Transparency and Traceability in Food Supply Chains

Transparency and Traceability in Food Supply Chains

Transparency into what goes into products we consume and traceability into where their inputs and components come from are becoming increasingly important to consumers and governments around the world. Consumers want clearer information on food products and more detailed intelligence along value chains. Many governments have implemented, or are considering, policies that require companies to provide greater transparency and traceability in three major areas: ingredients and nutritional labeling, labor practices, and sustainable production practices.

Front of Pack Nutritional Labeling:  Many governments are concerned about fighting obesity and the burden of non-communicable diseases (NCDs) including diabetes, cancer, and heart disease. At the same time, more consumers around the world have steadily become more aware of their consumption habits and strive for healthier behaviors.
 
A Nielsen IQ Global Health and Wellness report, which explored consumer sentiment across 17 global markets, calculated that nearly half of global consumers are embracing proactive approaches to their health.[1] Collectively, markets around the world are becoming more health conscious and are expecting a proportionate response from the companies they support. The same Nielsen IQ report found that 77% of consumers expect product labels to be more specific and transparent.[2] This demand for more product content disclosure is coming in the form of front-of-pack nutritional labeling (FOPNL) schemes.
 
As of September 2021, there are 40 countries with mandatory or voluntary FOPNL schemes in place or scheduled for implementation.[3] FOPNL schemes are intended to provide details upfront in a clear and simple format on amount of calories, fat, sodium, and sugars to help consumers make more informed choices in support of a healthy diet. For companies selling across various markets, the plethora of FOPNL schemes with varying technicalities creates a fractured regulatory landscape and adds complexity as companies look to ensure compliance. Some schemes require warnings if certain thresholds are exceeded (such as stop sign warning labels in many countries of South America), while other schemes provide color-coded labels (like NutriScore in many EU countries, traffic light labels in Ecuador, or keyhole throughout Scandinavia).
 
Companies will need to stay up to date as FOPNL schemes continue to proliferate, to ensure compliance in terms of transparency as well as understand any follow-on impacts such as marketing restrictions, so called junk food taxes or sales bans.
 
Concern for Labor and Human Rights:  Policy makers increasingly rely on regulations and legislation to require companies to provide insight into how and where their goods are produced, going far beyond tier 1 suppliers in the value chain.
 
In the United States, Customs and Border Protection (CBP) has increased use of Withhold Release Orders over the past 6 years to prevent the import of products alleged or found to be made with forced or child labor.[4]  In December 2021, President Biden signed into law the Uyghur Forced Labor Prevention Act which severely restricts imports from China’s Xinjiang region and directs CBP to apply a “presumption of guilt” that forced labor has been used for any Xinjiang-sourced imports. [5]  Importers will be obligated to provide evidence that Xinjiang supply chains are not tied to forced labor before the goods can enter the United States.[6]  At the same time, the United States has utilized free trade agreements to address labor concerns. For example, the U.S.-Mexico-Canada Agreement provides a mechanism for its members to investigate allegations of labor rights violations. In May 2021, this mechanism was used to launch an investigation into concerns over workers’ rights in a GM factory in Mexico.[7] Future trade agreements are expected to include similar provisions.
 
In other markets, policy makers are undertaking initiatives to address poor labor conditions within the supply chain by enforcing transparency and supply chain due diligence requirements.

• In August 2021, the Australian Senate voted to pass a bill which would place a global prohibition on the importation of products manufactured with forced labor.[8], [9]
• In January 2022, the European Parliament petitioned a legislative proposal on a traceability mechanism capable of curtailing the importation of products produced with forced and child labor.[10]
• Since 1 January 2010, the EU has implemented the illegal, unreported, and unregulated fishing regulation (EC No. 1005/2008), which requires flag States to certify the origin and legality of all marine fishery products traded from and into the EU. The regulation includes a traffic light card system in which countries ignoring illegal fishing activities are given a yellow card warning, and those who continue to be non-compliant are upgraded to a red card, which could eventually lead to a ban on the country’s fishery products from the EU.[11] Up to March 2021, a total of 27 countries have been given a yellow card warning and six were upgraded to a red card ban.
• The UK announced on 12 January 2021, a set of measures to ensure that no British organization is complicit or profiting from Xinjiang region forced labor. These measures include financial penalties for firms who fail to comply with the Modern Slavery Act, a review of export controls in the context of the Xinjiang region, and the publishing of guidance outlining the risk and challenges of the due diligence process when operating in the Xinjiang region.[12]

 
Sustainable Production Practices:  Visibility into how products are produced and if production methods are sustainable and combat climate change is becoming increasingly important.
 
The U.S. Senate has proposed the FOREST ACT, bipartisan legislation that seeks to minimize commodity-driven deforestation around the world by imposing a risk-based framework for improving the transparency of international supply chains.[13] If passed, importers would be mandated to certify that they have taken all necessary steps to ensure that products made up of certain commodities (e.g. palm oil, soybeans, cattle, rubber, pulp, and cocoa) do not originate from illegally deforested land. Building on the success of the Lacey Act, which imposes similar restrictions on fish, wildlife, and plants, the FOREST Act reinforces policy makers efforts to leverage supply chain transparency for environmental protection.
 
Across the Atlantic, EU policy makers have taken similar steps to shed more light on supply chain transparency. In November 2021, the EU Commission proposed a new regulation that curbs trade and consumption of commodities that contribute to deforestation.[14] The proposal pertains to a select group of commodities including cattle, wood, palm oil, soy, cocoa, and coffee. If manufacturers are unable to comply with the due-diligence process and show that their product is deforestation-free, they will be barred from entering the EU marketplace. Particularly striking is the level of granularity built into the proposed due diligence process. Stakeholders could be required to provide the geo-location of land used to cultivate the products and prove that it is deforestation-free.
 
Similarly, the UK has committed itself to incorporating a due diligence provision into the Environment Act, which would help curb illegal deforestation in the UK supply chains. Stemming from an August 2020 public consultation, policy makers received widespread support for the proposed introduction of new measures that would require large businesses to ensure that commodities they use do not come from illegally deforested land.[15] On 3 December 2021, UK officials launched a public consultation to better determine the implementation mechanisms of the proposed anti-deforestation provision. Upon its conclusion, the UK will determine which commodities to include, types of businesses that will be required to comply, details of the due diligence process, and enforcement mechanisms. [16]
 
Looking Ahead:  These various initiatives represent an increased level of scrutiny on cross-border trade flows and a call for greater transparency. Looking ahead, we anticipate even wider adoption of FOPNL systems, additional requirements to improve labor and human rights in supply chains, and more eco-initiatives by trading partners. We are interested to see how companies with cross-border operations continue to adapt to these initiatives and requirements, implement measures and technologies to provide visibility all the way back to the plot or shipping vessel for inputs in our foods.

Leonardo Boccalon
lboccalon@trademoves.net

[1] Nielsen IQ, An inside look into the 2021 global consumer health and wellness revolution (28 October 2021)
[2] Ibid.
[3] Global Food Research Program UNC, Front-of-Package Labeling (September 2021)
[4] Jones Day, Combating Forced Labor: The Increased Use of Withhold Release Orders and Formal Findings (March 2020)
[5] Congress, U.S. Public Law No: 117-78: To ensure that goods made with forced labor in the Xinjiang Uyghur Autonomous Region of the People's Republic of China do not enter the United States market, and for other purposes (23 December 2021)[6] Politico, New law to combat forced labor in China sparks enforcement debate (23 December 2021)
[7] USTR, Ambassador Tai, Secretary Walsh Applaud Successful First Course of Remediation under USMCA’s Rapid Response Mechanism (22 September 2021)
[8] Australia Federal Registry of Legislation, Customs Amendment (Banning Goods Produced by Forced Labor) Bill 2021 (24 June 2021)
[9] Corrs Chambers Westgarth, Passing of Customs Amendments Bill by Senate highlights the need for business ESG integration (13 September 2021)
[10] European Parliament, Legislative Train Ban on Import of Goods Produced Using Modern Forms of Slavery And Forced Labor, Including That of Children (January 2022)
[11] European Commission, Illegal Fishing 
[12] UK Government, UK Government announces business measures over Xinjiang human rights abuses (12 January 2021)
[13] Congress, Forest Act of 2021 (6 October 2021)
[14] European Commission, Regulation of The European Parliament and Of the Council
On The Making Available on The Union Market as Well as Export from The Union of Certain
Commodities And Products Associated with Deforestation and Forest Degradation (17 November 2021)
[15] Department for Environment, Food, & Rural Affairs, Due diligence on forest risk commodities (25 August 2020)
[16] Department for Environment, Food, & Rural Affairs, Implementing due diligence on forest risk commodities (3 December 2021)