EUROPEAN COMMISSION Brussels, 20.5.2015 COM(2015) 204 final REPORT FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT AND THE COUNCIL regarding the mandatory indication of the country of origin or place of provenance for unprocessed foods, single ingredient products and ingredients that represent more than 50% of a food



TABLE OF CONTENTS 1.Introduction 2.Mandatory and voluntary labelling 3.Scope of the foods concerned 4.Overview of the sector and the supply chain 4.1.Overview of the EU food sector 4.2.Overview of the supply chain for the food production 4.3.Use of voluntary origin labelling and EU quality schemes 5.Consumer attitudes towards information on food origin 6.Possible scenarios and origin modalities concerning the provision of origin labelling for unprocessed foods, single ingredients products and ingredients that represent more than 50% of a food 7.Analysis of costs and benefits of the different scenarios 7.1.Impact concerning consumer behaviour 7.2.Economic impacts 7.2.1.Operating costs of FBOs 7.2.2.Impact on the internal market and on international trade 7.2.3.Administrative burden on businesses 7.2.4.Additional burden on public authorities 7.2.5.Costs for consumers 7.2.6.Environmental impacts

7.3.Costs and benefits of the different scenarios 8.Conclusions REPORT FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT AND THE COUNCIL regarding the mandatory indication of the country of origin or place of provenance for unprocessed foods, single ingredient products and ingredients that represent more than 50% of a food 1.Introduction Article 26(5) and (6) of Regulation (EU) No 1169/2011 of the European Parliament and of the Council on the provision of food information to consumers (hereinafter, 'the FIC Regulation') require the Commission to submit a series of reports to the European Parliament and the Council concerning the possibility to extend mandatory origin labelling for the following food categories: (a) types of meat other than beef, swine, sheep, goat and poultry; (b) milk; (c) milk used as an ingredient in dairy products; (d) unprocessed foods; (e) single ingredient products; (f) ingredients that represent more than 50 % of a food. The present report covers unprocessed foods, single ingredient products and ingredients that represent more than 50 % of a food. Following Article 26(7) of the FIC Regulation, the report shall analyse: –the need for the consumer to be informed; –the feasibility of such labelling; and –the costs and benefits of the introduction of such measures, including the legal impact on the internal market and the impact on international trade. This report builds mainly on the results of an external study commissioned by DG SANTE and carried out by the Food Chain Evaluation Consortium (FCEC), which included consumers, food business operators (FBOs) and Member States competent authorities surveys and case studies but also on other available sources on this subject. DG GROW conducted an SME test, whose results are incorporated in the FCEC study.

2.Mandatory and voluntary labelling Currently mandatory rules on origin labelling exist for several sectors, such as honey, fruit and vegetables, fish (not fish products such as prepared or preserved fish), beef and beef products, olive oil, wine, eggs, and imported poultry. The FIC Regulation introduced mandatory origin labelling for fresh, chilled or frozen meats of swine, sheep, goat and poultry, whose modalities have been fixed by Commission Implementing Regulation (EU) No 1337/2013. Apart from these rules on mandatory labelling of origin FBOs are free to label at their own initiative the country or region of origin, provided they fulfil the applicable provisions of the FIC Regulation. 3.Scope of the foods concerned The term "unprocessed foods" is defined in the FIC Regulation and means foodstuffs that have not undergone processing, and includes products that have been divided, parted, severed, sliced, boned, minced, skinned, ground, cut, cleaned, trimmed, husked, milled, chilled, frozen, deep-frozen or thawed. For example, flour, rice, and cut green vegetable salads are considered as unprocessed products. The FIC Regulation however gives no definition of "single ingredient products". For the purpose of this report, such products are understood as products that contain only one ingredient or feedstock. Examples are sugar, tomato purée, vegetable oils of a single vegetable origin, frozen potato fries when no additive or salt has been added to these products. The FIC Regulation also gives no definition of the "ingredients that represent more than 50% of a food", nor does it set out what the threshold of 50% refers to (volume, weight, etc.). Ingredients falling in this category could be for example the tomato of a tomato sauce, fruit in fruit juices, flour in bread (bakery sector). 4.Overview of the sector and the supply chain 4.1.Overview of the EU food sector The EU food and drink sector has a turnover of €1,048 billion, generates a value added of €206 billion and employs 4.2 million people, making it the largest manufacturing sector and the leading employer in the EU. There are 286,000 companies in this sector, 99% of which are SMEs (including microenterprises). 4.2.Overview of the supply chain for the food production EU FBOs procure raw materials from multiple sources in most of the food sectors. For commodities such as coffee, flour, the different raw material sources are required to maintain the desired quality of the product and to avoid variations due to seasonality. Price is also a key parameter and origin of raw material is often changed to minimise costs. When multiple sources are used, according to the FCEC study, 50% of the FBOs modify the origin of their ingredients 3 times or more per year. The more complex and sophisticated the supply chain is, the more burdensome origin labelling becomes. Regarding the traceability, as requested by the EU legislation on food safety, FBOs shall be able to identify their immediate suppliers and customers. This one step forward one step back traceability is usually the only traceability ensured and only 29% of FBOs go beyond this requirement and set up a more complete traceability system. 4.3.Use of voluntary origin labelling and EU quality schemes The consultation of stakeholders revealed that voluntary origin labelling was rarely used for the food sectors covered by the report. When such schemes are used, it is only for a minor part of the total production of a given product (for example < 1% of total coffee market) and mainly for the high value segment. The products bearing an EU quality scheme logo, such as a protected designation of origin (PDO), a protected geographical indication (PGI), or a traditional speciality guaranteed (TSG) are not predominant in most of the food categories under the scope of the report. Such indications are not always indications on the provenance of the raw materials but can be linked, for instance, to a regional know how and refer to the place of production. 5.Consumer attitudes towards information on food origin Consumer research shows that among aspects influencing consumer's behaviour origin labelling ranks after factors like price, taste, use by / best before dates, convenience and/or appearance. Interest in origin labelling appears generally lower for the products relevant to the present study, but still reaches three quarters of the respondent consumers in the FCEC study. In the FCEC study, consumer declared interest for the place of farming appears as important as their interest for the place of production, but when asked for concrete cases, consumers clearly prefer the information related to the place of production.

An overwhelming majority of interviewed consumers would prefer origin information at the level of the country. Regarding the reasons for consumer demand for origin labelling, there are important differences between Member States. For 42.8% of EU interviewed consumers, origin labelling would be used to favour national or local production over other food origins. For 12.9% of EU consumers, origin labelling is considered to provide reassurance on the quality of the food product. Environment-related reasons drive the interest of some 12.8% of EU consumers. Origin labelling would also reassure 10.8% of EU consumers on the safety of the food they buy. However, it must be noted that while some of the above reasons for an interest into the origin of the food can be considered as legitimate (e.g. support for local produce, characteristics of the product and environmental concerns) other reasons that have been quoted are not pertinent. This is the case specifically when origin is linked with safety, as products produced anywhere in the EU or imported into the EU must be 'safe'. Indeed, the primary aim of EU food legislation is to ensure food safety. The audits carried out by the Commission service responsible (the Food and Veterinary Office of the Directorate General Health and Food Safety) in Member States provide ample evidence of the consistently high level of safety which the implementation of EU legislation provides for. Similarly, audits are carried out in third countries to ensure that products exported meet the EU safety standards. Concerning consumer willingness to pay to have origin information, there is scattered and sometimes contradictory evidence, which may be due to methodological bias. Previous studies on the consumer willingness to pay showed that in spite of an interest for a given information, consumers are not ready to buy products at a higher cost to have this information. However, the FCEC study estimated a high willingness to pay for the products under the scope of the study (+30% for the information at EU level, +40-50% for the information at country level). It should also be noted that there is a significant gap between consumer intentions and actual behaviour. 6.Possible scenarios and origin modalities concerning the provision of origin labelling for unprocessed foods, single ingredients products and ingredients that represent more than 50% of a food For the purposes of this report, the following scenarios are examined: –Scenario 1: origin labelling on voluntary basis (status quo); –Scenario 2: mandatory origin labelling based on EU/non-EU or EU/third country; –Scenario 3: mandatory origin labelling indicating the Member State or third country; –Scenario 4: mandatory labelling indicating other geographical entities (region). For scenarios 2, 3 and 4, different modalities have been studied for each of the three main product categories: –Modality a: place of production: the origin would be defined in the Customs Code, i.e. country where the product has been wholly obtained or where it underwent its last substantial transformation; –Modality b: place of farming of the main raw material, i.e. place of harvest of fruits, vegetables and cereals, or place of fishing for processed fishery products; –Modality c: both of the above. 7.Analysis of costs and benefits of the different scenarios 7.1.Impact concerning consumer behaviour Under scenario 1, the extent of origin information would depend on the demand from consumer. Food prices being not impacted, this option would satisfy consumers who are attaching high importance to food prices. The new rules on voluntary origin would anyway avoid consumers being misled as to the true origin of the primary ingredient for foods claiming a given origin, as a different origin of the primary ingredient would have to be signalled. The scenario 2 would only satisfy consumers if the product, in the eyes of the consumer, is seen as safer or of better quality in comparison with non-EU countries, which is uncertain. This level of information is also often considered as too generic and not worthy of the additional costs passed onto the final consumers, even if this additional cost may be lower than for the scenarios 3 and 4. The scenario 3 is expected to lead to higher consumer satisfaction but also higher impact on production cost compared with scenario 2 and therefore higher price increase for the consumers. Impact of such origin labelling would also certainly result in a preference for national products. The fourth scenario does not appear preferable for consumers compared with the option of an origin indication at country level. This option is also expected to lead to much higher additional costs for FBOs, and therefore higher prices for consumers.

7.2.Economic impacts Given that FBOs questioned the feasibility of scenario 4 and the lack of higher interest from consumers compared with scenario 3, only the economic impact for the three first scenarios is reported. Because the study deals with a wide range of food categories, it was not possible to aggregate data on economic impact. The quantification of economic impact was therefore left at the level of the concrete case studies and is reported in the FCEC study. 7.2.1.Operating costs of FBOs Under scenario 1, the operating costs would be kept to the current levels. Under scenarios 2 and 3, FBOs opting for a single origin or a limited number of origins would have to face additional operating costs (one-off and recurrent) due to the necessary adaptations of sourcing practices, traceability systems, production process, packaging and marketing practices. Under scenario 3, operating costs will increase an estimated 10 to 15% for sectors that are not dealing with a high number of different origin, but can reach 30% in many cases. Some of these costs would be mitigated if the scenario 2 was selected, or if the scenario 3 applied with the possibility to label several countries (allowing mixes of origin in a given product, or also allowing the labelling of different origins which could occur subsequently during the production). FBOs also estimate the modality requesting the labelling of the place of production in general less costly than the labelling of the place of farming, because of the lower number of production places compared with the number of raw material origins and the less extensive traceability system required. 7.2.2.Impact on the internal market and on international trade Under scenario 2, it is expected that the internal market would not be affected, as the scenario does not differentiate between Member States origins. However, depending on the reaction of consumers to a EU or non-EU label and depending also on the adaptation of the sourcing practices of the FBOs, international trade may be impacted, which raises the issue of international trade agreements existing for some of the products covered by the studies, such as sugars. Third countries also highlighted their concerns on the potential loss of exports to the EU, because of additional production and labelling cost, and also because of a predicted shift of EU FBOs towards EU suppliers. Scenario 3, besides similar impact as scenario 2 on international trade, risks to impact the internal market, with a possible nationalisation of food supply chains, as almost half of the respondent consumers indicated that they would prefer products from their country. Under this scenario, although EU products could benefit from the preference of consumers on the EU market, additional burden and rigidity of the sourcing practices would penalise EU FBOs on the international market. 7.2.3.Administrative burden on businesses For FBOs dealing with raw materials of different origins, additional administrative burden would be due to the records of the origin for the supplies of deliveries and for the adaptation of the traceability system. Fixed costs would represent an important part of the additional burden, and would penalise much more SMEs. Only SMEs sourcing with a single or a limited number of origins would not be penalised. Scenario 1 would result in negligible administrative burden and only for the businesses that provide the origin of the final food and that origin is different from the primary ingredient(s). The total burden is also estimated to be lower under scenario 2 compared with scenario 3, and lower for modality a compared with modality b. 7.2.4.Additional burden on public authorities For public authorities, the estimation by Member States of the increase in control costs is very divergent. Under the hypothesis that the funding allocated to control authorities by the state budgets is not increased, such new rules may lead to a reduction in the frequency of controls or a change in priorities, which, combined with the absence of analytical method to check the origin of foods, may result in an increased risk for fraud. 7.2.5.Costs for consumers The provision of origin information is expected to result in increased costs, which would certainly be passed mainly onto to the consumer (based on the FCEC study). According to this study, the importance of these cost increases would vary from non-significant cost increase to high increase, depending on the food, the food sector, but also the Member State. Scenario 1 is not likely to result in an overall price increase. Only the products bearing voluntary origin information could potentially be affected. Scenarios 2 and 3 are likely to result in an overall price increase in the consumer price, which would be much higher in the latter case. As such, scenario 3 – and to a lesser extent scenario 2 – may result in a decrease in the consumption of the food products in the scope of the report if the cost increase is substantial, or to a higher consumer budget dedicated to the purchasing of these foods, which can often be basic foods. It should also be noted that under scenario 3, the nationalisation of the food chain could have an impact on employment due to the reorganisation of the food production chain, with positive impacts in certain cases and negative impacts in others. 7.2.6.Environmental impacts