World Bank Report
Since 2013, Enabling the Business of Agriculture (EBA) has collected data on laws and regulations that impact the business environment for agriculture. The analysis has yielded some important results, such as: EBA country data have been used to open dialogues on regulatory reform with governments across several countries in Sub-Saharan Africa and East Asia; indications of interest from other development agencies in joining forces with the World Bank; engagement with a range of vital stakeholders from the private sector to civil society to academia; and continued enhancement of the methodology.
Enabling the Business of Agriculture 2017 is the third report in the series. The data can be used by governments, investors, analysts, researchers and others interested in this component of the enabling agribusiness environment to assess countries’ performance on the topics measured, as well as to identify regulatory good practices that can be found around the world.
Enabling the Business of Agriculture builds on the Doing Business methodology and quantifies regulatory practices and legal barriers that affect the business of agriculture. Doing Business has pioneered a unique approach for comparing countries’ performances on the regulatory environment; the results are noteworthy— more than 2,900 regulatory reforms have been documented since 2004 in 190 countries around the world. But the Doing Business focus has been on small and medium enterprises located in the largest business cities. Businesses that operate in and around agriculture face additional constraints to enter and operate in the market and often deal with stricter regulatory controls related to registration and quality control of their service and/or goods. Recent shifts in population and food demand have made it all the more paramount that a country’s regulatory frameworks and institutions enable farmers to produce and deliver more and safer food.
How does regulation impact the agriculture sector?
What can governments do to improve the access of farmers to essential inputs and services that increase their productivity in an environmentally sustainable manner? How can smallholders be helped to raise their
socio-economic well-being while facilitating their integration with value chains?
What can governments do to facilitate entrepreneurs and agribusinesses to thrive in a socially and environmentally responsible way? Governments can help by establishing appropriate regulatory systems that ensure the safety and quality of agricultural goods and services without being costly or burdensome overall so as to discourage firms from entering the market. Excessive regulation makes firms move to the informal economy and generates high unemployment.
Poorly-designed regulations impose high transaction costs on firms thus reducing trade volumes, productivity and access to finance. Creating an enabling environment for agriculture is a prerequisite to unleash the sector’s potential to boost growth, reduce poverty and inequality, provide food security and deliver environmental services. Among other factors, government policies and regulations play a key role in shaping the business environment through their impacts on costs, risks and barriers to competition for various players in the value chains. By setting the right institutional and regulatory framework, governments can help increase the competitiveness of farmers and agricultural entrepreneurs, enabling them to integrate into regional and global markets.
Over the past decade a branch of economic literature has highlighted the significant impact of business regulations on economic performance. It is crucial to have regulations that can lower risk by enabling farmers to operate in a context where the outcomes of their decisions are more predictable. Governments need to strike the right balance between correcting market failures through regulations and minimizing the costs that those regulations impose on economic agents. This balance is essential for agriculture, but it is also particularly challenging. It is not unusual for governments to implement too-stringent agricultural regulations, which impose excessive compliance costs for agricultural firms and make them more prone to remaining (or becoming) informal.
The agriculture sector’s dependence on land, which is a finite resource and binds its growth to productivity gains, underscores the impact of regulations on areas such as land tenure and price volatility. Farmers face considerable risk due to their susceptibility to exogenous elements and from extreme or erratic weather, insects, rodents and other pests, and diseases.
What’s more, this uncertainty is exacerbated by the inherent volatility of agricultural markets.
Reducing transaction costs imposed by regulations is imperative in agriculture. Transport costs can make up one-third of the farm gate price in some Sub-Saharan African countries and can prevent farmers from specializing in the goods where they have a competitive advantage. In addition to transport, improving access to reliable and affordable information and communication technology (ICT) services is vital to a global food and agriculture system that is able to achieve its potential.
Regulations that can lower risk by enabling farmers to operate in a context where the outcomes of their decisions are more predictable are crucial. In fact, successful regulatory reform has contributed to increased supply and lower prices in the seed and mechanization markets in Bangladesh and Turkey, in the fertilizer sector in Bangladesh, Kenya and Ethiopia, and in the maize industry in Eastern and Southern Africa, among others. A series of legal, institutional and administrative reforms in the 1990s led to a wide range of improvements in Mexico’s water resource management.
Vietnam introduced Land Use Rights Certificates in 1993, which increased the security of land tenure for farmers and gave rise to more land area devoted to long-term crops.
Agricultural production has unique and evolving dimensions through which it interacts with relevant laws and regulations. These dimensions include, for example, regulations of agricultural input markets such as seed and fertilizer, and regulations that enable small scale and remote farmers to access finance as well as quality, sanitary and phytosanitary standards and trucking licenses.
What does Enabling the Business of Agriculture measure?
Enabling the Business of Agriculture 2017 presents data that measure legal barriers for businesses operating in agriculture in 62 economies and across 12 topic areas. It provides quantitative indicators on regulation for seed, fertilizer, machinery, finance, markets, transport, water, and ICT (table 1). Two overarching themes—gender and environmental sustainability—continue to be included in the report analysis to ensure that the messages
developed by EBA encourage inclusive and sustainable practices. This year scoring was piloted for the land topic for 38 countries in which data were collected. The data for the remaining 24 countries will be collected next year and the team will refine the methodology further. EBA also collected data on the livestock topic, focusing on veterinary medicinal products (VMPs).
The report explains the methodology and provides some insight from data collection for VMPs, but future editions will expand the topical coverage to include the areas of animal feed and genetic resources.
Two types of indicators emerge: legal indicators and efficiency indicators. Legal indicators are derived from a reading of the laws and regulations. In a few instances, the data also include some elements which are not in the text of the law but relate to implementing a good regulatory practice—for example, online availability of a fertilizer catalogue. Efficiency indicators reflect the time and cost imposed by the regulatory system—for example, the number of procedures and the time and cost to complete a process such as certifying seed for sale in the domestic market. Data of this type are built on legal requirements and cost measures are backed by official fee schedules when available.
How are EBA indicators selected?
The choice of the indicators developed for the eight scored topics was guided by a review of academic literature. The scoring choices of each indicator were informed by extensive consultations with key stakeholders, including civil society organizations, partner institutions, practitioners, public and private sector representatives, researchers and technical experts.
The team is working on developing background papers for each topic to establish the importance of the regulations that EBA measures in each topic area for important outcomes such as agricultural output.
The Enabling the Business of Agriculture methodology provides a quantitative assessment of the regulations in each of the selected topics. The methodology, however, considers more than the number of regulations and does not promote deregulation. For example, higher scores are given for stricter labeling and penalty rules related to fertilizer or seed quality control since the laws and regulations need to set appropriate standards in these areas to ensure health and food safety. Higher scores are also given for the efficient application of regulations, such as affordable and timely tractor registration requirements. Countries that perform well on the EBA topics are those that balance proper enforcement of safety and quality control while avoiding burdensome and costly requirements that could discourage private sector development.
Going forward, it is envisaged that the selection of topics and related indicators will build on the current indicators and include the following additional measures: expansion of the livestock topic to include areas of animal feed and genetic resources; expansion of the gender cross-cutting area; refinement of the land scoring methodology; and development of an “Implementation Efficiency Index” to complement and provide additional policy insights alongside the current regulatory indicators. The refinement and selection of indicators will undergo a thorough internal review and collect feedback from various stakeholders from within the World Bank Group as well as from external participants. Already in place is a broad-based technical advisory committee with specialists from the private sector, academia, governments and the World Bank Group.