AGRI_Report_DRAFT.pdf

A final draft of this document will be available on the USAID Project website (www.eatproject.org) by mid-January 2015.

Agribusiness Regulation & Institutions (AGRI) Index

December 2014 http://www.eatproject.org/

An edited draft of this document will be available on the USAID Project website (www.eatproject.org) by mid-January 2015.

Agribusiness Regulation & Institutions (AGRI) Index

December 2014

About the Enabling Agricultural Trade project The Enabling Agricultural Trade (EAT) project, funded by the United States Agency for International Development (USAID) and implemented by Fintrac Inc., supports the US government’s global efforts to create conditions for agricultural growth. USAID established USAID-EAT based on substantial academic and field experience suggesting that a sound legal, regulatory, and institutional environment is a prerequisite to economic growth in the agricultural sector.

USAID-EAT offers a suite of targeted and customizable analytical tools to support startup and growth of businesses across the agricultural sector.

This report is made possible by the support of the American People through the United States Agency for International Development (USAID). The contents of the AGRI Index are the sole responsibility of Fintrac Inc. and do not necessarily reflect the views of USAID or the United States government.

An edited draft of this document will be available on the USAID Project website (www.eatproject.org) by mid-January 2015.

Acronyms

ADR Alternative Dispute Resolution AgBEE Agribusiness Enabling Environment AgCLIR Agribusiness Commercial Legal and Institutional Reform Diagnostic AGRI Agribusiness Regulation and Institutions Index EAT USAID’s Enabling Agricultural Trade project ECOWAS Economic Community of West African States EU European Union FAO Food and Agriculture Organization of the United Nations GDP Gross Domestic Product LLC Limited Liability Company MoA Ministry of Agriculture M&E Monitoring and Evaluation NSC National Seed Committee RCCM Company and Collateral Registry, in Senegal and Mali (Registre de Commerce et du Crédit Mobilier) REACH EU Regulation on the Registration, Evaluation, Authorization, and Restriction of Chemicals US United States of America USAID United States Agency for International Development WRS Warehouse Receipts System

An edited draft of this document will be available on the USAID Project website (www.eatproject.org) by mid-January 2015.

Contents

Executive Summary

Key Findings

Introduction

Purpose of the AGRI Index

Development of the AGRI Index

Methodology

Topic 1: Trading Agricultural Goods

Topic 2: Obtaining Seed

Topic 3: Obtaining Fertilizer

Topic 4: Accessing Rural Land

Topic 5: Accessing Finance

Topic 6: Starting and Operating a Farm

Topic 7: Enabling Contract Farming

Conclusion

Annexes

Sources

Acknowledgements

An edited draft of this document will be available on the USAID Project website (www.eatproject.org) by mid-January 2015.

List of Charts and Tables

Table 1: AGRI Topics and Indicators…………………………………………………………………………………12 Chart 1: AGRI Index Development and Methodology……………………………………………………………..13 Chart 2: Time and Cost to Export an Agricultural Commodity…………………………………………………16 Chart 3: Number of Documents to Export an Agricultural Commodity………………………………… Chart 4: More documents lead to a longer and more costly export process…………………………………..17 Chart 5: Time and Cost to Import Seed………………………………………………………………………..……18 Chart 6: Wide variation in time to obtain import permit … Chart 7: Time for Each Step to Import Seed to Senegal, Including Document Preparation………...……...19 Chart 8: Time and Cost to Seed Variety Registration……………………………………………………………..22 Table 2: Gazette Time by Country………………………………………………………………………………… Table 3: Seed Variety Registration Procedures……………………………………………………………………..26 Chart 9: It takes one year longer to register a new seed variety in Nepal than in Bangladesh……………..27 Chart 10: Time and Cost to Obtain Licenses and Permits for a Seed Supplier……………………………….28 Chart 11: Breakdown of Costs by Seed Business License in Kenya and Uganda……………………………...29 Chart 12: Time and Cost to Obtain Fertilizer Supplier Licenses………………………………………………...31 Chart 13: Time and Cost to Transfer Rural Land……………………….………………………………………….34 Chart 14: Time to Transfer Land……………………………………………………………………………………...35 Chart 15: Agricultural Collateral Index ……………………………………………………………………….……..39 Chart 16: A large gap remains between the legal framework and lender practices…………………………40 Chart 17: Movable Collateral Registry Index…………………………………………………………………….….41 Chart 18: Time and Cost to Start a Farm………………………………………………………… Chart 19: Farm licenses and permits represent a substantial portion of the time and cost to farm start-up in Bangladesh, Kenya, Netherlands, Thailand, Uganda, and Zambia……………………………………………47 Chart 20: It takes 14 procedures, 129 days, and 41 percent of GDP per capita to start a farm in Kenya...48 Chart 21: Contracts Index Scores ……………………………………………………………………………...……..50 Chart 22: ADR Index Scores…………………………………………………………………………………………

An edited draft of this document will be available on the USAID Project website (www.eatproject.org) by mid-January 2015.

Executive Summary

The 2008 global food crisis underscored the urgent need for governments and development partners to strengthen the resiliency of countries’ food and agricultural systems. Efficient and effective administration of the legal and regulatory framework makes it easier to do business in the agricultural sector and increases the sector’s resiliency in the face of shocks. Yet to date, no cross-country comparable data on the efficiency or effectiveness of government administration have been available for policymakers to use as part of their agricultural sector reform efforts. To meet this need, USAID commissioned the development of the Agribusiness Regulation and Institutions (AGRI) Index, a tool to provide clear and easy-to-understand metrics on the ease of doing business in the agricultural sector across countries and over time. This tool is intended to guide policymakers in improving elements of the legal, regulatory, and institutional system in critical areas of the agricultural economy, such as access to land, seed, fertilizer, finance, and international trade.

The AGRI Index is the first cross-country benchmarking tool to quantify the legal, regulatory, and institutional barriers faced by agribusinesses in a consistent manner, allowing for comparisons to be drawn between countries and within a country over time.

About the AGRI Index The AGRI Index uses a small and carefully selected set of indicators to measure the time and cost associated with the regulations and administrative procedures that affect the startup and growth of agribusinesses. The AGRI Index is comprised of seven key topic areas that capture crucial stages in the lifecycle of an agribusiness and span a range of actors along the value chain, from input providers to agricultural exporters.

This effort is funded by the U.S. Agency for International Development (USAID) and implemented by Fintrac Inc., through the Enabling Agricultural Trade (EAT) project.

The AGRI Index draws upon a considerable body of empirical evidence that demonstrates that government regulation is an important determinant of economic growth,1 affecting rates of entrepreneurship,2 trade,3 and investment.4 Drawing inspiration from the World Bank Group’s Doing Business report, the AGRI Index focuses on identifying barriers to doing business in the agricultural sector that can be addressed through discrete legal, regulatory, or administrative change. In most of the countries surveyed, this is the first time such an inventory has been attempted, a critical milestone in its own right.5

Why Agribusiness?

The 2008 global food crisis highlighted the challenges of ensuring adequate, affordable, and accessible food for all people at all times. Looking to the future, governments and global leaders are faced with the prospect of feeding a growing and more-affluent global population that is expected to increase to 9 billion people by 2050. Meeting these needs will mean connecting farmers to local and international markets, and scaling up the use of key technologies to increase agricultural production while reducing waste and losses. The role of government in this process is central to the AGRI Index.

1 See for example: Antonio Ciccone and Elias Papaioannou, “Red tape and delayed entry,” European Central Bank Working Paper Series 758 (2007).

2 Silvia Ardagna and Annamaria Lusardi, “Explaining International Differences in Entrepreneurship: The Role of Individual Characteristics and Regulatory Constraints,” National Bureau of Economic Research Working Paper 14012 (2009).

3 Andrei Levchenko, “Institutional Quality and International Trade,” International Monetary Fund Working Paper 04/231 (2006).

4 Jamal Ibrahim Haidar, “Investor protections and economic growth,” Economics Letters 103.1 (2009).

5 More information on the AGRI Index development and methodology is included in Annex 1.

Key Topics

1. Trading Agricultural Goods

2. Obtaining Seed

3. Obtaining Fertilizer

4. Accessing Rural Land

5. Accessing Finance

6. Starting & Operating a Farm

7. Enabling Contract Farming

An edited draft of this document will be available on the USAID Project website (www.eatproject.org) by mid-January 2015.

Unique among industries, agriculture employs a large percentage of the work force in developing nations and produces the food, fuel, and fiber that sustain human life. Because of the sheer necessity of these goods, governments treat the regulation of food and agriculture differently than any other sector. This report explores ways that agribusiness regulation can be improved to help reach equilibrium between producer and consumer needs, and between the public good of regulatory control versus the private costs of compliance. Recognizing the fundamental role that agricultural commodities play in everyday life underscores the importance of enabling innovation, technology, and trade in the food and agricultural sector.

Agriculture is different than other industries, and that difference matters when discussing the regulatory and administrative framework that governs agricultural businesses of all sizes. The AGRI Index identifies key issues that must be addressed in local legal, regulatory, and institutional environments to promote agriculture that is economically productive, contributes to environmental sustainability, and ensures a safe and reliable food supply for all.

Setting the Agenda for Action The AGRI Index identifies concrete steps that can be taken to reduce the time and cost of regulatory compliance and improve the competitiveness of the agricultural sector. AGRI data highlight common issues of administrative inefficiency, high compliance costs, lack of adequate legal protections, and ineffective application of the law. Importantly, AGRI data provide governments and donors with the opportunity to learn how similar processes are regulated in other economies, creating a unique platform to share good practices between governments.

This data is also intended to fill USAID’s immediate need for comparable metrics on the enabling environment for agriculture in order to support global program design and monitoring and evaluation, complimenting efforts to monitor global investments such as those under the US government’s New Alliance for Food Security and Nutrition.

The AGRI Index provides data that can be used for a wide range of purposes by a variety of key audiences. First, policymakers and other donors can use AGRI data to identify priority areas for reform and to engage stakeholders in the process of undertaking reforms to the agribusiness enabling environment. Policymakers and practitioners can apply lessons learned from other countries to their country’s legal, regulatory, and institutional system. Investors and agribusinesses can also use the data to navigate the complex – and at times opaque – set of regulatory requirements that apply to their business. Finally, researchers can use AGRI data to explore a wide array of questions on the relationship between the enabling environment and agricultural growth.

Positive reforms in the areas measured by the AGRI Index are expected to make starting and operating an agribusiness easier and more profitable, thereby contributing to lower production costs, deeper input markets, streamlined trade processes, and reduced regulatory compliance costs. These factors will contribute to higher rural household incomes, improved food security, and ultimately, greater economic growth.

AGRI Countries

• Bangladesh

• Ghana

• Kenya

• Mali

• Nepal

• Netherlands

• Senegal

• Thailand

• Uganda

• Zambia

An edited draft of this document will be available on the USAID Project website (www.eatproject.org) by mid-January 2015.

Farmers often find it difficult to identify the full set of regulatory requirements and government authorities that regulate farm operations due to the potential involvement of multiple government agencies. A Ministry of Agriculture official in Zambia described the challenge well: “[even I] have a difficult time figuring out all the licenses required” by the Ministry of Agriculture, much less the array of requirements imposed by other national and local agencies.

Key Findings

1. Complex and unpredictable regulatory requirements raise costs and reduce incentives for agribusinesses to become legitimate, competitive enterprises.

There is an immediate need for simpler and more efficient regulations governing the agricultural sector. Reducing the time, cost, and complexity of requirements flowing from the regulatory framework allows agribusinesses to focus on their core activities and will make it more profitable to invest in the sector. Yet too often, requirements are costly or take weeks or even months to complete, becoming unnecessary elements of agribusiness cost structures. For instance, licenses for fertilizer suppliers in the bottom half of AGRI countries took nearly 20 times longer to obtain than in the top half, and cost nearly 10 times more on average.

Opaque and unpredictable requirements add to the regulatory burden. In six of 10 AGRI countries, farmers seeking to formalize their business in order to grow and access new markets find it difficult to identify the full spectrum of regulatory requirements and to navigate the bureaucracy, due to the involvement of many different government agencies at both the national and local levels.

Consistent and streamlined regulatory procedures, in contrast, enable agribusinesses to operate more efficiently. In benchmark countries such as the Netherlands, for instance, regulatory requirements for seed and fertilizer suppliers are robust while also being straightforward, clear, and limited in number, an approach that results in a minimal burden for agribusinesses while satisfying the policy objectives of society at large. In all cases, the public interest in regulating firms’ activities must be weighed against the costs imposed on agribusinesses, which may not be well-understood.

2. Poorly delineated legal authority and lack of coordination between agencies creates uncertainty and increases the burden of compliance for agribusinesses.

Overlapping roles among regulatory authorities lead to confusion, extraneous requirements, and a waste of resources.

In Kenya, the AGRI team identified eight agencies involved in oversight of the international trade of agricultural goods, many of which have overlapping responsibilities during the clearance process, which substantially raises the time and cost required for firms to trade agricultural products across national borders. Specific delegation of authority tends to reduce the regulatory burden in ways that are meaningful to businesses operating in the agricultural sector. Ghana provides a useful example of where delegation of authority has been improved, and shows how this process can ease the regulatory burden faced by agribusinesses. A new seed and fertilizer law in Ghana clearly assigns regulatory oversight of seed and fertilizer, removing previously overlapping mandates involving two separate offices within the Ministry of Agriculture. As a result, all procedures related to seed and fertilizer are implemented by the same office and the number of procedures for suppliers of these products has been reduced to only two procedures, the fewest among AGRI countries.

3. Implementing institutions are constrained by a lack of capacity to enforce regulatory requirements.

Government institutions tasked with administering specific elements of the legal and regulatory framework for the agricultural sector are hamstrung by a lack of internal capacity to do so. This increases the time and cost required for agribusinesses to comply with regulatory requirements.6 Contributors in Zambia reported that the land registry lacks

6 There are various types of organizational “capacities” that include competence (staff with sufficient technical knowledge and appropriate skillsets);

capability (ability to deploy competencies effectively and utilize new technologies); and capacity (adequate number of staff, office locations, facilities, equipment, and resources). Elements of limitations in each of these institutional capacity areas were observed and reported by contributors during

An edited draft of this document will be available on the USAID Project website (www.eatproject.org) by mid-January 2015.

sufficient IT infrastructure and trained staff, leading to delays of up to two months to obtain a new land title, even after all administrative steps to complete a land transfer have been completed. Hallmarks of successful implementation of a country’s legal and regulatory framework include institutions with sufficient numbers of well-trained staff, adequate facilities and equipment, and appropriate systems and practices that allow real-time information sharing and efficient service delivery. In the Netherlands, for instance, land registry records are fully electronic and online, allowing many of the necessary procedures to transfer title of rural land to be completed in a matter of minutes.

At the same time, the legal and regulatory framework is often designed without pragmatic evaluation of the government’s capacity to actually implement such a system. Where governments do not have the capacity to fully implement a regulation or directive, the regulation needs to be changed lest it become a bottleneck to doing business.

For example, a common constraint to registering a new seed variety in AGRI countries is that the body tasked with approving new varieties (the national seed committee) rarely meets because it has no budget. The repercussions of an administrative system that cannot meet the existing legal and regulatory framework include creating unpredictable delays for businesses seeking to complete routine administrative procedures, undermining the government’s reputation for enforcing rules and creating a culture of mistrust between the government and private sector. Thailand provides a success story, where the creation of ‘one-stop shops’ for business registration was accompanied by reforms to streamline the business registration process, ensuring that the new one-stop shops could effectively implement all required procedures.

4. Absence of a functioning legal and regulatory framework may lower the time and cost of operating an agribusiness in the short run, but creates operational uncertainty in the long run.

Where the legal framework does not exist or where a country lacks regulations or executive directives to operationalize the law by assigning enforcement responsibilities to specific government institutions, the time and cost measured by AGRI may appear to be lower than in countries with functioning regulations and effective implementation.

The lack of an operational legal or regulatory framework also constrains agribusinesses by introducing significant uncertainty as to the scope and applicability of regulatory requirements, deterring long term investment and growth.

Mali, for example, acceded to a regional seed agreement in 2009 and has since implemented new business licenses for seed suppliers. Requirements are simple and require minimal time and cost to complete, but contributors report that the new licenses do not correspond to any enforcement or control of seed quality. In this case, AGRI results reflect the nascent, incomplete stage in development of the legal and regulatory framework and not an efficient, fully functioning system. AGRI data identify where this is the case, and by providing comparative results from other countries, delivers examples of effective systems and approaches that could be adopted.

the course of the AGRI assessments. Source: Vincent, 2008. “Differentiating Competence, Capability and Capacity.”

http://www.innovationsthatwork.com/images/pdf/June08newsltr.pdf

An edited draft of this document will be available on the USAID Project website (www.eatproject.org) by mid-January 2015.

Introduction

The AGRI Index provides an objective basis for assessing the quality of a nation’s agribusiness enabling environment (AgBEE) and its impact on agricultural growth. This effort is funded by USAID and implemented by Fintrac Inc. under the USAID-EAT project. The AGRI Index uses a small and carefully selected set of indicators that measure the time and cost associated with the regulations and administrative procedures that affect agribusinesses’ abilities to start up and operate efficiently. The AGRI Index’s scope is based on a considerable body of evidence on the effects of regulatory and administrative performance on agribusiness operations and economic growth. The USAID-EAT project created the AGRI Index with the hypothesis that a well-designed legal and regulatory framework, supported by efficient administrative procedures, is a necessary precursor to a productive agricultural sector. Taken together, AGRI indicators provide a snapshot of the AgBEE in a given country at a given time, and provide a clear and consistent basis for comparisons between countries.

Government policies, laws, regulations, and institutions heavily influence agribusinesses’ ability to do business. Governments’ abilities to achieve key policy objectives while minimizing the cost of private sector compliance help create a competitive business environment and a dynamic agricultural sector.

Purpose of the AGRI Index The AGRI Index can be used in a number of ways to help governments and donors increase agricultural sector growth by improving the legal, regulatory, and institutional environment. AGRI data have the power to build awareness and increase discussion on key issues, forming the starting point on the path to reform. AGRI:

(1) Identifies constraints in the enabling environment for agriculture in a systematic and quantitative way across countries;

(2) Ranks the ease of doing business in the agricultural sector across countries by measuring the time and cost for compliance with regulatory requirements. Establishes benchmarks for government performance by measuring the same set of indicators across countries, including two leading agricultural economies, the Netherlands and Thailand. This serves to highlight good practices and allows policymakers and donors to compare different approaches to governance of the agricultural sector;

(3) Points to administrative reforms that benefit small-to-medium sized agribusinesses by making commercialization more feasible for smallholder farmers.

(4) Raises the profile of the enabling environment for agriculture. Generates competition and incentives for reform by highlighting where countries do well – and where they do poorly – compared to their neighbors and to benchmark countries;

(5) Synthesizes technical issues into concrete, quantifiable data that are easy to understand and use by a variety of audiences; and

(6) Provides a guide to help entrepreneurs and investors navigate a complex landscape. Catalogues each step in the process to start a farm, for instance, or to obtain all licenses and permissions to operate as a seed company – information that often does not exist elsewhere in one location.

An edited draft of this document will be available on the USAID Project website (www.eatproject.org) by mid-January 2015.

Ultimately, the AGRI Index is a comprehensive framework for comparing countries’ performance on key elements of the enabling environment for agriculture, identifying reform priorities for the agricultural sector, and tracking the progress of reforms over time.

Development of the AGRI Index The AGRI Index was developed in stages. In 2012, the AGRI team created the survey tool and conducted pilot testing in Bangladesh, Kenya, Nepal, Uganda, and Zambia. The five countries were selected by USAID from among the US government’s Feed the Future focus countries, based on USAID’s need for data on the business environment for agriculture in these countries. A diverse country selection also allowed for comparisons across geographic regions and between legal traditions. Findings were presented in an initial report to USAID in November 2012 that detailed the lessons learned in designing the AGRI surveys and methodology and shared preliminary data from the five countries.7

Based on insights and lessons learned from the first phase of surveying and data collection, the AGRI Index indicators were refined in early 2013.8 In consultation with USAID, five additional countries were selected to be included in the study. In 2013 and 2014, three Feed the Future countries (Ghana, Mali, and Senegal) and two ‘benchmark’ countries (the Netherlands and Thailand) were surveyed. The Netherlands and Thailand were selected as benchmarks from a set of countries deemed to have particularly dynamic agricultural sectors. Thailand was chosen based on the competitiveness of its agricultural sector across a wide range of staple and high value agricultural goods while still facing constraints unique to developing economies.9 The Netherlands was selected based on its superior reputation as an agricultural powerhouse with a sophisticated system of regulating the agricultural economy.10 The two countries provided the opportunity to assess the applicability of AGRI indicators in countries that are global leaders in agricultural production and exports while also providing valuable legal, regulatory, and institutional models for less developed economies. Finally, if the Netherlands and Thailand results on AGRI indicators were found to be superior, the two countries’ scores could be used to establish benchmarks against which other countries could be measured.

7 USAID-EAT project. Agribusiness Regulation and Institutions (AGRI) Index: Pilot Report. November 2012. www.eatproject.org 8 A discussion of revisions to AGRI indicators over the course of the study can be found in Annex 1: Methodology and Data Notes.

9 Thailand is a major agricultural producer and exporter. In 2011, Thailand was the world’s largest rice exporter (> 10 million MT), the second-largest rubber exporter, and 24th in the world in seed exports (third among Asian countries). Sources: FAOStat, International Seed Federation.

10 The Netherlands is the second-largest agricultural exporter in the world (by value), second only to the United States.

Smallholder Farmers and AGRI Improving the productivity and incomes of smallholder farmers is a key objective of USAID, other donors, and the governments of the countries included in the AGRI Index. For good reason – improving the lot of smallholder farmers translates into greater food security, poverty reduction, and increased economic growth.

The AGRI Index directly addresses smallholder farmers’ urgent need for improved access to seed, fertilizer, land, and finance; constraints which are common across all actors in the agricultural sector. AGRI surveys measure the activities of small- to medium-sized firms, which, like smallholder farms, are often family-owned and operated. Such firms are the smallest comparable unit in each country that interacts with the legal and regulatory framework, permitting us to consistently measure the time and cost to complete a regulatory requirement in a country and to compare the results across countries and over time.

We believe that data on administrative efficiency from the perspective of small- and medium-sized agribusinesses offer substantial insights for donors and governments interested in making commercialization feasible for smallholder farmers. USAID, through the Feed the Future initiative, enables smallholder farmers to transition to commercial agriculture. A critical part of this process is supporting smallholder formalization which increases access to government services, land, finance, and contracts.

An edited draft of this document will be available on the USAID Project website (www.eatproject.org) by mid-January 2015.

Types of Indicators Time and Motion: Captures the time, cost, and procedures for fulfilling regulatory requirements involved in operating an agribusiness.

Legal Framework: Assesses objective characteristics of a country’s legal and regulatory framework.

Methodology11

Indicator Selection The AGRI scope and methodology were inspired by the World Bank’s global Doing Business report and were specifically adapted for the agricultural sector. Initial indicators were drawn from the core topics covered in USAID’s Agribusiness Commercial Legal and Institutional Reform (AgCLIR) diagnostics.12 Indicator development included extensive input from international agricultural and legal experts and feedback from hundreds of contributors during pilot testing in 2012.

AGRI indicators were developed to meet strict criteria. First, indicators were selected to be highly relevant to the agricultural sector, focusing on regulatory issues that have the greatest impact on the operations of small and large agribusinesses alike.13 Second, each indicator was designed to provide information that is simple, discrete, and actionable, giving policymakers and other stakeholders clear guidance on what actions can best improve their country’s score through legal, regulatory, or administrative reforms.

Third, indicators were constructed to produce data that are comparable across countries and that can be scored in a consistent manner, allowing stakeholders to track the impact of reform over time and to generate pressure for reform by making comparisons with other countries.

Ultimately, AGRI indicators are meant to “measure what matters.” By design, the AGRI Index does not measure all aspects of the AgBEE. Instead, AGRI focuses on seven core topics, and within these topics, is limited to a select group of quantifiable and actionable indicators. This subset of indicators should be understood as meaningful and relevant proxies for the AgBEE in a country and is not intended to be a catch-all index for agricultural development. In turn, the AgBEE is only one component of a complex, multi-faceted process of agricultural development and economic growth.

Table 1: AGRI Topics and Indicators14 Topic Indicator Trading Agricultural Goods (1) Process to export a widely-traded agricultural commodity

(2) Process to import hybrid seed

(3) Index on phytosanitary system

(4) Index on trade facilitation

Obtaining Seed (1) Process to register a new staple grain seed variety

(2) Process to obtain licenses and permits for a seed supplier

Obtaining Fertilizer (1) Process to obtain licenses and permits for a fertilizer supplier

(2) Index on legal framework for fertilizer industry

Accessing Rural Land (1) Process to transfer rights to rural land

(2) Index on access to property registration information

(3) Index on legal rights to obtain, register, and utilize a long-term leasehold interest in land

Accessing Finance (1) Index on types of agricultural collateral permitted by law

(2) Index on access to and functioning of registries for movable collateral

(3) Index on legal framework for warehouse receipts systems

Starting and Operating a Farm (1) Process to register a mid-sized staple grain farm and obtain all necessary licenses and permits required for farm operations

(2) Index on access to business registration information Enabling Contract Farming (1) Index on legal framework for contract farming

(2) Index on grades and standards for agricultural goods

11 More information on the AGRI Index methodology is provided in Annex 1: Methodology and Data Notes.

12 USAID’s AgCLIR diagnostic assesses the root causes of systemic constraints to agribusiness operations using an analytical framework that focuses on the legal framework, implementing institutions, supporting institutions, and social and market dynamics.

13 The AGRI team focused on seven core topics that are common constraints to agricultural growth in Feed the Future countries. This scope was not intended to be comprehensive. Other critical topics to consider in future AgBEE benchmarking efforts include food safety, environment, and livestock.

14 This report provides analysis on most, but not all, indicators that make up the AGRI Index. The analysis focuses on the seven “time and motion” indicators that measure the time, cost, and procedures to complete a required administrative process. Analysis of the Accessing Finance and Enabling Contract Farming topics focuses on strength of legal framework indicators because these two topics do not have time and motion indicators (instead, indicator scores are based on responses to Yes/No questions on the strength of the legal framework).

An edited draft of this document will be available on the USAID Project website (www.eatproject.org) by mid-January 2015.

(3) Index on alternative and expedited dispute resolution mechanisms

Survey Methodology The AGRI team constructed short written surveys of less than 10 pages for each of the seven topic areas. Surveys utilize standard business case scenarios that cover a range of small- to medium-sized agribusinesses along the value chain, including suppliers of seed and fertilizer; farms located in a peri-rural15 setting; and market agents trading agricultural products internationally. In each survey, the case scenario specifies characteristics about the agribusiness such as size, location, number of employees, annual turnover, and types of activities. By using standard business cases and consistent assumptions, responses can be averaged across contributors and data can be compared across countries.16

Chart 1: AGRI Index Development and Methodology

Finally, the AGRI team utilized a key informant methodology to collect data from leading agricultural and legal experts and major institutions in each country. A diverse group of contributors was surveyed, including agribusinesses, business and farmers’ associations, chambers of commerce, freight forwarders, professional service providers (e.g. lawyers, bankers, and accountants), and government officials. Contributors were identified by desk research as well as by local consultants and partners. Primary data were collected through written surveys and semi-structured interviews.

Benchmarking A primary focus of the AGRI Index is to measure key indicators in a set of countries deemed to have particularly dynamic agricultural sectors, against which other countries can compare the performance and the structure of their legal, regulatory, and institutional systems. As described above, the Netherlands and Thailand were selected for this purpose, to serve as leading developed and emerging agricultural economies.

Scoring and Ranking Once data collection was completed, final data for each AGRI topic were scored according to guidelines developed by the AGRI team. Scoring guidelines were developed to consistently classify responses and to maintain consistency across all countries.17

Time and motion indicators Scoring for time and motion indicators is straightforward. Standard definitions of “time,” “cost,” and “procedures,” are included in each blank AGRI survey and are provided in the box below. Indicator results are achieved by summing up the total time, cost, and number of procedures required to complete a process such as transferring rural land, or exporting an agricultural product. When ranking countries, equal weight is given to each of the three components.

15For purposes of the AGRI Index, “peri-rural” means a rural area with low population density, but within 100km of and with relatively easy access to a main commercial center.

16 Country case studies can be found in Annex 2, which shares all blank survey questionnaires.

17 All scoring guidelines are provided in Annex 2.

Indicator & Business Case

Selection

Survey Development Outreach Data

Collection Analysis &

Refinement

An edited draft of this document will be available on the USAID Project website (www.eatproject.org) by mid-January 2015.

Measuring time and cost Time and motion indicators measure the time, cost, and procedures to complete a required administrative process.

• Time: The time it takes to complete a procedure in practice, measured in calendar days, from the date of initial request until a document or approval is received. Unpredictable or high-variable procedures are designated using a range of time from low to high, e.g. “30-60 days” to complete a procedure. The minimum time to complete a procedure is one day unless otherwise noted.

• Cost: Official fees and taxes (does not include bribes) measured in local currency and compared across countries using GDP per capita. Includes professional service fees, if such services are required by law in order to complete the procedure.

• Procedure: A distinct interaction between an agribusiness or their representative and an external party;

internal business processes are not measured.

Legal rights indicators Legal rights indicators contain Yes/No questions on the conduciveness of the legal, regulatory, and institutional framework as it relates to agribusiness operations. Most legal rights indicator questions are scored and averaged in a simple, straightforward manner, where a response of “Yes” is positive and “No” is negative. However, due to the structure of the survey questions, where this is not the case, scoring rules were developed.

Limitations There are several tradeoffs and limitations to benchmarking tools such as the AGRI Index that should be taken into consideration by readers of this report. In continuing to scale comparator tools such as AGRI, awareness of such tradeoffs can help policymakers and donors get the most from benchmark data.

First, informality prevails across developing countries’ agricultural sectors, limiting the ability to generalize the impact of the legal, regulatory, and institutional environment on agribusiness performance to the entire agricultural sector. The AGRI Index focuses on small- and medium-sized, commercially oriented agribusinesses that operate in the formal sector and interact with the existing regulatory framework. The AGRI Index cannot directly measure the role of the legal and regulatory environment on an informal business, as informal operators are partially or wholly outside of such a system.

Instead, the AGRI Index focuses on identifying and measuring common ways that the legal and regulatory framework can inhibit or incentivize agribusinesses to operate formally, because reforms that do so tend to improve the ability of agribusinesses to operate efficiently and profitably (e.g. land reform, improved availability of quality inputs, and increased access to finance).

Second, AGRI indicators can identify where barriers exist, but not necessarily why they exist. Benchmarking tools such as the AGRI Index serve as the first step in a larger reform process by pointing to where countries perform comparatively better or worse than their neighbors. By measuring and comparing the time, cost, and procedures to complete regulatory requirements, we can make logical but limited inferences as to the quality of the underlying regulations and institutions. Designing effective follow-on technical assistance should incorporate deep analysis of the root causes of constraints initially identified by benchmarking data.18

Third, AGRI data should not always be interpreted to imply that faster and less expensive processes are better. This would oversimplify the complex and adaptive nature of the business environment. Benchmarking tools such as AGRI yield high-level country scores that allow us to compare the relative efficiency and effectiveness of administrative procedures. In the aggregate, lower time and cost to complete an administrative process reflect more efficient government administration, and likewise higher legal index scores tend to indicate a stronger legal framework. This trend does not hold true in every instance, however, and where it does not, we attempt to provide necessary context based on AGRI data and point towards where deeper analysis is required. Exceptions to the rule may be more common

18 Deeper root-cause analysis such as USAID’s CLIR methodology (commercial, legal, and institutional reform) employed by AgCLIR assessments can illuminate the complex dynamics of interactions between legal frameworks, delegation of legal authority, regulatory requirements, implementing institutions, civil society, and other factors (e.g., macroeconomic stability, infrastructure quality, labor skills, and government initiatives of a non-regulatory nature that distort the agricultural sector). Such analysis is an important and complimentary part of any technical assistance package.

An edited draft of this document will be available on the USAID Project website (www.eatproject.org) by mid-January 2015.

in developing countries and in the agricultural sector in particular, where implementation of the legal and regulatory framework remains a challenge.

Structure of the analysis This report discusses key findings and cross-cutting themes from 10 countries. Comparisons between countries and implications are discussed for each topic area. The analysis highlights good practices, identifies common constraints to agribusinesses, and explores different regulatory approaches taken by governments to form a platform for learning, policy advocacy, tracking progress, and other uses described throughout this report.

The following sections present findings and comparisons from the 10 countries in the AGRI Index dataset, organized by topic. Each chapter provides a summary chart and key findings for select indicators. The full dataset, which includes all indicators, can be found in Annex 3, a companion document to this report.

An edited draft of this document will be available on the USAID Project website (www.eatproject.org) by mid-January 2015.

Export (Rank)

1. Netherlands

2. Thailand

3. Mali

4. Ghana

5. Senegal

6. Bangladesh

6. Uganda

8. Nepal

9. Kenya

Import (Rank)

1. Netherlands

2. Ghana

3. Nepal

4. Thailand

5. Bangladesh

6. Mali

7. Senegal

8. Kenya

Case Study Trade Shipments Export Product

Most widely-traded commodity (e.g. staple grains, nuts)

Import product

Hybrid seed (staple grain)

Consignment Standard, non-refrigerated 40-foot container

Value US$20,000 Origin/ Destination

Main trading partner

Point of Exit/ Entry

Main sea/land border post based on primary trade corridor

Company Private LLC, majority domestically-owned

Carrier Logistics or freight forwarding company providing point-to-point

Topic 1: Trading Agricultural Goods

The perishable nature of agricultural goods makes efficient trade processes a necessity. Yet controls unique to agricultural trade (such as sanitary and phytosanitary (SPS) inspections and tests to ensure that goods conform to quality and health standards) add significant and often unpredictable costs and delays to moving agricultural products across borders. Research shows that border-related delays significantly increase the cost of trade in the same manner as import/export duties and taxes. These costs and delays in turn reduce the volume of trade.19 Fewer requirements, improved coordination between government agencies, reduced inspection and wait times, better physical infrastructure, and the use of electronic systems can all contribute to a faster and more reliable system for agricultural trade.

This topic measures the time and cost to obtain documents and to complete government-mandated border controls (customs clearance), two key components of the trade process.20 The choice of scope is intended to focus on areas that government has direct control over and can make more efficient. To make the data comparable across countries, AGRI uses business case studies with standardized assumptions listed to the right.21

Where is it easiest to trade?22 AGRI countries with the most efficient export and import processes have single window trade systems, streamlined trade processes, and adequate physical and IT infrastructure.23 As expected, the Netherlands and Thailand have the most efficient export processes among AGRI countries, requiring on average 20 percent fewer documents and 30 percent less time to export than was observed in other countries. Notably, export costs in the two countries are far below the AGRI average of 70 percent of GDP per capita: these costs amount to only 1 percent in the Netherlands and

19 Hummels, David. “Time as a Barrier to Trade.” Purdue University, 2001. http://www.krannert.purdue.edu/faculty/hummelsd/research/time3b.pdf 20 Unlike the Doing Business Trading Across Borders indicator, which also measures (1) inland transport and (2) port and terminal handling during the import/export process. This choice of scope is intended to focus on the areas of the trade process that governments have the most direct control over and can make more efficient. For more information, see the Revisions section of Annex 1: Methodology.

21 In addition to indicators measuring the export and import process, the Trading Agricultural Goods survey includes short Yes/No index questions on elements of the phytosanitary system and on trade facilitation. The Phytosanitary (SPS) Index and Trade Facilitation Index are not profiled in the main report. Data for these topics can be found in Annex 2.

22 Import data for Uganda and import and export data for Zambia are not reported due to low survey response rates in initial pilot countries.

23Countries are ranked based on the time, cost, and number of documents required to export or import. Equal weight is given to each component.

• Countries that require more documents to export increase the time and cost to export.

• Seed import permits are particularly difficult to obtain.

The situation is most time-consuming in Senegal and Thailand, where it takes two to three weeks to obtain an import permit.

• International best practices in trade facilitation, exemplified by the Netherlands, include streamlining processes by strengthening IT systems, eliminating duplicative documents, coordinating physical inspections, and accurately evaluating the risk of each consignment.

http://www.krannert.purdue.edu/faculty/hummelsd/research/time3b.pdf

An edited draft of this document will be available on the USAID Project website (www.eatproject.org) by mid-January 2015.

4 percent in Thailand.

As with exporting, Netherlands and Thailand are the easiest AGRI countries in which to import hybrid seed. A key element of the efficient import process in the Netherlands is that only one physical inspection of the seed shipment takes place with all relevant inspectors present (e.g., Customs, Plant Protection, etc.). This helps to reduce customs clearance times to less than four hours on average. Thailand has the second-lowest cost process to import hybrid seed – only US $231, or 4 percent of GDP per capita.

Indicator 1: Exporting an Agricultural Commodity Time, cost, and documents to export a widely-traded agricultural commodity

Chart 2: Time (Blue) and Cost (Red) to Export an Agricultural Commodity

1. Countries that require more documents to export increase the total time and cost to export.

Chart 3: Number of Documents to Export an Agricultural Commodity

Governments typically require a variety of documents to certify the ownership, type, value, quality, and safety of goods moving across borders. Common export documents include a phytosanitary certificate, commercial invoice, packing list, An edited draft of this document will be available on the USAID Project website (www.eatproject.org) by mid-January 2015.

bill of lading, and customs export declaration, which are submitted to Customs at the point of exit of the country.

Exporters in AGRI countries submit an average of 8.3 documents per shipment, which take 9.3 days to transact, more time than customs clearance in most AGRI countries.24 In Kenya, for instance, as many as 11 documents are required to export maize.

Each additional document tends to introduce additional time and cost to the export process because the exporter or their agent must make a separate trip in person to the relevant government office. Excessive documentation can also be indicative of deeper coordination issues in export management. In Kenya, for example, the large number of documents reflects the involvement of up to eight government agencies in the export of agricultural goods. Depending on the export product, permission may be required from the Kenya Revenue Authority (Customs), Kenya Plant Health Inspectorate Services, Kenya Bureau of Standards, Kenya Port Authority, Pharmacy and Poisons Board, Commodity Board (for tea or coffee), Public Health (for food products), and Kenya Horticultural Crops Development Authority (for horticultural products). Kenyan traders and regulators report that the duplication of regulatory roles increases documentary requirements and frequently delays the exports.25

Chart 4 below shows the relationship between the number of documents required to export and the total time and cost to export. Each additional document tends to increase the total time and cost to export as measured by the AGRI Index.

Chart 4: More documents lead to a longer and more costly export process Left: Number of export…