Agricultural Trade Facilitation for Nepal and Findings Khan Salehin

Agricultural Trade Facilitation for Nepal and Findings
from Business Process Analysis (BPA) Study
Khan Salehin
Trade and Investment Division, ESCAP
Kathmandu, 26 May 2014
OUTLINE
 Agriculture trade in Asia-Pacific and Nepal
 What is Trade Facilitation for Agriculture and Food
Products?
 Main challenges for facilitating trade in agro-food
products
 Findings from Business Process Analysis (BPA) study
for Nepal’s import of rice and export of cardamom
Agriculture trade in Asia Pacific
 Agriculture accounts for a quarter of the gross domestic product
(GDP) of Asia‐Pacific’s developing countries and employs about 60%
of the region’s working population (ESCAP 2008).
 Improving agricultural productivity could pull 218 million people out
of poverty in this region (ESCAP 2008).
 It can bring investment opportunities for the private sector, and be
a driver for boosting agriculture related industries.
 The World Bank estimates that GDP growth originating in
agriculture is at least twice as effective in reducing poverty as GDP
growth originating outside agriculture.
Source: FAO 2009
Vietnam
Thailand
Sri Lanka
Philippines
Pakistan
New Zealand
Nepal
Myanmar
Mongolia
Malaysia
Lao PDR
Korea, Rep
Kazakhstan
Japan
Indonesia
India
China
Cambodia
Bangladesh
Australia
Percentage 2007
Nepal
Lao PDR
Myanmar
Cambodia
Bhutan
Viet Nam
Afghanistan
China
India
Bangladesh
Pakistan
Sri Lanka
Thailand
Indonesia
Philippines
Iran
Mongolia
Kazakhstan
Malaysia
New Zealand
Rep. of Korea
Australia
Japan
Percentage 2006
Agricultural Trade in Asia-Pacific
Agricultural Population as Share of Total Population in
Selected Asia-Pacific Countries
100
50
0
Contribution of Agriculture to GDP in
Selected Asia-Pacific Countries
Source: FAO 2009
60
50
40
30
20
10
0
34%
4
Agricultural Import Growth - Stronger in Asia-Pacific
Agricultural Import Indices for Selected Countries/regions 20002008
600
550
European Union
Indices: 2000 = 100
500
United States
450
China
400
Russian Federation
India
350
Japan
300
250
200
150
100
2000 2001 2002 2003 2004 2005 2006 2007 2008
Source: ESCAP (2011) Facilitating Agricultural Trade in Asia and the
Pacific, Studies in Trade and Investment No. 74
5
Asia-Pacific Agro-Exports share by Major Destinations
Intra-Regional Trade in the Asia-Pacific Region
Top 10 Asia-Pacific Agro-exporters to Asia-Pacific, 20042008
20.00
15.00
10.00
Top 10 Asia-Pacific Agro-importers from Asia-Pacific, 2004-2008
30%
Percentage
Korea, Rep.
20%
10%
Source: COMTRADE 2011
Thailand
Australia
India
Singapore
Russian Federation
Malaysia
Hong Kong, China
Korea, Rep.
China
0%
Japan
Singapore
Vietnam
India
New Zealand
Malaysia
Thailand
Australia
0.00
Russian…
5.00
China
Percentage 2004-2008
25.00
6
Key Drivers of Agricultural Trade
Increased
Disposable
Income
Population
Growth
Change in
Dietary
Practices
Agricultural
Trade
Growth
Change in
Commodity
Prices
Other Factors
(export
policy,
capacity etc.)
Trade Facilitation
 What is Trade Facilitation?
–
Any measure that reduce barriers to the movement of
goods between buyers and sellers throughout the
international supply chains (ESCAP 2010)
– Simply any measure that facilitate and simplify
movement of goods and information along the supply
chains
- i.e. TF reduces time, cost and complexity of trade
transactions
 What is agricultural trade facilitation?
Trade facilitation of agricultural products
- For example, facilitating development of product
standards; improving certification procedures,
improving storage facilities, reducing paperwork for
agro trade or implementation of e-traceability
-
Source: ESCAP-World Bank Trade Cost Database, updated August 2013
Cambodia
Lao PDR
Bangladesh
Nepal
Pakistan
Iran (Islamic Rep. of)
Maldives
Fiji
600
Turkey
700
France
Russian Federation
India
Sri Lanka
Malaysia
Germany
United Kingdom
Indonesia
Philippines
Australia
New Zealand
China
Vietnam
Thailand
United States
Rep. of Korea
Tariff-equivalent trade costs (percent)
Comprehensive Trade Costs (excluding tariff) for
Agricultural Goods with Japan (2000-2005, 2006-2011)
800
Agriculture (2000-2005)
Agriculture (2006-2011)
500
Manufacturing (2006-2011)
400
300
200
100
0
Benefits of Trade Facilitation
GDP gains from 25% reduction in time to export/Import, GMS and China
Source: Strutt, Stone, and Minor (2008) simulations
Why Facilitating Agricultural Trade is Crucial?
Long Term Impact of Agricultural Trade Facilitation :
- Poverty Reduction and Food Security
- Improves overall environment for agro-trade (domestic too)
- Opportunity for integration of smallholders into agri supply chains
- Upgrading of small farmers in terms of production practices or capacities
Trade Facilitation
Measures Applied in
Agricultural Supply
Chains/Sectors
Improved Trade Policies,
Efficient Trade Processes
Reduced Transaction Cost,
Improved Trading
Environment
Greater Income for Poor
Greater integration of
MSMEs including
Producers
Improved Trade
Competitiveness
Source: ESCAP (2011) Facilitating Agricultural Trade in Asia and the Pacific, Studies in Trade and Investment No. 74
11
Trade Facilitation for Agro food Products
What is so unique about it?
 Perishability – time and temperature sensitive
 Product and Process Standards,
Technical Regulation (SPS, private standards)
 Logistics (warehousing)
and infrastructure – special requirements
 Financing is difficult
 Cost of trading is higher than manufactured goods
Trade Facilitation for Agro-food Goods: Challenges
There are significant constraints to Trade Facilitation in agriculture which eventually
impact trade competitiveness.
These constraints can be divided into four main categories:
Trade Procedures
Product Standards
Trade Logistics
Trade Finance
13
Trade Procedures: A Generic Agricultural Product Supply
Chain Structure
Information,
documents,
procedures
Information,
documents,
procedures
Information,
documents,
procedures
Information,
documents,
procedures
Building 2
Wholesalers
Exporter
Regulatory Agencies
Export Customs
Transport
Producer
Bank
Consumer
Retailers
Importer
Source: Sirimanne 2011
Import Customs
Import Agent
14
Product Standards
Standard
“A document established by
consensus and approved by a
recognized body that provides for
common and repeated use, rules,
guidelines, or characteristics for
activities or their results, aimed at
the achievements of the optimum
degree of order in a given context.”
ISO (2004)
Ensuring product standards for international trade of
agricultural products is a complex topic and It
encompasses:
Institutions.
Infrastructure.
Logistics.
Administrative Issues.
15
Trade Logistics
Poor Trade Related Infrastructure
and Transportation System
Infrastructure
and
Transportation
Share of Transport Costs as percentage
of transaction cost in Central Asia
Services
Border
Procedures
Transport and Handling Cost as percentage
of transaction cost in South Asia
Export
Import
Kazakhstan
10%
8%
Kyrgyzstan
13%
10%
Tajikistan
14%
10%
Uzbekistan
12%
8%
Source: ADB 2006
Agro-products
Export From
Export To
Transport & Handling Cost
(% of transaction cost)
Frozen Shrimp
Bangladesh
Japan
29
Cotton Yarn
India
Bangladesh
31
Hydrogenated Veg. Oil
Nepal
India
80
Tea
Sri Lanka
Japan
22
Source: Business Process Analysis Studies ESCAP 2010-11
16
Trade Logistics (contd.)
Spoilage during Post-harvest Handling: Absence of warehousing facility,
inappropriate goods vehicles or trucks, long distance from nearby railways or
inland waterways stations and so on.
 FAO (1994): Total loss of agro-products during storage and transport could be
as high as 16%.
 World Bank in India shows that the lack of adequate storage and marketing
infrastructure can be as high as 20-40 % of the total production (ESCAP 2009).
 IFC estimated the wastage caused by poor transportation and logistics system
at $13 billion per year there (2010).
 Thai fresh produce exports of fruits and vegetables, producers and exporters
lose 2.92 billion baht (about $96.4 million) a year due to spoilage and poor
storage.
17
Trade Finance
Trade Finance
is
’financing of
imports and
exports’’
It is the most difficult bottleneck to overcome for agricultural trade
Risk of
spoilage
Poor storage
facilities
Price volatility
Weather
conditions
Seasonality of
production
Varied quality
of products
Reasons for not increasing lending in this sector
Inability of producers
to meet the big
collateral guarantees
Lenders’ Lack of
Understanding
Knowledge Gap of
SMEs/producers
Stringent terms of
trade
18
Business Process Analysis (BPA) of
Nepal’s Import of Rice and Export of
Large Cardamom
Why conduct a Business Process Analysis?
Business Process Analysis is a practical study
 to understand attributes of business processes,
and their relationships
Who
involved
Procedures
and Documents
required
Related Rules
and Regulations
Some
quantitative
indicators
20
Use Case Diagram of Rice Import from India to Nepal
Broker
3. Ship
1.Buy
3.1 Obtain Inspect entry permit
2.Pay
3.2 Prepare and collect required document
Courier
Plant Quarantine company
Office
Importer Bank
Exporter
•Buy
3.3 Appoint clearing Agent and handover
document
1.1 Conclude trade term
Bank
Transport Company
3.4 Arrange transportation
CHA
Importer
FoodQuarantine office
3.5 Obtain Food Quarantine
Certificate
2. Pay
Exporter
Bank
2.1 Advance payment
Customs
Bank
3.6 ObtainRelease order
2.2Balance Payment
3.7 Customs Clearance at importer Border
Importer customs office
Process: Obtaining Food Quarantine Certificate
CHA/Clearing Agent
Food Quarantine Office
3.5.2 Issue letter to
Food Quarantine Office
3.5.1 Applies for letter to Food
Quarantine Office
3.5.4 Submits documents with
sample and fee
Customs Letter
3.5.3 Receive letter to Food
Quarantine Office
3.5.5 Receive document
and sample
Commercial/ Export invoice
3.5.6 Examine the sample
Packing list
Customs Declaration Form
3.5.7 Issue Quarantine
Certificate
Filled in prescribed application
3.5.8 Receive Quarantine
Certificate
Customs
Documents Required for Import of Rice from India
S.N
Type
No of
document
1
Application
3
2
Pro forma Invoice
2
3
Firm/Company
registration certificate
5
4
PAN/VAT certificate
5
5
6
7
Purchase order
Customs letter
Commercial/Export
Invoice
1
1
4
8
Packing List
2
9
Customs Declaration
Form
3
10
Foreign Exchange
Declaration Form
Appointment letter to
CHA
Food Quarantine
Certificate
Release order letter
Evidence of payment
3
11
12
13
14
Total
1
1
1
1
33
How document is
Where to submit
to submitted
Manual
Bank, Plant Quarantine
Office
Manual
Bank, Plant Quarantine
Office
Manual
Bank, Plant Quarantine
Office Importer
Customs
Manual
Bank, Plant Quarantine
Office Importer
Customs
Manual
Bank
Manual
Food Quarantine Office
Manual
Food Quarantine
Office, Plant
Quarantine Office,
Importer Customs and
Bank
Manual
Food Quarantine Office
and Importer Customs.
Electronically/Ma Importer Customs,
nual
Bank and Food
Quarantine Office
Manual
Bank and Importer
Customs
Manual
Importer Border
Customs
Manual
Importer Customs
Manual
Manual
Importer Customs
Importer Customs
Cost of Importing Rice
Activity
NPR
USD
1. Conclude trade term
50
0.6
2. Receive Pro forma invoice and send purchase order
100
1.2
3.Obtain entry permit (fee)
200
2.4
74460.0
35360.0
39100.0
908.0
431.2
474.0
5. Load / unload
6120 (18 per
quintal)
74.6
6. Broker commission
1700 (Rs. 10
per quintal)
20.7
7. Fund transfer cost
1500
18.3
8. Document collection and preparation
300
3.7
9. Clearing agent fee
400
4.9
10. Obtain Food Quarantine certificate (fee)
400
4.9
11.Import service charge
500
6.1
3000
36.6
88730.0
1082.1
4. Freight from exporter's factory to importer's
warehouse
-Exporter factory to importer boarder
- Importer boarder to Kathmandu
11. Other cost (cost incurred in different check points,
Customs entry yard charge, district entry, currier cost etc.)
Total
Specific Recommendations for Simplifying Import of
Rice
Issues
Recommendation
Implementing
Agency
Time frame
1.The process of
concluding trade terms is
lengthy and time taking
1.a. Enhance efficiency
through using faster
information technology
such as conference call
etc.
1.a.Private sector
particularly exporter and
importer
1.a. Short term
2. Duplication in checking
by government agencies
2.a. Reduce number of
checking
2.a. Government of Nepal
Short term
3. Lack of scientific lay out
in Customs offices
3.a. Redesign lay -out of
Customs offices
3.a. Department of
Customs
Medium term
4.Customs related offices
are scattered
4.a Locate all Customs
related offices within
Customs premises
4.a Government of Nepal
4.a Medium term
5. Electronic copies of
documents except
Customs Declaration
Form are not accepted by
the Customs
5. a. Accept electronic
copies of all documents
by the Customs
5.b. Develop electronic
submission system of
documents
5.a. Department of
Customs
5.b Department of
Customs
5.a.Short term
5.a. Medium term
6. High transportation cost
due to bad road condition
and syndicate of transport
operators
6.a Improve road
condition
6.b. Enforce Competition
Promotion and Market
Protection Act effectively
6. a. Government of
Nepal
6.b. Government of Nepal
6.a. Long term
6.b. Short term
Use Case Diagram of Cardamom Export from Nepal to
India
3. Ship
1. Buy
3.1 Obtain COO
1.1 Conclude
tradeterm
Exporter /
Representative
District Chamber of Commerce
3.2 Arrange transportation
Importer
Transport Company/ Operator
3.3 Obtain cargo Insurance
2.Pay
2.1 Advance
Payment
Importer bank
2.2 Balance
Payment
Exporter
Bank
3.4 Appoint Clearing Agent
Insurance Company
3.5 Obtain Quarantine
Certificate
3.6 Customs Clearance at
Exporter Customs point
Customs Office
CHA
Quarantine Office
Customs Bank
Time Procedure Chart of Export Process of Large
Cardamom from Nepal to India (as is)
Days
14
2 days
13
12
2.2
11
3 hour
1 day
10
5 1/2 days
3.5
3 hour
3.6
3.3
09
1.1 Conclude trade term
2.1 Advance Payment
3.1 Obtain COO
3.2 Arrange transportation
3.3 Obtain Insurance Cargo
3.4 Appointment of Clearing Agent and handover document
3.5 Obtain Quarantine Certificate
3.6 Clearance at exporter border
08
07
3.2
06
05
½ day
04
1 ½ days
03
3.1
2.1
2 days
02
01
1.1
00
1.1
2.1
3.1
3.2
3.3
3.4
3.5
3.6
2.2
Procedure
Specific Recommendations for Simplifying Export of
Cardamom
Issues
Recommendation
Implementing
Agency
Time frame
1.The process of
concluding trade terms is
lengthy
1.a. Enhance efficiency to
quick decision making
1.a. Exporter and importer
1. a. Short term
2.High transport cost due to
road condition and
syndicate system
2.a. Improve road condition
2.b. Enforce Competition
Promotion and
MarketProtection Act
effectively
2.a. Government of Nepal
2.b. Government of Nepal
2.a. Long term
2.b. Short term
3.Burden of levy of export
fee by DDC
3.a. Remove export fee in
conformity with the policy of
making export tax free
3.a. Government of Nepal
3.a. Short term
4.Customs related offices
are scattered
4.a.Locate all Customs
related offices within
Customs premises
4.a. Government of Nepal
4.a. Medium term
5.Customs do not accept
electronic copies of
documents except Customs
Declaration Form
5.a. Accept electronic
copies of all documents by
the Customs
5.b. Develop system of
electronic submission of
documents
5.a. Department of Customs
5.b. Department of Customs
5.a Short term
5.b. Medium term
6. Lack of scientific layout of
Customs building
6.a. Redesign lay- out of
Customs office
6.a. Department of Customs
6.a Medium term
More Recommendations for Cardamom Export
 Cardamom is cultivated with traditional farming practice. Hence, quality cannot be ensured. This has been a reason for Nepal not being able to diversify
and sustain export of cardamom to countries other than India.
 To enhance productivity and quality of cardamom Good Agricultural
Practices (GAP) should be adopted. Recently the Ministry of Agriculture
Development has initiated action towards this. But GAP has cost, farmers
are reluctant to follow. Therefore, it is recommended that practical and
adequate incentive is provided to farmers adopting GAP.
 Like-wise, SPS requirement of importing countries has to be fulfilled by
Nepalese exporters to diversify their export of cardamom. For this,
recognized testing laboratories and certification agencies should be
developed.
 Cardamom is collected from hilly areas of the country. Naturally the
transportation cost is high when it comes to hilly roads. In addition, high
freight cost in the absence of effective implementation of Competition
Promotion and Market Protection Act.
 In addition to this, cardamom collection centres and warehouses should be
developed in the rural areas for smooth collection and export of cardamom.
Findings from Other Business Process Analysis
Studies
Export
country and
product
Destination No. of
days
No. of
actors
involved
No. of
processes
No & type of
documents
required
Cost ($)
Cambodia –
Maize
China
20
15
13
22
12501360
Lao PDR Maize
Thailand
16
11
8
21
735
Myanmar –
Rice
West Africa
19-23
20
10
>25
425
BangladeshJute bag
India
10
15
12
24
-
Nepal Cardamom
India
15
11
9
14
1213
ThailandSugar export
(2011)
Bangladesh
13
15
13
31
420
Source: ESCAP BPA Study Reports 2013-14, available at:
http://unnext.unescap.org/tools/business_process.asp
TF Measures by Cambodia
Rice Export Policy: Enhancing trade facilitation, reducing informal fees and
eliminating check points
Measure 1: “MEF/General Department of Customs and Excise (GDCE), MAFF and
MoC/General Department of CAMCONTROL and relevant agencies shall: develop
a specific strategy to identify and streamline export processing procedures
including inspection, documentation requirements, fees and time required to
process export applications; define clear and publicly transparent division of
responsibilities among export regulating ministries/agencies; consider milled rice
export as a top priority in order to reduce to a minimum informal payments and
time required to export by extending “special treatment” similar to the garment
sector.”
Measures by Cambodia (Contd.)
Measure 2: Implement a single-stop service for export processing:
MEF/GDCE, MAFF and MoC/ CAMCONTROL and relevant agencies
shall set up a Single Stop Service for export processing and issuing
certificates for SPS, fumigation, grading and quality, quantity and weight,
and customs declaration.
Business Process Analysis (BPA) Studies for Five
Countries in South and Southeast Asia
Bangladesh
Business (Trade) Process Analysis (BPA) for
Export of Jute Bags to India and Import of Wheat
from India
Cambodia
BPA for Export of Maize and Cassava to China
Lao PDR
BPA for Export of Maize to Thailand and Import of
Animal Feed from Thailand
Myanmar
BPA for Export of Mango and Rice to China, Import
of Palm Oil from Malaysia
Nepal
BPA for Export of Cardamom to India and Import of
Rice from India
Available at: http://unnext.unescap.org/pub/bpa-cam.pdf
Publication
“Facilitating Agricultural
Trade in Asia and the
Pacific”
Overview, TF issues, Good
practices
Available at:
http://www.unescap.org/publicat
ions/detail.asp?id=1480
THANK YOU!
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