August 26, 2016

Strong Regulatory Environments Are Necessary for the Success of the World’s Agricultural Entrepreneurs

By Mattie Hill, MA Candidate at the University of Missouri and Intern with the Council’s Global Food and Agriculture Program

As the world’s small and medium enterprises (SMEs) work to satisfy the food demands of an ever-increasing global population, they play a key role in the development of new ideas and processes which increase the efficiency and productive capacities of our food systems. From farmers to financiers, modern food production requires the collaboration of a diverse set of actors. Effective regulatory governance can guide the establishment of such a network by promoting equitable access to market opportunities and transparent, universal compliance with formal legal requirements. With the help of proper government support, the agricultural sector can become an innovative and highly diversified “engine of growth” in developing countries. 

States Can Promote Agricultural Entrepreneurship through Regulation
 

When governments recognize the particular challenges facing agricultural entrepreneurs and act as advocates for business, they can create healthy, growing agricultural economies. The FAO calls this the establishment of an “enabling environment”—one which attracts private stakeholders both at home and abroad to industry. Although international actors continue to question what constitutes the ideal “enabling environment,” groups such as the FAO, USDA, and OECD seem to have reached consensus as to the regulatory factors conducive to agricultural production. These factors can be consolidated into two main foci for future regulatory action: the promotion of equity in market access, specifically in land acquisition and rights, and the enhancement of financial literacy and opportunity. Most governments maintain some regulations in these areas, but they are often outdated and require revision in order to improve coordination, effectiveness, and inclusion of at-risk populations in agricultural enterprise. 

The finance and banking sectors present examples of recently modernized regulations and services that have fostered business development and absorbed some of the risk associated with agricultural production. Uganda’s warehouse receipt system serves as such an example of new banking methods. It allows farmers to catalog their harvests earlier in the marketing process and better establish credit for future purchases. Another expansion to banking services is the institution of agent banking, which, in Ghana, allows individuals to open accounts without a physical branch location. For farmers located far from an urban center, this practice promotes the development of personal financing and equity building. As this partnership between finance and agriculture continues to grow, policymakers should require new service providers to meet high standards for operation and expansion. Strong regulatory environments can strengthen the confidence and stability of both sectors while encouraging continued innovation.

Although access to and maintenance of financial capital is a very real problem for the growth of SMEs in developing countries, new farmers may be dissuaded early on when establishing agriculture enterprises because they cannot access agriculture’s most essential resource: land. Land titles in developing countries often remain in the hands of the family patriarch until death, which effectively shuts out new agricultural enterprises owned by young or female entrepreneurs. When studied on its own and/or in conjunction with capital accumulation and GDP growth, land equity demonstrates a unique justification for targeted regulation of property access. Reterritorialization of unused lands and clearly defined property laws can provide more space for participation from the populations that are typically overlooked. Additionally, because expanded access to land is linked to increased GDP, regulation targeting land access for farmers may allow the agricultural sector to better contribute to overall national economic growth.

Strong Regulations Help Not Only Agriculture, but Whole Economies, Thrive
 

Because the agricultural industry is deeply intertwined with other sectors, investments in agriculture by either public or private actors can quickly disseminate throughout the economy to invoke efficient, positive change. The World Bank has demonstrated that markets with effective agricultural regulatory policy are correlated with increased quality control and higher efficiency in trade requirements. Countries with strong regulatory environments also prove to have higher incomes, indicating the relationship between effective governance, economic growth, and continued investment by private entities. Ultimately, although policymakers and the private sector may both be wary of state intervention, a strong regulatory environment fostering entrepreneurship can allow public services to be replaced by industry, which actually works to minimize the role of government in the market and gives way to a robust economy overall.

Maintaining Entrepreneurship and a Healthy Business Environment
 

It is important to note that entrepreneurship is not merely about starting new businesses—it is also about innovation, market advancement, and the continued success of enterprise. So while entrepreneurs should be empowered to open new businesses, we should also ensure these regulations are designed to create and maintain efficient processes, technologies, goods, and services that address the needs of the broader economy. With the help of a functioning legal system allowing for capacity building and collaboration, agricultural SMEs can be encouraged to pursue business opportunities and develop new ideas not only for their own livelihoods, but also as a way to build financial capital that eventually provides jobs for family, friends, and neighbors. In this way, agricultural entrepreneurship helps to nurture stronger communities beyond the sector.

A strong state presence in agricultural regulation is essential to foster an environment for entrepreneurial growth.  Farmers and owners of SMEs must feel confident in their capacity to access and maintain capital in order to take on the risk of an agricultural endeavor. Additionally, the agricultural industry overall must be supported by a regulatory infrastructure that allows it to grow and attract continued private investment in order for it to be healthy. Where regulations are transparent and effective, they have proven to be essential in the success of entrepreneurs and SMEs in the food systems, and overall economies, of the developing world.
 

About

The Global Food and Agriculture Program aims to inform the development of US policy on global agricultural development and food security by raising awareness and providing resources, information, and policy analysis to the US Administration, Congress, and interested experts and organizations.

The Global Food and Agriculture Program is housed within the Chicago Council on Global Affairs, an independent, nonpartisan organization that provides insight – and influences the public discourse – on critical global issues. The Council on Global Affairs convenes leading global voices and conducts independent research to bring clarity and offer solutions to challenges and opportunities across the globe. The Council is committed to engaging the public and raising global awareness of issues that transcend borders and transform how people, business, and governments engage the world.

Support for the Global Food and Agriculture Program is generously provided by the Bill & Melinda Gates Foundation.

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| By Janet Fierro

Guest Commentary - Rural Niger Women find Opportunity and Hope through Innovative Business Model

When researchers set out to find natural ways to manage a crop-destroying pest in sub-Saharan Africa cowpea fields they knew the results could have significant positive impact on smallholder farmers. What they may not have expected was the significance of the cottage industry it inspired and the entrepreneurial spirit of the rural women of Niger who led it.