Socio-economic implication of Citrus Black Spot on South African citrus exports to the European Union Market

Abstract

The Trade and Development Cooperation Agreement (TDCA) played an important role through increasing South African citrus exports into the EU market. Since the signing of the agreement, South Africa’s citrus exports had improved significantly. The citrus industry played an important role in South Africa’s growth in exports to the EU market. For more than a century, the European market has been a traditional market for South African citrus exports. In 2013, citrus fruits exported to the EU market accounted for about 40 % of citrus exports. Despite the importance of the EU market to the South African citrus industry, this market is threatened by the reoccurrence of Citrus Black Spot (CBS) on their exports. Kotze (1981) defined CBS as a fungal disease that affects the development of citrus fruit. CBS has not been detected in some regions in the world, including Europe, Central America and the Caribbean. At present, the European Commission has adopted stringent measures to protect its markets against importing fruits that are affected with CBS (NAPOZA, 2013). South African citrus exports are still permitted into the EU market, but should not exceed five allowable interceptions. In 2013, the EU threatened a full ban on South African citrus imports, should the fruit inspections capture more than five interceptions of infected fruit. The South African citrus industry and the DAFF have introduced initiatives to comply with the European Commission’s CBS phytosanitary requirements; however this had resulted into additional costs to export to the EU. The cost of complying with the latest CBS phytosanitary requirements have anticipated to increase and to impact on the citrus industry as the CBS phytosanitary measures gradually become more stringent and more difficult to comply with. The overall industry compliance costs are currently not known, and this information gap has motivated the commissioning of this study. The objective of the study was to evaluate the economic implication of complying with CBS phytosanitary requirements on South Africa’s citrus exports to the EU, as well as the consideration of alternative markets. The SMART partial equilibrium model was used to evaluate the implication of CBS phytosanitary requirements on South Africa’s citrus exports. To determine the cost of compliance, risk management data was used to calculate the change in risk management between 2013 and 2014 that was sourced from the CGA’s abridged financial report on the money spent in mitigating CBS. It was assumed that was money spent on orchard spraying and inspection of citrus fruits. Therefore, the cost of compliance had increased by 390 % between 2013 and 2014; from R1,1 million in 2013 to R5,6 million in 2014. The cost increase is assumed to add an extra trade cost to exporters and was used to shock the SMART partial equilibrium as an NTM equivalent. The Market Attractiveness Index was used to determine the alternative market for South African citrus exports in case of the closure of the EU market to South Africa. The study was based on three scenarios that determine the impact of CBS on citrus exports. These assumptions were that (i) South African exporters comply fully with EU phytosanitary requirements; (ii) failure to comply would result in a total ban of imports of citrus from South Africa; and (iii) imports from citrus producing areas that are not affected by CBS will be permitted (partial ban) to the EU market. Amongst the mentioned scenarios compliance in accordance of the EU was implemented, the rest were not given to fact South Africa wanted to retained their traditional market. The results of the study were based on these three a scenarios. Therefore, the results showed that the South African citrus industry had lost about $88 million in export earnings as a result of compliance, $263 million when subjected to a partial ban; and $323 million under a total ban. The EU felt the losses in welfare to the tune of $1.5 million, which illustrates that EU consumers will not benefit in terms supply decrease from South Africa. In a nutshell, the South African citrus industry has suffered a loss in terms of export earnings into the EU market due to CBS requirements. The MAI was used to determine the alternative markets indicated that Russia, Hong Kong and the UAE are the most attractive export markets for the South African citrus industry, given its economic and political landscape. Despite that fact, the study could not determine a reliable cost for compliance in terms of CBS in the country. It is recommended that citrus fruit affected by CBS should considered to be directed for processing. Furthermore, is recommended that is a need for a framework that deals with international standards and makes sound policies that also provides training on how to produce fruit to international standards.