP-GAP, the protocols provide a way of blending Integrated Pest Management (IPM) and Integrated Crop Management (ICM) practices for the purposes of commercial agricultural production. The adoption of IPM and ICM is viewed by EUREP-GAP members as essential for the long-term improvement and sustainability of agricultural production. EUREP-GAP supports the principles of Hazard Analysis Critical Control Points (HACCP) and encourages its use.

The latest version of the protocols also states that ‘[i]t is essential that all organisations involved in the food production chain accept their share of the tasks and responsibilities to ensure that GAP is fully implemented and supported. If consumer confidence in fresh produce is to be maintained, such standards of good agricultural practice must be adopted, and examples of poor practice must be eliminated from the industry’ (EUREP-GAP 2001).

Growers receive their EUREP-GAP approval through independent verification from a verification body that is approved by EUREP. The verification process must follow the rules described in the

17 Although the LEAF initiative refers to ‘ICM standards’, these are not standards as defined by Standards Australia (2001; refer to Box 1). Rather, LEAF’s ‘ICM standards’ resemble best management practice (BMP) guidelines, that is to say, relatively broad recommendations as compared to standards, which are more specific in nature.

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EUREP-GAP General Regulations for Fresh Fruits and Vegetables, with the timing of the verification process being agreed with the retailer customer.

An interesting feature of the EUREP-GAP protocols is that they are partitioned into required and encouraged protocols, as illustrated by the extracts presented in Table 2. It is suggested that, with time, the ‘encouraged’ practices may be expected to become ‘required’ ones, with the rate of change being driven by competition among retailers for customers demanding safe, clean, green food.

Production protocols for agricultural and rural industry products may be a blend of both product standards and performance standards. Production protocols may often be complied with, and be audited and certified, without an accompanying process standard, or management system, in place. However, some production protocols are now being designed for use explicitly within a management system context. For example, the EUREP-GAP protocols specify, first, the product standards and performance standards to be met and, second, that these must be met within either an EMS or a quality management system (QMS) context. In 1999, the UK supermarket chain Sainsburys drew the EUREP-GAP protocol to the attention of all of its overseas suppliers of fresh and frozen produce, planning for all overseas suppliers to be verified as complying with the EUREP-GAP protocols by 2003.

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Table 2 Extracts from the EUREP-GAP protocol for fresh fruits and vegetables

Required actions1 Encouraged actions

Record keeping Growers must keep up to date records to demonstrate all production activities comply with GAP, and to help trace the history of products from farm to final consumer. Appropriate records must be kept for a minimum of five years, unless required for a longer period. Retrospective records are not required prior to application of approval.

Quality of irrigation water Sewage water must never be used for irrigation.

Based upon risk assessments, irrigation water sources should be analysed at least once a year for microbial, chemical and mineral pollutants by a suitable laboratory. The analysis results should be compared against accepted standards and adverse results acted upon.

Supply of irrigation water To protect the environment, water should not be abstracted from unsustainable sources. Advice on abstraction should be sought from water authorities.

Impact of farming on the environment

In the light of consumer concern, growers should understand and assess the impact their farming activities have on the environment, and consider how they can enhance the environment for the benefit of the local community and flora and fauna.

Wildlife and conservation policy A key aim must be the enhancement of environmental biodiversity on the farm through a conservation management plan. This could be a regional activity rather than an individual one.

Growers should have wildlife and conservation policy plans for their properties. These policy plans should be compatible with sustainable commercial agricultural production and should aim to minimise environmental impact of the agricultural activity. Key elements of these plans should be to: • conduct a baseline audit to understand existing

animal and plant diversity on the farm Conservation organisations can help conduct surveys to measure biodiversity and identify areas of concern

• take action to avoid damage and deterioration of habitats

• create an action plan to enhance habitats and increase biodiversity on the farm.

Unproductive sites

Consideration should be given to the conversion of unproductive sites (such as low-lying wet areas, woodlands, headland strips or areas of impoverished soil) to conservation areas for the encouragement of natural flora and fauna.

Source: EUREP-GAP (2001; the latest version of the protocols).

1 The above protocols are extracts, and as such only represent a small portion of the entire set of protocols.

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4.3.2 Organic and biodynamic standards

Organic farming, according to the Australian National Standards for Organic and Biodynamic Produce (cited in McCoy and Parlevliet 2000) is defined as follows:

‘ “Organic” farming systems include those which are referred to as “biodynamic”, “biological”, or “ecological”. Irrespective of which term is used, the basic principles remain the same; namely production without the use of synthetic chemicals which aims to achieve optimum quantities of produce and food of nutritional quality. Organic farming aims to nurture and maintain the land for future generations. Emphasis is placed on the use of renewable resources, the need for conservation of energy, soil and water resources and the maintenance of environmental quality. The production cycle is as closed as possible, with some use of external inputs permitted. These systems strive to be sustainable.’ (McCoy and Parlevliet 2000).

Organic and biodynamic standards are a good example of production protocols with environmental management aspects that also incorporate a process standard. According to the 2001 version of the Australian Organic Standard of the Biological Farmers of Australia (BFA),18 the scope of the BFA standard is ‘[t]his Standard outlines the minimum requirements for BFA certification of Organic produce under the BFA certification system.’ Owing to the fact that organic and biodynamic production protocols blend environmental, food safety and quality issues, McCoy and Parlevliet (2000) note that ‘the term organic or organically produced has become widely accepted by consumers as meaning safe, healthy and environmentally friendly.’

Global trade in organic farm produce was worth some US$11 billion in 1997, and organic foods have been the fastest growing sector of food industries in the USA, Japan and parts of Europe. Specifically, Europe and Japan have had the fastest growing consumer demand for organic produce, and US and New Zealand producers have been the quickest to respond to these market demands (McCoy and Parlevliet 2000). McCoy and Parlevliet (2000) also note that although Australian organic produce has established a good international reputation, Australia has been slow in providing a supply response to organic market demands. Industry sources estimate the value of Australian organic farming to be between A$200 and A$250 million, with exports accounting for approximately A$30 to A$50 million. Australia’s relatively limited organic production presents the key obstacle to capturing a greater share of this fast-expanding market (McCoy and Parlevliet 2000).

Environmental aspects of the AustralianOrganic Standard of the Biological Farmers of Australia

The BFA’s Australian Organic Standard provides general standards relating to environmental and biodiversity management (BFA 2001).

18 The most recent version of the BFA Standard is available from the BFA website: www.bfa.com.au/downloads.

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Box 3 Environmental and biodiversity management in BFA’s Australian Organic

Standard

The most recent version of the Australian Organic Standard of the Biological Farmers of Australia (BFA) contains the following general standards regarding environmental and biodiversity management. These points have been reproduced verbatim from subsection 4.7 of version 4 (2001):

• Management, protection and enhancement of biodiversity and environmental aspects on organic farming operations shall be a priority of certified operators. Management decisions shall take into account impact on native flora and fauna. Changes to the natural or existing state of the farming operation (such as clearing) shall take into consideration hydrological issues, as well as impacts to biodiversity on-farm. Practices such as shelter belts, corridors, wetlands and remnant vegetation protection are considered aspects of biodiversity management.

• Management shall aim to ensure provision for regionally appropriate tree, bush and/or native grassland areas so as to enhance on-farm flora and fauna protection and biodiversity. From June 2005, this area should comprise greater than 5% of total farmland area for farms greater that 10ha, and be documented annually in the Organic Management Plan.

• Where production systems are deemed by the certification office to be natural areas of significance or production systems inherently based upon ecological aspects, monitoring procedures shall be in place to assess and verify ongoing sustainable practices. For example, such monitoring may include photo point monitoring of pasture and floral species in rangeland management operations.

• All certified operations shall ensure identification of critical environmental aspects which are relevant to their production system and outline management plans in the Organic Management Plan to address these aspects.

• All operations, whether primary production or processing, shall ensure that production activities add positively to the environment of the region within which the production system is based, whilst minimising all forms of environmental pollution where possible.

• Where there are noted serious or critical environmental issues pertaining to the relevant sector or operation being certified, such operations shall have in place a management system which is documented and monitored in relation to its performance on these environmental issues. These shall require a continued improvement in management practices and environmental outcomes. Organic certification may entail acknowledgment of existing environmental management systems where these conform to the above noted requirements.

• Burning of stubble and residues is a restricted practice due to destruction of nutrients and organic matter. Stubble burning shall not be practices on a regular basis and shall only occur after written permission from the Certification Office (CO).

• The clearing of primary forest on certified lands is not permitted.

• Genetic Engineering/Genetically Modified Organisms – At all times GE products and processes are prohibited in organic production systems.

Source: Subsection 4.7 of version 4 the BFA’s Australian Organic Standard; BFA (2001)

This Standard is revised often and there are many differences in later versions.

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4.3.3 The Marine Stewardship Council (MSC) scheme

Most environmental certification schemes exist in the forestry and wood products sector. However, a notable example of an environmental certification scheme in a non-forestry sector is given by the MSC scheme. The MSC is a not-for-profit agency that campaigns for sustainable fishing. The MSC’s fisheries certification scheme, a joint initiative between the World Wide Fund for Nature (WWF) and Unilever, has been designed to promote environmentally sustainable fisheries management and fishing practices. Fisheries that can demonstrate compliance against the MSC’s standards, as detailed in the Council’s ‘Principles and Criteria for Sustainable Fishing’, may become certified under the MSC’s fisheries certification scheme, subject to a successful audit by a MSC accredited certification body. MSC-certified fisheries may then use the MSC’s ‘Fish Forever’ label. The MSC’s ‘Principles and Criteria for Sustainable Fishing’ relate to issues such as resource sustainability, the minimisation of ecosystem impacts, as well as management operations. To date, MSC-certified fisheries include Alaskan salmon, New Zealand hoki, Western Australian lobster, Burry Inlet cockles and Thames Blackwater herring fisheries. The Western Australian Rock Lobster fishery was the world’s first fishery to become certified under the MSC’s certification scheme and to use the MSC’s ‘Fish Forever’ label. (The Economist 2001; and Nind, Catherine, pers. comm.).

Box 4 The Marine Stewardship Council

The website maintained by the Marine Stewardship Council (MSC) states that globally, issues of declining fish stocks and damaged marine ecosystems are raising concerns among seafood consumers, the fishing industry and conservation groups.

In response, the internationally recognised MSC is bringing stakeholders together to create change. The MSC provides its label to fisheries meeting a strict standard of sustainability. The MSC label allows consumers to quickly identify certified seafood, or ‘The Best Environmental Choice in Seafood’, i.e.: produce which is not overfished or harvested in ways that harm the ocean ecosystem.

The MSC label is accompanied by the statement: ‘This product comes from a fishery which meets the Marine Stewardship Council's environmental standard for a well-managed and sustainable fishery.’

The MSC website goes on to list fisheries authorised to use the FSC label and places where FSC fish can be purchased. Members of the Council have backgrounds in fishing, politics, processing and environmental representation. The overall structure is designed to maximise opportunity for scientific objectivity and lack of compromise.

Source: www.msc.org

http://www.msc.org/

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4.3.4 The Forest Stewardship Council (FSC) scheme

The FSC’s forest certification scheme is perhaps the best known and most widely practiced of all forest certification schemes (Kanowski et al. 1999). In 1993, following interest by traders in demonstrating the environmental management merits of their timber products, a coalition of environmental groups enjoying strong support from the WWF, along with community groups, forestry and wood sector workers, and certifiers, launched the FSC for forest certification purposes. The scheme became operational in 1995 when four independent third-party certification agents became accredited. In August 1999, some 17 million hectares of forests had been certified under the FSC scheme, largely in Sweden, Poland and the United States.

In order to receive certification, forest owners and managers need to comply with a set of principles and criteria for sustainable forest management that have been developed under the FSC scheme. These principles and criteria encompass both process and performance aspects, though interestingly, Kanowski et al. (1999) note that a feature of the FSC principles and criteria is that they do not constitute a certifiable performance standard. Under the scheme, forest owners and managers are regularly inspected, or audited, by the independent third-party certification agents. An important feature of the FSC scheme is that it endorses, by means of a system of accreditation, other organisations to independently assess the environmental performance of forest owners and managers. Thus, the FSC scheme does not certify forest management and chain-of-custody by itself. At the end of 1998, the FSC had accredited six organisations to independently certify forest management as sustainable according to FSC principles and criteria. There are two stages to independent FSC certification. First, an assessment of forest management practice is required. Second, there is a requirement for a supply chain, or chain-of-custody, verification through processing and manufacturing through to the end product. Group certification of collectively organised forest owners and managers is possible under the FSC scheme, in which case the group as a whole applies for group certification and a group certificate is issued. (Kanowski et al. 1999).

4.3.5 The Finnish Forest Certification Scheme (FFCS)

The FFCS is a national forest certification scheme that began in 1996. The scheme was jointly developed by a peak body of the Finnish forestry industry, a forest industry workers union, and two environmental NGOs including WWF Finland and the Finnish Association for Nature Conservation. The FFCS was specifically designed for the forest certification of non-industrial privately owned forests. The standards in this scheme are based on EMAS, ISO 14001, FSC principles and criteria, as well as other European standards and criteria. In 1999, the National Forest Certification Council was set up to oversee the development of this scheme, and internal auditing processes begun covering some 12 million hectares of forests to check compliance against the FFCS standards. As with FSC, group certification of collectively organised forest owners and managers is possible under the FFCSC scheme (Kanowski et al. 1999).

In addition to the forest certification schemes described above, other schemes designed for the forestry and wood products sector include the Canadian Standards for Sustainable Forestry, the Sustainable Forestry Initiative (SFI), the Indonesian LEI-FSC Initiative, the Malaysian National Timber Certification Council and the UK Woodland Assurance Scheme. There are several initiatives working towards the mutual recognition of these various certification schemes (Kanowski et al. 1999).

Furthermore, environmental certification is a rapidly developing area, and there are new forest certification standards and schemes currently being developed. For example, the Brazilian National Certification Scheme (CERFLOR) is that country’s national forest certification standard. Since 1999, this standard has been undergoing development by the national standards organisation of Brazil in partnership with the Brazilian Society for Silviculture for the forest certification of large-scale, industrial plantation forests. The latest information available reports that these standards are being based largely on procedures set out in the ISO 14000 series of standards, with a focus on voluntary

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participation, self-regulation and independence. The objective of CERFLOR certification has been given as positively distinguishing Brazilian forest products in international markets. However, as of 1999, no forests had yet been certified under this scheme (Kanowski et al. 1999). There is also an Australian Forestry Standard.

4.4 Environmental labelling and eco-labelling

In the ISO 14000 series of environmental management standards, there are several environmental labelling possibilities. For example, in the ISO 14020 series of standards there are three environmental labelling possibilities known as Type I, Type II and Type III labelling. These labels are considered in this section.19

4.4.1 ISO 14024 Type I labelling schemes

The principles upon which Type I labelling schemes are based are described in the ISO 14024 standard. Type I labelling schemes involve third-party auditing to determine, on the basis of scientific assessments, on whether a product may be considered to be environmentally preferable over similar products. The intention of this labelling, according to Ure (1999), is to relieve consumers of the task of comparing competing environmental claims in making a decision on what constitutes a better environmental product. Rather, ‘[t]hey merely have to decide whether or not they have confidence in the body operating the scheme to make the decision’ (Ure 1999).

Type I labelling is:

• voluntary

• involves auditing by a third-party

• results in product labelling provided that certain environmental and performance criteria are satisfied

• based upon established environmental criteria, available for public scrutiny, for different product categories

• used to identify and promote products deemed to exhibit environmental leadership.

Type I labels are not single issue labels, rather they consider multiple issues and are based on a simplified life-cycle analysis which considers the impacts of manufacturing, processing, use and disposal of the product on non-renewable resources. Furthermore, industry and community stakeholders are involved in the setting of criteria, and only products that meet and surpass a threshold score qualify for the Type I label. Advantages of the ISO 14024 standard for Type I labelling schemes are that the standard provides a common framework for new labelling schemes, and that it sets out common criteria to help different schemes converge and mutually recognise one another (Ure 1999).

19 In addition to the ISO 14020 series, the ISO 14040 series of standards is concerned with life-cycle analyses (LCAs) and also allows for labelling. However, this type of labelling is not dealt with in this report. Across agricultural and non-agricultural industries, LCA provides a means of environmental auditing or, in other words, an assessment of practices and performance against some given benchmark or standard or regulatory requirement.

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4.4.2 ISO 14021 Type II labelling schemes

The principles upon which Type II labelling schemes are based are described in the ISO 14021 standard. Type II labelling schemes make environmental claims on products labels and in related marketing such as ‘recyclable’, ‘biodegradable’, ‘ozone friendly’ or ’60 per cent phosphate free’ (Ure 1999). Agricultural and rural industry examples of Type II labels would make claims such as, for example, ‘pesticide free’ on fruit and vegetables, ‘GMO free’ on soya bean products, or ‘dolphin friendly’ on cans of tuna. Given consumer concern regarding the possibly misleading nature of some environmental claims made on product labels, the rationale for Type II labelling is to help improve the quality and validity of environmental claims made. Part of the problem concerning the validity of environmental claims on labels stems from the differences in laws and national guidelines between countries regarding what constitutes a valid claim. Often it is these variations between national guidelines that create problems in international markets. The ISO 14021 standard is intended to help harmonise guidelines by establishing a uniform approach to the scientific and technical assessment of claims made. This is intended to ensure claims are accurate, scientifically verifiable, thereby improving cross-country understanding of claims made (Ure 1999).

4.4.3 ISO 14025 Type III labelling schemes

The principles upon which Type III labelling schemes are based are described in the proposed ISO 14025 standard.

Type III labelling, like Type I labelling, is designed to involve third-party assessment for a label to be issued. However, unlike Type I labels which identify and promote products deemed to exhibit environmental leadership, Type III labels indicate environmental performance against a range of environmental indicators. These indicators are established using a life-cycle approach similar to that used in Type I labelling, and performance against these indicators is third-party verified.

4.5 Voluntary arrangements for quality assurance, food safety and animal welfare

This section overviews a number of voluntary arrangements undertaken for the purposes of quality assurance, food safety and animal welfare.20 While a great number of voluntary arrangements for QA and food safety exist, the arrangements covered here include:

• the Hazard Analysis and Critical control Point (HACCP) system for food safety

• the Safe Quality Food (SQF) initiative, which is a HACCP based supplier assurance code for the food industry with food safety and quality aspects

• the ISO 9000 series of standards for quality assurance (QA)

• three QA codes of practice for Australian agriculture, which include Cattlecare, Flockcare and Graincare

• the Model codes of Practice for the Welfare of Animals.

20 There are many voluntary arrangements for QA and food safety in existence. Given that the main focus of this report is on voluntary arrangements for environmental management and how these intersect with voluntary approaches to QA, food safety and animal welfare, a review covering the full breadth of voluntary arrangements for QA and food safety is not considered appropriate. For a fuller treatment of QA and food safety systems for Australian agriculture and food industries, the reader is directed to Fabiansson and Cunningham (2000).

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4.5.1 HACCP

The HACCP system is an internationally recognised system for assuring food safety. It operates by identifying, evaluating, and controlling hazards that are significant for food safety. The system was ‘established to control and monitor every step of a food process to evolve as a preventative rather than inspection-oriented end-product testing system’ (Fabiansson and Cunningham 2000).

The Codex Alimentarius Commission produces the description and guidelines of the HACCP system. Codex is a committee of the Food and Agriculture Organization (FAO) of the United Nations, and the World Health Organization (WHO) of the United Nations, that is involved in the setting of international food standards (Fabiansson and Cunningham 2000). HACCP is based upon seven principles and fifteen steps shown in the box overleaf.

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Box 5 The seven principles and fifteen steps of HACCP

Assemble the HACCP team and define the scope of the HACCP plan

Describe the product and its distribution method

Describe the intended use of the product

Construct a detailed flow diagram of the process

Conduct on-site verification of flow diagram

List all potential hazards associated with each step, conduct a hazard analysis and consider any control measures to control hazards

Principle 1

Determine Critical Control Points (CCPs) Principle 2

Establish Critical Limits for each CCP, as per the Australian Standard where applicable

Principle 3

Establish a monitoring system for each CCP Principle 4

Establish corrective action plans for CCP deviations that may occur Principle 5

Establish verification procedures Principle 6

Establish record keeping and documentation Principle 7

Determine what training is needed for all staff including employees, supervisors and QA people so all understand what HACCP means to the premises and to them. Make sure people understand what the different terms used in the Australian Standard mean, including, for example, hazard analysis, critical control point, verification, quality assurance, and so on, so that people are talking a common language

Start monitoring the CCPs using forms and evaluate the usefulness of the forms for improving the product and process control and providing trend analysis of the procedures

Gather information on tests associated with microbiological standards contained in the ARMCANZ requirements as a complement to verification activities identified in Step 11

Source: SCARM (1997).

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4.5.2 The SQF 1000 quality code

The SQF initiative SQF 1000 is a HACCP based supplier assurance code for the food industry. Conceived by the AGWEST Trade and Development division of Agriculture Western Australia, this code has been developed for primary producers supplying agri-food goods that require further processing prior to consumption, and for small food businesses that store, transport or distribute food and that are subject to food safety regulations. The SQF 1000 quality code enables adopters to demonstrate that they supply safe food. The code also enables adopters to address customer specified food quality requirements. SQF 1000 is HACCP based (Agriculture Western Australia 2000).

Promoters of the SQF quality code claim that it is simpler than HACCP but that it gives customers the same assurance. In addition to the SQF 1000 quality code, there is also the SQF 2000 quality code. Developed in 1995, SQF 2000 is a system that integrates HACCP with ISO 9000, which is described in 4.5.3. Red Globe Table Grape growers in Western Australia claim that SQF 2000 has resulted in 17 per cent more profit, 51 per cent less waste, an increase in the price premium of 13 per cent and a 70 cent/carton reduction in packing costs (Cooper 2000).

4.5.3 ISO 9000

ISO 9000 is an internationally agreed and recognised series of standards for quality management and quality management systems (QMS) that can be independently verified. The series includes the ISO 9001, ISO 9002 and ISO 9003 standards. ISO 9002 is the standard for quality systems, and provides the model for quality assurance in production and installation. As such, it is the standard from the ISO 9000 series that is applicable for food production and processing (Fabiansson and Cunningham 2000).

Food and beverage companies are increasingly adopting the ISO 9000 series of standards ahead of inspection as an efficient way of achieving total quality control. The adoption of ISO 9000 standards is a key factor in improving competitiveness and expanding exports, with leading food retail chains such as Sainsburys and Marks and Spencer in the UK, among others, requiring verifiable compliance against ISO 9000 standards as a minimum requirement from their suppliers.

4.5.4 Codes of practice for quality assurance in agriculture

Good quality, according to the late Dr W Edwards Deming, cited in the Cattlecare and Flockcare On-farm Quality Assurance Manuals is ‘not necessarily high quality, but a predictable degree of uniformity, with specifications suited to customers needs’ (Cattlecare 2000; and Flockcare 2000). According to these quality assurance (QA) manuals, ‘quality’ embraces four things:

• fitness for purpose

• conformance to requirements

• conformance to specifications

• consistency of product.

Also according to these manuals, ‘quality assurance’ involves being able to assure customers that a quality product that meets customer specifications can be produced consistently.

Three codes of practice for quality assurance that are currently being used in Australian agriculture include Cattlecare, Flockcare and Graincare. These QA codes of practice are based upon the ISO 9002 standard for quality assurance and HACCP. The benefits of these codes of practice are, according to the Cattlecare and Flockcare On-farm Quality Assurance Manuals, improved product consistency, food safety, livestock health, risk management, improved competitiveness, greater

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professionalism, preferred supplier status, international recognition and market access, and product differentiation. The compatibility of these codes of practice with the ISO standard means that in the event that a Cattlecare or Flockcare certified producer would wish to become either ISO 9002 or HACCP certified, the fundamentals would already be in place via the codes of practice. (Cattlecare 2000; and Flockcare 2000).

The experience of Cattlecare in Australia is such that some 5000 properties were participating in September 2001. These properties hold some 5 million cattle, equivalent to 25 per cent of the national herd. Also at this time, there were about 800 properties with about 2.2 million sheep participating in Flockcare (Bob Barwell, National Coordinator 2000 pers. comm.).

4.5.5 The Model Codes of Practice for the Welfare of Animals

The Australian Model Codes of Practice for the Welfare of Animals have been developed as models to encourage and enable the States to develop their own codes of practice to meet regional and local animal welfare needs. Basic animal welfare needs include animals having access to clean water, air and food, taking appropriate precautions against drought, as well as protecting animals from climatic extremes and predation. The Model Codes have been developed by State and Federal government departments responsible for agriculture and animal welfare, and CSIRO. Development of these codes has involved extensive consultation with industry, as well as animal welfare groups (SCARM, 1992).

Currently, Model Codes of Practice for the Welfare of Animals include codes for cattle, sheep, pigs, domestic poultry, road transport of livestock, rail transport of livestock, air transport of livestock, livestock and poultry at slaughtering establishments, sea transport of livestock, saleyards, goats, intensive husbandry of rabbits, deer farming, and the destruction or capture, handling and marketing of feral livestock animals (SCARM 1992).

4.6 Untangling the web

Clarification of common confusions surrounding VEMAs, EMSs and related concepts

To clarify some common confusions surrounding VEMAs, EMSs and related concepts, it is noted that:

• Not all VEMAs are EMSs, and VEMAs do not necessarily include an EMS component. However, an EMS may be used as the management tool to implement other VEMAs. That is to say, an EMS may be used as the management tool, or vehicle, that an enterprise uses to implement Codes of Practice, Best Management Practice guidelines, production protocols, eco-labelling initiatives or other non-EMS certification schemes. Indeed, it is now stipulated in the EUREP-GAP set of production protocols that the use of a management system to implement the production protocols is mandatory for enterprises wishing to be publicly recognised as being EUREP-GAP consistent.

• Accreditation and certification differ in meaning.21 Accreditation is the formal recognition of competence that an authoritative body gives to another body or person in order to empower them to perform specified tasks such as third-party auditing against given standards for the purposes of certification. Thus, accreditation provides public assurance that a certifying body is able to carry

21 In practice, the words ‘accreditation’ and ‘certification’ are frequently used interchangeably, or otherwise misused. The above definitions attempt to explain why phrases such as ‘an accredited EMS’, ‘accredited standards’, ‘certified standards’, ‘accredited plans’ and ‘accredited standards’ are meaningless and generate confusion. For our purposes, only a certification body may be accredited, and only an organisation’s compliance against a specified standard may be certified.

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out its duties independently, competently and consistently. Certification is the written assurance given by an accredited third-party that compliance against a clearly identified standard has been methodically assessed such that it may be confidently claimed that compliance against that standard has been satisfactorily met. Thus, certification provides public assurance that a specific standard has been complied with.

• The key to understanding VEMAs lies in understanding standards. This is because achievement of a standard, or compliance against a standard, by an organisation is what is audited and certified.

• Certification provides public assurance that a specific standard has been complied with. Certification does not necessarily provide public assurance of good environmental outcomes.

• EMS certification is not the same as environmental labelling. However, EMSs may be used as management tools by firms that produce goods with environmental labels. In other words, a certified EMS per se does not necessarily produce labelled goods, but it is a management system that could be used to incorporate other labelling initiatives.

• Thus, the EMS could help deliver a labelled product such as a pesticide-free peach, or dolphin-friendly seafood, or a product with some other environmental characteristic.

• In the case of ISO 14001, there are strict rules in place that mean that ISO 14001 certification cannot be used for labelling purposes.

• There is a difference between environmental labelling and eco-labelling.

• Confusion sometimes arises from the fact that some of the words that describe types of VEMAs (environmental certification schemes, environmental auditing schemes, environmental labelling initiatives) are also used to describe their key design features (auditing, certification and labelling).

EMSs and auditing and certification

To clarify the relationships between EMSs and auditing and certification processes, it is noted that:

• an enterprise may choose to implement an EMS, without choosing to undergo third-party auditing and certification. However, auditing (self-auditing and/or second-party auditing) is a requirement of having an EMS in place

• if an enterprise wishes to be certified as having an EMS, it must undergo a third-party audit by a certification body that is empowered to carry out the tasks involved in third-party auditing and certification. Only accredited certification bodies are so empowered

• if an Australian agricultural or other rural industry enterprise wishes to implement an EMS that is audited and certified by a third-party, the only EMS that currently exists for this purpose is the international EMS process standard ISO 14001

• in Australia, third-party auditing for ISO 14001 certification can only be conducted by a JAS-ANZ22 accredited certification body.

Industry, regional and catchment approaches to EMS

An EMS is a management tool that an organisation uses to manage its environmental impacts and to reach environmental goals. Therefore, an EMS may only be implemented by an organisation to manage the resources over which that organisation has specific control. This means that concepts such

22 JAS-ANZ is the Joint Accreditation System of Australia and New Zealand.

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as an ‘industry EMS’, a ‘regional EMS’, a ‘catchment EMS’, or a ‘national EMS’ are meaningless. However, an ‘industry approach to EMS’ or a ‘regional approach to EMS’ or a ‘catchment approach to EMS’ can mean that enterprise-level EMSs are designed to incorporate industry, regional or catchment policies, initiatives, or targets.

In other words, an ‘industry approach to EMS’, a ‘regional approach to EMS’ or a ‘catchment approach to EMS’ can be used to denote the existence of industry, regional and catchment scale institutions in which enterprise-level EMSs are embedded, and which provide broad directions and guidance regarding environmental management that are implemented at the enterprise level, but which achieve industry, regional or catchment scale environmental outcomes. It is possible also for a natural resource management agency, a catchment management authority or water supply company to establish and use an EMS to help it achieve its objectives.

4.6.1 Why EMS cannot result in product labelling

Environmental assurance schemes that enjoy currency in the marketplace are typically based on production-oriented standards (section 3.2.1), thereby allowing for product labelling, unlike environmental management system (EMS) certification.23

The design of the EMS standard means that where a business achieves ISO 14001 certification, a ‘plan-do-check-review’ management process standard is being complied with. It is emphasised that EMS is not a product standard that relates to specific features of a final product or how that product was made. Neither is it a performance standard that specifies acceptable or required levels of environmental performance to be met either in relation to the production process itself, or to environmental externalities stemming from the production process.

It is for this reason that EMS may not result in product labelling and, therefore, differentiation of products in the marketplace on environmental grounds24. For that purpose, different environmental standards are required, namely product and/or performance standards. The fact that EMS certification, i.e. compliance against the ISO 14001 process standard, may not be used for product labelling explains why linked environmental-marketplace benefits are proving elusive with EMS in agriculture. It also explains the rising use in agriculture of standards-based environmental assurance schemes, typically other than ISO 14001. These include voluntary environmental labelling and certification schemes based on product and performance standards such as consumer-driven organic and biodynamic standards, and the retailer-driven EUREP-GAP protocol, amongst others.

Even though EMS (ISO 14001) does not result in product labelling and, therefore, differentiation of products in the marketplace on environmental grounds, this is not to detract from emerging anecdotal evidence that the application of EMS to agriculture may result in positive business outcomes particularly through the identification of internal production and operational efficiencies, and that it

23 Some environmental assurance schemes that incorporate production-oriented, that is to say product and performance standards, are discussed in Mech and Young (2001). Amongst others, these include Nature’s Choice code of practice for environmental management demanded by Tesco supermarket of its suppliers, the EUREP-GAP protocol for fresh fruit and vegetables, the Integrated Crop Management (ICM) standards under the UK’s National Farmers’ Union (NFU) Assured Produce Scheme, the Integrated Fruit Production (IFP) protocols for apples and pears, various Organic Standards, the Marine Stewardship Council’s (MSC) scheme, the Forest Stewardship Council (FSC) and the Finnish Forest Certification Scheme (FFCS).

24 Organisations with certified ISO 14001 EMSs are not able to indicate that their products are certified. They are able to indicate that their organisation is certified, as it is the management process via which the organisation manages its environmental information (rather than the product) that is assessed under ISO14001. Organisations with certified EMSs typically promote this through organisational signage, letterhead, truck livery etc - but not through product containers.

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may be a useful vehicle to help deliver environmental, and stakeholder management, benefits at the farm level. (Dr Lyndal Hugo, pers. comm. 2003; www.aemsaustralia.com.au).

By definition, EMS is an information management tool with potential to improve the way a business manages the environmental risks and impacts over which it has control.

As such, EMS works best if the information that the management system uses is in an available and usable form to enable the site level, or farm level in the case of agriculture, management of environmental impacts in question to be improved. Practical farm-relevant environmental information for use with, or indeed without, EMS may be encapsulated in code of practice information, BMP guidelines or with specific performance guidelines, standards and benchmarks tailored to the environmental impact and risk, and to the industry and enterprise in question. In other words, the EMS process standard itself is not designed to deliver specific environmental performance outcomes, or sustainability. For that purpose, environmental performance standards that may relate to the production process, as well as to environmental externalities stemming from the production process are required. It is important to note, however, that as an information management tool, a farm EMS could incorporate relevant practical environmental information, guidelines and standards - where these exist - on new practices designed with the intention of achieving better environmental performance and natural resource management outcomes.

As farming and rural businesses face increasing scrutiny on environmental matters from diverse stakeholders, there is likely to be increasing recognition of the practical utility of EMS for its intended purpose as an information management tool for businesses to:

• improve the management of environmental impacts and risks over which individual businesses have control

• provide verifiable rigour in the way firms manage and use environmental information in natural resource management decisions

• manage the growing environmental demands of diverse stakeholders, including local, state and federal government agencies, neighbours and local communities, as well as shareholders, markets and consumers.

In summary, EMS may be a useful vehicle for businesses to manage environmental risk and information, and it may help address the growing environmental demands of different stakeholders, provided that the meeting of those demands is clearly articulated and communicated either in:

• environmental product and performance standards and guidelines that may be externally audited to substantiate the nature of the green claims sought by different stakeholders

• via environmental performance reporting that may be independently verified.


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5. Factors Affecting the Design of VEMAs for Agriculture and Allied Rural Industries

Summary

Different VEMAs will incorporate different types of standards, and other key design features, depending on their objectives and intended outcomes. Environmental, marketplace and community objectives of VEMAs are given in Box 6.

This Chapter discusses the factors affecting and shaping the design of VEMAs for agriculture and associated rural industries. The objectives sought by implementing VEMAs are key factors affecting their design. The intended environmental, marketplace and community objectives of VEMAs are considered, as are the tensions and complementarities that exist between them. Also discussed are the possible design configurations of different strategies to achieve a VEMA’s objectives. The importance of viewing VEMAs in a broad institutional context is explained, and different institutions affecting and shaping the design of VEMAs are discussed.

The importance to VEMA design and development of two aspects of modern industrial organisation in the primary industries are also covered: first, supply chains, which provide pathways along which environmental innovations take place, and second, the nature of the different organisational structures, such as family farms, corporate farms or downstream agri-businesses. Essentially, it is proposed that knowledge of the nature of the different organisational structures, such as family farms, corporate farms or downstream agri-businesses, should be taken into account when designing new VEMAs, as these differ in ways likely to affect the preferences for different VEMAs, as well as the ease and enthusiasm with which different VEMAs are adopted.

5.1 Environmental, marketplace and community objectives of VEMAs

Depending on the specific objectives of a given VEMA, participation in these voluntary initiatives has the potential to deliver a range of outcomes. Environmental, marketplace and community objectives of VEMAs, and their intended outcomes are described in Box 6.

Box 6 Environmental, marketplace and community objectives of VEMAs

Environmental objectives Marketplace objectives Community objectives • continuously improving the

way that environmental impacts are managed

• enhancing environmental performance

• achieving specific environmental outcomes

• creating incentives for protecting and maintaining environmental assets

• maintaining access in existing markets

• gaining access in existing markets

• creating new niche markets

• receiving or maintaining access to premium prices

• raising awareness of environmental issues

• building industry and community esteem through good stewardship

• fostering cultural change in the way agricultural and rural industries approach the environmental and economic aspects of their business

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5.1.1 Tensions and complementarities among the objectives

An oft cited benefit of different VEMAs is that the firms, or other organisations, implementing such schemes and initiatives will reap environmental benefits and economic rewards alike. Although evidence of such win-win situations exists (Thomas 2001; Porter and van der Linde 1995, in Coglianese and Nash 2001; Hart and Ahuja 1996), some authors advocate the caution of this rhetoric. For example, in an article entitled It’s Not Easy Being Green Walley and Whitehead (1994) make the point that ambitious environmental aims have a price attached and that while ‘the current talk of win-win solutions [satisfying both environmental and marketplace objectives] is cheap’ whereas ‘environmental initiatives are not’.

Coglianese and Nash (2001) also recognise this and, with specific reference to implementing EMSs in firms, note not only the cost implications of meaningful environmental change, but also the difficulties in making changes to the business and management culture of an enterprise. Thus, both tensions and complementarities exist between the environmental, marketplace and community objectives of VEMAs.

5.2 Design objectives and design strategies of VEMAs

A fundamental factor affecting the design of a VEMA for agriculture, or an allied rural industry, is its objective. The objective plus the strategy chosen to achieve that objective are the two single most important determining factors shaping the architecture of a VEMA. As regards the VEMA’s objectives, the relative importance placed on desired environmental outcomes versus marketplace outcomes versus community outcomes should be reflected in the relative importance of environmental versus marketplace versus community considerations apparent in the VEMA’s aims. This consideration of the relative importance of environmental, economic and social issues in VEMA design applies, both, to the designers of new VEMAs, as well as to prospective participants in already available schemes and initiatives.

From the perspective of a primary producer making a choice about whether or not to participate in a VEMA, and if so which one, the relative importance placed on desired environmental, marketplace and community outcomes by the primary producer should determine the VEMA chosen. Thus, in its objectives, one VEMA may place strong importance on good environmental outcomes and on publicly demonstrating high levels of verifiable environmental performance or of improvement in environmental quality, and relatively less importance on marketplace and community outcomes. By contrast, another VEMA may place emphasis on social outcomes such as wide community involvement and the general raising of awareness on given environmental issues, but may place a lighter emphasis, or indeed none at all, on demonstrable environmental outcomes.

As regards the strategy to achieve a VEMA’s objectives, this too has several possible design configurations. The objectives of a VEMA, and the relative importance of environmental, marketplace and community aims, determine the strategy chosen to a large extent. Design choices relating to the strategy for achieving a VEMA’s objectives include making choices about whether the VEMA is intended to showcase and champion environmental leadership, in which case the design strategy would involve designing a VEMA resembling an elite club with exclusive membership limited to relatively few high environmental achievers.

Alternatively, where a VEMA intends to achieve wide community involvement and awareness raising social and environmental objectives, the strategy could involve designing arrangements to foster inclusiveness and encourage the participation of many. Such a strategy would probably steer away from setting stringent standards and verifiable environmental performance requirements with harsh penalties for non-compliance. Thus, with alternative design objectives and strategies in VEMAs, there appears to be a balance between, on the one hand, relatively good environmental outcomes albeit with low participation when a notional green bar is set high and an elite club is created and, on the other hand, good adoption rates being the function of the bar set low.

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Where the strategy of creating an elite environmental management club is taken, for example for the conservation of iconic natural resources, the design rationale is twofold: first, to preserve the iconic resource and, second, to encourage others managing non-iconic resources to lift their game by aspiring to elite club membership.

In this way, awareness is raised and good environmental management and performance is encouraged outside the showcase VEMA.

With regard to these design choices for strategies to achieve a VEMA’s objectives, it is recalled that high participation rates in VEMAs do not necessarily indicate good environmental performance or outcomes. Indeed, gauging a VEMA’s impact on enhanced environmental quality on the basis of adoption rates is problematic, with research evidence suggesting that schemes with low requirements for environmental performance and outcomes tend to have relatively high adoption rates, and that low participation is associated with programs demanding high environmental performance and outcomes (Nash and Ehrenfeld 2001; Chapter 1). For example, the US Environment Protection Agency initiated a VEMA called the StarTrak Program in 1996. This program’s aim was to explore the potential of granting the environmental management status of ‘excellence’ by using third party EMS audits as a substitute for regular government inspections to test for compliance against formal regulatory requirements.

The StarTrak Program did not set out to grant ‘excellence’ status to firms on the basis of EMS implementation alone. Rather, the green bar was set high, and to qualify for admittance into the program, a participant had to demonstrate a history of strong compliance with environmental regulations, a track record of ‘beyond compliance’ environmental management and pollution prevention, plus a formal EMS. Furthermore, it was mandatory under the StarTrak Program to disclose compliance and EMS audits publicly and to publish an environmental performance report every year. Participation in the program was very low, with only 15 participants after two years. However, it would be misleading to suggest that the low participation in this program arose purely from its high environmental demands. Other reasons contributed to the low participation, not least the fact that EPA’s expectations regarding what constituted ‘beyond compliance’ environmental management were not made clear, and therefore participants were not aware of how they were underperforming in the program, nor did they know what to do to remedy their performance. Furthermore, the benefits of participation were not adequately clear (Nash and Ehrenfeld 2001).

In summary, to make wise choices about a VEMA’s design, there has to be clarity about what the VEMA intends to achieve (objectives) and how this will be done (strategy). There should also be clarity about the benefits of participation. This then determines a VEMA’s specific key design features,25 namely:

• whether to include standards in a VEMA, and if so, what types of standards and how high they should be set

• whether the VEMA should be audited and if so, against what standard or criteria, how (internally or externally or both), and by whom (self, accredited auditors, government, an NGO, a coalition of stakeholders, and if so, should these stakeholders be accredited)

• whether the VEMA should result in certification and labelling, and if so, by whom (self, accredited certification bodies, government, an NGO, a coalition of stakeholders, and if so, should these stakeholders be accredited).

In other words, what should be the nature of stakeholder involvement, how should governance arrangements be structured, and should these ensure international recognition.

25 See Chapter 3.

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5.2.1 General recommendations for VEMA design

Drawing on OECD (1999), some general recommendations for good VEMA design include:

• clearly defined objectives and targets

• characterisation of a counterfactual, or business-as-usual scenario to determine environmental and other outcomes in the absence of a VEMA

• monitoring that provides meaningful and reliable information about whether progress toward achieving objectives and targets is being made, and that it is practical and cost-effective

• involvement from independent third parties to provide public assurance in a given VEMA

• penalties with teeth for non-compliance to maintain public confidence in a given VEMA, and to prevent free-riding

• the provision of good supportive information, such as codes of environmental management practice and BMP guidelines for environmental management, as well as relevant training workshops to facilitate VEMA participation and implementation.

5.3 The institutions in which VEMAs are embedded

What are institutions?

Institutions are the diverse social norms, sets of rules, compliance procedures, moral and ethical behavioural conventions that have evolved over time. Institutions are ‘the rules of society or of organisations that facilitate coordination among people by helping them form expectations which each person can reasonably hold in dealing with others.’ Importantly, ‘[i]nstitutions provide the framework within which human beings interact. They establish the cooperative and competitive relationships which constitute a society and more specifically an economic order.’ (North 1981).

Social scientists devised the concepts of institutions because of the inadequacy of classical economic and sociological schools of thought in explaining socio-economic, political and cultural phenomena. It is important to recognise that the term ‘institution’ should not be understood in a narrow context of being synonymous with ‘government agency’.

Why look at VEMAs in an institutional context?

Natural resource management and environmental protection are, ultimately, about people management (Gleeson, Tony, pers. comm. 2001), and this occurs in an institutional context. Understanding the design of institutional arrangements relating to NRM practices is fundamental to identifying the institutional determinants of good NRM practice, the barriers to it, and to illuminating how those barriers may be overcome. For this reason, the research focuses attention on, both the design of VEMAs, as well as on the design of the institutions in which these voluntary arrangements are embedded, in which they operate, and in which they deliver environmental outcomes.

By elucidating the institutional determinants relating to the design and development of VEMAs, the research aims to shed light on institutional barriers to designing and implementing VEMAs appropriate for agriculture and the rural industries, as well as on how to overcome those barriers. In this way, the research intends to increase the probability of success of diverse VEMAs, including their integration into regional, national and international systems.

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Overview of the institutions relevant to the design and development of VEMAs

Institutions relevant to the design, development and implementation of VEMAs include:

• legislation and regulations relating to NRM, environmental protection and regional planning. These are pertinent to the design and development of VEMAs as they set legally binding minimum compliance levels

• government policies, plans and strategies relating to environmental management that are not enshrined in statutory documents or under regulations and legislation. These are relevant to the design and development of VEMAs as they articulate governments’ positions regarding given environmental issues, as well as the possible intent of governments to regulate those areas in the future

• international treaties and conventions relating to environmental issues such as biodiversity conservation and climate change. For example, Australia signed the Convention on Biological Diversity and the Framework Convention on Climate Change at the United Nations Conference on Environment and Development (UNCED) in 1992, and subsequently ratified the latter convention. Such international treaties and conventions are pertinent to the design and development of VEMAs inasmuch as they indicate, both areas in which governments may focus future policy and regulatory attention, and areas of concern to domestic consumers and overseas markets

• standards organisations such as Standards Australia, and its overseas counterparts, are independent companies which prepare and publish most technical and commercial standards used voluntarily. Standards organisations are highly relevant to the design and development of VEMAs as they design and develop standards through open consultative processes in which all stakeholders may participate, and they publish standards with national and international recognition

• accreditation bodies are the authoritative bodies that empower another body or person to perform specified tasks such as third party auditing against given standards for the purposes of certification or labelling. In other words, accreditation bodies provide the formal recognition that third parties are able to carry out their duties independently, competently and consistently. Thus, accreditation bodies are highly relevant to the design and development of VEMAs as they provide the mechanism via which third parties provide assurance to the public of environmental claims made. An example of an accreditation body is JAS-ANZ, which, like Standards Australia, has overseas counterparts

• supply chains (in line with North’s (1981) definition of institutions) which provide a framework within which human beings interact, and within which the cooperative and competitive relationships constituting a society and economic order are established. The relevance, indeed importance, of supply chains and supply chain management to the design and development of VEMAs is such that supply chains provide a pathway along which environmental innovations can be made and along which environmental change can, and already does happen

• self-regulatory arrangements such as voluntary Codes of Practice and BMP guidelines that relate to NRM practices and environmental protection. These are relevant to the design and development of VEMAs as, where they exist, they can provide industry operators with guidance on NRM practices to incorporate into the design of their EMSs and other VEMAs

• public voluntary programs where government agencies responsible for NRM and environmental protection invite enterprises to adhere voluntarily to given environmental commitments. Some public voluntary programs actually constitute an audited and certified EMS. This, for example, is the case with the Eco-Management Audit and Certification Scheme (EMAS) in the European Union (EU), which details systems design criteria, and which has been described as constituting

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‘optional regulation’ (OECD 1999). Other public voluntary programs, may be other types of VEMAs, though an EMS could be used to assist and enable enterprises meet the required environmental commitments

• negotiated agreements between industry and public authorities designed to achieve specific NRM and environmental protection outcomes. Negotiated agreements are arrangements that involve a partnership between an industry operator and a federal, state, regional or local government authority. Entry into such a partnership may assist enterprises to achieve compliance or to operate at beyond compliance levels. Depending on the nature of the agreement negotiated, these partnerships may or may not be legally binding. The OECD (1999) notes that these negotiated agreements are often signed at the national level between an industry sector and government authority, though negotiated agreements with individual firms also exist. It is worth noting that such agreements are relevant to the design and development of EMSs as they can provide an appropriate institutional setting in which EMSs can be used to address specific environmental problems

• environmental partnerships between stakeholder groups, for example, between industry and NGOs. These are relevant to the design and development of VEMAs as they can provide the institutional context in which VEMAs could be used to deliver solutions to specific environmental problems. Participation in an industry NGO partnership may facilitate the industry to operate at or beyond compliance levels

• the organisational flexibility of a given VEMA which determines whether an individual enterprise may make a unilateral commitment to implement that system, and which also determines whether sectorally-defined or regionally-defined groups of enterprises may collectively choose to implement it.

Whether, and how, these institutions determine, encourage or impede the design and development of VEMAs depends on the specifics of the institutional arrangement in question. The research identifies the institutional determinants of, as well as the barriers to, the successful design of different voluntary arrangements. Importantly, the research identifies principles and guidelines on design and development issues relating to VEMAs for Australian agriculture and rural industries, and recommends measures to overcoming institutional barriers to the design, development and implementation of different arrangements. In so doing, the research is intended to make a significant contribution to contemporary Australian policy development in this area.

Overview of institutions relevant to the design and development of VEMAs for Australian agriculture and rural industries

With particular reference to the design, development and implementation of VEMAs for agriculture and the rural industries in Australia, relevant institutions and institutional arrangements include:

• Federal and State legislation relating to NRM, environmental protection, water resource management and regional planning

• public policies and plans relating to ecologically sustainable development (ESD) and integrated catchment management (ICM), and including, amongst others, the National Action Plan for Salinity and Water Quality, the Basin Sustainability Plan for the Murray-Darling Basin, state-level water management, salinity management and biodiversity management plans

• government agreements including the Intergovernmental Agreement on the Environment (IGAE) approved by all spheres of Australian government in 1992, and the National Agreement on environmental impact assessment (EIA) endorsed by the Australian and New Zealand Environment and Conservation Council (ANZECC) are, in broad terms, relevant to the design and development of VEMAs

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• national strategies including the National Strategy for ESD released in 1992, the National Water Quality Management Strategy released in 1992 along with the Australian Water Quality Guidelines for Fresh and Marine Waters, the National Greenhouse Response Strategy endorsed by the Council of Australian Governments (COAG) also in 1992, and reviewed in 1996, the National Biodiversity Conservation Strategy adopted by Commonwealth, State and Territory governments in 1995, and the National Strategy for Rangeland Management released in 1996. These national strategies are relevant to the design and development of VEMAs as they identify environmental problem areas where VEMAs could be used to make a difference. They also indicate areas in which governments may focus greater policy and regulatory attention in the future, as well as areas of concern to domestic consumers and overseas markets

• the environmental partnership between six governments and communities in the Murray-Darling Basin which intends to move towards ICM in the Basin. A voluntary statement of commitment by community and governments regarding future NRM in the Basin is found in the document Integrated Catchment Management in the Murray-Darling Basin, 2001-2010. Delivering a sustainable future. (Murray-Darling Basin Ministerial Council 2001)

• overseas market requirements relating to environmental issues

• voluntary community initiatives, such as the National Landcare Program launched in 1992 and, more recently, the Australian Landcare Management System (ALMS).

• Standards Australia

• the Joint Accreditation System of Australia and New Zealand (JAS-ANZ).

Standards Australia

The role of Standards Australia, which operates as an independent company, is to prepare and publish a range of voluntary standards used in Australia. Indeed, Standards Australia prepares and publishes most of the voluntary technical and commercial standards used in this country. Standards Australia develops standards through consultative and iterative processes in which diverse stakeholder groups may take part. The development of standards takes place ‘through an open process of consultation and consensus, in which all interested parties are invited to participate’ (Standards Australia 1996). Also, Standards Australia is formally recognised as Australia’s peak national standards body through a Memorandum of Understanding with the Commonwealth government (Standards Australia 2008).

Standards New Zealand is that country’s counterpart standards organisation. Australian/New Zealand Standards are prepared by committees of experts from industry and government, and also include consumers and other stakeholders. This intends to ensure that published standards reflect up-to-date scientific and technical knowledge and industry experience, and that they represent a consensus of views of representative stakeholder interests and concerns. Once published, Australian/New Zealand Standards are continually reviewed and updated regularly in order to take account of changing technology (Standards Australia 1996).

Importantly, Standards Australia and Standards New Zealand hold responsibility for ensuring that national and joint Australian/New Zealand Standards incorporate up-to-date international experience, and that Australian and New Zealand viewpoints are considered in the development of standards internationally. This vitally important role intends to facilitate the competitiveness of Australian and New Zealand industries in international markets. Both Standards Australia and Standards New Zealand are the national members of the International Organization for Standardization, or ISO (Standards Australia 1996).

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The Joint Accreditation System of Australia and New Zealand (JAS-ANZ)

JAS-ANZ is the joint accreditation body for Australia and New Zealand for the certification of management systems, products and personnel. The role of JAS-ANZ is to enhance trans-Tasman trade and achieve international recognition of the excellence of Australian and New Zealand goods and services. Specifically, the objectives of JAS-ANZ26 are to:

• develop mutual recognition in overseas markets for Australian and New Zealand producers, exports and personnel

• establish strong links with counterpart bodies

• establish mutual recognition agreements with other accreditation bodies and relevant organisations with national or regional coverage on a bilateral and multilateral basis as appropriate.

JAS-ANZ was established under a Treaty between the Governments of Australia and New Zealand in October 1991, and operates as a not-for-profit, self funding international organisation.

In March 1996, a regulation was made under the Australian International Organizations (Privileges and Immunities) Act 1963 declaring JAS-ANZ to be an international organisation to which the Act applies. Although JAS-ANZ is the joint accreditation body for Australia and New Zealand, the JAS-ANZ Board places no geographic limitations on the organisation’s operations. This means that JAS-ANZ accepts applications from certification bodies operating anywhere in the world, and JAS-ANZ accreditation programs are open to all certification bodies, regardless of size, location or affiliations, whose operations include activities for which accreditation programs are currently available (JAS-ANZ website: www.jas-anz.com.au).

5.3.1 Institutional settings of different VEMAs

The institutional settings of different VEMAs include:

• their policy framework, or policy setting. This defines the scope of the scheme, its objectives, and any standards and conditions of the scheme. In other words, the policy framework defines what, if anything, is to be certified and/or labelled under that scheme. Clearly this varies from scheme to scheme. The policy framework of a given scheme may include the following elements:

− consistency with domestic legislation and other legally binding regulatory standards relating to NRM, environmental protection, water resource management and regional and development planning

− consistency with non-legislated national principles and policies such as, in the case of Australia, the National Strategy for ESD released in 1992, the National Water Quality Management Strategy released in 1992 along with the Australian Water Quality Guidelines for Fresh and Marine Waters, the National Greenhouse Response Strategy endorsed by the COAG also in 1992, and reviewed in 1996, the National Biodiversity Conservation Strategy adopted by Commonwealth, State and Territory governments in 1995, and the National Strategy for Rangeland Management released in 1996, and the National Action Plan to combat salinity

− consistency with international principles and policies, including for example, compatibility with WTO rules, MSC and FSC international principles and criteria

26 Information sourced from the JAS-ANZ website: www.jas-anz.com.au.

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• the accreditation process associated with the particular scheme. Accreditation provides public assurance that certification and labelling decisions are carried out independently, competently and consistently. In other words, the accreditation process of a particular scheme establishes that scheme’s credibility in the sense of its recognition and acceptance by the wider community and by overseas markets. A scheme’s accreditation process may include third party auditing of the body making certification and labeling recommendations and decisions, though in some cases it may be self-regulated

• whether the lead agencies involved are industry associations, government agencies, non-governmental agencies, or indeed a partnership between different stakeholder groups

• their country coverage and whether they are internationally recognised.

5.4 Supply chain management

A supply chain is, strictly speaking, an institution. In line with North’s (1981) definition of institutions given in section 5.3, it provides a framework within which human beings interact, and within which the cooperative and competitive relationships constituting a society and economic order are established. Historically, over the course of the agricultural sector’s economic development, increasing vertical integration has taken place, such that the development of supply chains is a function of economic development. Because supply chains and increasing vertical integration are key features of modern industrial organisation and market structures, understanding how they work, that is to say their dynamics, is key to understanding the environmental implications of modern industrial organisation and market structures. Moreover, understanding how supply chains work is key if they are to be harnessed for NRM and environmental protection purposes. Ultimately, green consumer preferences drive environmental innovations along supply chains.

The relevance, indeed importance, of supply chains and supply chain management to the design and development of VEMAs is such that supply chains provide a pathway along which environmental innovations may be made and along which environmental change may happen. Hall (2000) investigates the circumstances under which such ‘environmental innovations diffuse from a customer firm to a supplier firm’ a phenomenon he defines as environmental supply chain dynamics (ESCD). Buyer-supplier relationships are central to decision-making processes of most suppliers, wherein lies the potential to stimulate environmental change along the supply chain. Using the example of a case study from the British and Japanese food retail sectors, Hall (2000) shows that environmental innovations emerge and are passed along supply chains:

• first, if there are leaders with sufficient power over downstream suppliers in the chain

• second, if there is sufficient technical knowledge along the chain to be able to innovate

• third, where the leaders are themselves under pressure to demonstrate good environmental credentials.

An agricultural example of environmental innovations taking place along supply chains is given by Sainsburys supermarkets which have demanded that all suppliers of fresh fruit and vegetables comply with the EUREP-GAP protocols. Other primary sector examples of supply chain dynamics driving environmental management change and innovation are given by the various forest certification schemes that provide consumers of the end product with information on the quality of a forest’s environmental management.

In the case of many forest certification schemes, consumers, via retailers, seek assurance that products are correctly identified as originating from certified forests. Kanowski et al. (2000) note that the key supply chain issues associated with forest certification and labelling are ‘clear and verifiable chain of custody procedures’, ‘the ability of certification schemes and retailers to specify and control the use of

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labels and claims’, and ‘the reduction of proliferation and duplication in labelling, but the retention of clarity and accuracy in labelling.’

5.5 Family farms, corporate farms and downstream agri-business: The nature of the organisational structures participating in VEMAs

Following on from the importance of supply chains and supply chain management in effecting environmental improvement, this section discusses a related issue of modern industrial organisation in the primary industries. It is speculated that key differences between diverse organisational structures in the primary sector will determine how relevant, adaptable and attractive a given VEMA will be to different organisational structures. In other words, it is proposed that the organisational structures of family farms, corporate farms and downstream agri-businesses differ in respects that are likely to affect the preference for different VEMAs, as well as the ease and enthusiasm with which different VEMAs are adopted.

Larger organisational structures and business enterprises such as corporate farms and downstream agri-businesses may enjoy economies of scale, and access to greater financial resources than smaller family farms. Also, family farms, corporate farms and downstream agri-businesses are likely to differ with regard to their management culture. For example, larger enterprises, particularly downstream agricultural processors, may already use QMS and food safety protocols that may confer a management advantage in implementing an EMS, or other environment management related standard, over say a small family farm without such experience. Also, larger organisational structures may employ more staff possibly with technical specialisations and expertise to address specific environmental issues. Such skills specialisation may be absent in smaller enterprises.

In summary, it is proposed that knowledge of the nature of the different organisational structures, such as family farms, corporate farms or downstream agri-businesses, should be taken into account when designing new VEMAs. Likewise, it is important for people making choices about whether a VEMA suits their needs to consider the relevance and appropriateness of a VEMA’s objectives to their activities and aspirations, and to consider the possible implications stemming from time and management commitment, and not least cost.

5.6 Costs and benefits

Finally, the costs and benefits involved in undertaking voluntary approaches to environmental and quality management are important factors shaping, both the design and development of VEMAs, as well as their adoption rates. Indeed, the design and development of new VEMAs is likely to be an expensive exercise, as is their subsequent promotion and maintenance.

To be successful, VEMAs will need large numbers of participants and other interested parties to champion their cause, and to contribute to the inevitable costs. Participation in VEMAs is driven by the benefits offered, including environmental, marketplace and community benefits.

Large scale benefits are only likely to be achievable if, and only if, there is a critical mass of participants. Thus, great care must be taken in making decisions whether to build new VEMAs, or whether to extend or modify existing ones. Modifying or extending an existing VEMA is likely to result in an arrangement with added value, with development costs kept relatively low. Conversely, the costs of developing new VEMAs are likely to be greater. Moreover, it is argued, the development of many new VEMAs is likely to diminish the value of existing ones.

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6. Environmental Management Systems Implementation in Australian Agriculture: Identifying and Overcoming the Barriers

Summary

Several barriers to EMS implementation and certification in agriculture are identified. These are posed by presently elusive marketplace benefits from EMS implementation in agriculture, the paucity of environmental information for use in farm EMSs, the costs of EMS implementation and certification, including the transaction costs of acquiring or generating new environmental information, as well as the costs of being audited. Another barrier is posed by the fact that most farms are micro, and in some cases small, business enterprises and, as such, at a disadvantage if compared to medium and larger businesses that may enjoy economies of scale, access to greater financial resources and scope for skills specialisation regarding environmental management matters. Finally, a barrier to the uptake of voluntary environmental initiatives arises because farms are embedded in rural economies undergoing structural change that imposes a variety of pressures on farmers and the decisions they make, and that decreases the likelihood of EMS implementation being seen as a priority, when elusive market benefits, unclear information and the costs of compliance already present hurdles. Some ways of overcoming the barriers to EMS implementation are explored.

EMS implementation in Australian agriculture is being driven by industry and government co-investments. However, barriers to EMS uptake in agriculture exist, and the purpose of this Chapter is to identify these barriers, along with some possible ways of overcoming them.

The growing interest by Australian Federal and State Governments to explore the potential that EMS has to offer agriculture in terms of delivering environmental and marketplace outcomes has resulted in the National Framework for EMS in Agriculture (EMSWG 2002; and EMSWG 2001), the National EMS Implementation Plan (EMSIWG 2003), as well as the $8.5 million National EMS Pilot Program (www.daff.gov.au). This program involves 15 pilot projects in a range of primary industries across Australia (see Box 7). Outside the bounds of the National EMS Pilot Program, agri-food companies, family farm businesses and various rural industry groups are also engaged in EMS development, some to the point of full ISO 14001 certification (www.aemsaustralia.com.au).

The growing interest in voluntary (that is to say non-legislated) EMS in agriculture in Australia, reflects the rising use of both:

• EMS, and other voluntary approaches, to environmental management around the world, particularly in non-agricultural sectors (Gunningham and Sinclair 2002; Gunningham et al. 1999; and ISO 2000)

• standards-based environmental certification and labelling schemes, albeit typically other than EMS, in agriculture (Mech and Young 2001; and Toyne et al. 2004).

The rising use of EMS, particularly in non-agricultural sectors around the world, contrasts with the tardiness of EMS to establish a foothold in agriculture. This, together with the rising use in agriculture of standards-based environmental labelling and certification schemes typically other than EMS, begs the question why this is so, and suggests the existence of barriers to EMS implementation in rural industries. Owing to the current levels of genuine interest, enthusiasm and, not least, dollar investment in EMS in agriculture, it is worth exploring these barriers and ways to overcome them.

http://www.daff.gov.au/


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Box 7 The National EMS Pilot Program in Australian agriculture

In April 2003, the Commonwealth Government launched an $8.5 million EMS National Pilot Program that involves 15 pilot projects across Australia funded through the Natural Heritage Trust (NHT). The stated objective of this national program is to:

• develop and assess the value of EMS as a management tool to improve natural resource management, from the enterprise to the catchment scale

• assist industry competitiveness and production efficiency • help primary producers meet emerging market demands for quality and environmental

assurance.

The EMS pilot projects themselves intend to:

• build on current government, industry and landholder interest in a systems approach to environmental management

• enhance the capacity of Australian rural industries to establish and maintain sustainable production systems

• help prepare producers meet growing consumer demand for agricultural products to be produced in a sustainable way.

The EMS Pilot Projects represent a diverse range of industries, regions, partnerships and natural resource management issues. They include the following:

• Gippsland Beef and Lamb EMS Pilot Project (Gippsland Natural Pty Ltd) • Bega Cheese Dairy Farmers’ EMS Pilot Project (Bega Cheese Cooperative Ltd) • Innovation and Integration Project for EMS in the Central Australian Pastoral Industry

(Centralian Land Management Association) • Dairy Farmers and Processors Partnership for EMS Implementation (NSW Agriculture) • Linking On-farm EMS with Catchment Targets, a Farmer-Catchment-Government Partnership

Project in Victoria (North Central Catchment Management Authority) • Building Brand King Island - an EMS Pilot Project (King Island Natural Resource

Management Group) • On-farm EMS and Environmental Labeling in the Pastoral Industries (Department of Primary

Industries, Queensland) • Mount Lofty Ranges Watershed EMS Pilot Project (Apple and Pear Growers Association of

South Australia, Adelaide Hills Wine Region, and the Cherry Growers of SA) • Rice Environmental Champions Program - an Innovative Mechanism for Change

(Ricegrowers’ Association of Australia) • Seafood EMS Framework (Seafood Service Australia) • Practical Application and Benefit Testing of EMS in Broad-acre Farming (Mingenew-Irwin

Group) • Blackwood EMS Pilot Project on Combining Profitability and Sustainability (Blackwood

Basin Group) • Murray Environmental Management Systems Group (Native Dog Landcare Group) • Australian Landcare Management System EMS Pilot Trial (Australian Landcare Management

Systems Ltd) • Development of the Cotton Best Management Practice Program into a Comprehensive EMS

(Cotton Australia and the Cotton Research and Development Corporation).

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6.1 The potential of EMS in agriculture

Growing interest in EMS in Australian agriculture reflects the rising interest and the increasing use of voluntary approaches to achieving environmental goals in a range of industries (section 1.2.1). Industry and government interest and investment in EMS in agriculture reflects the search by diverse stakeholder groups for innovative ways of addressing environmental issues in agriculture. This search for new management tools and policy instruments represents a departure from the command-and-control (CAC) approaches of orthodox government programs and regulation. The new agenda stresses the potential of industry to take the lead in developing solutions, often in partnership with other stakeholders including public agencies and community organisations.

In contemporary Australian agri-environmental policy, EMS for agriculture is presented as delivering the following benefits that are often cited in the context of EMS’s application within non-agricultural sectors and industries. These benefits include the potential of EMS in agriculture to:

• combine BMPs and CoPs for environmental management, and integrate other environmental standards to achieve efficiencies and cost savings

• integrate QA, food safety and animal welfare

• help achieve compliance, and even go ‘beyond compliance’

• provide surrogate regulation, where none exists

• be widely applicable to different types of farms (corporate farms, family farms) in different agricultural subsectors, and along supply chains

• be recognised in international markets.

6.2 Identifying the barriers to EMS implementation in agriculture

While examples of ISO 14001 certified farms exist, to date their numbers have been very limited. For example, only about one per cent of all ISO 14001 certificates issued at the end of 2000, were in agriculture and fishing.27 The tardiness of EMS certification to establish a foothold in agriculture, coupled with the rising use in agriculture of standards-based VEMAs typically other than EMS, indicates the present weakness of the marketplace in driving the adoption of the ISO 14001 standard by farm businesses, and also points to the existence of other barriers to EMS implementation in agriculture.

6.2.1 Elusive marketplace benefits from on-farm EMS implementation

Linked environmental-marketplace benefits are, to date, proving elusive to find with EMS in agriculture. With respect to the weak, perhaps even largely absent, market drivers of EMS uptake by farm businesses, Wall et al. (2001) observe that the benefits of ISO 14001 certification will be greater for firms marketing food products than for producers selling a bulk commodity far removed from final consumption. This observation, along with the fact that ISO 14001 certification may not be used for

27 At the end of December 2000, a total of 17 476 ISO 14001 certificates had been issued worldwide, of which 205 (1.2 per cent) were issued to agriculture and fishing enterprises. The industrial sectors attracting the highest number of certificates included, in descending order of importance, sectors producing: electrical and optical equipment; chemicals, chemical products and fibres; basic metal and fabricated metal products; machinery and equipment; and, construction (ISO 2000).

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product labelling purposes, is pertinent to explaining the rising use in agriculture of standards-based VEMAs, typically other than ISO 14001.28

Some examples of standards-based VEMAs that incorporate production-oriented standards and allow for product labelling, and that are currently more widely used by agriculture and rural industries, are discussed in Mech and Young (2001). These include Nature’s Choice code of practice for environmental management demanded by Tesco supermarket of its suppliers, the EUREP-GAP protocol for fresh fruit and vegetables, the Integrated Crop Management (ICM) standards under the UK’s National Farmers’ Union (NFU) Assured Produce Scheme, the Integrated Fruit Production (IFP) protocols for apples and pears, various Organic Standards, the Marine Stewardship Council’s (MSC) scheme, the Forest Stewardship Council (FSC) and the Finnish Forest Certification Scheme (FFCS).29

6.2.2 The environmental information barrier

Environmental information, including its availability to farmers and often its practical usefulness to farm management decision-making when available, presents a barrier to EMS implementation in agriculture. As a process standard for a management system, EMS provides a means for improving the way a firm manages its environmental impacts by demanding verifiable rigour in the way a firm manages its information, and uses that information in its management decisions.

The supportive information used in an EMS includes information on existing legal and regulatory obligations, voluntary environmental Codes of Practice, BMP guidelines and standards, as well as information on environmental risk identification and assessment.

Indeed, the ISO 14001 standard’s accompanying guidelines, the ISO 14004 guidelines, clearly state that requirements of the ISO 14001 process standard include compliance with prevailing environmental legislation and regulations, as well as with ‘other requirements to which the organization subscribes, that are applicable to the environmental aspects of its activities, products or services’ (Standards Australia 1996). The ISO 14004 guidelines elaborate that these ‘other requirements’ may include industry codes of practice, agreements with public authorities and non-regulatory guidelines, as well as international environmental guiding principles. In other words, a management system that aims to improve the way that environmental impacts are managed, i.e.: an EMS, will only work if the information that the system uses is in an available and usable form to enable the site level, or farm level in the case of agriculture, management of environmental impacts in question to be improved. Thus, the strength of the ‘E’ in EMS depends on the strength of the supportive information in the management system. Without it, EMS is weakly positioned to deliver what it potentially promises.

With specific reference to EMS in agriculture, the environmental information barrier is typified by a paucity of site-specific, that is to say farm-relevant, information on existing legal and regulatory

28 Environmental standards may be placed into two main groups, according to Ure’s (1999) categorisation. First, organisation-oriented standards, also called process standards, specify management processes and procedures to be followed by an organisation for the purposes of environmental management. Second, production-oriented standards may be product standards or performance standards. The former define specific features of a final product and may also define how that product must have been produced, whereas the latter specify acceptable or required levels of environmental performance. Performance standards may sometimes specify required environmental outcomes, and may relate to environmental externalities arising from production.

29 Other standards-based arrangements for agriculture and rural industries include voluntary arrangements designed for quality assurance, food safety and animal welfare purposes. These include Hazard Analysis Critical Control Point (HACCP) food safety assurance, the Safe Quality Food (SQF) initiative, the ISO 9000 series of standards for quality assurance (QA), three QA codes of practice for Australian agriculture, and the Model Codes of Practice for the Welfare of Animals (Mech and Young 2001).

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obligations, voluntary environmental Codes of Practice, BMP guidelines and standards, as well as information on environmental risk identification and assessment. Quite simply, much supportive information required for a farm EMS may be lacking, or it may exist in formats such that its relevance to farm management decisions may not be readily apparent.

Agriculture presents challenges for regulators, as the complex nature of farming’s environmental impacts does not always lend itself to traditional regulatory command-and-control (CAC) approaches. As regards voluntary environmental codes of practice in agriculture, BMP guidelines and standards, and environmental risk assessment tools, some notable examples already exist, while others are under development. However, there are a great many primary industry sectors where such codes, guidelines, standards and risk assessment tools remain to be developed, and where their development should be encouraged. This is especially germane to the Australian agricultural context, given the profile of EMS in the discourse of contemporary agri-environmental policy.

6.2.3 The cost of compliance barrier

The cost of full compliance against the ISO 14001 standard can be significant and, as such, poses a barrier to EMS implementation and certification in agriculture. No formal empirical studies have focused to date on the survey and analysis of the costs of compliance of EMS implementation and certification in agriculture. Clearly this is due in no small measure to the fact that EMS implementation and certification by farm businesses is at an embryonic stage the world over. However, anecdotal evidence points to relatively high cost outlays associated with implementing a farm EMS and getting it certified. This, coupled with currently elusive marketplace benefits associated with farm EMSs, either in terms of better market access or higher premiums, points to the low likelihood of widespread EMS implementation and certification in agriculture at the present time.

The costs of implementing and certifying a farm EMS may be thought of as having two key cost components. One cost component relates to the costs of acquiring environmental information relevant to farm management decision-making where it already exists. This may include, for example, information on existing legal and regulatory obligations, voluntary environmental codes of practice, BMP guidelines and standards, as well as available information on environmental risk identification and assessment. Where such information is lacking, there are costs associated with generating one’s own surrogate information for use in an EMS. The second cost component is the cost of being audited. As regards the role of government in promoting EMS in agriculture, these two cost components have different implications. These are discussed below, in the context of overcoming the barriers to EMS adoption in agriculture.

6.2.4 The micro enterprise barrier

Although EMS was conceived for intended application across sectors and to all types of organisational structures ranging from micro, small and medium enterprises30 (SMEs) to large corporations, EMS has in practice tended to be implemented by larger businesses in non-agricultural sectors. The fact that the majority of farms are micro enterprises, presents a barrier to EMS implementation and certification. Indeed, the environmental information and cost-of-compliance barriers may be viewed as a function of the fact that the majority of farms are micro, and in some cases small, enterprises.

30 Micro enterprises are defined as independent firms with fewer than 10 employees. Small enterprises are those with fewer than 50 employees and a turnover of less than Euro 7 million, or an annual balance sheet total not exceeding Euro 5 million. Small and medium enterprises, or SMEs, are those with fewer than 250 employees, with a turnover of less than Euro 40 million, or an annual balance sheet total not exceeding Euro 27 million (CEC 1996; in Ammenberg et al. 2000).

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Agriculture is dominated by family farming business enterprises, which differ in some key respects from larger corporate farms, downstream agribusinesses, and firms in non-agricultural sectors. In contrast to smaller family farms, larger corporate farms, downstream agribusinesses and firms in non-agricultural sectors enjoy economies of scale and access to greater financial resources that increase the likelihood of employing dedicated staff, and/or consultants, with environmental management specialisations and expertise to address specific environmental issues. Such skills specialisation is likely to be absent on smaller family farms. For these reasons, with respect to the ease of access to information on legal environmental obligations, as well as to information on environmental risk, both of which are central to an EMS, family farmers are at a disadvantage. Furthermore, the ease of access to such information in agriculture is also likely to be hampered by the sheer remoteness of many farms. (Mech and Young 2001).

6.2.5 The rural adjustment barrier

Farm sector performance is typically subject to fluctuating output prices, declining terms of trade, and the vagaries of the weather. In addition to these pressures, various rural adjustment processes exert additional pressures, not necessarily directly on farm performance, as do fluctuating prices, the cost–price squeeze, drought and other unpredictable weather patterns, but they act more broadly on rural communities, and their capacity for ‘social sustainability’ (Barr 2002).

Several social change processes taking place in rural Australia are outlined by Barr (2002). Amongst others, these include migration to urban areas, particularly by younger rural people, the rising average age of farmers, the decreasing attraction of farming as a career choice, and the rising pressure on farmers to provide multifunctional agricultural services. While these rural change processes are shared by other developed country agricultures31 and, as such, are by no means unique to Australia, Barr (2002) cautions that policy makers ignore rural adjustment processes at their peril. With rural adjustment processes mounting growing social and economic pressures on rural communities, the uptake of voluntary environmental initiatives is unlikely to be seen as a priority area by many farmers, particularly where elusive market benefits, high costs of participation and unclear information pose barriers to adoption.

6.3 Overcoming the barriers

6.3.1 Overcoming the elusive marketplace benefits from on-farm EMS implementation

To contribute to the future strengthening of presently elusive marketplace benefits from on-farm EMS implementation, both government and industry have roles in educating the wider community on environmental management in agriculture, and the application of EMS to agriculture. Importantly, because of the general confusion that often exists between EMS (ISO 14001) certification and environmental labelling, there is a case for raising public awareness about the differences. Essentially, the key to understanding these differences lies in understanding the standards or criteria that are audited in different environmental certification and labelling schemes. Standards determine the nature of the green claims that can be made in the event of a successful third party audit. Also, the nature of the audit, that is to say whether it is conducted internally or externally or both, and the nature and identity of the body or authority conducting external auditing and making labelling recommendations and decisions, convey different messages in the marketplace regarding the levels of certainty, even trustworthiness, associated with the environmental claims made. Thus, the nature of the standards and

31 A vast body of literature exists on social change processes in rural areas in developed country agricultures. Gasson (1986), Larson and Mundlak (1997) and Redclift (1986) provide insights on some key issues.

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how these are audited determine the level of consumer confidence and marketplace recognition associated with different schemes.

A management system like EMS (a process standard) is unlikely to address the specific concerns of agri-food consumers alone in the absence of production-oriented (product and performance standards) environmental standards. This, along with the fact that, as a process standard, EMS itself cannot be used for product labelling purposes, helps explains the rise in use of standards-based VEMAs that incorporate production-oriented environmental standards and that can result in product labelling. These include, amongst others, diverse organic standards and their associated labelling schemes, as well as the MSC and FSC schemes. Also importantly, verifiable compliance against standards-based VEMAs that incorporate production-oriented environmental standards are increasingly being imposed upon agri-food suppliers by large retailers.

For example, in 1999, the UK supermarket chain Sainsburys drew the EUREP-GAP General Regulations for Fresh Fruits and Vegetables to the attention of all of its overseas suppliers of fresh and frozen produce, planning for all overseas suppliers to be verified as complying with the EUREP-GAP protocols by 2003.

In the case of agri-food products, it is postulated that environmental labelling and/or certification schemes likely to be successful in linking environmental and marketplace benefits will be ones that include production-oriented environmental standards (product and performance standards) that address specific consumer concerns to enjoy market recognition. Although linked environmental-marketplace benefits are proving elusive to find with EMS in agriculture, this does not mean that such benefits will not accrue from environmental labelling, or certification, schemes of which EMS may be a component. Indeed, the organic standard of the Biological Farmers of Australia (BFA, 2001), the FSC and MSC schemes, and the EUREP-GAP protocols, all blend organisation-oriented (process) and production-oriented (product and performance) standards.

Also with regard to overcoming the presently elusive marketplace benefits from on-farm EMS implementation, there may be opportunities for governments to provide alternative benefits via regulatory relief incentives for farmers implementing EMS and demonstrating verifiable improvements in environmental outcomes and performance. Such incentives could include, for example, rebates on natural resource management levies, or lower fees for licences, leases and registrations relating to environmental management.

6.3.2 Overcoming the environmental information barrier

The efficacy of an EMS in delivering environmental outcomes ultimately rests upon the environmental information that the system uses to enable the management of environmental impacts in question to be improved. It is for this reason that, at least in the short to medium term, a shift in policy emphasis is suggested away from promoting EMS in agriculture, towards the development of the environmental information that would enable EMS to work effectively to improve environmental outcomes. To overcome the environmental information barrier to EMS implementation in agriculture, the development and dissemination of environmental information for use in farm EMSs merits attention. Notably, farm-relevant information on existing legal and regulatory environmental obligations should be available to farmers. Industry-specific and farm-relevant information on how to identify environmental risks, regardless of whether these risks are dealt with under existing legislation or voluntary codes, should be available to farmers, and where necessary developed. And, the ‘other requirements’ referred to in the ISO 14004 guidelines, which include voluntary industry-specific and farm-relevant environmental codes of practice and BMP guidelines and standards, should exist, and where necessary be developed and made available to the intended users. Some Australian agricultural industries are working along these lines already. For example, cotton and viticulture provide good examples of industry-driven approaches to NRM, which generate farmer and grower awareness of EMS and, arguably more importantly, generate practical guidance on specific environmental matters that is incorporated into farm management practice.

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To facilitate the uptake of EMS in agriculture, government, in partnership with industry, has a role in supporting the development and provision of supportive information.

It is imperative that such information be made easily and widely available to farmers, that it be practically useful to their farm management decision-making and, crucially, that farmers be involved in the development of such information. Indeed, drawing on OECD (1999), the provision of good supportive environmental information, such as that contained in codes of practice and guidelines for environmental management, is recommended as a component of voluntary approaches to environmental management. Thus, regardless of whether a farmer would ultimately choose to use either an informal or a fully certified EMS to integrate environmental information contained in diverse BMPs, codes of practice, guidelines, standards, and risk assessment tools, the development of environmental information that is accessible and practically useful to on-farm decision-making should be encouraged.

There are opportunities for governments to commit resources to the development of environmental guidelines, targets and standards for different agricultural and rural industries. Some information already exists in various catchment, regional, national and international environmental objectives and targets. However, this information is sometimes generic in nature, and there may be a need to ensure that it has practical applicability at the farm-level. In this regard, an important role of government could be to foster the formation of partnerships between stakeholder groups,32 to provide an interface for translating technical knowledge and community concerns relating to environmental management, into production-oriented environmental guidelines and standards applicable at the farm-level.

A specific way in which governments could support EMS in agriculture would be to make information on legal and regulatory obligations relating to environmental management and protection readily available. For example, information relating to existing NRM and environmental regulations and legislation relevant to Australian agriculture and rural industries could be compiled, periodically updated and made available free-of-charge.

The explicit purpose of such a user-friendly ‘Guide to Environmental Regulation for Agriculture and the Rural Industries in Australia’ would be to provide information needed by operators in agricultural and allied rural industries to comply with state and federal regulations relating to NRM and environmental protection. It is suggested that there is an opportunity for such a publication to be co-sponsored by Federal and State government agencies responsible for administering NRM, environmental protection and regional planning legislation applicable to agriculture and the rural industries. Such a guide could be structured along the lines of the ‘Handbook of Environmental Regulations for Agribusiness’ produced by the Iowa Waste Reduction Center of the University of Northern Iowa (IWRC 2000).33

Alternatively, an Australian guide to environmental regulation for the primary industries could draw on the ‘Manual of Environmental Policy’34 produced by the Institute for European Environmental

32 Relevant stakeholder groups may include industry and peak industry bodies, research organisations, public agencies and community and environmental groups.

33 This handbook contains regulatory information on waste management and pollution prevention that is specific to different agribusiness sectors. The handbook presents information on regulations that apply to different operations, how operators can comply and how they can get more help and information.

34 ‘Environmental policy in the UK is now inextricably linked with that of the European Community (EC). In

the last thirty years, the EC has developed comprehensive policy measures across a extensive range of environmental issues. This has been done in response to the growing recognition of the value of co-ordinated action to solve common problems, and to ensure that the single market in Europe is based on common environmental standards. The EC is now the world leader in environmental legislation and an

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Policy (IEEP) for guidance on appropriate presentation. This manual apprises its users on developments in European legislation and in the corresponding UK implementing legislation, and analyses and evaluates the implications of over 500 European Community (EC) Directives and Regulations (IEEP 2000, 1999, 1998, 1997, 1996). It provides an authoritative source of information on rapidly changing developments in EC environmental regulation relating to, amongst other things, the management of water, waste, air, harmful substances, wildlife and the countryside. Also, the manual lists all adopted EU environmental legislation, plus summaries of proposed environmental legislation and the details of environmental proposals under development. (Mech and Young 2001).

6.3.3 Overcoming the cost of compliance barrier

With regard to overcoming the cost of compliance barrier, implications for the role of government arise from the notion that the costs associated with implementing and certifying EMS may be thought of as having two cost elements. One cost component relates to the transaction costs of acquiring environmental information where it exists, or generating it anew where it doesn’t, and the second relates to other implementation costs including those of auditing.

With respect to the first cost element, the possible role of government in supporting the development and dissemination of environmental information, thereby decreasing the transaction costs of acquiring or generating it, can be seen as a public good provision role with information being equally available to all choosing to use it. Importantly, production-oriented and farm-relevant environmental information would benefit those farmers choosing to implement EMS, and also those choosing to improve their environmental management outside the context of a management system. Also importantly, once developed, information may be improved upon and adapted as new knowledge becomes available.

With respect to the second cost element, however, government’s role in directly supporting, effectively subsidising, a private individual’s auditing costs can be seen as both a private and public good provision role, with supported private individuals benefiting, along with the wider community benefiting from improved environmental management. However, attention is drawn to the potential downside of short-term direct support, namely the possible failure of individuals to continue with the activity they were supported to do, once that support is withdrawn. In making agri-environmental policy choices, governments should consider the appropriateness of their roles in public and private goods provision, as well as the most cost-efficient options for fostering widespread and long-term improvement in environmental management in agriculture.

6.3.4 Overcoming the micro enterprise barrier

Some good industry-driven approaches to environmental management in agriculture currently under development illustrate the raising of EMS awareness amongst farmers and growers and, arguably more importantly, how practical guidance on specific environmental matters may be generated and incorporated into farm management practice.

For example, the ‘Framework for a Wine and Grape Industry Approach to Environmental Management’ (Baker and Boland 2001) represents that industry’s environmental management approach as a series of increasingly sophisticated options. These options are introduced via a tiered approach beginning quite simply with the identification of a grower’s environmental aspects and impacts. Consecutive options include environmental risk assessment, the implementation of a self-

understanding of these policies and their effects on a UK practice is essential for anyone who is interested in or affected by environmental policy’ (IEEP 2000).

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declared EMS, its subsequent auditing by second or third parties, culminating in an independently certified EMS.35

Importantly, the wine and grape industry’s framework emphasises possible entry at, and progression to, any point. Indeed, as regards full certification, this is by no means automatically encouraged or assumed as an end-point. Rather, the framework’s stance is that if growers are confident they have reached a tier that meets their business needs, and if neighbours and other relevant stakeholders, say local councils, are satisfied with the environmental practices and performance being conducted, and do not demand independent confirmation of this, then full ISO 14001 certification is likely to be an unnecessary expense. This is seen as helping overcome the micro enterprise barrier by understanding and respecting the business needs of growers while at the same time encouraging them to incorporate environmental considerations, albeit incrementally, into management practices.

In a similar vein, the Australian cotton industry has developed a BMP program. It was recently recommended by A & A Williams Pty Ltd (2001) that the BMP program be developed into a program consistent with, and capable of certification to, ISO 14001, covering the management of pesticides, water, soil and nutrients, vegetation, fuel and waste, and energy conservation. It was further recommended that best management practices and principles be developed for each of these items to assist growers in addressing their on-farm environmental priorities. A core of ‘non-negotiable’ practices and principles was suggested in order to achieve a consistent focus and minimum level of environmental performance throughout the industry. Such an approach, if followed through, would help overcome the micro enterprise barrier, and indeed the environmental information and cost of compliance barriers, by generating guidance material on farm-relevant environmental BMPs that could, if deemed necessary, be incorporated into an EMS capable of certification.

Finally, while no formal studies have analysed the costs of implementing a farm EMS and getting it certified, the experiences of small and medium enterprises (SMEs) and, importantly micro enterprises, in non-agricultural sectors provide some insights for agriculture, a sector dominated by micro enterprises.

For example, Ammenberg et al. (2000) report that joint EMS and group certification can represent a cost effective route for SMEs to achieve ISO 14001 by reducing the costs of certification. Indeed, this is an approach currently being trialled by groups of Australian beef producers.

6.3.5 Overcoming the rural adjustment barrier

Of all the barriers to EMS implementation in agriculture identified, the rural adjustment barrier exercises the mind the most when it comes to suggesting ways of overcoming it. The rural adjustment and change processes experienced in developed country agricultures are a complex function of the advanced stage of socio-economic development of high-income countries. For this reason, attention should be focused upon overcoming the other barriers discussed.

6.4 Making EMS in agriculture work

Ultimately, the success of EMS in agriculture depends on how farmers in diverse agricultural industries embrace it. Given the existence of significant barriers to EMS in agriculture, whether or not farmers chose to embrace it depends in large measure on how government assists in overcoming those hurdles. Although EMS in agriculture holds enormous promise, the premature view of EMS as an environmental management panacea is cautioned. Just as orthodox regulation has limitations, so too

35 The top tier represents the independent certification of the product along the lines of the MSC scheme. While this does not presently exist for grape and wine products, the framework at least conceptually suggests an implicit aspiration towards such a goal eventually.

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does EMS. The very fact of its voluntariness means that high participation rates cannot be guaranteed. Indeed, high participation rates would not necessarily be synonymous with good environmental performance or outcomes, especially so in the (near) absence of farm-relevant and production-oriented environmental information for use in an EMS. Environmental standards for agriculture, and for linking environmental improvement with marketplace benefits in this sector, form the subject of Chapter 7.

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7. Linking Environmental Improvement in Agriculture with Marketplace Benefits: The Role of Environmental Standards

Summary

Environmental standards provide the basis for verifiably differentiating agri-food products, and production methods, on environmental grounds. They also, therefore, provide the basis for rewarding primary producers in markets via price premiums and/or market access, or via payments for ecosystem services provision in market-based schemes. The simple rationale underlying the linking of environmental and market benefits is that market rewards may provide effective incentives for engaging in environmental performance raising activities in agriculture.

There are limitations to the extent to which markets can drive environmental improvement in agriculture. Indeed, the market forces driving environmental standards development in some critical areas of environmental protection have been weak representing a clear case of market failure. Thus, even though opinion polls consistently show robust support for environmental protection, it is stressed that public concern over the environment and consumer behaviour are not identical, and so despite public concern for the environment, green markets have not grown to the extent that had been optimistically anticipated.

Environmental standards provide a basis for differentiating goods in the marketplace on environmental grounds. Without such differentiation of goods on environmental grounds, the linking of environmental and marketplace benefits is clearly not possible. Science-based environmental standards are the logical basis for the above, both in the context of environmental certification and labelling schemes that have currency in markets, as well as in the context of market-based schemes that seek to make payments to farmers for ecosystem services provision. More often than not, these standards do not yet exist and remain to be developed.

There is a role for environmental standards36 in Australian agriculture for the purpose of linking environmental improvement in food and fibre production with benefits in the marketplace. Environmental standards provide the basis for verifiably differentiating agri-food products, and production methods, on environmental grounds (Chapters 3 and 4). They also, therefore, provide the basis for rewarding primary producers via price premiums and/or market access, or via payments for ecosystem services provision. The simple rationale underlying the linking of environmental and market benefits is that market rewards may provide effective incentives for engaging in environmental performance raising activities in agriculture.

Taking as its point of departure the National Framework in Environmental Management Systems (EMS) in Agriculture, which advocates the voluntary adoption of the EMS standard as a means for farmers to enjoy environmental, market and trade benefits (EMSWG 2002; and EMSIWG 2003), the question of whether EMS in agriculture can indeed deliver what it has been presented as promising in terms of linked environmental-marketplace benefits is explored. Essentially, it is argued that for farmers to be rewarded in markets for engaging in on-farm and outcome-focused environmental

36 See Chapter 3.

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activities, then verifiable compliance against environmental standards other than EMS37 is required. In this way, this Chapter aims to progress current thinking beyond the application of the EMS process standard in agriculture, thereby shifting attention towards environmental performance standards with currency in the marketplace.

This Chapter aims to highlight the role and potential of voluntary environmental performance standards in delivering linked environmental and market benefits for agri-food producers. It is emphasised that environmental standards are conceived as being voluntary, in the sense that compliance against them is not required by law, as having their technical design grounded in sound science, and with the process of their development being industry-driven and involving input from community and government stakeholders.

The Chapter scopes the issues relating to agri-environmental standards development for Australian agriculture given that demonstrable compliance against outcome-focused (product and/or performance) environmental standards constitutes the basis of differentiating food and fibre products, and production methods, on environmental grounds, and provides both:

• the basis for rewarding primary producers via price premiums and/or market access

• the rationale for making payments for ecosystem services provision to farmers in schemes based on market-based instruments.

7.1 Market drivers of environmental improvement in agriculture

7.1.1 Environmental trends in agri-food markets

Some markets for environmentally differentiated, as well as quality and food safety assured, agri-food products already exist, and the future growth of such markets is generally accepted as given. As noted in Chapter 2, the OECD’s (1998) overview of trends and key issues regarding the future of food globally observes that ‘the evolution of consumer tastes and diets may gain in importance at the expense of traditional determinants of demand, in particular in OECD countries. It is possible, for instance, that growing [food] safety and ecological concerns may lead to a sustained demand for products with certain organic attributes (‘semi-organic’ produce), although it is generally assumed that the market for purely organic produce will remain marginal’ (OECD 1998).

Current and projected future growth of markets for environmentally and quality assured food and fibre goods is taking place under, for example, the European retailer driven EUREP-GAP scheme, Tesco’s Nature’s Choice, various organic and biodynamic schemes, the Marine Stewardship Council scheme and a host of forest certification initiatives, amongst others. Importantly, the retail locations where environmentally and quality assured food products are available are changing, with the sale of such products diverting from traditional suppliers such as health food stores to larger and more mainstream supermarkets. This trend is especially evident in Europe. Indeed, major international food retailers38 are increasingly supplying customers with environmentally differentiated, including organic, food products. In the UK, it may be said that all the major supermarkets are seeking to differentiate themselves on environmental grounds in the drive for market share. The growing consumer demand for environmentally labelled produce is widely reported by Heinze (2000), J Sainsbury plc (2000), Mech (2002), Mech and Young (2001), OECD (1998), Toyne et al. (2004), Unilever (2002), and others.

37 The internationally recognised environmental management systems (EMS) standard is ISO 14001. 38 These retailers include ICA Supermarkets in Sweden, and Sainsbury’s, Tesco and Waitrose in the UK,

amongst others (Toyne et al. 2004).

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7.1.2 Limitations of markets in driving environmental improvement in agri-food production

There are, however, limitations to the extent to which markets can drive environmental improvement in agriculture. (Berkhout et al. 2003). Despite the current and projected future growth of markets for environmentally and quality assured products, and despite the fact that such environmental labelling and certification schemes represent proactive and commendable responses of industry and business to strengthening consumer preferences for safe, clean and green food, it is highly unlikely that long-term agricultural sustainability can be guaranteed via environmental assurance schemes in isolation from other types of community-driven and government-driven environmental initiatives and activities. Essentially, this is because the market forces driving environmental standards development in some critical areas of environmental protection tend to be weak, representing a clear case of market failure, as observed by Anderson et al. (2001).

This is echoed by the Canadian Commission for Environmental Cooperation (1999; in Isaac and Woolcock 1999): ‘In the past decade, the goal of harnessing the power of markets in support of environmental objectives has passed through a number of stages, from strong enthusiasm, to cautious optimism, to disappointment, and finally to a refocusing of efforts towards achievable goals and defined market segments. During this time, one fact remains at the centre of efforts to expand green markets: opinion polls in both developing and developed countries consistently show robust and unwavering public support for environmental protection. However, public concern and consumer behaviour are not identical. Often the public expect strong regulatory intervention by governments to protect the environment, and do not draw strong links between their individual purchasing decisions and the overall state of the environment. Hence, despite strong public concern for the environment, green markets have not grown.’

7.2 Emergence of market-based mechanisms as drivers of agri-environmental improvement

Owing to the weakness of market forces driving environmental standards development in many areas of agri-environmental protection that require it, some governments are exploring the possibilities of making payments to farmers for engaging in land stewardship practices designed to deliver environmental outcomes and to provide ecosystem services. In other words, the potential and efficacy of market-based mechanisms is being explored in Australia, notably in Victoria,39 as a means to provide incentives for better land stewardship, and ultimately agricultural sustainability.

Also in Australia, the National Market-Based Instrument (MBI) Pilot Program is currently trialling the use of market-based mechanisms involving trading schemes, auctions and price signals in surrogate market settings to encourage better management of natural resource issues, particularly concerning issues like salinity, waste water and vegetation management. (Commonwealth of Australia 2002).

Overseas, under proposals to reform the European Union’s (EU) Common Agricultural Policy (CAP), environmental reasons are to constitute part of the raison d’ être for EU farmer support. Commenting on the European Commission proposals to reform the CAP, EU Farm Commissioner Franz Fischler stated that ‘[s]ociety is ready to support farming provided farmers give people what they want: safe food, animal welfare and a healthy environment. Farmers can count on new EU support to help them

39 For example, Chaudri (2003), Mech et al. (2003), Young et al. (2003) explore this under the Land Stewardship Project of the Victorian Catchment Management Council (VCMC) and the Department of Sustainability and Environment (DSE), funded under the National Action Plan for Salinity and Water Quality (NAP).

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to adapt to demanding EU environment, food safety and animal welfare standards and to promote quality food and traditional products.’40

7.3 Linking environmental improvement in agriculture with market benefits

For environmental and marketplace benefits to be linked, it is necessary to ensure that both:

• a demonstrable and measurable environmental outcome has been achieved

• the verifiable environmental outcome achieved is recognised, and has currency either in a market, or in a market-based scheme.

7.3.1 Environmental standards in markets

Verifiable compliance against an environmental standard, guideline or protocol provides a way of demonstrating that an environmental outcome has been achieved. In standards-based environmental certification and/or labelling schemes that deliver market benefits, the environmental standards, guidelines or protocols on which the schemes are based relate specifically to environmental aspects of:

• the end-product

• the production process via which the product was made

• performance relating either to the production process itself, or to environmental externalities stemming from the production process.

Environmental standards, guidelines and protocols that relate to the product, the production process and/or levels of performance provide a basis for differentiating goods in the marketplace on environmental grounds. Without such market differentiation of goods on environmental grounds, the linking of environmental and marketplace benefits is clearly not possible.

Selected examples of standards-based environmental certification and/or labelling schemes that provide linked environmental and marketplace benefits, and that are relevant to agricultural and rural industries, include the Integrated Fruit Production (IFP) guidelines, the European retailer-driven EUREP-GAP protocols for fresh fruit and vegetables, various organic and biodynamic schemes, the Marine Stewardship Council (MSC) scheme, the Forest Stewardship Council (FSC) scheme and the Finnish Forest Certification Scheme (FFCS), amongst others. All of these standard-based schemes are based on environmental standards, guidelines or protocols that stipulate environmental aspects of the end-product, and/or the production process, and/or performance levels to be met, thereby allowing for products to be differentiated in the market on environmental grounds. Some, but not all, of these schemes include a requirement for participating businesses to have a management system in place, in other words, to comply with a management process standard for internal information management purposes. The EUREP-GAP scheme, for example, requires growers to have in place either a quality management system (QMS) or an environmental management system (EMS).

Essentially, the environmental standards on which different environmental certification and labelling schemes are based, determine the nature of the green claims that can be made in the event of a successful third party audit of those standards. Also, the nature of the audit, that is to say whether it is conducted internally or externally or both, and the nature and identity of the body or authority

40 Further information on the European Commission’s reform proposals is available at www.europa.eu.int/comm/agriculture/mtr/index_en.htm .

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conducting external auditing and making labelling recommendations and decisions, convey different messages in the marketplace regarding the levels of certainty, even trustworthiness, associated with the environmental claims made. Thus, the types of environmental standards, how these are audited and by whom, and how certification and/or labelling decisions are made, all determine the level of consumer confidence and marketplace recognition associated with different environmental certification and labelling schemes.

7.3.2 Environmental standards in market-based schemes

Some governments are exploring the possibilities of making payments to farmers for engaging in land stewardship practices designed to deliver environmental outcomes and to provide ecosystem services. If governments on behalf of the community are to pay farmers to provide ecosystem services in market-based schemes, then clarity and stakeholder agreement are required regarding both:

• landscape-scale environmental targets on specific NRM matters relating, for example, to catchment, water quality and salinity management, biodiversity conservation, as well as in other areas of public good provision of interest to the community; and importantly

• how these ‘big-picture’ targets may be translated practically into operational standards and guidelines for environmental activities at the property-level that would form the basis for making payments.

Some landscape-scale catchment management targets and biodiversity conservation goals have already been articulated, while others remain to be formulated. Generally speaking, however, a critical information and knowledge gap exists between the ‘macro’ landscape-scale changes that the community seeks, and the practical ‘micro’ property-level activities that are to contribute to delivering desired landscape outcomes.

In other words, there is a need to ‘translate’ landscape targets on specific NRM matters into practical environmental information for effecting landscape change that is relevant to decision-making at the farm-level. Currently, as noted by Mech et al. (2003) such information does not, by and large, exist and remains to be developed in the form of practically useful environmental standards and guidelines. Environmental standards and guidelines that relate to agriculture’s environmental performance, as well as to environmental aspects of agricultural production processes, represent key missing ingredients in the quest for better environmental management in agriculture. (Mech et al. 2003).

If government payments are to be made for the provision of ecosystem services, then payments that are contingent on environmental performance outcomes, or that relate specifically to land stewardship practices undertaken, are most likely to deliver the greatest environmental return per dollar paid. Payments could be contingent upon compliance with environmental performance standards or guidelines designed to ensure that verifiable (in some way measurable) environmental improvement has been achieved, and/or to ensure that demonstrable implementation of practical activities that may deliver improved environmental performance over the longer term has been undertaken. The need for environmental standards to support the effective use of market-based instruments is noted by both Hatton MacDonald et al. (2004), and Connor and Bright (2003).

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Box 8 Ecosystem services

‘Ecosystem services flow from natural assets (soil, water systems, plants, animals, other living organisms and the atmosphere) to provide us with financial, ecological and cultural benefits. Examples of ecosystem services include: provision of clean water, maintenance of liveable climates and fertile soil, pollination, and fulfilment of cultural and intellectual needs. If natural assets are not maintained the benefits from ecosystem services decline. Conversely, if we maintain our natural assets and use them more effectively, we will benefit from greater returns.’ (CSIRO Sustainable Ecosystems, Ecosystem Services Project 2001).

Daily (1999) classifies ecosystem services into the following categories:

• the production of goods such as food, pharmaceuticals, durable materials (fibres and timber), energy (biomass fuels and water for hydropower), industrial products (naturally occurring chemicals, some of which may be precursors to synthetic compounds) and genetics resources

• regeneration processes including cycling and filtration processes (detoxification and decomposition of wastes, generation and renewal of soil fertility, purification of air and purification of water), translocation processes (seed dispersal and pollination)

• stabilising processes such as coastal and river channel stability, natural control of pest species, moderation of weather extremes, water cycle regulation (mitigation of floods and droughts)

• life-fulfilling functions including aesthetic beauty, cultural and spiritual inspirations, existence value, scientific discovery and serenity

• preservation of options including the maintenance of the ecological components and systems for the future, and the supply of these goods and others awaiting discovery.

Examples of ecosystem services in Australia

• remnant ecosystems and the services they provide

• pollination services in Australia

• forest productivity, marsupial survival and truffles

• dieback in Eucalypts in the heartlands

• resilience of rangeland productivity and grass biodiversity

• provision of clean water from a catchment

Sources: CSIRO Sustainable Ecosystems, Ecosystem Services Project (2001); Daily (1999); and the CSIRO Sustainable Ecosystems website: www.cse.csiro.au/research/Program 5/ecoservices/index.htm.

http://www.cse.csiro.au/research/Program 5/ecoservices/index.htm

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7.4 Future environmental standards development

In some cases markets are driving environmental standards development. However, in many others, the failure of markets to provide environmental goods and services, along with the limitations of orthodox regulatory approaches to deliver NRM outcomes,41 means that surrogate market mechanisms are emerging as a way of providing incentives to deliver the public goods sought by the community. Ultimately, the capacity of both markets, and market-based schemes, to improve environmental management in agriculture, and to link the delivery of environmental and market benefits, depends on:

• demonstrating that verifiable environmental outcomes have been achieved, and/or that specific environmental activities have been undertaken

• ensuring that the verifiable outcomes achieved, and/or environmental activities undertaken are recognised, and have currency (i.e. can form the basis for rewards), in a market or in a market-based scheme.

Science-based environmental standards are the logical basis for the above, both in the context of environmental certification and labelling schemes that have currency both in markets as well as in the context of market-based schemes that seek to make payments to farmers for ecosystem services provision. More often than not, these standards do not yet exist and remain to be developed. It is emphasised that the environmental standards discussed are conceived as being voluntary, in the sense that compliance against them is not required by law, as having their technical design grounded in sound science, and with the process of their development being industry-driven and involving input from community and government stakeholders. Possible areas for environmental standards development for agriculture include property-level salinity management, water quality and quantity management, biodiversity conservation and management including, native flora and fauna management, the management of greenhouse gas emissions as these relate to primary production, as well as on-farm waste and chemical management.

7.5 International standards relevant to agriculture and allied rural industries

A key global issue germane to the design and uptake of diverse voluntary arrangements for agriculture concerns international standards. Three key organisations are involved in the setting of international standards relating to human, animal and plant health. These include, first, the Codex Alimentarius Commission of the Food and Agriculture Organization (FAO) of the United Nations, and the World Health Organization (WHO) of the United Nations. The FAO/WHO Codex Alimentarius Commission is the relevant international standard setting organisation for food and human health. Codex recommendations exist, for example, for maximum residue limits (MRLs) for pesticides and veterinary drugs. Second, the International Animal Health Organization, also known as the Office International des Epizooties, is concerned with the setting of standards for animal health. Third, the FAO’s Secretariat of the International Plant Protection Convention is concerned with the setting of plant health standards. An overview of these international standards and standard setting organisations is presented in sections 7.5.1, 7.5.2, 7.5.3 and 7.5.4.

International standards that are relevant to agriculture and allied rural industries include:

• international food standards of the Codex Alimentarius Commission

• international animal health standards of the International Animal Health Organisation

41 The limitations of orthodox regulation in achieving agri-environmental outcomes are discussed in Chapter 1, section 1.3.

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• international plant health standards of the International Plant Protection Convention.

7.5.1 International food standards and the Codex Alimentarius Commission

The Codex Alimentarius of the Food and Agriculture Organization (FAO) and the World Health Organization (WHO) of the United Nations is a set of international food standards, codes of practice, guidelines and recommendations. The Codex Alimentarius Commission is the entity responsible for the development of these standards. The Codex Alimentarius has relevance to international trade in agri-food products. Indeed, the WTO cites Codex standards, guidelines and recommendations as the preferred international measures for facilitating international trade in food, and the SPS and TBT Agreements encourage the international harmonization of food standards. Because of this, Codex standards effectively provide the benchmarks against which national food measures and regulations are evaluated by the WTO. The standards also provide a global reference point for consumers, food producers and processors, national food control agencies and the international food trade (FAO website: www.fao.org).

7.5.2 International animal health standards and the International Animal Health Organization

The roles of the World Organisation for Animal Health, also referred to as the Office International de Epizooties (OIE) are to guarantee the transparency of animal disease status world-wide, to collect, analyse and disseminate veterinary scientific information, to provide expertise and promote international solidarity for the control of animal diseases, and to guarantee the sanitary safety of world trade by developing sanitary rules for international trade in animals and animal products. In order to guarantee the sanitary safety of global trade in animal products, the OIE prepares documents relating to rules that member countries can apply for animal disease protection, without erecting unjustified sanitary barriers. The key documents produced are the Terrestrial Animal Health Code, the Manual of Diagnostic Tests and Vaccines for Terrestrial Animals, the Aquatic Animal Health Code and the Manual of Diagnostic Tests for Aquatic Animals and OIE Quality Standard and Guidelines for Veterinary Laboratories; Infectious Diseases. These standards and codes are prepared by elected expert-based commission and working groups of internationally renowned scientists, most of whom are participate in a network of about 150 collaborating centres and laboratories that also contribute towards the scientific objectives of the OIE. The WTO recognises these standards and codes as reference international sanitary rules.

7.5.3 International plant health standards and the International Plant Protection Convention

The International Plant Protection Convention (IPPC) is a multilateral treaty administered via the Plant Protection Service of the Food and Agriculture Organization of the United Nations (FAO).

The IPPC’s role is to prevent the spread and introduction of pests of plants and plant products and to promote control measures. For this purpose, the convention is the source for International Standards for Phytosanitary Measures (ISPMs) that affect global trade in plant products, and is recognised as such under the SPS Agreement of the WTO. The IPPC contains provisions for standard setting procedures. More than a hundred governments are contracting parties to the IPPC (FAO website: www.fao.org).

7.5.4 International standards in a national context: Codex Australia and the National Residue Survey

The international food standards developed by the Codex Alimentarius Commission of FAO/WHO provide a global reference point for consumers, food producers and processors, national food control

http://www.oie.int/eng/publicat/en_code.htm

http://www.oie.int/eng/publicat/en_standards.htm

http://www.oie.int/eng/publicat/en_standards.htm

http://www.oie.int/eng/publicat/en_aqua.htm

http://www.fao.org/

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agencies and the international food trade (FAO website: www.fao.org). Within the Australian context, Codex Australia is the national counterpart organisation to the Codex Alimentarius Commission. The functions of Codex Australia42 are, effectively, to place these international standards within a national context, by:

• acting as a link between the Codex Secretariat and Member Countries

• coordinating relevant Codex activities within Australia

• receiving Codex final texts and working documents and ensuring that they are circulated to interested stakeholders within Australia, for example, governments, industries and consumers

• coordinating Australia’s input to the global work of Codex

• providing the host country secretariat for the Codex Committee on Food Import and Export Inspection and Certification Systems (CCFICS) and Codex Coordinating Committee for North America and the South West Pacific (CCNASWP).

An important part of the work of Codex Australia that is carried out for the purpose of ensuring the product integrity of agricultural produce is performed by the Australian National Residue Survey (NRS). This is a program of the Residues and Standards Branch of the Federal Department of Agriculture, Fisheries and Forestry - Australia (AFFA). Its specific function is to monitor chemical residues in agricultural produce from Australia. At present, monitoring is limited to chemical residues in raw food commodities, and the survey monitors chemical residues and environmental contaminants in the products of participating industries such as crops, meat and grains. Residue monitoring is a key element of the national strategy to minimise undesirable residues and environmental contaminants in farm goods. Monitoring identifies potential problems and indicates any follow-up action required. Chemical residue surveys are an important measure of product quality, notably so for exporting countries such as Australia (NRS website: www.nrs.gov.au).

42 Information sourced from the website of the Australian National Residue Survey (NRS): www.nrs.gov.au.

http://www.fao.org/

http://www.nrs.gov.au/

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8. International Trade and the Environment: Recent Developments of Relevance to Primary Industries

Summary

Existing measures for environmental management and protection that apply across international borders, and that are relevant to trade in agri-food goods, are contained within some trade agreements of the World Trade Organization (WTO), as well as in multilateral environmental agreements (MEAs). These are set by governments in inter-governmental fora. As a trade organisation, the WTO is concerned with environmental issues insofar as these intersect with trade. The explicit intention of current WTO rules has been the achievement of predictable global trade through rules established as part of the multilateral trade system founded under the General Agreement on Tariffs and Trade (GATT), latterly the WTO.

Trade-related environmental considerations are reflected in specific provisions in a number of WTO agreements. Two key environmental provisions in WTO agreements relevant to agri-food trade are:

• the preamble of the WTO Agreement which includes amongst its objectives sustainable development that allows for the optimal use of the world’s resources, while addressing environmental protection and preservation

• GATT Article XX which allows governments to protect human, animal or plant life or health, and conserve exhaustible natural resources through trade discrimination and restriction provided these do not constitute arbitrary or unjustifiable discrimination, and/or disguised international trade restrictions.

The frequency of trade disputes in the WTO fought on grounds relating either to human and animal health or the environment has risen in recent years. Under the original GATT (1947-1995), 6 disputes out of a total of 115 related to human and animal health or the environment. By contrast, between 1995, when the WTO came into being, and the end of 1998, 6 such cases were identified among 38 dispute panels established. Most trade disputes fought on environmental grounds have centred on interpretation of GATT Article XX.

In the context of current WTO rules, a long held general maxim of international trade has been that WTO member countries may not use trade restrictions to force their own environmental standards and policies on producers in another country.

A key development that brings trade and environment issues centre-stage and raises questions about potential implications for agriculture is the WTO Appellate Body’s decision in the recent Shrimp-Turtle dispute. This controversial ruling, although only one example, overturns this general maxim. As such, it represents a monumental shift from GATT 1947 jurisprudence, and potentially sets the scene for future trade disputes being fought on environmental grounds.

Outside the bounds of current WTO rules, another way that may be used to encourage exporting countries to produce goods in a manner safe to the environment is through the establishment by governments of international agreements regarding environmental matters, often referred to as multilateral environmental agreements, or MEAs. A minority of MEAs include trade provisions, many of which are at odds with WTO norms. Of these, the Cartagena Protocol on Biosafety (a protocol to the Convention for Biological Diversity, CBD) is the most pertinent to primary industries.

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Outside the purview of current WTO rules and MEAs set by governments in inter-governmental fora, an alternative way of encouraging improved environmental practices in industry and along agri-food supply chains, is via environmental standards imposed by retailers and processors, requiring suppliers to meet specified environmental performance standards and criteria. This allows companies, and the consumers they supply, to discriminate between products produced using high standards, and those using lower standards, for example through the use of a label.

8.1 Background

This Chapter overviews environmental issues and measures relevant to international trade along with some recent global trade and environment developments. The growing importance of ‘the environment’ in the trade and environment debate is clear. Attracting attention for some time, it has become an increasingly prominent issue since the establishment of the World Trade Organization (WTO) in 1995 (Shaw and Schwartz 2002).

In 1995, Australia’s former Ambassador to the WTO, Alan Oxley, commented that environmental issues were already impacting on trade in agriculture and that the impact would intensify, generating threats and opportunities for Australian agricultural exporters (Oxley 1995). The prescience of this observation has been borne out by recent global trade policy developments that potentially foreshadow new grounds for the continued distortion of world trade in farm products. Perhaps more importantly, they may portend missed environmental policy opportunities, at domestic and international levels, to address agri-environmental problems in ways that achieve desirable environmental outcomes along with sustainable food and fibre production. (Oxley, 2002a and 2002b). Unfolding events and their possible implications are being watched intently by primary and rural industries, national and supranational public agencies, and environmental and community organisations the world over.

Specifically, the purpose of this Chapter is to:

• overview environment-related measures and arrangements that presently apply across international borders

• provide synopses of key trade disputes fought on environmental grounds of relevance to primary industries

• summarise the tasks of the Committee on Trade and Environment of the WTO

• outline the potential problems stemming from overlapping WTO rules and trade-related provisions in MEAs

• report on recent trade and environment developments germane to agriculture.

8.2 Existing environment-related measures and arrangements that apply across international borders

An overview of existing measures for environmental management and protection that apply across international borders, and that are of relevance to primary industries, demands coverage of both trade and environment issues within the purview of the WTO, and MEAs, both of which are set by governments in inter-governmental fora.

In the context of current WTO rules, a long held general maxim of international trade has been that WTO Member countries may not use trade restrictions to force their own environmental standards and policies on producers in another country. Grounded in the notion of ‘extra-territoriality’, or the unacceptability of one country imposing its laws, regulations, policies and values outside its jurisdiction, the rationale for this has been to disallow importing countries embargoing products on the

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grounds that an exporting country has different environmental, health and social policies from its own. To date, the explicit intention of current WTO rules has been the achievement of predictability of trade through rules established as part of the multilateral trade system founded under the General Agreement on Tariffs and Trade (GATT), latterly the WTO43.

Another way that governments can use to encourage exporting countries to produce their goods in a manner safe to the environment is through the establishment of international agreements regarding environmental matters, often referred to as multilateral environmental agreements, or MEAs.

Outside the purview of, both, current WTO rules and MEAs set by governments in inter-governmental fora, an alternative way of encouraging improved environmental practices in industry and along agri-food supply chains, is via environmental standards imposed by retailers and processors, requiring suppliers to meet specified environmental performance standards and criteria. This allows companies, and the consumers they supply, to discriminate between goods produced using high standards, and those using lower standards, for example through the use of a label.

8.3 Trade and environment issues in the WTO

The WTO deals with the rules of trade between its member nations. Its key role is to ensure that trade flows as smoothly, predictably and freely as possible. For this purpose, it administers WTO agreements, provides a forum for trade negotiations, handles trade disputes, monitors national trade policies, provides technical assistance and training for developing countries, and cooperates with other international organisations. The WTO comprises additional agreements not part of the original GATT.44

Moreover, unlike the GATT, an agreement to which member countries were contracting parties, the WTO is a member-driven permanent institution with an international charter. (Rao 2001; and WTO website: www.wto.org, 2002).

43 The GATT institution became the WTO on 1 January, 1995. 44 The original GATT 1947 was concerned with trade in goods. The WTO deals with these under the new

GATT 1994, along with the governance of the General Agreement on Trade in Services (GATS), Trade-Related Intellectual Property Rights (TRIPS) and a Dispute Resolution Understanding (DSU). (Rao 2001).

http://www.wto.org/

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Box 9 What does the WTO do?

The WTO deals with the rules of trade among nations. WTO agreements, which provide legal ground-rules for international commerce, are negotiated by the majority of the world’s trading nations and ratified in their parliaments. These agreements are contracts guaranteeing member countries important trade rights, and binding governments to keep their trade policies within agreed limits to everybody’s benefit. Decisions are made by the entire WTO membership, typically by consensus. A majority vote is also possible, though has never been used in the WTO, and was used extremely rarely under the WTO’s predecessor, GATT.

The main function of the WTO is to ensure that trade flows as smoothly, predictably and freely as possible. For this purpose, the WTO:

• administers WTO agreements

• provides a forum for trade negotiations

• handles trade disputes

• monitors national trade policies

• provides technical assistance and training for developing countries

• cooperates with other international organisations.

As of 1 January 2002, 144 countries, accounting for over 97 per cent of world trade, were WTO Members. Some 30 more were negotiating membership.

Source: WTO website: www.wto.org (2002).

8.4 Provisions in WTO agreements that relate to the environment

As a trade organisation, the WTO is concerned with environmental issues insofar as these intersect with trade. While the word ‘environment’ did not feature in the text of the original GATT 1947, and although the environment was not a focus of negotiations during the Uruguay Round, neither was it absent from them, with the result that trade-related environmental considerations are now reflected in specific provisions in a number of WTO agreements. Nordström and Vaughan (1999) and Rao (2001) provide comprehensive summaries of environment-related provisions in WTO agreements.45

8.4.1 The preamble of the Marrakesh Agreement Establishing the World Trade Organization (the WTO Agreement)

The preamble of this agreement, sometimes referred to as the WTO Agreement, includes amongst its objectives sustainable development that allows for the optimal use of the world’s resources, while

45 Environment-related provisions in WTO agreements include: the Preamble to the Marrakesh Agreement Establishing the World Trade Organization; the General Agreement on Tariffs and Trade, notably the exceptions clauses in Article XX; the Agreement on Technical Barriers to Trade (The TBT Agreement); the Agreement on Sanitary and Phytosanitary Measures (The SPS Agreement); the Agreement on Agriculture; the Agreement on Subsidies and Countervailing Measures (The SCM Agreement); the Agreement on Trade-Related Aspects of Intellectual Property Rights (The TRIPS Agreement); the General Agreement on Trade in Services (GATS), notably Article XIV; and the Understanding on Rules and Procedures Governing the Settlement of Disputes. (Nordström and Vaughan 1999; and Rao 2001). This Chapter provides a summary overview of those most relevant to trade in agri-food products.

http://www.wto.org/

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addressing environmental protection and preservation. Specifically, it states that ‘trade and economic endeavour should be conducted with a view to raising standards of living, ensuring full employment and a large and steadily growing volume of real income and effective demand, and expanding the production of and trade in goods and services, while allowing for the optimal use of world’s resources in accordance with the objective of sustainable development, seeking both to protect and preserve the environment and to enhance the means for doing so in a manner consistent with their respective needs and concerns at different levels of economic development’ (Nordström and Vaughan 1999).

The importance of this preamble was highlighted in the Shrimp-Turtle trade dispute,46 where reference to this preamble was made by the Appellate Body in order to interpret provisions in other WTO agreements, notably GATT Article XX. Essentially, it was argued that explicit recognition of the sustainable development objective in the preamble meant that WTO member countries were “fully aware of the importance and legitimacy of environmental protection as a goal of national and international policy.’ (United States - Import Prohibition of Certain Shrimp and Shrimp Products, Appellate Body Report, WT/DS58/AB/R, circulated on 12 October 1998; in Nordström and Vaughan 1999).

8.4.2 Article XX of the General Agreement on Tariffs and Trade (GATT)

The preamble of the WTO Agreement is reinforced by provisions in other agreements including, notably, Article XX of the General Agreement on Tariffs and Trade. Essentially, this allows governments to depart, under certain conditions, from this agreement’s obligations for the purposes of protecting human, animal or plant life or health, and conserving exhaustible natural resources. GATT Article XX states that ‘[s]ubject to the requirement that such measures are not applied in a manner which would constitute a means of arbitrary or unjustifiable discrimination between countries where the same conditions prevail, or a disguised restriction on international trade, nothing in this Agreement shall be construed to prevent the adoption or enforcement by any contracting party of measures:

(b) necessary to protect human, animal or plant life or health …

(g) relating to the conservation of exhaustible natural resources if such measures are made effective in conjunction with restrictions on domestic production or consumption.’

Thus, GATT Article XX allows governments to use GATT-inconsistent trade discriminating and/or restricting measures for the purposes of protecting human, animal or plant life or health, and conserving exhaustible natural resources, provided it can be shown that these do not equate to arbitrary or unjustifiable discrimination, and/or disguised international trade restrictions. Rao (2001) observes that, historically, most trade disputes fought on environmental grounds have centred on the interpretation of GATT Article XX and that most, though not all, failed to utilise the exceptions clauses made possible in paragraphs (b) and (g). However, as noted by Oxley (2002a and 2002b) and Rao (2001), the recent ruling in the Shrimp-Turtle trade dispute sets new norms for restricting trade on environmental grounds.

8.4.3 The Agreement on Technical Barriers to Trade (the TBT Agreement)

The Agreement on Technical Barriers to Trade, commonly referred to as the TBT Agreement, deals with the preparation, adoption and application of product technical requirements, and of procedures used for the assessment of compliance with them. Many of the product technical requirements dealt

46 The Shrimp-Turtle dispute is given deeper treatment in section 8.5.2.

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with under the TBT Agreement result from food safety and animal and plant health measures, 47 covering issues such as pesticide residue limits, inspection requirements and related product labelling. Parts of this agreement are pertinent to trade aspects of environmental policy, with some product technical requirements relating to the environment. The TBT Agreement places product technical requirements into two categories: technical regulations, compliance with which is mandatory; and standards for voluntary compliance. The TBT Agreement includes provisions for settling trade disputes arising from the use of technical restrictions (Nordström and Vaughan 1999; and WTO 1998).

The TBT Agreement recognises that individual countries are free to set the domestic levels of health and environmental protection they deem appropriate. Having set those levels domestically, countries are required to use them in their international trade dealings in a non-discriminatory way. WTO members are encouraged to use available international standards.48 However, they are entitled to set more stringent standards to suit their domestic needs if it is considered that available international standards are not adequate for, say, climatic, geographical or technological reasons. WTO members have agreed to notify one another, through the GATT Secretariat, of technical regulations not based on international standards.

In the WTO, most trade-related environmental measures have been notified under the TBT Agreement. In 1999, of some 2300 notifications received since the TBT Agreement had come into force on 1 January 1995, about 11 per cent had been environmental in nature. These included trade-related measures for pollution abatement, waste management, energy conservation, standards and labelling including eco-labelling, handling requirements, economic instruments and regulations, measures for the preservation of natural resources, and measures for implementing multilateral environment agreements49 (Nordström and Vaughan 1999).

47 An important distinction to make between the TBT and SPS Agreements is that the TBT Agreement was developed for the purpose of regulating technical issues arising from the specification of sanitary and phytosanitary measures, and not for the purpose of regulating sanitary and phytosanitary measures themselves, which are covered under the SPS Agreement. The TBT Agreement covers all technical regulations, voluntary standards and the procedures to ensure that these are met, except where these are sanitary or phytosanitary measures as defined by the SPS Agreement.

48 These include standards for food safety developed by the Codex Alimentarius Commission, animal health standards developed by the World Organisation for Animal Health, OIE, and the plant health standards developed under the International Plant Protection Convention (IPPC).

49 WTO reference: Item 4: Provisions of the Multilateral Trading System With Respect to the Transparency of Trade Measures Used for Environmental Purposes and Environmental Measures and Requirements Which Have Significant Trade Effects, Note by Secretariat, WT/CTE/W/77 (9 March 1998); in Nordström and Vaughan (1999).

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Eco-labelling50 is a key environment-related issue, and an evolving one, in relation to the TBT Agreement. Conclusions remain to be reached on the following, which continue to be discussed in the WTO:

• the applicability of the TBT Code of Good Practice to voluntary eco-labelling schemes

• the extent to which eco-labelling schemes, where these are based on processes and production methods (PPMs) that are unrelated to a final product’s characteristics, are covered by the TBT Agreement

• the effects of eco-labelling on international trade

• the implementation and management of eco-labelling schemes (Nordström and Vaughan 1999).

8.4.4 The Agreement on Sanitary and Phytosanitary Measures (the SPS Agreement)

The SPS Agreement51 sets out the basic trade-related rules for designing and applying food safety and animal and plant health standards. Nearly all countries maintain measures to ensure that food is safe for consumers, and to prevent the spread of pests or diseases among animals and plants. Sanitary and phytosanitary measures can take many forms, such as requiring products to come from a disease-free area, inspection of products, specific treatment or processing of products, setting of allowable maximum levels of pesticide residues or permitted use of only certain additives in food.

For the purposes of the SPS Agreement, sanitary and phytosanitary measures are defined as any measures applied:

• to protect human or animal life from risks arising from additives, contaminants, toxins or disease-causing organisms in their food

• to protect human life from plant- or animal-carried diseases

• to protect animal or plant life from pests, diseases, or disease-causing organisms

• to prevent or limit other damage to a country from the entry, establishment or spread of pests.

These include sanitary and phytosanitary measures taken to protect the health of fish and wild fauna, as well as of forests and wild flora. Measures for environmental protection, other than as defined above, to protect consumer interests, or for the welfare of animals are not covered by the SPS Agreement. These concerns, however, are addressed by other WTO agreements such as the TBT Agreement, or Article XX of GATT, 1994 (WTO 1998).

While sanitary and phytosanitary measures, by definition, relate to food safety and animal and plant health issues, there may sometimes be an overlap with environmental issues. For example, as regards plant health, there may be instances where imports of an agri-food product are contaminated by a pest

50 There is a difference between ‘environmental labelling’ and ‘eco-labelling’. Salzman (1994; in Appleton 1997) acknowledges ‘that much of the [environmental labelling and eco-labelling] debate is “confused”, and that there are many ways to classify environmental labels’, and observes an emerging consensus that environmental labels provide any type of environmental information, whereas eco-labels are a specific type of environmental label awarded on the basis of life cycle analysis (LCA). (Mech and Young 2001).

51 This agreement entered into force with the establishment of the World Trade Organization on 1 January, 1995. The full title of what is commonly called the SPS Agreement is The Agreement on the Application on Sanitary and Phytosanitary Measures of the WTO.

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or disease. The failure to ban such imports may result not only in obvious detrimental impacts to the importing country’s primary industries, but also in wider negative environmental impacts beyond the primary sector. There are numerous examples of detrimental environmental and economic impacts resulting from the spread of exotic species and diseases in Australia and overseas (Mech and Young 2001).

The intention of the SPS Agreement is also to ensure that strict health and safety regulations are not being used as an excuse for protecting domestic producers. For this purpose, there are rules to prevent standards being used as a means by which WTO Member countries may unfairly and unjustifiably restrict imports. Article 4 of the SPS Agreement, on Equivalence, requires that Member countries recognise that different measures can have equivalent outcomes in terms of the level of SPS protection achieved. If there are non-equivalent outcomes in the level of health protection achieved, then standards can be justifiably used as an import restriction.

In the event that a country’s agri-food exports are banned by another country on the justifiable grounds that the exporting country’s legislated standards are found to be non-equivalent under the SPS Agreement, agri-food producers in the exporting country who are able to verify compliance against voluntarily undertaken standards that do meet the importing countries more stringent requirements should be able to continue exporting. For example, in the case of US beef producers exporting to the EU, those producers who were able to demonstrate their beef production took place without the use of hormone growth promoters enjoyed continued access to EU markets.

Distinguishing between the SPS and TBT Agreements

SPS measures typically deal with additives in food or drink; contaminants in food or drink, poisonous substances in food or drink, residues of veterinary drugs or pesticides in food or drink, certification of food safety, animal or plant health, processing methods with implications for food safety, labelling requirements directly related to food safety, plant and animal quarantine, declaring areas free from pests and diseases, preventing disease or pests spreading to a country, and other sanitary requirements for imports. TBT measures typically deal with labelling of food, drink and drugs, quality requirements for fresh food, packaging requirements for fresh food. (WTO 1998). Also, most trade-related environmental measures in the WTO have been notified under the TBT Agreement, as noted above.

8.4.5 The Agreement on Agriculture

This agreement, negotiated during the Uruguay Round, provides for the long-term reform of agricultural trade and domestic farm sector policies. Significantly, it articulates a commitment to decreasing domestic support for farm production, especially in the form of production-linked farm subsidies. From an environmental perspective, the reduction of domestic supports and export subsidies may lead to some environmental improvements from less intensive production. With specific regard to environmental protection, the sixth paragraph of the preamble states that commitments under the reform program should take into account environmental considerations. Also, Article XX of this agreement requires that negotiations regarding the reform program take into account non-trade concerns, include environmental concerns (Nordström and Vaughan 1999).

The Agreement on Agriculture recognises the rights of Member States to introduce Green Box policies and measures for a range of non-trade objectives, including environmental protection. Green Box measures are a category of non-trade-distorting domestic support measures, such as government-provided agricultural research and training. Essentially, Green Box measures have no, or at least minimal, trade-distorting effects or effects on production. They are provided via publicly funded programs that do not involve transfers from consumers and they must not have the effect of providing price support to producers.

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Box 10 Summary of environmental provisions in WTO agreements relevant to

agriculture and food

The preamble of the WTO Agreement

This includes amongst its objectives sustainable development that allows for the optimal use of the world’s resources, while addressing environmental protection and preservation. In the Shrimp-Turtle trade dispute, it was argued that the preamble’s explicit recognition of the objective of sustainable development meant that WTO members were cognisant of the importance and legitimacy of environmental protection and preservation as goals of national and international policy.

GATT Article XX

GATT Article XX allows governments to protect human, animal or plant life or health, and conserve exhaustible natural resources through trade discrimination and restriction - that is to say, otherwise GATT inconsistent measures - provided these do not constitute arbitrary or unjustifiable discrimination, and/or disguised international trade restrictions. Most trade disputes fought on environmental grounds have centered on the interpretation of GATT Article XX, and while most failed to utilise the exceptions made possible, the recent Shrimp-Turtle ruling has potentially set new norms to restrict trade on environmental grounds.

The TBT Agreement

This deals with the preparation, adoption and application of product technical requirements, and of procedures used for the assessment of compliance with them. Some product technical requirements relate to food safety and animal and plant health measures, others to the environment. Most trade-related environmental measures in the WTO have been notified under this agreement, including measures for pollution abatement, waste management, energy conservation, standards and labelling, handling requirements, economic instruments and regulations, measures for preserving natural resources, and for implementing MEAs.

Eco-labelling is an important and evolving topic in relation to this agreement. An issue that presently lacks clarity is whether, and if so how, to deal with labelling to describe the way a product is produced, as distinct from labelling to describe the product itself under the TBT Agreement. Questions also surround the effects of eco-labelling on international trade.

The SPS Agreement

This sets out rules for food safety and animal and plant health standards. These may sometimes overlap with environmental issues. For example, imports of a plant product contaminated by a pest or disease may result in detrimental impacts to the importing country’s primary industries, as well as in wider negative environmental impacts from the spread of exotic species or disease.

The Agreement on Agriculture

This articulates a long-term commitment to reform in agricultural trade and policy, including decreasing production-linked farm subsidies. The preamble states that reform should take into account environmental considerations, and Article XX requires negotiations on the reform program to take into account non-trade concerns, which includes environmental concerns.

Sources: Nordström and Vaughan (1999); Oxley (2002b); Rao (2001); WTO (1998); and the WTO website: www.wto.org (2002).

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8.5 Environmental disputes in the GATT 1947 and in the WTO

The frequency of trade disputes fought on grounds relating either to human and animal health or the environment has risen. Between 1947 and 1995, that is to say under the original GATT, 6 disputes out of a total of 115 related to human and animal health or the environment.52 By contrast, between 1995, when the WTO came into being, and the end of 1998, 6 such cases were identified among 38 dispute panels established53 (Nordström and Vaughan 1999). Rao (2001) observes that most trade disputes fought on environmental grounds have centred on the interpretation of GATT Article XX and most, though not all, have failed to utilise the exceptions clauses made possible in paragraphs (b) and (g) of this article. The following brief overview of two trade disputes, the Tuna-Dolphin case and the more recent Shrimp-Turtle case, serve to illustrate a shift in approach to trade and environmental issues between the original GATT and the WTO.

8.5.1 The Tuna-Dolphin cases: Extra-territoriality and the ‘product versus process’ trade issue54

In a well-known case concerning US imports of Mexican tuna, the USA banned the imports of Mexican tuna on the grounds that Mexico did not require its fishing fleet to use fishing practices to exclude dolphins from the tuna catch. This international trade dispute centred on two key issues: first, whether one country could dictate to another, what its environmental regulations and policies should be; and second, whether trade rules permit action to be taken against the methods used to produce goods, rather than some inherent quality or feature of the good in question.

Mexico requested that a panel help settle the trade dispute, and this panel concluded that the US could not embargo imports of tuna products from Mexico simply because Mexican regulations regarding the way tuna was produced did not meet US regulatory requirements. However, the panel did find that the US could apply its regulations on the quality or content of the tuna imported.

The debate surrounding the quality or content of the final tuna product versus the way it was produced came to be known as a ‘product versus process’ trade issue. Effectively, GATT rules prohibited one country from taking trade action against another country for the purpose of attempting to enforce their own domestic laws in the other country, even to protect animal health or exhaustible natural resources.

The GATT decision was grounded in the notion of ‘extra-territoriality’, that is to say, the unacceptability of one country imposing its laws, regulations, policies and values outside its jurisdiction. The rationale for this decision was that if the US arguments had been accepted, then any

52 Under GATT 1947, these included: United States - Prohibition of Imports of Tuna and Tuna Products From Canada; Canada - Measures Affecting Exports of Unprocessed Herring and Salmon; Thailand - Restrictions on Importation of and Internal Taxes on Cigarettes; United States - Restrictions on Imports of Tuna; United States - Restrictions on Imports of Tuna; and United States - Taxes on Automobiles (Nordström and Vaughan 1999; and Rao 2001).

53 In the WTO, these have included: United States - Standards for Reformulated and Conventional Gasoline; European Communities - Measures Affecting Meat and Meat Products; United States - Import Prohibition of Certain Shrimp and Shrimp Products; Australia - Measures Affecting Importation of Salmon; Japan - Measures Affecting Agricultural Products; and European Communities - Measures affecting Asbestos and Product Containing Asbestos (Nordström and Vaughan 1999; and Rao 2001).

54 This provides a condensed overview of two separate Tuna-Dolphin cases, known as Tuna-Dolphin I (US vs Mexico and ‘intermediary’ countries Costa Rica, Italy, Japan and Spain involved in processing and canning tuna between Mexico and the US) and Tuna-Dolphin II (EU and Netherlands vs US). Neither of the panel reports were adopted by the GATT body and, as such, do not represent a legal interpretation of GATT law. Mexico and the US came to a bilateral, and later a multilateral agreement, over the tuna-dolphin issue (Nordström and Vaughan 1999; and Rao 2001).

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country could embargo products from another country on the grounds that the exporting country had different environmental, health and social policies from its own. Effectively, any other decision could have led to a possible flood of protectionist abuses, conflicting with the main purpose of achieving predictability of trade through rules established as part of the multilateral trade system established under GATT 1947.55

It is important to appreciate that the task of the panel appointed to settle the trade dispute was restricted to examining how GATT rules applied to the dispute, and was not about the environmental correctness of Mexican fishing regulations. The panel also judged the US policy of requiring tuna products to be labelled as dolphin-safe, enabling consumers to make informed purchasing decisions. The panel concluded that dolphin-safe labelling did not breach GATT rules because it was designed to prevent deceptive advertising practices on all tuna products, whether imported or domestically produced (WTO website: www.wto.org, 2001; in Mech and Young 2001).

8.5.2 The Shrimp-Turtle case

In 1996, the US banned shrimp imports from India, Pakistan, Malaysia and Thailand on the grounds that shrimp trawlers in these countries were not using the turtle excluder devices (TEDs) mandated for shrimp fishing on American boats under US law to prevent the accidental by-catch of turtles. In early 1997, the four Asian countries concerned jointly complained to the WTO against the US ban on the importation of their shrimp and certain shrimp products. As in the Tuna-Dolphin dispute, the panel dealing with the Shrimp-Turtle case concluded that WTO members had to respect the domestic environmental laws and policies of other members, and that attempts to impose environmental requirements extra-territorially were unacceptable, in that this compromised the sovereignty of WTO members. Thus, in line with GATT 1947 jurisprudence, the panel noted that the US sanctions would affect the security and predictability of the multilateral trading system, and should be disallowed. The US appealed to the Appellate Body of the WTO, which overruled the panel. In essence, the Appellate Body concluded that the US trade ban was indeed consistent with GATT Article XX (g) allowing exceptions to conserve exhaustible natural resources (Oxley 2002b; and Rao 2001).

The Appellate Body also concluded that the US, in discriminating against some shrimp exporting nations when implementing its ban, was in breach of non-discrimination rules. In response, the US instituted comparable treatment to all shrimp exporters and maintained the trade ban. In response to Malaysia’s subsequent plea for this unilateral sanction to be removed, the panel decided that the US satisfied the Appellate Body’s first judgement and that the trade ban could remain in place. Malaysia appealed this decision to the Appellate Body, which supported the panel and the sanctions were upheld (Oxley 2002b).

In the Shrimp-Turtle dispute, the four complainants, India, Pakistan, Malaysia and Thailand, were all WTO members, they were all parties to the Convention on International Trade in Endangered Species of Wild Fauna and Flora (CITES), but not all were parties to the Convention on Biological Diversity (CBD). India asserted that CITES signatories were obliged to abide by trade restrictions relating to the endangered species of turtles, and not the shrimps, as these were not endangered. Rao (2001) notes that this serves to highlight shortcomings in CITES provisions regarding the protection of non-target endangered species, and suggests that there is good reason to believe that the CBD, with its whole-of-ecosystems approach, would allow for non-target endangered species protection, in this case of the

55 With regard to extra-territoriality, the Dispute Panel in the Tuna-Dolphin II case ‘could see no valid reason supporting the conclusion that that the provisions of Article XX (g) apply only to policies related to the conservation of exhaustible natural resources located within the territory of the contracting party invoking the provision’. Ref: Report of the Tuna-Dolphin II Panel, cited in Rao (2001). However, the GATT body feared that had the US arguments been accepted, then any country could embargo products from another country on the grounds that the exporting country had different environmental, health and social policies from its own. Consequently, the panel’s report was not adopted by the GATT body.

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turtles. However, not all of the complainants were parties to the CBD. Consequently, the dispute could not be resolved under the CBD, and the forum for dispute resolution fell to the WTO (Rao, 2001).

8.6 The Committee on Trade and Environment

The Committee on Trade and Environment (CTE) owes its genesis to the 1994 Decision on Trade and the Environment56 of the WTO. This noted that safeguarding the multilateral trading system, while protecting the environment and promoting sustainable development, were complementary endeavours rather than contradictory ones, and that coordinating trade and environment policies ‘without exceeding the competence of the multilateral trading system, which is limited to trade policies and those trade-related aspects of environmental policies which may result in significant trade effects’ was desirable. In summary, the CTE has a twofold task: ‘to identify the relationship between trade measures and environmental measures, in order to promote sustainable development’, and ‘to make appropriate recommendations on whether any modifications of the provisions of the multilateral trading system are required, compatible with the open, equitable and non-discriminatory nature of the system’ (in the text of the Decision; in Nordström and Vaughan 1999). The CTE is open to all WTO Member countries, with observer status granted to a host of intergovernmental organisations.57

8.7 Multilateral Environmental Agreements

Multilateral environmental agreements, or MEAs, are international agreements on the environment that involve more than two countries. There are over 200 MEAs in existence. Some are global treaties and are open to all nations. Bilateral agreements are believed to number in excess of a thousand. Together, MEAs and bilateral agreements address a wide spectrum of environmental issues. A minority of all MEAs, about twenty, cover trade issues and incorporate trade provisions, many of which are at odds with WTO norms. Seven MEAs are considered particularly important in this regard58.

56 Known as the Marrakesh Decision, this was adopted on 14 April, 1994. (WTO reference MTN.TNC/45(MIN) (6 May 1994); in Nordström and Vaughan, 1999).

57 Initially these included the United Nations (UN), the United Nations Conference on Trade and Development (UNCTAD), the World Bank, the International Monetary Fund, the United Nations Environment Programme (UNEP), the United Nations Development Programme (UNDP), the Commission for Sustainable Development (CSD), the Food and Agriculture Organization (FAO of the United Nations, the International Trade Centre (ITC), the Organisation for Economic Cooperation and Development (OECD) and the European Free Trade Association (EFTA). More recently, observer status was extended to the African, Caribbean and Pacific Group of States (ACP Group), the Convention on Biological Diversity (CBD), the Convention on International trade in Endangered Species of Wild Fauna and Flora (CITES), the International Organization for Standardization (ISO), the International Plant Genetic Resources Institute (IPGRI), the Latin American Economic System (SELA), the United Nations Industrial Development Organization (UNIDO), the World Customs Organization (WCO), and the World Intellectual Property Organization (WIPO).

58 These include the Convention on International Trade in Endangered Species of Wild Fauna and Flora

(CITES) - 1975; the Montreal Protocol on Substances that Deplete the Stratospheric Ozone Layer - 1987; the Basel Convention on the Control of Transboundary Movement of Hazardous Wastes and their Disposal - 1992; the Convention on Biological Diversity (CBD) - 1993; the Framework Convention on Climate Change (FCCC) - 1994; the Rotterdam Convention on the Prior Informed Consent Procedure for Certain Hazardous

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The rationale for using trade measures in MEAs to achieve environmental goals is fourfold

• to coerce governments or private firms to change policies and/or practice

• to correct market failure

• to protect domestic industries from international competition using lower environmental standards

• to reflect the preferences of civil society through the use of trade measures to limit market access for goods or services associated with environmental practices considered unacceptable (Kerr 2002; and UNEP and IISD 2000).

8.7.1 The Cartagena Protocol on Biosafety

Of the MEAs that incorporate trade provisions, the Cartagena Protocol on Biosafety59 is perhaps the most pertinent to primary industries. This protocol covers trade in most living genetically modified organisms (LMOs), and the risk such trade may pose to biodiversity. The protocol applies to the following LMOs: seeds; fish; trees; animals; and agricultural commodities, such as grains, soya beans, canola, corn and rice. It does not apply to processed foods derived from LMOs.

The Cartagena Protocol on Biosafety establishes monitoring systems for LMOs, like microorganisms and seeds, to be released into the environment, and for LMOs to be used in food, animal feed and other types of processing.

It also establishes risk assessment procedures for countries to decide whether to restrict imports of living LMOs. By allowing for import restrictions even where the real risks are unknown, this protocol puts the precautionary principle into practice more explicitly than other international agreements to date (UNEP and IISD 2000). The protocol was adopted on 28 January 2000, following five years of negotiations. It has been signed by 149 countries. The protocol entered into force on 11 September 2003. The Australian Government has no timetable for considering acceding to this protocol.

8.7.2 The overlap between trade-related MEA provisions and WTO rules

Governments have negotiated several MEAs with trade measures that are at variance with their WTO obligations. In other words, there are instances where WTO rules and the trade-related provisions of some MEAs overlap and conflict on allowable trade sanctions or other import restrictions. While no disputes have yet arisen from this overlap, the lack of clarity about whether WTO or MEA provisions would take precedence in the event of a dispute is a problem in waiting.

The lack of clarity in conflicting rules brings uncertainty and a degree of risk to international commerce, and indeed to environmental protection, for two reasons. First, MEAs allow trading partners to impose trade barriers on ratifying partners when WTO rules would not, giving rise to a situation that may lead to sub-optimal levels of both environmental protection and trade. For example, the Cartagena Protocol’s requirement for process-based labelling for the cross-border movement of biotechnology products is in direct conflict with WTO rules that only recognise labelling based on product characteristics. Second, some countries may be members of the WTO, but not signatories to an MEA.

Chemicals and Pesticides in International Trade (PIC) - 1998; and, the Cartagena Protocol on Biosafety - 2000 (UNEP and IISD 2000).

59 The Cartagena Protocol on Biosafety is a protocol to the Convention for Biological Diversity (CBD).

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This raises the vexed and WTO-inconsistent issue of different sets of rules for different trading partners. For example, although the EU would prefer to govern its trade in biotechnology products under the Cartagena Protocol, rather than the WTO, the US cannot sign the Cartagena Protocol, since it has not ratified the Convention on Biological Diversity, of which the protocol is a part. This has proven problematic for the EU, which has been attempting for the trade provisions in MEAs to apply to non-signatories as well as those that have ratified them.60 In a similar vein, a consortium of environmental non-governmental organisations (NGOs) advocates that where conflict exists between WTO rules and the trade-related provisions of MEAs, the former ought to defer to the latter (Kerr, 2002).

This, however, is problematic. Even in instances where two countries are signatories to a specific MEA, trade disputes between them may still end up at the WTO as governments have not built in dispute settlement provisions and mechanisms within MEAs. Therefore, in disputes over trade-related provisions of MEAs, governments have no MEA dispute resolution mechanisms to guide them. Kerr (2002) observes that this appears to give importers liberty to impose import restrictions. Much of GATT/WTO history’s success revolves around putting limits on the ability of governments to act arbitrarily.

Absence of dispute resolution mechanisms in MEAs reduces their credibility and the potential effectiveness of their real world application, and strongly suggests that in the event of trade disputes countries will resort to trade dispute resolution in the WTO - where, of course, WTO panels must decide disputes with WTO rules (Kerr 2002).

So far, the absence of trade disputes stemming from conflicting WTO rules and MEA provisions may be explained by a general consensus among the parties concerned about how to deal with the trade-environment issues in question, sufficient overlapping WTO-MEA memberships among the countries concerned, and the fact that only small amounts of trade are affected by MEAs such as CITES, the Basel Convention and the Montreal Protocol. By contrast, in the case of the Cartagena Protocol and the Convention on Biological Diversity (CBD), there is little consensus among the countries concerned about the trade-environment issues in question, not all countries are signatories to the MEA, and the quantity of trade at stake is large. For this reason Kerr (2002) notes that ‘it can not be assumed that the inconsistencies can be safely ignored’ (Kerr 2002).

8.8 Recent trade and environment developments

In the new WTO round of trade negotiations, the Doha Development Round, the importance of trade and environment issues has grown. Oxley (2002b) notes that “the mainstreaming of the environment” has taken place, and that this is evidenced by two key developments. First, the Development Round was launched on the proviso, and at the EU’s insistence, that the potential conflicts between the trade provisions in WTO rules and in MEAs be clarified. Despite the fact that most WTO members are reluctant for trade and environment issues to feature highly in the coming negotiations, this issue continues is to be discussed.

The importance of agricultural trade to Cairns Group countries like Australia, as well as to many developing countries, and their consequent desire to see trade-distorting blocs like the EU engage in meaningful agricultural and trade policy reform, contrasts sharply with the EU’s inertia to do so.

The second key development that brings trade and environment issues centre-stage and raises questions about potential implications for agriculture is the WTO Appellate Body’s decision in the Shrimp-Turtle dispute. This controversial ruling, although only one example, effectively overturns the

60 The EU has proposed this despite the clarity of Article 30 (4) of the Vienna Convention on the Law of Treaties, which states that when signatories to a later treaty do not include all the parties to an earlier treaty, then the treaty to which both are party gives direction regarding mutual rights and obligations (Kerr 2002).

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general maxim of international trade that WTO members may not use trade restrictions to force their own environmental standards and policies on producers in another country. As such, it represents a monumental shift from GATT 1947 jurisprudence, and potentially sets the scene for future trade disputes being fought on environmental grounds.

Oxley (2002b) observes that, from a trade perspective, the outcome of this dispute sets a precedent for legitimising the protection of uncompetitive industries under the guise of environmental rhetoric.

From a contrasting environmental perspective, Rao (2001) also observes the importance of the outcome of the Shrimp-Turtle case, but to ‘the governance of the global commons in general, and of biotic resources (especially endangered species) in particular.’ In Rao’s (2001) view, the Shrimp-Turtle ruling rights fifty years of wrongs with respect to the interpretation of GATT Article XX (g). Specifically and significantly, according to Rao (2001), the Appellate Body’s ruling illustrates:

• better recognition of how the preamble to the WTO Agreement relates to provisions in other agreements under the WTO charter, with the implication of stronger recognition of the role of sustainable development in relevant future interpretations of WTO law

• improved recognition of international public law, with the implication of enhanced integration between WTO law and international environmental law

• procedural improvement in interpreting GATT Article XX, with the implication that such interpretation may tend to endorse the use of environmental trade measures provided these are applied in a non-discriminatory manner

• clear assertion of the role of evolutionary legal norms, with the implication that MEAs and international environmental law may be recognised in environmental trade dispute resolution and in WTO law interpretation.

Also, two EU-driven changes in the environmental labelling arena, so far limited to the labelling of LMOs, are foreseen to have increasingly important trade implications. These changes include, first, the shift from voluntary to mandatory labelling requirements and, second, a shift in the objectives of environmental labelling requirements, with the WTO-inconsistent ‘consumer’s right to know’ entering the scene as a possible future legitimate reason to demand mandatory labeling. Although these two changes have, to date, been confined to the labelling of LMO products, there are, nonetheless, potential implications for mandatory labeling requirements, driven by the ‘consumers right to know’ to apply to other matters that are environmental in nature, or that may relate to animal welfare concerns.

8.9 Reform of the EU’s Common Agricultural Policy

A further significant recent development is the ongoing reform process of the European Common Agricultural Policy (CAP). On 22 January 2003, the European Commission adopted a package of detailed proposals for CAP reform. Two key elements of the proposed reform are the decoupling of farm income support payments from production, and linking farm income support payments to requirements to meet standards that reflect environmental, food safety, animal welfare, health and occupational safety concerns, and the maintenance of farmland in good condition. The proposed CAP reforms, while touted as making European agriculture more competitive and market oriented, are principally driven by the need to better justify the CAP in the WTO, as well as by the EU’s internal budgetary constraints.61

61 This includes the costs of the EU’s Eastern enlargement and the consequent high cost of income support of a large number of farmers in the new Member Countries in Central and Eastern Europe.

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It is important to note that income support to EU farmers is not being removed. Rather, environmental reasons now constitute part of the raison d’ être for EU farmer support. A recent media release by the Delegation of the European Commission to Australia and New Zealand states that ‘implementation of the European Commission reform would remove environmentally negative incentives in the current policy and provide further encouragement for more sustainable farming practices.’ Also, commenting on the reform proposals, EU Farm Commissioner Franz Fischler stated that ‘[s]ociety is ready to support farming provided farmers give people what they want: safe food, animal welfare and a healthy environment. Farmers can count on new EU support to help them to adapt to demanding EU environment, food safety and animal welfare standards and to promote quality food and traditional products.’62 (Media release of the Delegation of the European Commission to Australia and New Zealand, 23 January, 2003).

62 Further information on the European Commission's reform proposals is available at http://europa.eu.int/comm/agriculture/mtr/index_en.htm

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9. Future Opportunities for Voluntary Approaches to Environmental Management for Agriculture and Allied Rural Industries Summary

Likely future trajectories in the design and development of VEMAs are signalled by three current trends, which indicate the rising prominence of VEMAs in line with emerging community expectations and marketplace developments. The first trend is one of rising consumer concern regarding environmental, quality, food safety and animal welfare issues which fuels the emergence, and increasing strength, of green consumer preferences. This, in turn, is a key factor shaping the second trend, namely the growing importance of supply chain driven environmental change. These are important factors shaping the increasing adoption rates of diverse voluntary arrangements, the third trend.

In the design and development of future VEMAs for agriculture and allied rural industries, an important design choice, and indeed opportunity, lies in recognising the potential of EMS. This potential stems from the fact that EMS is designed as a process standard. Essentially, this means that EMS can be integrated with other voluntary arrangements and standards and may therefore be used to address a wide range of environmental issues. Indeed, as a process-based management tool, EMS works best when combined with code of practice information, BMP guidelines or with guidelines and standards relating to production and performance related specifications. EMS can be used to exceed legal requirements, that is to say, to go ‘beyond compliance’ in addressing environmental, as well as industry and community concerns. Also, EMS can be implemented by organisations in the agricultural sector, and in allied rural industry sectors, that differ widely in structure and function. This is important for agricultural and rural industries in the light of increasing vertical integration along agri-food supply chains. Importantly, the degree of international recognition of ISO 14001 is important for export sectors such as Australian agriculture.

Finally, it must be remembered that diverse VEMAs, and other voluntary arrangements for quality management, food safety and animal welfare issues are principally designed and developed for, and implemented by, industry and business operators. Indeed, the increasing adoption rates of diverse voluntary arrangements, and the growing importance of supply chain driven environmental change, are the commendable responses of industry and business to increasingly strong consumer preferences for safe, clean and green food. However, the best environmental, marketplace and social outcomes are likely to result from an optimum mix of voluntary industry-led and community-led approaches coupled with formal government-led approaches.

Ultimately, the success of VEMAs depends, and will continue to depend, upon how industry and business embraces them. To ensure the environmental and commercial sustainability of agricultural and rural industries, perhaps the most important tasks and challenges ahead involve identifying the nature of the optimum mix of voluntary and formal approaches to environmental management, and creating an enabling environment for industry and business to embrace VEMAs. There are opportunities for governments to play important roles in providing such an enabling environment by developing environmental guidelines, targets and standards for different agricultural and rural industries, by building effective information networks to ensure low-cost access to information on VEMA design, development and implementation, and by encouraging implementation through appropriate incentive mechanisms.

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9.1 Likely future trajectories in the design and development of VEMAs for agriculture and allied rural industries

The likely future trajectories in the design and development of VEMAs are signalled by current trends. There are three key current trends, which are interconnected. The first trend is one of growing consumer concern regarding environmental, quality, food safety and animal welfare issues. Hence, the emergence of green consumer preferences and the rising demand for safe, clean and green agri-food products. This, in turn, is a key factor shaping the second trend, namely the increasing importance of supply chain driven environmental change. The emergence, and indeed increasing strength, of green consumer preferences, along with the rising importance of supply chain driven environmental change, are important factors shaping the third trend, namely the fact that adoption rates of diverse voluntary arrangements are increasing.

This report considers these current trends to signal the rising prominence of VEMAs in line with emerging community expectations and marketplace developments. In other words, interest in and demand for VEMAs is likely to grow. Current trends are overviewed in sections 2.2 and 7.1 of this report.

9.1.1 Green consumer preferences

Consumer concerns regarding environmental, quality, food safety and animal welfare issues are shaping the emergence, and indeed increasing strength, of green consumer preferences. An indicator of these growing preferences for clean, green and safe food is given by worldwide growth in demand for organic produce. Globally, there is an annual growth in demand for organic produce of between 20 and 50 per cent, with the total value of produce expected to reach A$150 billion by 2005 (Queensland Department of Primary Industries 2001).

Green consumer preferences and the demand for environmental certification initiatives in Australian agriculture

Within an Australian context, Backshall (2000) recently conducted a survey of green consumer preferences and demand for environmental certification initiatives in agriculture for Agriculture WA. Primary produce traders and stakeholders from Australia and overseas took part in the survey, which revealed that environmental management issues influenced the activities of almost half (45 per cent) of the organisations surveyed. The trading practices of those surveyed were influenced by environmental considerations in the sense that, for example, special terms were offered to some suppliers demonstrating sustainable practices, and other suppliers were actually required by customers to participate in environmental assurance schemes.

Backshall (2000) reports that, among the organisations surveyed, the most important environmental issues for an environmental certification scheme were soil erosion and contamination, chemical usage and disposal, genetically modified organisms and biodiversity. These issues are reported as being ‘consistently of the highest concern across all markets and all commodities’ (Backshall 2000). The survey also examined differences among various types of produce and export markets, revealing that changes to buying policies or customer demands were most likely to occur in organisations associated with grains, processed and packaged meat, and within developed Asian markets such as Japan, Singapore and Taiwan (Backshall 2000).

Green supplier preferences

Similarly, it is important to note that green supplier preferences exist. Suppliers in diverse industries seek to satisfy green consumer preferences not only because of marketplace benefits, but for other reasons too. The environmental values, attitudes and beliefs held by managers are key determinants in shaping the production decisions of firms (Nakamura et al. 2001).

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Supply chain driven environmental change

Environmental innovations are increasingly being driven across supply chains, particularly by leaders with sufficient power over downstream suppliers in the chain. Large overseas supermarket chains such as the UK-based Tescos and Sainsburys provide excellent examples of such leaders.

Tesco, for example, is ‘striving for the highest environmental standards in the entire industry’ (www.tesco.com), and promotes the fact that many of the standards it applies to its business activities far exceed legal requirements. The supermarket’s website provides the information that ‘Tesco also asks its suppliers to adhere to many of these standards too, promoting sound environmental practices, not just within Tesco but throughout manufacturing and retail chains all over the world’ (www.tesco.com). The website also notes that environmental standards and codes of practice are assessed and reviewed on an ongoing basis in line with consumer expectations: ‘[c]alling upon expertise from all quarters, each code of practice is re-examined continually, seeking ways to improve them still further. Our customers expect no less. Such is our commitment to developing sound environmental policies that Tesco staff are often invited to join influential national policy groups so that the company’s own expertise may be used to help other businesses across the country’ (www.tesco.com).

A specific example of a supply chain driven environmental innovation is given by Tesco’s Nature’s Choice code of practice for environmental management. According to the Tesco website, ‘[a]ll UK growers of fresh fruit, vegetables, flowers and other ornamental plants have to meet strict rules protecting wildlife and the land - i.e. the farm’s biodiversity - in order to do business with Tesco. These rules are being introduced to suppliers around the world, particularly Spain and the Netherlands, and as far afield as Kenya, Australia and New Zealand.’ This code of practice ‘promotes the use of beneficial insects rather than chemicals to control pests, encourages water and energy efficiency and ensures recycling. Growers are asked to draw up a farm conservation plan, which guides them in protecting important wildlife and landscapes.’ Also, Tesco monitors the effects of Nature's Choice on farmland birds such as the song thrush, lapwing and grey partridge.

In addition, Tesco is championing the cause of the skylark, having donated £200 000 to the Royal Society for the Protection of Birds to find out why the skylark has declined in numbers by 60% over the past 25 years and to identify solutions. In addition, British suppliers are compliant with the NFU Assured Produce Scheme” (www.tesco.com).

Figure 3 illustrates the rising importance of Tesco’s Nature’s Choice, between 1994 and 2000. Increasing participation in this code of practice for environmental management reflects growing consumer concern regarding environmental issues, and consequently changing consumer preferences.



http://www.tesco.com/everyLittleHelps


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Figure 3 Growth in participation in Tesco’s Nature’s Choice

Source: Tesco’s website: www.tesco.com

Similarly, the Sainsburys chain of supermarkets sources all UK fresh fruit and vegetables from farmers who have been independently verified as complying with Integrated Crop Management (ICM) standards under the UK’s National Farmers’ Union (NFU) Assured Produce Scheme. With regard to overseas suppliers of fresh fruit and vegetables, Sainsburys plans that all offshore suppliers will be independently verified as complying with the standards set in the EUREP-GAP protocol by 2003 (www.j-sainsbury.co.uk).

9.1.3 Increasing adoption rates of diverse voluntary arrangements

An increasing number of businesses and other organisations, both in agricultural and other industry sectors, are successfully implementing diverse voluntary arrangements for environmental and quality management (ISO, 2001).

With regard to the ISO 14000 series of standards for environmental management, a total of 22 897 certificates had been awarded in different industry sectors at the end of the year 2000. By comparison, 14 106 certificates had been issued at the end of 1999. Thus, in one year, the number of certificates issued grew by 8791 certificates, a very significant rise. With specific regard to the agricultural and fishing sectors, only 16 certificates had been issued worldwide at the end of 1998, a figure that grew to 205 certificates by the end of the year 2000 (ISO 2001).

With regard to the ISO 9000 series of standards for quality management, at least 408 631 certifications had been awarded in diverse industry sectors in 158 countries by the end of 2000. This represented an increase of 64 988 certificates since the end of 1999, when 343 643 certificates has been issued in 150 countries. With specific regard to the agricultural and fishing sectors, 610 certificates had been issued across the world at the end of 1998, a figure that grew to 1745 certificates by the end of the year 2000 (ISO 2001).


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9.2 A constellation of alternative options for designing VEMAs: the choice of alternatives

In designing and developing a new VEMA, there has to be clarity about:

• what the VEMA intends to achieve (objectives) and how (strategy)

• the benefits of participation

• the nature of stakeholder involvement

• the structure of governance arrangements.

This then determines the alternative options for VEMA design including the specific standards to incorporate within a VEMA, the VEMA’s auditing, certification and/or labelling requirements, and how these collectively ensure marketplace recognition and community acceptance.

9.2.1 General recommendations for good VEMA design

To summarise, drawing on OECD (1999), some general recommendations for good VEMA design include:

• clearly defining the intended objectives and targets of the voluntary arrangements

• characterising a counterfactual, or business-as-usual scenario to determine environmental and other outcomes in the absence of the VEMA

• ensuring monitoring provides meaningful and reliable information about whether progress toward achieving objectives and targets is being made

• ensuring monitoring is practical and cost-effective

• involving independent third parties to provide public assurance in a VEMA that may result in certification and/or labelling

• including penalties with teeth for non-compliance to maintain public confidence in a given VEMA, and to prevent free-riding

• providing good supportive information, such as codes of practice and BMP guidelines for environmental management, as well as relevant training workshops to facilitate VEMA participation and implementation.

9.2.2 EMSs and good VEMA design

An important design choice, and indeed opportunity, in the design and development of VEMAs for agriculture and allied rural industries lies in recognising the potential of EMS, which stems from the fact that EMS is designed as a process standard. Essentially, this means that:

• EMS can be integrated with other voluntary arrangements and standards, and may be combined with codes of practice, guidelines, standards and benchmarks tailored to the industry and enterprise in question. In this way, EMS may be used to address a wide range of environmental issues

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• EMS can be used to exceed legal requirements, that is to say, to go ‘beyond compliance’ in addressing environmental, as well as industry and community concerns

• EMS can be implemented by organisations in the agricultural sector, and in allied rural industry sectors, that differ widely in structure and function.

Integrating EMS with other voluntary arrangements and standards

In making choices either about how to design a new VEMA, or in making choices about which VEMA to adopt, it is important to understand that because EMS is designed as a process standard, it can be used to integrate relevant product standards and performance standards, where they exist. Indeed, as a process-based management tool, ISO 14001 works best when combined with relevant code of practice information, BMP guidelines or with specific performance guidelines, standards and benchmarks tailored to the industry and enterprise in question.

An example of integrating EMS with other voluntary arrangements and standards is given as follows. Two voluntary arrangements for agriculture and the rural industries that stipulate production-oriented standards, namely the Organic Standard of the Biological Farmers of Australia (BFA), and the EUREP-GAP protocol, have recently integrated a process standard. In the case of the BFA’s Organic Standard this process standard is an EMS, whereas in the case of the EUREP-GAP protocol the process standard may be either an environmental or quality management system. Also, several environmental certification schemes in the forest sector integrate process standards with product and performance requirements. Thus, while an EMS is a VEMA in itself, it can also be a component of other VEMAs.

Using EMS to go ‘beyond compliance’

EMS can be used to exceed legal requirements, that is to say, to go ‘beyond compliance’ in addressing environmental, as well as industry and community concerns. For example, with reference to ISO 14001, it is important to understand that this standard’s accompanying guidelines, the ISO 14004 guidelines, clearly state that requirements of the ISO 14001 process standard include compliance with prevailing environmental legislation and regulations, as well as with ‘other requirements to which the organization subscribes, that are applicable to the environmental aspects of its activities, products or services’ (Standards Australia 1996).

The ISO 14004 guidelines elaborate that these ‘other requirements’ may include industry codes of practice, agreements with public authorities and non-regulatory guidelines, as well as international environmental guiding principles. Also, with respect to the setting of objectives and targets, the ISO 14004 guidelines state that ‘[w]hen establishing and reviewing its objectives, an organisation shall consider the legal and other requirements, its significant environmental aspects, its technological options and its financial, operational and business requirements, and the views of interested parties’ (Standards Australia 1996).

Implementing EMS in organisations that differ widely in structure and function

EMSs, notably the process standard ISO 14001 and its accompanying ISO 14004 guidelines, are well designed because they may be used by organisations that differ widely in structure and function. With respect to agriculture and the rural industries, this means that EMS is applicable to farms in different sectors, or even farms in the same sector but in different regions that may be faced with quite distinct environmental problems. Furthermore, the fact that EMS may be used by organisations that vary in structure and function means that EMS is recognised up and down supply chains.

This is important for agricultural and rural industries in the light of increasing vertical integration along agri-food supply chains, and because some agri-food products are inputs to other industries, including non-agricultural non-rural industries. Also the degree of international recognition of ISO 14001 is important for export sectors such as Australian agriculture.

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9.3 Opportunities for the role of government

To facilitate the design and development of VEMAs, government has opportunities to provide supportive information to industry and to educate business and the wider community about voluntary arrangements in general. More specifically, there are opportunities for governments to commit resources to the development of environmental guidelines, targets and standards for different agricultural and rural industries. An important role of government could be to foster the formation of partnerships between stakeholder groups, including industry and peak industry bodies, research organisations, public agencies and community and environmental groups to provide an interface for translating technical knowledge and community concerns relating to environmental management into environmental guidelines, targets and standards applicable at the farm-level.

Also, there are opportunities for governments to commit resources to State and Territory government agencies responsible for natural resource management and environmental protection in the primary industries to encourage implementation of voluntary arrangements for environmental and quality management, food safety and animal welfare. An important opportunity for the role for government is to build information networks and ensure low-cost access to information on VEMA design, development and implementation. For example, with specific regard to EMS, a coordinated body of appropriately trained EMS officers could provide extension services in promoting and fostering EMS development on farms and allied agricultural and rural industries. Their hands-on industry involvement would also make them well placed to provide input, along with other stakeholders, into the development of environmental guidelines, targets and standards for agriculture and allied rural industries. It is acknowledged that in some States work in these areas is already progressing.

A specific way in which governments could support VEMA development in industry would be to make information on legal and regulatory obligations relating to environmental management and protection readily available. For example, information relating to existing NRM and environmental regulations and legislation relevant to Australian agriculture and rural industries could be compiled, periodically updated and made available free-of-charge. The explicit purpose of such a user-friendly ‘Guide to Environmental Regulation for Agriculture and the Rural Industries in Australia’ would be to provide information needed by operators in agricultural and allied rural industries to comply with state and federal regulations relating to NRM and environmental protection. It is suggested that there is an opportunity for such a guide to be co-sponsored by Federal and State government agencies responsible for administering NRM, environmental protection and regional planning legislation applicable to agriculture and the rural industries.

Such a guide could be structured along the lines of the ‘Handbook of Environmental Regulations for Agribusiness’ produced by the Iowa Waste Reduction Center of the University of Northern Iowa (IWRC 2000). This handbook contains regulatory information on waste management and pollution prevention that is specific to different agribusiness sectors and explains how operators can comply and how they can get more help and information.

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Alternatively, an Australian guide to environmental regulation for the primary industries could draw on the ‘Manual of Environmental Policy’63 produced by the Institute for European Environmental Policy (IEEP) for guidance on appropriate presentation. This manual appraises its users on developments in European legislation and in the corresponding UK implementing legislation, and analyses and evaluates the implications of over 500 European Community (EC) Directives and Regulations (IEEP, 2000, 1999, 1998, 1997, 1996). It provides an authoritative source of information on rapidly changing developments in EC environmental regulation relating to, amongst other things, the management of water, waste, air, harmful substances, wildlife and the countryside. Also, the manual lists all adopted EU environmental legislation, plus summaries of proposed environmental legislation and the details of environmental proposals under development.

An important opportunity for the role of government is to provide regulatory relief incentives to organisations implementing VEMAs and achieving good outcomes. As already discussed, public regulation can be expensive to administer, and governments may face political difficulties, not to mention high costs, in checking compliance and enforcing penalties to internalise the costs of environmental externalities. Moreover, there are limits to what government approaches can achieve on their own. For these reasons, there is a case for governments to provide regulatory relief incentives to industry operators and businesses demonstrating good environmental behaviour by implementing VEMAs, and by having their VEMAs independently audited and certified and/or labelled. In instances where industry operators and businesses are able to demonstrate good environmental behaviour regulatory relief could include, for example, rebates on natural resource management levies, or lower fees for licences, leases and registrations relating to environmental management. Box 11 summarises a regulatory relief approach that is presently being used in Victoria. Innovatively, the suite of arrangements used combine strong community-based governance arrangements, fee rebates, as well as increased regulatory flexibility. Arguably, such arrangements give natural resource managers access to better feedback on their management practice, for example through benchmarking, and provide public assurance that natural resources are being well managed.

63 ‘Environmental policy in the UK is now inextricably linked with that of the European Community (EC). In the last thirty years, the EC has developed comprehensive policy measures across a extensive range of environmental issues. This has been done in response to the growing recognition of the value of co-ordinated action to solve common problems, and to ensure that the single market in Europe is based on common environmental standards. The EC is now the world leader in environmental legislation and an understanding of these policies and their effects on a UK practice is essential for anyone who is interested in or affected by environmental policy’ (IEEP 2000).

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Box 11 A regulatory relief initiative of the Victorian EPA

The Accredited Licensee System for Trade Waste Management

In July 1993, the Victorian Environment Protection Agency (EPA) released a discussion paper entitled ‘A question of Trust: Accredited Licence Concept.’ Soon after, in 1994, the Government of Victoria amended its legislation to enable the EPA to rebate 25 per cent of licence fees and offer increased regulatory flexibility to businesses certified as being able to ‘demonstrate a high level of environmental performance and an ongoing capacity to maintain and improve this performance.’ To benefit from this regulatory relief scheme, the requirements include:

• an Environmental Management System consistent with a recognised standard such as ISO 14001 and certified as such by an EPA-appointed Environmental Auditor

• an Environmental Audit Program

• an Environmental Improvement Plan.

As well as a 25 per cent fee reduction, a certified licensee may undertake works that would otherwise require EPA approval, provided the work is not classed as ‘significant’ and would not increase the volume of waste produced. Certification status is reviewed every 5 years.

Source: EPA Information Bulletin, Publication 619, June 1998; Environmental Protection Act 1970 as amended, sections 26A-D

9.4 A final word

It must be remembered that diverse VEMAs, and other voluntary arrangements for quality management, food safety and animal welfare issues are principally designed and developed for, and implemented by, industry and business operators. Indeed, the increasing adoption rates of diverse voluntary arrangements, and the growing importance of supply chain driven environmental change, are the commendable responses of industry and business to increasingly strong consumer preferences for safe, clean and green food. However, although VEMAs hold enormous promise as a possible means of addressing complex environmental and NRM issues, the premature view of VEMAs as an environmental management panacea is cautioned. VEMAs, like orthodox regulatory approaches to environmental management, have limitations, and the best environmental, marketplace and social outcomes are likely to result from an optimum mix of voluntary industry-led and community-led approaches coupled with formal government-led approaches.

Ultimately, the success of VEMAs, including EMS, depends, and will continue to depend, upon how industry and business embraces them. To ensure the environmental and commercial sustainability of agricultural and rural industries, perhaps the most important tasks and challenges ahead involve identifying the nature of the optimum mix of voluntary and formal approaches, and creating an enabling environment for industry and business to embrace voluntary approaches to environmental management. There are opportunities for government to play important roles in providing such an enabling environment by developing, in partnership with producers, environmental guidelines, targets and standards for different agricultural and rural industries, by building effective information networks to ensure low-cost access to information on VEMA design, development and implementation, and by encouraging implementation through appropriate incentive mechanisms.

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CSIRO File Ref: T:\Final Reports\EFM\CSL-15A\Final report Sep08\Final version from GW\CSL-15A final report new cover version 16 Oct 08.doc.

CSIRO Ref: S/Folio/1429 STR 294.

RIRDC Publication No. INSERT PUB NO. HERE

Environmental Managment in Agriculture and the Rural Industries

Voluntary approaches to sustainability and globalisation imperativesby Thea Mech

RIRDC Publication No. 09/023

This report is a synthesis of the current activity in regard to non-legislated standards-based approaches to environmental management in agriculture, known as voluntary environmental management arrangements (VEMAs).

The report is targeted at individual producers or groups of producers, industry bodies, retailers, public agencies and non-governmental organisations.

Environmental considerations are becoming increasingly important in how food is produced, traded internationally, marketed and sold in retail outlets. This recognition of sustainability and globalisation imperatives has, in a global context, underpinned the rising development and use of voluntary approaches to environmental management in agriculture and rural industries that are based on

a diversity of environmental standards, guidelines and protocols. In a domestic context, it has driven industry and government co-investments in environmental management systems (EMS) implementation in Australian agriculture.

The Rural Industries Research and Development Corporation (RIRDC) manages and funds priority research and translates results into practical outcomes for industry.

Our business is about developing a more profitable, dynamic and sustainable rural sector. Most of the information we produce can be downloaded for free from our website: www.rirdc.gov.au. Books can be purchased by phoning 02 6271 4166 or online at: www.rirdc.gov.au.

RIRDCInnovation for rural Australia

Contact RIRDC:Level 2

15 National CircuitBarton ACT 2600

PO Box 4776Kingston ACT 2604

Ph: 02 6271 4100Fax: 02 6271 4199

Email: [email protected]: www.rirdc.gov.au

This publication can be viewed at our website— www.rirdc.gov.au. All RIRDC books can be purchased from:.

www.rirdc.gov.au

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