Understanding the Enabling Environment for Agriculture

Why focus on the agricultural enabling environment?

Agriculture growth is not only important to economic growth, but is a critical catalyst for poverty reduction and increased food security in almost every country. Recent analysis suggests it is more than twice as effective in reducing poverty as growth originating in other sectors. Distinct and special among industries, agriculture is the dominant source of employment for a large share, even a majority, of the population in developing nations. Agribusiness provides employment not only in farming, but also in handling, packaging, processing, transporting and marketing of food and agricultural products.

Because of the sheer necessity of food, fuel and fiber, governments tend to treat the regulation of agriculture related businesses differently than any other sector. This responsibility too often leads to distortive policies and inordinate regulatory burdens that hurt individual (or corporate) ability to start up or grow. Specific regulatory controls unique to the agriculture sector, such as SPS inspections, price ceilings, trade licensing and export controls, to name just a few, are often driven less by the interest of the agriculture sector and more by political or social concerns. Weak and underfunded institutions, and anti-agriculture policies, make this problem even more complicated.

The EAT project has identified a number of cross-cutting themes impacting the agricultural enabling environment. Examples of these include:

• Seed policy is often insufficient, politically driven and regionally fragmented. Seed legislation which establishes a lengthy and expensive certification process, can push the cost of improved seed beyond the reach of smallholders and some commercial operations.
• Access to fertilizer is generally state dominated, lacking transparency and competitiveness. This raises costs, restricts producer choice, crowds out competition and reduces incentives for performance.
• Lack of credit is often seen as a problem instead of a symptom of a dysfunctional system, starting with the legal framework, all the way down to key and supporting institutions.
• Formal contracts are beyond the reach of smallholders. However, where the system is strong, legal education, reliable courts and a culture of contracts supports smallholders.

These, and other enabling environment constraints specific to agriculture, represent critical barriers to economic growth. The EAT program can help identify and better understand these constraints; what policy, legal and institutional changes could lead the sector to greater productivity; and identify who among the country's economic actors can lead or implement change.