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Public Disclosure Authorized Guinea Bissau: Public Disclosure Authorized Unlocking diversification to unleash agriculture growth Public Disclosure Authorized Public Disclosure Authorized June 2019 STANDARD DISCLAIMER This Report is a product of the staff of the International Bank for Reconstruction and Development/ The World Bank. The findings, interpretations, and conclusions expressed in this Report do not necessarily reflect the views of the Executive Directors of The World Bank or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this Report. The boundaries, colors, denominations, and other information shown on any map in this work do not imply any judgment on the part of The World Bank concerning the legal status of any territory or the endorsement or acceptance of such boundaries. ACKNOWLEDGEMENTS This Report was authored by Marie Caroline Paviot (Senior Agriculture Economist, GFA01 and Task Team Leader), Edward W. Bresnyan, Jr. (Senior Agriculture Economist, GFA12), Alvaro Diaz (Value Chain Specialist, FAOCP) and Siddika Mishu, (Consultant, FAOCP), in collaboration with the Government of Guinea-Bissau and under the overall guidance of Amadou Ba (Country Representative, AMFGW) and Marianne Grosclaude (Practice Manager, Agriculture, GFA01). The team would like to thank the Ministry of Agriculture and the Ministry of Finance for their support throughout the preparation of this Report. The team recognizes the valuable insights gained from interviews with several in-country development partners and their project teams; these discussions helped in “ground-truthing” the Report’s analytics and eventual recommendations. The team thanks the Report’s peer reviewers for their guidance – Chakib Jenane (Lead Agriculture Economist), Christopher Brett (Lead Agribusiness Specialist) and Maurizio Guadagni (Senior Agricultural Development Specialist) – and several World Bank Group colleagues for their useful inputs, including: Eric Lancelot (Program Leader, AFCF1), Fiseha Haile Gebregziabher (Economist, GMTA2), Francisco Moraes Leitao Campos (Senior Economist, GFCAS), Giovanni Ruta (Senior Environmental Economist, GEN04), Holger Kray (Lead Agriculture Economist, Head of African Agriculture Policy Unit, GFA13), Aifa Fatimata Ndoye Niane (Senior Agriculture Economist, GFA01), Juvenal Nzambimana (Senior Operations Officer, GFA01), Nabil Chaherli (Lead Agriculture Economist, GFA01), Kristina Svensson (AFRVP), Sonia Sanchez Moreno (Operations Officer, AFMGW) and Zenaida Hernandez Uriz (Senior Private Sector Specialist, GFCAC). Volana Farantsa Andriamasinoro (Program Assistant, GFA01) and Ramatulay Heloysa Barbosa (Program Assistant, AMFGW) provided administrative support throughout. Sincere thanks to senior management for their guidance and support during this process, including Louise Cord (Country Director, AFCF1), Juergen Voegele (Senior Director, GFADR), Simeon K. Ehui (Director, GFADR), and Martien van Nieuwkoop (Director, GFADR). Table of Contents List of Acronyms ........................................................................................................................................... 7 Executive summary ...................................................................................................................................... 9 Introduction ................................................................................................................................................ 16 Chapter 1. Key elements and trends of Guinea-Bissau agri-food sector ................................................. 18 I. A country characterized by fragility ........................................................................................... 18 II. The centrality of Guinea-Bissau’s agri-food sector ................................................................... 19 III. The vulnerability of Guinea-Bissau’s agri-food system ............................................................. 22 IV. The high-risk environment hampers diversification and economic growth of the sector ...... 27 Chapter 2: Public Policy to Unleash Inclusive Agricultural Transformation in Guinea-Bissau ................ 29 I. Public Agricultural Policy to Unleash Investment in Agriculture .............................................. 31 II. Public Expenditure in Agriculture: a mismatch between the importance of the sector in the economy and the level of agricultural spending ............................................................................... 35 III. Recommendations for more and better public policy in agriculture in Guinea-Bissau ........... 37 IV. Conclusion .................................................................................................................................. 39 Chapter 3: Fostering innovation to boost productivity ............................................................................ 41 I. The potential for productivity gains is high in Guinea-Bissau .................................................. 41 II. Fostering innovation to boost productivity............................................................................... 46 Chapter 4: Diversification in Guinea-Bissau outside of cashew ............................................................... 55 I. Diversification to manage agricultural risk ............................................................................... 55 II. Opportunities for diversification in Guinea- Bissau .................................................................. 57 III. Necessary conditions to foster diversification .......................................................................... 66 IV. What lessons learned can be applied to Guinea-Bissau? ......................................................... 67 Chapter 5: Climbing up the cashew value chain ....................................................................................... 71 I. In the most important sector for its economy, Guinea-Bissau is capturing only a small portion of the value generated in the global cashew value chain ................................................... 71 II. What is the global context of the cashew market? .................................................................. 71 III. Fostering the competitiveness of the cashew value-chain ....................................................... 77 IV. Conclusions ................................................................................................................................. 81 Recommendations ..................................................................................................................................... 85 Annexes ...................................................................................................................................................... 92 References ................................................................................................................................................ 113 4 Tables Table 1: Drivers of Fragility, Conflict and Violence in Guinea-Bissau .........................................................16 Table 2: Three main agro-ecological zones in Guinea-Bissau ....................................................................19 Table 3: De-risking the business of agriculture ibn Guinea-Bissau: a conceptual framework ...................26 Table 4: Agriculture share of GDP and employment .................................................................................28 Table 5: Policy Framework for Investment in Agriculture for Guinea-Bissau ............................................30 Table 6: Agriculture policy options for Guinea-Bissau ...............................................................................35 Table 7: Key Climate Change adaptation measures, Agriculture sector, by ecosystem ............................38 Table 8: Comparative advantage of the cashew crop in relation to other main crops in Guinea-Bissau ..55 Table 9a: Estimated competitiveness of existing rice production systems in a normal rainfall year ........56 Table 9b: Estimated competitiveness of existing rice production systems in a bad rainfall year ..............57 Table 10: NPV and IRR from horizontal diversification ..............................................................................68 Table 11: Cashew nut retail price breakdown ...........................................................................................70 Table 12: Current processing scenario in Guinea-Bissau ...........................................................................73 Table 13: Scenarios considered for medium and small semi-mechanized RCN processing plants ............73 Table 14: NPV/IRR Medium and small-scale RCN processing ....................................................................74 Table 15: Sensitivity Analysis .....................................................................................................................74 Figures Figure 1: Cashew prices and the external current account balance ..........................................................17 Figure 2: Share of households growing different crops .............................................................................18 Figure 3: Evolution of total RCN exports and export prices .......................................................................20 Figure 4: Comparison of RCN and rice yields in Guinea-Bissau and neighboring countries ......................22 Figure 5: Sources of growth in Agricultural