Quality and quantity risks in cross-border trading of food and agriculture products
Variations in Quality and Quantity (‘Q&Q’) are key challenges faced by buyers and sellers when engaging in cross-border trade of agriculture products. These Q&Q variations results in Q&Q risks, which are stated as differences between ‘what has been contracted’ between the engaging parties, to ‘what is finally delivered’ to the buyer.
Background
The Q&Q risks are common in agriculture products and arise due to the short shelf-life (perishability), and inherent nature of these products to get affected by the environmental factors. The primary environmental factors that affect plant derivatives are temperature, pressure, and humidity (precipitation). Secondary environmental factors can manifest through infestation of molds, insects and fungi, that result in decay of plant material, and foreign material that contributes to contamination. The key impact of these environment factors is seen in variations of weight, and usability, of these natural products which in some cases may result in dispute or rejection by buyer.
Solution
Inspection allows the buyer and seller to understand the Q&Q readings before or after delivery, allowing the buyer to accept or reject the shipment, hence overall protecting the interest of both the engaging parties. Inspection allows the seller or buyer to take corrective action to restore the produce back to contracted Q&Q terms, if possible, and allowing the continuity of the transaction. Inspection is undertaken by a neutral and reputed international inspection agency, employed by either the buyer or seller, to conduct the inspection of goods before (‘Pre-shipment’) and/or after (‘Post-shipment’). Some of the known international inspection agencies are Cotecna Inspection S.A., SGS, Bureau Veritas, Geochem and Intertek. There are also several local inspection agencies which may be cheaper than international inspection agencies, but reports issued by these inspection agencies, are not at times acceptable to international buyers, financial institutions, and importing country authorities.
Inspection of Quality include two types of checks which are –
1. Physical Quality — the physical quality inspections involve visual inspection of products on parameters like — size, color, infestations, foreign materials, etc.
2. Chemical Quality — the chemical quality involves collection of samples from randomly selected wholesale packs, which are then sent to an internationally accepted laboratory for chemical analysis. The chemical analysis measure for parameters like fatty acids, aflatoxins, gluten, etc., as per the agriculture product involved.
Inspection of Quantity is undertaken for two-packaging levels –
1. Item — quantity of items and their weights are verified, for agricultural products that are measurable in physical size, e.g., potatoes, apples, etc.
2.Wholesale pack (or ‘Unit of Sale’) — quantity of wholesale packs and their weight are validated, for agricultural products that are not-measurable in size or are traded in loose bulk, e.g., rice, sugar, etc.
The total quantity of items and/or wholesale packs is validated through an activity called ‘tally count’ where the readings are recorded on a ‘tally sheet’, while weight of each item and the wholesale pack are measured through weighing scales. The total weight of the shipment is done by weighing the carrier that is carrying the shipment, on a weigh-bridge, e.g., truck or rail weighment. The weighment of the carrier is done empty and then with shipment to determine the total weight of shipment.
Application
Maalexi.com appoints Cotecna Inspection S.A., for comprehensive quality and quantity checks for all transactions going through its digital platform, either pre-shipment or post-shipment, as selected by the buyer. Once the Inspection report is issued it is provided directly to Maalexi.com and uploaded on the user’s dashboard, protecting the report from any tampering, and making it fast and secure for buyer to digitally accept or reject the report. The digital acceptance of inspection report by the buyer allows the Q&Q risk to be offset from the transaction, allowing the financial institution to extend ‘factoring’ advance to seller and/or credit to the buyer. Furthermore, neutral and internationally acceptable inspection on Maalexi.com, permits financial institutions and users to get complete visibility of the quality and quantity of goods in ‘real’ sense, and builds high levels of trust in cross-border trade for all the involved stakeholders.
Conclusion
Q&Q risks are inherent aspect of trade in agricultural products, this restricts many smaller sized businesses not to participate in international trade, and sell their produce at cheaper prices locally. With application of internationally accepted inspection at the processor and producer points, will allow these agricultural products to become acceptable to international buyers, and hence provide opportunity for higher price realization to small sized businesses.
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