Privatization and Deregulation Privatization and Deregulation

Needed Policy Reforms for Agribusiness Development

Surjit S. Sidhu Mohinder S. Mudahar Editors

International Fertilizer Development Center (IFDC)

SPRINGER SCIENCE+BUSINESS MEDIA, B.V. Library of Congress Cataloging-in-Publication Data

ISBN 978-0-7923-5703-2 ISBN 978-94-011-4583-1 (eBook) DOI 10.1007/978-94-011-4583-1

Printed on acid-free paper

AlI Rights Reserved © 1999 Springer Science+Business Media Dordrecht Originally published by Kluwer Academic Publishers in 1999 No part of the material protected by this copyright notice may be reproduced or utilized in any fonn or by any means, electronic or mechanical, including photocopying, recording or by any information storage and retrieval system, without written permission from the copyright owner. Foreword

Agribusiness development has been constrained by distorted economic policies and institutional controls in the emerging market economies and in most of the developing countries. In the former Soviet Union and Eastern Europe, the agribusiness complex was dominated by state-owned enter• prises. In many of the developing countries, economic policies discriminated against agriculture and agribusiness. The results have been obvious. Despite major technological advances, agriculture and agribusiness sectors in these economies remained inefficient. A large share of the population, particu• larly in the rural areas, has not been able to improve household incomes and living standards.

The final decade ofthe 20th century will certainly be recorded as one ofthe most dynamic in modem history. The restructuring of the former Soviet Union and Eastern Europe and market reforms in many of the developing countries are progressing at a rapid pace. Agribusiness is key to economic perfor• mance in these areas in that agriculture is an important sector in many of these economies. Economic transition to a market economy is presenting many challenges and opportunities to accelerate the process of agribusiness development, which is so essential to alleviate rural poverty. An international symposium, organized by the International Fertilizer Development Center (IFDC), provided a unique opportunity to discuss needed policy reforms to promote efficient and competitive agribusiness develop• ment, with a particular focus on privatization and deregulation.

In the early 1990s, there was a realization of the increasing importance of competitive output and input markets to replace excessive state control and regulations. In this context, IFDC started expand• ing its role in the development of agribusiness markets. This was partly reinforced by the success of its technical assistance program in Bangladesh, which supported the privatization and deregulation of a state monopoly related to fertilizer marketing. This experience is now being successfully replicated in the emerging market economies (e.g., Albania) and other developing countries. The World Bank and other international financial institutions and bilateral donors also renewed their emphasis on privatization and deregulation of agribusiness, and they are vigorously supporting policies that pro• mote private entrepreneurship and market-oriented reforms for agribusiness development.

I hope that this publication will be useful to the policymakers, institutions, and other stakeholders involved in formulating strategies for reforming agriculture and agribusiness in the transition and developing economies. Privatization and deregulation are critical for promoting efficient agriculture and agribusiness. Innovation, creativity, and cost-effectiveness are diffiCUlt to achieve in a controlled policy environment. This collection of papers, which were presented at the international symposium, Deregulation and Privatization Policies to Reform Agribusiness Markets in April 19-30, 1993, brings together a wealth of information on policy reforms to promote agribusiness development; provides guidelines for privatization and deregulation; defines critical elements of enabling policy environ• ment; and examines selected case studies.

I would like to take this opportunity to thank Dr. Surjit S. Sidhu, Principal Economist (retired) from IFDC and Dr. Mohinder S. Mudahar, Principal Economistfrom the World Bankfor successfully orga• nizing the international symposium. I am also grateful to the authors of various papers and the partici• pants for sharing their experience and making valuable contributions to the symposium.

Amit H. Roy President and Chief Executive Officer International Fertilizer Development Center

v Preface

The contributions in this publication are an outcome of growing concerns around the world about the prevailing inefficiencies in agriculture and agribusiness and the need to improve productivity, profitability, and financial sustainability of agriculture and agribusiness by privatizing state-owned enterprises and elimi• nating unnecessary government regulations.

It is in this context that an international symposium was organized on April 19-30, 1993 to address these policy concerns and thereby to improve the long-term prospects for productive and financially sustainable agriculture and agribusiness development. We would like to gratefully acknowledge the contribution of the late Ram Giroti in providing excellent organizational support for the symposium. We appreciate the sup• port given by Jean Riley, Librarian. Marie Stribling and the Word Processing/Graphics Unit. and Elizabeth Roth and Donna Venable, along with Sharifa Kalala and Rathna Chiniah of the World Bank. for processing and editing the papers. The advice and continuous support received from Dr. Amit Roy and John Allgood are gratefully acknowledged.

We are grateful to the authors of the papers included in this publication for their valuable contributions. This publication provides a unique combination of the experiences of well-known experts in the fields of development policy. privatization. and market reform and a discussion of operational policy issues pertain• ing to agribusiness development in the developing countries and the transition economies. Our objective has been to articulate a broad strategy and operational guidelines to accelerate the process of privatization and deregulation and thus to improve the competitive performance of agribusiness markets. In our view. rigid regulatory controls. nonmarket public activities. and state-owned enterprises have torpedoed agricul• tural and economic development in the former Soviet Union and many of the developing countries. Clearly. there is a need to introduce policy reforms necessary to promote efficiency through privatization and de- regulation of agribusiness. -

The policy issues addressed herein were identified in a series of discussions at IFDC and with the au• thors. The main objectives were to focus on analytical policy issues that accelerate the process of privatization and market deregulation of publicly owned and operated enterprises and to provide necessary operational guidelines for policy reforms. This publication is structured around four main topics: (1) the role of agri• business in economic development; (2) possible approaches and guidelines for privatization and deregula• tion of agribusiness; (3) needed enabling policy environment for privatization and deregulation; and (4) selected case studies. The views expressed in this publication belong solely to the respective authors and should not be attributed to IFDC. World Bank. or other organizations represented. Readers should keep in mind that when authors refer to "current" or "present" situations, they generally mean 1992/93 unless otherwise specified.

Surjit S. Sidhu IFDC

Mohinder S. Mudahar The World Bank

vi Table of Contents

Part I - Introduction Chapter 1 - Agenda for Policy Reforms in Agribusiness ...... 3 Surjit S. Sidhu and Mohinder S. Mudahar

Part II - Agribusiness In Economic Development Chapter 2 - Development Thought and Development Assistance: Implications for Agricultural and Agribusiness Development ...... 11 Vernon W. Ruttan

Chapter 3 - Economic Development Process and Experience ...... , 25 Erwin P. Geiger

Part III - Approaches And Guidelines Chapter 4 - Privatization of Agribusiness ...... 39 Forrest E. Walters

Chapter 5 - Privatization and Deregulation of Agribusiness ...... 47 Erwin P. Geiger

Chapter 6 - Privatization and Deregulation of Support Services ...... 61 Michel Petit and Suzanne Gnaegy

Chapter 7 - Privatization of Agribusiness Input Markets ...... 67 BaiuL Bumb

Chapter 8 - Privatization and Deregulation of the Fertilizer Sector ...... 77 D. I. Gregory

Part IV - Enabling Policy Environment Chapter 9 - Exchange Rates and the Performance of Agribusiness Markets ...... 87 G. Edward Schuh

Chapter 10 - Role of Patents and Intellectual Property Rights for the Development of Agribusiness Markets ...... 93 R. E. Evenson

Chapter 11 - Limitations of Loan Targeting and Life After Reform ...... 111 Dale W. Adams

Chapter 12 - Role of Banking and Finance to Promote Trade and Agribusiness Development 117 Joe B. Copeland

Chapter 13 - Environmental Regulations and the Fertilizer Business ...... 121 J. J. Schultz

vii Part V - Selected Case Studies Chapter 14 - Strategies for Agribusiness Development: World Bank Experience ...... 139 Edward Chobanian

Chapter 15 - Reforming Agriculture and Agribusiness in Russia ...... 153 Mohinder S. Mudahar

Chapter 16 - Liberalization of Agricultural Input Markets in Bangladesh ...... 175 Raisuddin Ahmed

Chapter 17 - Private-Sector Imports of Fertilizers and Pesticides in Bangladesh ...... 191 AbdusSamad

Chapter 18 - Reforming Fertilizer Markets in East Africa ...... 205 Amar Jit S. Sodhi

Part VI - Lessons for Policy Reform Chapter 19 - Policy Refonn and Agribusiness Development ...... 219 Surjit S. Sidhu and Mohinder S. Mudahar

Contributors ...... 235

viii Acronyms and Abbreviations

ADB Asian Development Bank AlSCO Agricultural Input Supply Corporation AT&T American Telephone and Telegraph BADC Bangladesh Agricultural Development Corporation BIDS Bangladesh Institute of Development Studies Btu British thermal unit bu bushel CBE Commercial Bank of Ethiopia Cd cadmium CIDA Canadian International Development Agency c.i.f. cost. insurance. freight CIMMYT International Maize and Wheat Improvement Center CIS Commonwealth of Independent States CPEs centrally planned economies DAE Department of Agricultural Extension DANIDA Danish International Development Agency DAP diammonium phosphate dwt: dead weight ECA Economic Cooperation Administration ECLA Economic Commission for Latin America (CEPAL) EEC European Economic Community ESOP Employee Stock Ownership Plan ESP Employee Savings Plan F fluorine FAO Food and Agriculture Organization of the United Nations FDPL Foodcrops Development Program Loan f.o.b. free on board FRG Federal Republic of Germany FSU Former Soviet Union FTO foreign trade organization g gram GATT General Agreement on Tariffs and Trade GDP gross domestic product GNP gross national product GOB Government of Bangladesh ha hectare HN03 nitric acid HYV high yielding variety IB Inputs Branch ICB international competitive bidding IDB Islamic Development Bank IFC International Finance Corporation IFDC International Fertilizer Development Center IFFCO Indian Farmers Fertiliser Cooperative Ltd. IFPRI International Food Policy Research Institute IMF International Monetary Fund IMPHOS World Phosphate Institute

ix 10M industry of manufacture IPC International Patent Classification IPR intellectual property right IRRI International Rice Research Institute K20 potassium oxide kcal kilocalorie kg kilogram KGGCU Kenyan Grain Growers Cooperative Union KNFA Kenya National Fertilizer Association L liter UC letter of credit LDC less developed country LE pound Egyptian LLP low-lift pump m3 cubic meter MAP monoammonium phosphate MC marketing center mg milligram MIS Management Information System MMBtu million British thermal units MOA Ministry of Agriculture MOP muriate of potash mt metric ton (tonne) N nitrogen NBE National Bank of Ethiopia (Central Bank) NFDC National Fertilizer Development Committee NIC newly industrializing country NMP net material product NMS New Marketing System N02 nitrogen dioxide N03 nitrate NORAD Norwegian Agency for Development NO. nitrogen oxides NP nitrogen and phosphorus pentoxide NPK nitrogen, phosphorus pentoxide, and potassium oxide NSB National Seed Board OECD Organization for Economic Cooperation and Development OECF Overseas Economic Cooperative Fund P phosphorus P20 S phosphorus pentoxide PDP primary distribution point POE privately owned enterprise ppb parts per billion ppm parts per million PPW Plant Protection Wing PVPC Plant Variety Protection Certificate R&D research and development RCRA Resource Conservation and Recovery Act S&E scientists and engineers SC service cooperative

x SEM secondary exchange market SIDA Swedish International Development Agency SOE state-owned enterprise SOU sector of use SSP single superphosphate stpd short tons per day stpy short tons per year STW shallow tube well T&V training and visit TA technical assistance TCA Technical Cooperation Administration TCCA Thana Central Cooperative Association TFP total factor productivity TK taka tpd tons per day TSC Thana Sales Center TSP triple superphosphate UAN urea-ammonium nitrate UN United Nations UNIDO United Nations Industrial Development Organization USAID United States Agency for International Development USSR Union of Soviet Socialist Republics VAT value added tax WTO World Trade Organization Zn zinc

xi