Ukraine: World Bank's Report. Enabling The Business Of Agriculture 2017

Last Updated: 16 March 2017
Article by Nazar Chernyavsky and Orest Matviychuk

Most Read Contributor in Ukraine, June 2017

FOREWORD

Sustainable agricultural development is one of the most powerful tools to end extreme poverty and boost shared prosperity. Agriculture is the economic and social mainstay of some 500 million smallholder farmers, and in developing countries, the sector is the largest source of incomes, jobs and food security. Sustainable, inclusive growth in the agriculture and food sectors creates jobs—on farms, in markets, cities, towns and villages, and throughout the farm-to-table food production and consumption chain.

Seen against the backdrop of an increasing world population that is expected to reach nine billion by 2050, rising food demand is estimated to increase by at least 20% globally over the next 15 years with the largest increases projected in Sub-Saharan Africa, South Asia and East Asia. Boosting the productivity, profitability and sustainability of agriculture is essential for fighting hunger and poverty, tackling malnutrition and boosting food security. In short, the world needs a food system that can feed every person, every day, everywhere with a nutritious and affordable diet, delivered in a climate-smart, sustainable way.

To achieve this goal, we need to be more productive and efficient in the way we grow food, while building the resilience of both farmers and food supply chains while simultaneously reducing the environmental footprint of the agriculture and food sectors. This process requires policies and regulations that foster growth in the agriculture and food sectors, well-functioning markets, and thriving agribusinesses that make more food available in rural and urban spaces.

In pursuit of these objectives, we are pleased to present the World Bank Group's Enabling the Business of Agriculture (EBA) 2017, the third in a series of annual reports. The predominant focus of the EBA project is to measure and monitor regulations that affect the functioning of agriculture and agribusinesses. This year's report provides analysis and results for 62 countries representing all regions and income groups, and covers the following topic areas: seed, fertilizer, machinery, finance, markets, transport, information and communication technology, and water. Two additional topics—land and livestock—are being developed, and initial results are presented in this report. Two overarching themes—gender and environmental sustainability—are included in the EBA analysis with a view to promoting inclusive and sustainable practices.

Despite the inherent complexity of agricultural systems and the differing regional and country contexts in which agriculture and agribusiness performance needs to be evaluated, globally comparable data and indicators offer meaningful tools that can enable countries, policy makers and stakeholders to identify barriers that impede the growth of agriculture and agribusinesses, share experiences and develop strategies to improve the policy environment anchored in local contexts. The EBA indicators and analysis presented here not only help strengthen the information base that can be used for informed policy dialogue but can also encourage regulations that ensure the safety and quality of agricultural inputs, goods and services while minimizing costs to make more food available to more people.

Robust, effective and efficient regulatory systems are essential components of well-functioning agriculture and food markets. In turn, such systems can help achieve the twin goals of the World Bank Group—ending poverty by 2030 and boosting shared prosperity—as well as the Sustainable Development Goals. In keeping with the objectives of earlier reports, we offer these findings as a public good that can help advance knowledge and understanding of the critically-important role that the agriculture and food sectors can play in accelerating sustainable development for the benefit of all.

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.1 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 economy2 and generates high unemployment.3 Poorly-designed regulations impose high transaction costs on firms thus reducing trade volumes,4 productivity5 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.6 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.7 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.8 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,9 which impose excessive compliance costs for agricultural firms and make them more prone to remaining (or becoming) informal.10 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.11

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.12 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.13

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.

To read this Report in full, please click here.

Originally published by World Bank's Report.

Footnotes

1 Djankov 2016.

2 Bruhn 2011; Branstetter et al. 2014.

3 Amin 2009.

4 Djankov, Freund and Pham 2010; Hoekman and Nicita 2011.

5 Barseghyan 2008.

6 Byerlee, de Janvry and Sadoulet 2009.

7 Cullinan 1999; Diaz-Bonilla, Orden and Kwieciński 2014; Hafeez 2003; Christy, Mabaya, Wilson, Mutambatsere and Mhlanga 2009.

8 Djankov, McLiesh and Ramalho 2006; Jalilian, Kirkpatrick and Parker 2007; Loayza and Servén 2010.

9 Diaz-Bonilla, Orden and Kwieciński 2014; USAID 2015; Divanbeigi and Saliola 2016.

10 Loayza, Servén and Sugawara, 2009.

11 Aimin 2010.

12 World Bank 2007; Gollin and Rogerson, 2014.

13 Divanbeigi and Saliola 2016.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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