Trade Adjustment Costs in Developing Countries: - World Bank ...

Standards, Trade and Developing Countries 335tries and/or sectors have used high quality and safety standards to (re)-positionthemselves in competitive global markets. A key element in attaining these benefitsis to be proactive in food quality and safety and facilitate business strategicresponses (Jaffee and Henson, 2005; Henson and Humphrey, 2008).4. STANDARDS AS BARRIERS OR CATALYSTSTO DEVELOPMENT?Understanding the link between standards on the one hand, and export competitivenessand performance of developing countries on the other hand is crucialin the design of a broader development agenda, as integration in global marketsis generally believed to benefit economic growth (Bhagwati and Srinivasan, 2002;Dollar and Kraay, 2002; 2004). Yet, there is a concern that the poor may not benefitproportionately from high-standards international trade. Hence, another criticalpolicy issue is to understand the link between standards, export chains, andrural incomes in developing countries. The proliferation of stringent private andpublic standards has caused dramatic changes in the way food production andtrade are organized and governed with important implications for producers andrural households (McCullough et al., 2008; Swinnen, 2007; Wilson and Abiola,2003). Hence, the costs and structural changes associated with standards compliancecan cause significant redistribution of welfare—not only across countriesbut also along supply chains and in rural societies (World Bank, 2005). A keyissue in understanding the local welfare implications of increasing high-standardsfood trade is the way in which supply chain structures and governancesystems respond to increasing standards. In this section we first discuss issues ofsupply chain organization and governance, and then turn to the developmentimplications of increasing standards.4.1 Supply chain organisation and governanceThe main structural changes in food supply chains that are induced by increasingstandards include:1. the increasing levels of vertical coordination (VC) in global supply chains,and2. the ongoing consolidation of the supply base with large food companies—often multinationals—dominating the chains.First, compliance with increasingly complex and stringent food standards andmonitoring of this compliance throughout the supply chains requires tighter VCin the chains. In order to ensure large and consistent volumes of high-qualityand safe produce, food traders and processors increasingly procure from preferredsuppliers or specialized wholesale markets, often on a contract basis, andthereby push the food distribution system towards more VC. Also, upstream thesupply chain VC is increasing. Traditional spot-market trading systems with middlemenare generally not effective in high-standards trade because of high trans-