Tuesday, March 15, 2011

Exporting. And then stopping....

I've got a rather large folder on my hard-disk where I basically store papers which I think look interesting but generally never get around to reading. In a sudden spate of enthusiasm for getting through some of them, I read this paper by Ashraf, Gine and Karlan.

They report on a RCT on Kenyan smallholders with little knowledge of export markets, no production contracts, poor access to credit, and presumably poor knowledge of the specific demand requirements of consumers in export markets. Two groups were given differing levels of assistance on producing and marketing export crops and a third group kept as control (roughly 370 individuals in each group). Although there is little on the detail of what aspects led to what impacts, the general finding is that after a year, there had been a positive impact on production of export crops. However, one year later,
"the export firm that had been buying the horticulture stopped because of lack of
compliance with European export requirements (EurepGap)"

More precisely, EurepGap introduces a range of requirements such as registration with the Ministry of Culture and Social Services, a signed resolution stating their desire to develop a Quality Management System and to seek EurepGap certification, construction of a grading shed and a chemical storage facility with concrete floors, doors and lock and proper ventilation as well as latrines with running water, written records for two years of all their farming activities including the variety of seeds used, where they were purchased, the planting date, agro-chemicals used, exact quantities and date of application. "Spraying equipment must be in good working condition and the person doing the spraying must wear protective gear. Farm chemicals must be carefully stored under lock in a proper storage facility and in their original containers. The water used for irrigation must be periodically checked. Finally, every grower’s produce needs to be properly labeled."

This raises a couple of points.

One is that we're back to standards again. Even with a presumably costly intervention which was provided by outsiders in order to initiate export crop production, it is difficult for smallholders to comply and remain compliant with export standard requirements. That is, these guys are not going to export sustainably without some major additional public or private investments which allow them to more consistently achieve required standards.

There is also a broader point which I think is that exporting is pretty risky. Even ignoring contractual and fraud issues, the hurdles to successfully exporting to the EU (and presumably other developed markets) are huge. At an EC discussion of GSP and its successor last year, someone representing the interests of EU importers, mostly made up of SMEs according to him, made the point that importers need predictability and simplicity in trade rules. A written summary is given here, but the point is that if importing from Sub-Saharan Africa is complicated for importers, it simply won't happen. And the more complicated and changeable procedures are, the more likely an importer will look elsewhere. Good luck with promoting those SSA exports in that case....


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