Blog Post

Enabling the Business of Agriculture

Markets play a crucial role in global agricultural development and food security, and well-functioning markets require effective, transparent regulations to ensure agricultural safety, quality, and economic efficiency. The World Bank’s 2016 Enabling the Business of Agriculture report examines the current state of agricultural and agribusiness regulations across the globe and provides some important lessons.

Looking at regulations in 40 countries, the report covers 18 indicators across six topics: seeds, fertilizer, machinery, finance, transportation, and markets. The report also breaks down its studied indicators into de jure (indicators that come directly from readings of a country’s laws and regulations) and de factor (indicators that reflect the efficiency of a country’s regulatory environment, such as the time and money it takes to export agricultural goods). A country’s legal indicators are assigned scores based on operations, quality control, and trade.

The report calls out several best regulatory practices from these countries’ experiences.
For the seed sector, best practices include the development of an official online seed variety catalogue that is updated after each cropping season and that specifies seeds for different agro-ecological zones. The report also suggests the creation of a seed variety release committee that meets after each cropping season and that includes representatives from both the government and the private sector.

For fertilizers, best practices include improving import procedures to make fertilizer available in a more timely fashion and requiring appropriate labeling of fertilizer bags to ensure high quality. The machinery sector can be enhanced through similarly streamlined import procedures and testing of imported machinery to ensure that it meets the importing country’s specific needs. Machinery regulations should also require strict enforcement of safety standards, such as seatbelts and rollover protection.

The finance sector should focus on effective, reliable microfinance and credit institutions, as well as on making payments, financial services, and warehouse receipts available electronically. Markets themselves can be improved through stricter phytosanitary regulations, such as quarantine requirements for domestic and imported products, and through laws that protect and encourage the involvement of farmers’ organizations.
Finally, best practices for transportation include establishing efficient licensing and mandatory inspections to ensure fair competition and safety; coordinating road standards within a region to facilitate cross-border trade; and increasing competition by allowing foreign transport companies to operate within a country.

High-income, OECD countries were reported to have the best scores, followed by Latin America and the Caribbean, Europe, and Central Asia. South Asia and Africa south of the Sahara tend to see lower-than-average scores, with variations within regions: in SSA, Kenya and Tanzania were found to operate above average, mainly due to their good regulation of machinery and finance. Niger and Burundi, on the other hand, had fewer good practices overall. The report found that generally, more urbanized countries have better practices than transforming economies or agriculture-based economies.

As the report points out, there are a number of factors that shape a country’s regulatory environment that the EBA index does not capture. These include broader social, political, and economic forces, as well as policies and institutions that enforce market regulations and such market variables as stock markets and price movements. Many of these factors are not included because they are not directly comparable across countries and thus require a broader methodology than the index currently utilizes.

In addition, the current index focuses on formal laws and regulations; however, in developing countries and especially in rural areas, much business and market activity occurs through informal channels, which the EBA does not address.

The quantitative data and benchmarking process used in the EBA’s methodology also presents some limitations itself. Namely, such methods often overlook country-specific contexts. Addressing this limitation will require the collection of data over a longer period of time.

Finally, while the legal indicators (operations, quality control, and trade) are scored, the de facto indicators are not; this is due to the fact that many of these indicators depend not on set rules but on external factors like cropping seasons and agro-ecological conditions which make it hard to assign specific scores across countries. The report indicates that future versions will include scores for these other indicators, and will cover additional topics like land and water use, livestock, and information and communication technologies (ICTs).

Despite its current limitations, the EBA represents an important step toward a better global understanding of the regulations and legal practices that can support and encourage, rather than hinder, agricultural development.