Appraisal Cost Of Fishery Corporation These are the costs of inspecting and testing to ensure that the products,

parts and raw materials conform to quality requirements. These are generally the easiest type of quality costs to measure and include:

Costs related to the in-plant (internal) inspection an control of raw materials, purchased ingredients and packaging. Costs related to in-plant (internal) process inspection, such as checking of semi-processed items and final products, temperature inspection and recording, including costs of compilation of quality records (cost of the forms and clerical expenses). All the in-plant laboratory costs (including sampling and testing). This item also includes the cost of disposable laboratory equipment and material (chemicals, microbiological media, glassware, etc) calibrating equipment and any outside testing services that may be used. The salaries of quality control and inspection people (professionals, technicians and workers). Costs related to final inspection, in-plant or external. Official final inspection certificates are mandatory in some countries, and the firm should pay for them to the Government or specialized Government Agency (e.g., to CERPER in Peru). In some cases in accordance with a contractual agreement, a final certification from a third independent laboratory may be required.

As temperature is the single most important parameter in HACCP implementation, the costs related to measurement, recording and control of temperature, including calibration of equipment, should be included as appraisal costs. The level of costs of this item can be a good indicator of HACCP implementation. According to the new regulations in Canada, USA and the EU, now being implemented, fishery products manufactured outside the proposed HACCP-based systems will have to pass through independent full sampling and analysis. If applied, these regulations will increase the appraisal costs of the companies that do not conform with the new regulations. - Costs of Microbiological and Chemical Analysis The cost of objective and subjective analysis to determine safety and quality of fishery products is a key component of appraisal costs. This type of cost can be due to internal or external (voluntary or mandatory) quality control and inspection. In principle, cost of analysis is easy to determine. It comprises the cost of chemical reagents and media, disposable glassware, analyst's time (sampling, sample preparation, travel time, analysis time, time of analysis interpretation and reporting and dead time), energy (some analyses require notable use of electricity), cost of samples and administrative overheads. If fixed costs are to be included in the picture, the proportion of depreciation of the laboratory, facilities and equipment should be added. As discussed in section 8.4, at company level, fixed costs are treated separately of variable costs. The inclusion of a laboratory in a plant will depend

on an economic comparison of the cost of performing the analysis in-plant or contract a external laboratory to do them. Small plants may find more convenient to contract a laboratory service rather than to have their own; however, this will depend on the volume of production, type of product and legal and contractual requirements. (i) Cost of external analysis It may be difficult to determine the cost of in-plant analysis, because in practice very often the analyst is used in many other functions, e.g., procurement of permits, discussion with official fish inspectors, product development, in-line quality supervision, quality auditing, supervision of cleaning personnel, pest control, responsible for industrial safety, fire warden, etc. However, it is relatively easier to establish the cost of external analysis. In Table 8.2 the cost of different types of analysis, performed by a third party, is listed. In the case of Canada and Mexico the cost that appears in Table 8.2 represents the total cost of the analysis; in the case of USA the cost will depend on the time used by the NMFS officer to draw the sample and travel, plus mileage cost and administrative overheads. From Table 8.2 it is apparent that costs of analysis vary widely, in developing countries they may be less expensive, because of low wages. However, the advantage of low wages may be offset by the increased cost of reagents, media, glassware and equipment that should be imported, and sometimes labour productivity. Table 8.2 Cost (in US$) of some Microbiological and Chemical Analysis on Fish Samples Type of Analysis Canada (1) Faecal coliforms 129.16 E. coli 162.5 S. aureus 112.5 Salmonella spp. 154.16 L. monocytogenes 200 Mercury 100 Histamine 112.5 Shellfish toxin 70.83 Ammonia n.a. species identification 170.83 USA (2) Mexico (3) 23.96(4) 13.63 35.94(5) 30.30 17.97 22.72 47.92(6) 22.72 n.a. n.a. n.a. 45.45 71.90 n.a. 51.05 (7) n.a. 53.92 n.a. 71.90 30.30(8)

Notes: 1. Fish Inspection Regulations, Canada, version of 1992, values in US$ (calculated at a rate of 1.2 $CAN per 1 US$). Reinspection fees are higher than those that appear in this table (e.g., reinspection analysis for histamine costs US$ 183.33). 2. National Marine Fisheries Service (NMFS), USA, 1992, values in US$. Cost for analyses only, hourly charges for lot, miscellaneous, consultative and inspection services plus a 20% surcharge for administrative purposes should be added. 3. Centro de Investigacin en Alimentacin y Desarrollo, A.C. (CIAD), Mexico, 1994, values in US$ (calculated at a rate of 3.3 MN$ per US$ 1). 4. The basic analysis is Total coliform that cost US$ 11.98, to determine Faecal coliform US$ 11.98 should be paid in addition. 5. The basic analysis is Total coliform + Faecal coliform (see previous note), to determine E. coli US$ 11.98 should be paid in addition. 6. BAM method (steps 1, 2 and 3). 7. Paralytic shellfish poison (PSP), cost per sample (minimum of 3 samples). 8. On meat. (ii) Cost of lot sampling and inspection services The hourly fees for inspection services rendered by the NMFS (USA) are listed in Table 8.3. If the values for USA of Table 8.2 are consolidated with values of Table 8.3 (Type 11, for sampling), administrative surcharge (20%) plus eventual travel, costs of analysis in USA and Canada became more or less of the same order. Tables 8.2 and 8.3 indicate the additional cost created by fish shipments being placed in detention upon arrival in the USA (in this case analysis costs could be part of a failure cost, see section 8.5.3.2). In the case of USA private laboratories could be called upon by the competent authority to perform inspection analysis on request. In this case, costs are charged at the current cost of the private laboratory. Table 8.3 Hourly Cost Fees for Inspection Services (voluntary scheme) charged by the US NMFS (1992) (1) Type of services I Official establishments and product inspection II Lot inspection. Officially and unofficially drawn samples (2) III Miscellaneous inspection and consultative services (3) Regular time US$/h 32.45 45.45 40.55 Overtime US$/h 48.70 68.15 60.85 Sunday and legal holidays US$/h 64.90 90.90 81.15

Notes: 1. Excluded the states of Alaska and Minnesota. A 20% of the total will be charged for administrative purposes. 2. Minimum fee US$ 34. 10. It includes sampling and travel time (mileage costs are assessed separately). 3. Minimum fee US$ 30.45. (iii) Influence of the number of samples The type of analysis and the number of samples for each shipment are determinant in defining the total appraisal cost, particularly in fish inspection and quality systems based on analysis of final products. The number of samples to be analysed depends on the size of the lot, and on the degree of reliability pursued. In the case of fish inspection, regulations could specify the number of samples to be drawn from a lot. For instance in the case of the Canadian Fish Inspection Regulations the sample size, for organoleptic evaluation, should be determined in accordance with Sampling Plan 1 (for first inspection) and Sampling Plan 11 (for reinspection) as specified in "Sampling Plans for Prepackaged Foods" (FAO/WTHO, 1969). A case for a lot composed of product units with a weight equal or less than 1 kg each, is presented in Table 8.4. As costs presented in Tables 8.2, 8.3 and 8.4, in particular those referring to Canadian and American Public Services, are fees aimed to recover "as nearly as possible" the costs of providing the inspection service, they can be used as a base to calculate the cost of analysis in developed countries. Private laboratories will usually charge higher fees than official laboratories, and report or certificates produced may have not the same legal value of those of official laboratories. However, it is very common that seller and buyer may agree on a private laboratory to check lots, since obviously official laboratories cannot cope with all the existing trade. Table 8.4 Cost of Sensory Evaluation (in US$), in Function of Lot and Sample Size, and Acceptance Number, for Inspection and Reinspection of Fish Lots, according to Canadian Regulations (1) (2) (3) Lot size (N) 4 800 or less 4801 - 24000 24 001 - 48 000 48 001 - 84 000 84 001 - 144 000 144 001 - 240 000 More than 240 000 Sample size Acceptance number (n) (4) (c) (4) 6 (13) 1 (2) 13 (21) 2 (3) 21 (29) 3 (4) 29 (48) 4 (6) 48 (84) 6 (9) 84 (126) 9 (13) 126 (200) 13 (19) Cost (US$) (4) 58.3 (129.2) 70.8 (170.8) 83.3 (270.8) 125.0 (395.8) 170.8 (666.7) 270.8 (979.2) 383.3 (1 429.2)

Notes: 1. Fish Inspection Regulations, Canada, version of 1992. 2. Values of N, n, AQL, (6.5) and c, according to Sampling plans 1 and 11 (reinspection) for product units with a net weight equal or less than 1 kg (2.2 1b). Determined in accordance with (1) and (FAO/WHO, 1969). AQL: Acceptable Quality Level. Maximum percentage of defective units permitted in a lot, which will be accepted approximately 95 % of the time. A sampling plan with AQL of 6.5 will accept a lot or production which has 6.5 % defective approximately 95 % of the time. c: Acceptance number. Indicates the maximum number of defectives permitted in the sample in order to consider the lot as meeting the requirements of the FAO/WHO CAC/RM 42. 3. Values in US$ calculated at the rate of 1.2 CAN$ per US$ 1 (1992). 4. Values in brackets correspond to reinspection, according with Sampling plan II (n and c), and respective reinspection fees. In practice, an exporter may be put in the situation to pay for the quality appraisal of a lot more than once. It may expend to check at plant level, then pay for the local fish inspection and finally been affected by the inspection cost at the importing country. Although national regulations in general establish that inspection analysis "shall be payable by the person that imports the fish" (Canadian Fish Inspection, Cost Recovery Programme), it is clear that such cost will influence the amount to be paid for the lot to the exporter. If all the cost analyses are compounded, the appraisal costs can become very high. In that situation it is not unusual that "commercial sampling" has been agreed by seller and buyer, this means in practice less demanding sampling, each time, that such detailed in Table 8.4. Depending on the type and value of the product, if it is a final or intermediate product, size of the lot and type of analysis requested fewer samples can be drawn. For instance according to Canadian regulations, for bacteriological examination of fresh and frozen fishery products the sample size should be 5 individual prepackaged units or five 1-1b sample units from large bulk containers (Emberley, 1991). This in turn fixes the mandatory cost of the analysis; e.g., the analysis of Salmonella spp. (see Table 8.2) will cost US$ 770.8, regardless of the size of the lot. In general, small lots will have a comparatively high appraisal cost and a relatively low statistical reliability, even if FAO/WHO sampling plans are followed. Exports from developing countries usually face this type of problem. The analysis of Table 8.4 while giving an indication of the possible costs of sensory evaluation, immediately raises a number of issues: the comparatively large number of defective lots that may be accepted, the risk involved in accepting "bad" lots, and the existence in practice of "zero" tolerance limits (e.g., Salmonella spp.). The number of samples to be analysed can be increased in order to reduce the risk of acceptance of faulty lots. However, reliability does not increase proportionally to the number of samples as will be discussed below.

(iv) Cost of increasing reliability through the increase of the number of samples analysed Following with the sensory analysis presented in Table 8.4 it could be hypothesized that there is a product with lots containing 4 800 or fewer units of 1 kg each, with 20% of defective units. Applying Sampling Plan 1 according to Table 8.4, 6 samples will be drawn for sensory analysis, and the cost of the analysis will be US$ 58.3 . From the analysis of the corresponding Operation Characteristic Curve (OCC), (see FAO/WHO, 1969) it will result that the lot will be accepted in approximately 65% of the cases, or conversely approximately 35 % of the lots in such conditions will be rejected under this sampling plan. At this point the purchaser or importer who discovered that the lot contained a large portion of defective units may be inclined to request that more samples be analysed in future shipments. What degree of reliability is required (in percentage of rejected lots with such characteristics)?, how many samples?, and how will the cost increase?. Using Sampling plan 1 (AQL, 6.5) and, the corresponding OCC, it is possible to construct Figure 8.2. Although the curve drawn in Figure 8.2 indicates only tendency (available cost values are for a fixed number of samples) it is clear that under such a sampling plan, the increase in reliability (or in assessed quality) will imply a exponential increase of the appraisal cost (see Figure 8.3). It is pointed out that increased sampling will not eliminate the risk of acceptance of "bad" lots. In the example of Figure 8.2 it was assumed that 20% of the units within the lot were defective, but,-this is a hypothetical situation (in practice it cannot be know how many defectives there are in a lot). What happens for instance if instead of 20% defectives there are only 10% defectives? Assuming that in the example of Figure 8.2, it had been decided to have a sampling of 48 units (1 % or more of the total lot!) to assure a 87 % of rejections of lots containing 20% of defectives, it happens that lots with 10% defective units will be accepted in approximately 78% of the cases, or rejected only about 22% of the time. From a cost point of view this can be a nightmare situation for a small and medium company. Following the example of Figure 8.2, the increased reliability from 35 % rejections (n = 6) that will cost US$ 0.012/kg of sensory evaluation, to 87% of rejections (n = 48), will increase the cost of sensory evaluation alone from US$ 0.012/kg to US$ 0.036/kg (figures can be higher than indicated if the lot has less than 4 800 units). This increase in the cost of analysis does not include the cost of the samples (that should be included) and eventually the cost of other required analysis (e.g., microbiological). For example, assuming a total cost of US$ 1 per unit (US$ 48 in addition), plus a faecal coliform. analysis (US$ 390.48), the total cost of analysis will reach US$ 0.127/kg. This is 12.7% of the total cost; and if defective units are below 10% of the lot, they will be accepted 78% of the time.

Figure 8.2 Variation of the Cost of Sensory Analysis vs the Increase in Reliability (approx. percentage of rejection of a lot containing 20% of defective units) (v) The economic need to assure quality through other means The example discussed in point (iv) is illuminating regarding the economic impossibility to assure (not control) quality through the analysis of samples of the final product. Although the incidence of cost of analysis can be reduced by increasing the number of units of a lot, it may create other problems, such as lack of consistency of the quality within the lot (because it is actually made up of a number of small lots, e.g., formed by the processing of different lots of raw material). Although it is rarely admitted, the number of analyses prescribed by the regulations of some countries are impossible to meet just for cost reasons. They are only enforced when an outbreak occurs (e.g., cholera, SPP, salmonellosis), in the case of lots of dubious origins, or when the producing company (sometimes the country of origin) has poor records of safety and quality. Those regulations may be used as non-tariff barriers, but in view of the nature of the international fish market those moves are necessarily short-lived (the suppliers will look for alternative markets). Nevertheless, there is the need to produce safe products of consistent quality. The liability continues to subsist regardless of whether or not the specific analysis was performed. At the same time the customers require products of consistent quality if they are to purchase them again. The only possibility of responding to such requirements is to develop safer production methods aimed at avoiding safety and quality problems, designed, operated and controlled in order to obtain and

deliver the right product, the first time. Regulations on Good Manufacturing Practices (GMP) and FAO/WHO Recommended Codes of Practice were and are still in use. More recently HACCP and HACCP-based methods have received wide recognition because they present a more systematic and precise approach, are relatively easier to harmonize at regional and international level, and focus on essential safety aspects. In addition to other possible approaches, HACCP has been applied since 1976 in the canning industry with excellent results. However, to be useful any method should be more cost-effective than the one it is intended to replace. GMP and Codes of Practices allowed, when properly applied, to lean on fewer demanding sampling systems, but neither eliminate the need of analysis nor the problems due to defective productions. Application of HACCP and HACCP-based methods, according to the existing experience of the canning industry, can reduce even further the need of analysis, and at the same time the problems caused by defective products. Further discussion on the cost of applying HACCP to the fishery industry is presented in section 8.6. (vi) There are a number of practical projects that the reader can attempt, departing from this example, viz.:

The actual cost of analysis in the company/country, or for a given product The incidence of appraisal costs on the total selling price (ex works) of a product The total cost and economic viability of full applying a given national regulation The economic feasibility of a "zero" defect product