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.

Agricultural Trade in Asia-Pacific

Source: FAO 2009

Source: FAO 2009 4

0

50

100

Nep

al

Lao

PD

R

Mya

nm

ar

Cam

bo

dia

Bh

uta

n

Vie

t N

am

Afg

han

ista

n

Ch

ina

Ind

ia

Ban

glad

esh

Pak

ista

n

Sri L

anka

Thai

lan

d

Ind

on

esia

Ph

ilip

pin

es Iran

Mo

ngo

lia

Kaz

akh

stan

Mal

aysi

a

New

Zea

lan

d

Rep

. of

Ko

rea

Au

stra

lia

Jap

an

Pe

rce

nta

ge 2

00

6

Agricultural Population as Share of Total Population in Selected Asia-Pacific Countries

0

10

20

30

40

50

60

Au

stra

lia

Ban

glad

esh

Cam

bo

dia

Ch

ina

Ind

ia

Ind

on

esia

Jap

an

Kaz

akh

stan

Ko

rea,

Rep

Lao

PD

R

Mal

aysi

a

Mo

ngo

lia

Mya

nm

ar

Nep

al

New

Zea

lan

d

Pak

ista

n

Ph

ilip

pin

es

Sri L

anka

Thai

lan

d

Vie

tnam

Pe

rce

nta

ge 2

00

7

Contribution of Agriculture to GDP in Selected Asia-Pacific Countries

34%

5

Source: ESCAP (2011) Facilitating Agricultural Trade in Asia and the

Pacific, Studies in Trade and Investment No. 74

100

150

200

250

300

350

400

450

500

550

600

2000 2001 2002 2003 2004 2005 2006 2007 2008

Ind

ice

s:

20

00

= 1

00

Agricultural Import Indices for Selected Countries/regions 2000-2008

European Union

United States

China

Russian Federation

India

Japan

Agricultural Import Growth - Stronger in Asia-Pacific

6Source: COMTRADE 2011

Intra-Regional Trade in the Asia-Pacific Region

Asia-Pacific Agro-Exports share by Major Destinations

0.00

5.00

10.00

15.00

20.00

25.00

Ch

ina

Au

stra

lia

Thai

lan

d

Mal

aysi

a

New

Zea

lan

d

Ind

ia

Vie

tnam

Sin

gap

ore

Ko

rea,

Rep

.

Ru

ssia

n…Pe

rce

nta

ge 2

00

4-2

00

8

Top 10 Asia-Pacific Agro-exporters to Asia-Pacific, 2004-2008

0%

10%

20%

30%

Jap

an

Ch

ina

Ko

rea,

Rep

.

Ho

ng

Ko

ng,

Ch

ina

Mal

aysi

a

Ru

ssia

n F

ed

era

tio

n

Sin

gap

ore

Ind

ia

Au

stra

lia

Thai

lan

d

Pe

rce

nta

ge

Top 10 Asia-Pacific Agro-importers from Asia-Pacific, 2004-2008

Key Drivers of Agricultural Trade

Agricultural Trade

Growth

Change in Dietary

Practices

Population Growth

Increased Disposable

IncomeChange 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

Comprehensive Trade Costs (excluding tariff) for

Agricultural Goods with Japan (2000-2005, 2006-2011)

0

100

200

300

400

500

600

700

800

Rep

. of

Kor

ea

Uni

ted

Sta

tes

Tha

iland

Vie

tnam

Chi

na

New

Zea

land

Aus

tral

ia

Phi

lippi

nes

Indo

nesi

a

Uni

ted

Kin

gdom

Ger

man

y

Mal

aysi

a

Sri

Lan

ka

Indi

a

Rus

sian

Fed

erat

ion

Fra

nce

Tur

key

Fiji

Mal

dive

s

Iran

(Is

lam

ic R

ep. o

f)

Pak

ista

n

Nep

al

Ban

glad

esh

Lao

PD

R

Cam

bodi

a

Tar

iff-

equi

vale

nt tr

ade

cost

s (p

erce

nt)

Agriculture (2000-2005)

Agriculture (2006-2011)

Manufacturing (2006-2011)

Source: ESCAP-World Bank Trade Cost Database, updated August 2013

Benefits of Trade Facilitation

GDP gains from 25% reduction in time to export/Import, GMS and China

Source: Strutt, Stone, and Minor (2008) simulations

11

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

Improved Trade Competitiveness

Greater integration of MSMEs including

ProducersGreater Income for Poor

Source: ESCAP (2011) Facilitating Agricultural Trade in Asia and the Pacific, Studies in Trade and Investment No. 74

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 Products

13

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

Trade Facilitation for Agro-food Goods: Challenges

14

Trade Procedures: A Generic Agricultural Product Supply

Chain Structure

Consumer

ExporterWholesalersProducer

Import Agent

Tran

spo

rt

Regulatory Agencies

ImporterRetailers

Bank

Export Customs

Import Customs

Source: Sirimanne 2011

Building 2

Information,documents, procedures

Information, documents, procedures

Information, documents, procedures

Information, documents, procedures

15

Product Standards

Ensuring product standards for international trade ofagricultural products is a complex topic and Itencompasses:Institutions.Infrastructure.Logistics.Administrative Issues.

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)

16

Trade Logistics

Poor Trade Related Infrastructure

and Transportation SystemInfrastructure

and Transportation

Border Procedures

Services

Agro-products Export From Export ToTransport & 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

Transport and Handling Cost as percentage of transaction cost in South Asia

Source: Business Process Analysis Studies ESCAP 2010-11

Share of Transport Costs as percentage of transaction cost in Central Asia

Export Import

Kazakhstan 10% 8%

Kyrgyzstan 13% 10%

Tajikistan 14% 10%

Uzbekistan 12% 8%

Source: ADB 2006

17

Spoilage during Post-harvest Handling: Absence of warehousing facility,inappropriate goods vehicles or trucks, long distance from nearby railways orinland 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.

Trade Logistics (contd.)

18

Reasons for not increasing lending in this sector

Trade Finance

’financing of imports and

exports’’

Risk of spoilage

Poor storage facilities

Price volatilityWeather

conditionsSeasonality of

productionVaried quality

of products

Inability of producers to meet the big

collateral guarantees

Stringent terms of trade

Lenders’ Lack of Understanding

Knowledge Gap of SMEs/producers

is

It is the most difficult bottleneck to overcome for agricultural trade

Trade Finance

Business Process Analysis (BPA) of

Nepal’s Import of Rice and Export of

Large Cardamom

Why conduct a Business Process Analysis?

20

Business Process Analysis is a practical study

to understand attributes of business processes, and their relationships

Who involved

Proceduresand Documents

required

Related Rulesand Regulations

Some quantitative

indicators

Use Case Diagram of Rice Import from India to Nepal

Importer

Exporter Bank

Exporter

Bank

Broker

Importer Bank

1.1 Conclude trade term

1.Buy

2.1 Advance payment

2.Pay

2.2Balance Payment

3. Ship

•Buy

2. Pay

3.1 Obtain Inspect entry permit

3.3 Appoint clearing Agent and handover

document

3.2 Prepare and collect required document

3.4 Arrange transportation

3.5 Obtain Food Quarantine Certificate

3.6 ObtainRelease order

3.7 Customs Clearance at importer Border

Couriercompany

CHA

Transport Company

CustomsBank

FoodQuarantine office

Importer customs office

Plant Quarantine Office

Process: Obtaining Food Quarantine Certificate

CHA/Clearing Agent Food Quarantine Office Customs

3.5.1 Applies for letter to Food Quarantine Office

3.5.5 Receive document and sample

3.5.6 Examine the sample

3.5.7 Issue Quarantine Certificate

3.5.8 Receive Quarantine Certificate

Customs Letter

Commercial/ Export invoice

Packing list

Customs Declaration Form

Filled in prescribed application

3.5.4 Submits documents with sample and fee

3.5.2 Issue letter toFood Quarantine Office

3.5.3 Receive letter to Food Quarantine Office

Documents Required for Import of Rice from India

S.N Type No of

document

How document is

to submitted

Where to submit

1 Application 3 Manual Bank, Plant Quarantine

Office

2 Pro forma Invoice 2 Manual Bank, Plant Quarantine

Office

3 Firm/Company

registration certificate

5 Manual Bank, Plant Quarantine

Office Importer

Customs

4 PAN/VAT certificate 5 Manual Bank, Plant Quarantine

Office Importer

Customs

5 Purchase order 1 Manual Bank

6 Customs letter 1 Manual Food Quarantine Office

7 Commercial/Export

Invoice

4 Manual Food Quarantine

Office, Plant

Quarantine Office,

Importer Customs and

Bank

8 Packing List 2 Manual Food Quarantine Office

and Importer Customs.

9 Customs Declaration

Form

3 Electronically/Ma

nual

Importer Customs,

Bank and Food

Quarantine Office

10 Foreign Exchange

Declaration Form

3 Manual Bank and Importer

Customs

11 Appointment letter to

CHA

1 Manual Importer Border

Customs

12 Food Quarantine

Certificate

1 Manual Importer Customs

13 Release order letter 1 Manual Importer Customs

14 Evidence of payment 1 Manual Importer Customs

Total 33

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

4. Freight from exporter's factory to importer's

warehouse

-Exporter factory to importer boarder

- Importer boarder to Kathmandu

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

11. Other cost (cost incurred in different check points,

Customs entry yard charge, district entry, currier cost etc.)

3000 36.6

Total 88730.0 1082.1

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

Importer

Importer bank

1.1 Concludetradeterm

1. Buy

2.1 AdvancePayment

2.2 Balance Payment

2.Pay

Exporter /Representative

Exporter Bank

3. Ship

3.1 Obtain COO

3.2 Arrange transportation

3.3 Obtain cargo Insurance

3.4 Appoint Clearing Agent

3.5 Obtain QuarantineCertificate

3.6 Customs Clearance at Exporter Customs point

District Chamber of Commerce

Transport Company/ Operator

Insurance Company

CHA

Quarantine Office

Customs Office

Customs Bank

Time Procedure Chart of Export Process of Large

Cardamom from Nepal to India (as is)

14

13

12

11

10

09

08

07

06

05

04

03

02

01

001.1 2.1 3.1 3.2 3.3 3.4 3.5 3.6 2.2 Procedure

1.1

2.1

3.1

3.2

3.3

3.53.6

2.2

2 days

1 ½ days

½ day

5 1/2 days

1 day

3 hour

2 days

Days

3 hour

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

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 can-not 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.

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 1250-

1360

Lao PDR -

Maize

Thailand 16 11 8 21 735

Myanmar –

Rice

West Africa 19-23 20 10 >25 425

Bangladesh-

Jute bag

India 10 15 12 24 -

Nepal -

Cardamom

India 15 11 9 14 1213

Thailand-

Sugar 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

Findings from Other Business Process Analysis

Studies

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.”

TF Measures by Cambodia

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.

Measures by Cambodia (Contd.)

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!

salehin@un.org

unnext.unescap.org

www.satnetasia.org