PUSHBACK TO END AUDITING DUPLICATION

By Jacques Dommisse

In the last decade, duplicated gatekeeping systems under the auspices of the globally embraced and accelerating concepts of environmental sustainability, fair labour practice and the buzzword of climate change by international compliance institutions based in primarily First World markets had severe cost and time constraints on South African agriculture producers and exporters. However, the pushback from the South African agriculture industry towards duplication of compliance requirements – spearheaded by the leading fruit producer organisations – has begun, with FruitSA taking the lead.

In the last week of September, a delegation of FruitSA – led by CEO Fhumulani Ratshitanga – met with several UK and European (German) role players to discuss the impact of compliance on SA producers. The recent fruit industry lobbying visit, to find common ground for a better understanding of the implications on farm and packhouse level of continuously changing compliance standards, follows the comprehensive July 2022 Cost of Compliance Farm-level Industry Report compiled by Petrus Grobler of SourceConsult.

Fruit SA represents six fruit associations in South Africa, namely Berries ZA, the Citrus Growers Association (CGA), HORTGRO (Pome and Stone fruit), SA Subtropical Growers Association (Subtrop), the Fresh Produce Exporters Forum (FPEF), and the SA Table Grape Industry (SATI). Four of these associations – CGA, HORTGRO, Subtrop, and SATI – formally requested a study to be conducted with the primary purpose of evaluating the cost of compliance related to farm-level social and environmental accreditations, e.g., the German-headquartered GLOBALG.A.P. and the Sustainability Initiative of South Africa (SIZA).

The focus of the study was to differentiate between the direct and indirect on-farm compliance costs between small, medium, and large producer companies. The industry bodies nominated the following fruit types for this study: CGA – all citrus types; HORTGRO – pome and stone fruit; Subtrop – avocado; and SATI – table grapes.

In his report, Grobler stated that ethical, environmental, and food safety compliance is driven by global sustainability goals that originated post World War II and gained mainstream momentum from the 1990s. Increased demands on primary agriculture will continue until 2030, a critical milestone date. Market access, being the compliance gatekeeper, effectively enforces grower participation. However, many agricultural businesses have taken the sustainability journey to further their development and goals.

The study identified the following three items to contribute more than 90% of the overall primary agriculture cost of compliance.

• Capital expenditure on infrastructure, systems, and procedures. Meeting ethical accommodation standards on farms is the standout capital expense item.
• Manhours dedicated to preparing and conducting audits.
• The physical audit costs of independent certification bodies.

“Our observation was that audit firms do not adhere to a standardised audit fee approach, and in some instances, material differences exist amongst the various auditing firms. Our second observation was that a disconnect exists between South African legal requirements, audit standards, and market requirements. Unfortunately, the absence of a global universal standard results in significant duplication resulting from retailers and countries wanting to establish their unique interpretation of the global goals.”

Achieving universal standards and homogeneous interpretation of the rules of engagement will have the most meaningful positive impact on a topic which will remain an integral component of the global market participation for the country’s agri industry. The report concludes that the following factors will contribute towards achieving such standardisation.

• Annual benchmarking of certification body fee structures differentiating between produce types, geographical regions, and farm size.
• Debating the balance between establishing a world-class compliance standard versus South African law versus minimum market access requirements.
• A detailed study into the duplication of audit checklist items amongst various certifications. Only once the duplications are mapped out can the industry engage the market channel gatekeepers to negotiate a path towards eliminating or reducing unproductive duplication.

SIZA says it should be noted that both the SIZA Social and Environmental Standards undergo regular benchmarks against various global programmes and local legislation. The standards also undergo a comprehensive review every three years, which includes inputs from producers across the country, technical experts, auditors, buyers, legal advisors and more to ensure full participation.

Ex parte from the report, it was stated by key stakeholders and some producers that a local benchmark needs to be established for normalised auditing processes and fees. “Auditing the auditor” was mentioned – where it was also suggested that a database of invoices should be collated for peer review purposes. The concept of different strokes for different folks – not only within the sphere of mega, medium, and small farmers – but also the different approaches from various auditing firms should be aligned. Highlighted in the Grobler report was the time and financial constraint placed on specifically medium-sized producers, with large producers benefitting from economies of scale and small farmers exporting to a single buyer. Programmes such as SIZA in South Africa provide this standardised approach in ensuring that the exact requirements are set for every business, regardless of size, based on minimum legislative frameworks and market requirements.

The relevance of compliance was highlighted recently by Katy Gallagher, director of 4C Associates, in an article published by the British Retail Consortium wherein it was stated that the much-delayed End Producer Responsibility (EPR) scheme that the UK government is considering a system to encourage manufacturers to adopt more sustainable practices and materials, as they will bear financial responsibility for waste management.

“Fair trade practices are another aspect of sustainable procurement for consumer products companies to consider. Fair trade ensures workers are paid a reasonable wage and farmers are compensated fairly. It also promotes environmental sustainability and prohibits forced or child labour. Many companies seek fair trade certification to demonstrate their commitment to these principles. However, consumers must understand that unlike ‘organic’, ‘fair trade’ is not a protected term, meaning that standards can vary.

“Retailers play a crucial part in this consumer education – it is up to them to decide if they want to stock fair trade products and to set location, promotion and pricing strategies to encourage consumers to make these purchases.

“Companies may also choose to implement carbon offsetting practices to compensate for their carbon emissions by investing in projects that reduce or remove greenhouse gas emissions elsewhere. Although carbon offsetting is becoming increasingly popular, retailers should still encourage their suppliers to reduce emissions at source wherever possible. In addition to carbon offsetting, many companies invest in renewable energy sources such as wind and solar power. These investments not only help to reduce overall carbon emissions but can also provide long-term cost savings and increased energy security. While these trends represent significant progress towards more sustainable procurement practices, there is still much work to be done, and companies need to continue innovating and pushing boundaries to reduce their environmental impact further,” says Gallagher.

Specific challenges for South Africa are trends identified at some UK/EU retailers where the retailer develops its own standard as a competitive tool or sometimes lobbies certification groups to augment such prerequisites.

FruitSA mentions that the different standards set by retailers abroad remain a challenge. Therefore, Ratshitanga recommends that a three-member FruitSA delegation (on a rotational basis) go to annual roadshows focusing on priority issues with retailers. Virtual meetings and engagements on other platforms, such as trade shows, must also be pursued.

“In all meetings, FruitSA indicated the purpose of the meeting was to engage in sustainability, reducing duplication and addressing the cost of compliance, thus making the supply chain efficient. The delegation emphasised South Africa’s commitment to sustainability and compliance with requirements and requested that retailers consider the country’s unique environment, engage with the supply base early in setting requirements and recognise SIZA. In the UK, retailers were asked to engage with Linking Environment and Farming (LEAF) to ensure that LEAF fully recognises SIZA, in which considerable investments have been made in the past 15 years.

“Reference to the FruitSA study on the cost of compliance was also made, and FruitSA shared news about the privatisation of operations at Durban’s Pier 2 container terminal and the Johannesburg/Durban railway line.”

Ratshitanga says the roadshow was successful as it provided valuable insights into the two markets and opened communication channels with the retailers and other stakeholders. In addition, FruitSA provided the South African fruit industry’s perspective on sustainability and how compliance should be approached to reduce growers’ costs and improve supply chain efficiencies. A full recognition of SIZA, which was found to be highly reputable, was proposed as one of the mechanisms to achieve efficiency.

“Generally, retailers, particularly in the UK, were receptive to reducing waste and inefficiencies caused by the duplication of audits and welcomed regular communication with the SA fruit industry. In Germany, however, a move towards a common standard may not be realised soon as retailers use standards as a competitive tool.

“Some key messages which the industry needs to capitalise on are the importance of South Africa as a source of fruit in both the UK and Germany and the powerful position that puts the industry in. South Africa’s fruit industry must claim its space on the market and actively drive its agenda. However, to fully benefit from this, the ports and energy challenges South Africa faces need to be addressed,” Ratshitanga stated.

Anton Rabe, executive director of Hortgro, says it sometimes feels like “smart people” in the global trade are sitting in a glass house somewhere, trying to come up with the most extraordinary things to differentiate themselves from their competition, with no understanding of the implications of their wish list on farms/warehouses, workers and rural communities.

“It is high time consumers start to understand how parts of the trade behave – pretending to ‘enhance ethical trade’ under the umbrella of labour laws and environmental standards – but behind that curtain, they are, in essence, shamelessly trying to differentiate themselves at the expense of the producers, workers and communities. Their conduct is no longer affordable or sustainable.

“Likewise, it is now apparent that South Africa and the SA suppliers are treated differently than other Southern Hemisphere countries. The goalposts are constantly shifting – sometimes with no impact or improvement – simply additional costs.

“The trade has all the requirements that lead to huge costs at the farm/warehouse level, but in the end, it’s all about the lowest possible price. It is unethical to expect compliance with trade/environmental requirements, but some role-players in the trade itself do not act ethically and transparently.

“We have no problem with compliance standards – but they should not change constantly and lead to duplication and more and more costs that, in the end, make no difference to food safety, the environment or the conditions of workers. As it stands now, precisely the opposite is achieved, Rabe says.

SIZA, the preferred Standard in South Africa for Social and Environmental Standards, has been a vital programme and resource for producers. SIZA membership has increased significantly since 2015. A notable increase of 578% is visible when looking at the total number of suppliers in 2015, which was 742, versus the total of 3 549 currently registered suppliers. This tremendous increase over eight (8) years speaks to the success of the programme, but also the acceptance of the programme amongst producers, markets, and the agricultural industry.

Third-party Audits:

Since 2015, a total of 4 498 third-party audits have been conducted. Out of the total third-party audits conducted from 2015 until 2023, 46,023 findings were raised during audits. Out of these total findings, a whopping 44 022 (96%) were corrected in full by the producer, resulting in corrective action. This is what we call continuous improvement, says SIZA.

It was emphasised that more vital buy-in from producers is imperative for the country to lobby sounder on different platforms abroad.

Although auditing is seen by some producers as an additional burden, deemed to be costly and time-consuming, many members accolade the benefits received by subscribing to SIZA. Enlightened stakeholders point out that SIZA should extrapolate on its tremendous IP strengths by showcasing its members’ above-tier contributions, whether social upliftment or environmental achievements.

In 2018, SIZA launched its Best Practices online programme. It offers participating members the opportunity to showcase areas they feel they have reached higher than mere compliance, specifically where the community is engaged to create value and sustain practices beyond the SIZA Environmental audit process. The programme allows members to upload community engagement efforts and best practices onto the MySIZA platform. SIZA admin reviews uploaded content and, once approved, will make it visible to linked members (exporters, importers, and retailers) of their choice.

Also, the Confronting Climate Change initiative that started in 2008 and led to the introduction of the carbon calculator in 2011 – as an initiative of the fruit and wine industry – is considered a groundbreaking ingenuity that deserves more recognition in compliance reports. A common perception among consumers is that so-called food miles — the distance between farm and fork — determine the contribution of a foodstuff to climate change. But distance is not everything, contends Hugh Campbell, general manager of HORTGRO Technical. Factors such as production efficiency are among the many that also play a role.

Enhancing strong points needs to be accelerated, whilst pathbreaking ways of farm certification through social and environmental standards should be emphasised. Industry experts state that the way forward also entails corroboration between FruitSA, who needs to set benchmarks for compliance audits; export agents, who should share in the compliance responsibility; and consultants who haphazardly change the rules of the day by moving the goalposts.

A cynical but shrewd industry observer mentioned that it is clear that SA exporters must adhere to stringent compliance measures, but who measures the compliance of imported products from the same countries that set the bar for exports from SA?

Caption: Fhumulani Ratshitanga, CEO of FruitSA