Proposal Agriculture Innovation A

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REVISED: 13 November 2007

Research Proposal

How National Public Policies Encourage or Impede AgribusinessInnovation:

Studies of Six African Countries

AGRICULTURE AND INNOVATION

In recent years, a number of nations have sparked their economic performance throughadoption of what has come to be called the new agriculture (World Bank 2006: 8). In

fact, the World Development Reportof 2008 is dedicated largely to an analysis of thisphenomenon. In essence, the new agriculture refers to a series of mutually supporting,often knowledge-intensive innovations that enable a countrys agricultural producers tomove up the value chain in the competitive international market for agricultural exports.Examples include salmon farming in Chile, palm oil production in Malaysia, floriculturein Kenya, fish exports in Uganda, herbal remedies in India, shrimp farming inBangladesh, pineapple production in Ghana, and numerous others (Chandra 2006; WorldBank 2006). The attraction of the new agriculture lies in the possibility for adeveloping country to exploit its latecomer status to close the gap with developedcountries in particular commodities or sub-sectors through the application of moreknowledge-intensive and market driven production technologies.

In Sub-Saharan Africa, the agricultural sector is a prime candidate to benefit frominnovation. Agriculture continues to be Sub-Saharan Africas dominant economicactivity, accounting for 40 percent of GDP, 15 percent of exports, and 60 to 80 percent ofemployment. But by world standards, its productivity levels for many products are lowand the importation of foodstuffs is higher than it needs to be in some countries. Higheragricultural productivity is thus a precondition for growth and development in mostAfrican countries, and increasing yields is a key to raising incomes (and reducing poverty) in rural areas. Within the agricultural sector, market-oriented production frequently referred to as agribusiness or agro-industry is where innovation is likely tohave the biggest economic (and social) impact. Farmers and commercial producers may

benefit especially if they can diversify their production into higher value, but knowledge-demanding, products. This requires agricultural innovation.

Until it learns to grow its agricultural productivity, Africa is unlikely to registersignificant developmental advances. Recognizing this reality, African governmentsadopted in 2002 a Comprehensive Africa Agriculture Development Program under theauspices of their New Partnership for African Development (NEPAD). This Programstates that larger investments in agricultural research, extension and education systems

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are required to achieve the targeted increase in agricultural output of 6 percent a yearover the next 20 years. In March 2005 the international Commission for Africa, chairedby former British Prime Minister Tony Blair, argued that greater attention should be paidto the economic growth agenda in Africa and recommended higher investments in humanresource capacities linked to agriculture, science and technology, and tertiary education.

Shortly thereafter, participants at the G-8 meeting convened in Gleneagles, Scotlandaffirmed this report and committed their governments to provide significant additionalfunding in support of its objectives. In 2006 NEPAD issued a Framework for AfricanAgricultural Productivity (FAAP) as a guideline to member states for attaining the goalof 6 percent annual increases in production. As a result, many of the political andfinancial elements necessary for a concerted effort to upgrade African agriculturalproductivity would seem to be in place. What are now needed are public policies thatcreate an enabling environment for agricultural innovation which reduces risk andencourages investment so that these new opportunities can be grasped.

INNOVATION SYSTEMS

Although the innovation systems concept is relatively new to agricultural policymakersand agricultural research managers in developing countries, it is increasingly suggested asa way of revisiting the question of how to strengthen agricultural innovation capacity(Hall et al. 2001; Clark et al. 2003; Hall 2005).1 The concept is derived from moregeneral conceptual work on National Innovations Systems (NIS) carried out a decadeearlier by Freeman (1987), Porter (1990), and Romer (1990), and subsequently elaboratedby Lundval (1992), Nelson (1993), and others. NIS is generally understood to refer to anetwork of organizations focused on bringing new products, new processes, and newforms of organization into economic use, together with the institutions and policies thataffect their behavior and performance (World Bank 2006: 16). In contrast to the earlierlinear model of scientific discovery, diffusion and adoption, the NIS is framed as aninteractive network of diverse actors where innovation can arise at any point.2 InAttachment 2, there is an overview of the Attributes of an Innovation System.

1Studies that use an innovation systems framework are able to analyze processesthat are typically overlooked in the linear approach to research and development(R&D). Innovation systems studies often open the black box of innovation toanalyze actors motives and behaviors; the institutions that shape these motives andbehaviors; interactive, joint, and complementary processes of innovation; and thedynamics of institutional learning and change. They also provide analyses thatextend beyond single industries or markets, capturing a wider range of agents (publicand private), interactions (competition, cooperation, and learning), institutions (socialpractices and norms), and policies (science, technology, trade, education, andinvestment) that condition agents interactions and responses to innovationopportunities. Further, they often provide analyses of policy design from theperspective of policy as a continuous process that adapts to institutional andtechnological opportunities presented by socio-economic change and development.

This differs significantly from the neoclassical assumption that policy is the domain offully informed social planners who reconcile social and private welfare within asystem of rational maximizers (Spielman 2006b:57).

2 For a useful review and critique of innovation systems literature in the context of agriculturaldevelopment, see Spielman (2006a).

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Innovation is not synonymous with invention. Invention culminates in the supply(creation) of new knowledge, but innovation encompasses the factors affecting demandfor and use of knowledge in novel and useful ways. The notion ofnovelty is fundamentalto invention, but the notion of the process of creating local change that is new to the

user, is fundamental to innovation. Specifically, innovation is the process by whichorganizations master and implement the design and production of goods and servicesthat are new to them irrespective of whether they are new to their competitors, theircountry, or the world (Mytleka 2000).

Some of the distinguishing characteristics of innovations and the innovation processinclude (World Bank 2006):

Innovations are new creations of social and economic significance. They may bebrand new, but they are more often new combinations of existing elements.

Innovation can comprise radical improvements but usually consists of many small

improvements and a continuous process of upgrading.

These improvements may be of a technical, managerial, organizational, institutional(that is, the way things are routinely done), or policy nature.

Very often innovations involve a combination of technical, institutional, and othertypes of changes.

Innovation can be triggered in many ways. Bottlenecks in production within a firm,changes in available technology, competitive conditions, international trade rules,domestic regulations, or environmental health concerns may all trigger innovationprocesses (Rosenberg 1976, Dosi et al. 1988, Chandler 1990, and Nelson 1993).

Innovations can be divided into four categories: technical, marketing, organizational,and institutional/procedural. A particular innovation often combines changes in two ormore of these areas.

To date, however, most research on agricultural innovation has focused on the processwhereby a specific new product was identified and developed. Efforts to assess andimprove the overall performance of a national agricultural innovation system have beenrare. This shortcoming inspires the current research proposal, wherein public policybecomes the focus of investigation.

THE ROLE OF PUBLIC POLICY

An important implication of the innovation systems approach is that innovations canemerge at any point in the system as the result of consciously mediated or coordinatedinteractions among different types of agents. Thus, the appearance of innovations doesnot necessarily depend on any government action although these actions can have greatinfluence on the evolution and strength of particular innovations. Seen from thisperspective, an innovation system is larger than the national research system (NRS), and

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larger than the set of public-sector organizations charged with the creation and

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dissemination of new technologies.3 In other words, multiple sources of innovation canbe found to exist in practice (Davis et al. 2007: 9).

The innovation systems perspective has so far given little attention to policy analysis(Spielman 2006a: 49). This shortcoming may be caused by the depth,

breadth, and complexity of de facto innovation policywhich oftenembraces policies in industry, agriculture, trade, finance, education,science and technology, labor, and others (see Attachment 1). Toprovide useful guidance for national development purposes, analysesof innovation policy will need to move beyond case studies of specificinnovations to more comprehensive analyses of national and sectoralpolicies at a level that is applicable for singling out policy options or forconstructing cross-country benchmarks and indications of bestpractice. By combining well-grounded empirical analysis with a goodunderstanding of the institutional context in which innovation occurs,innovation systems research can be a powerful tool for designing

public policy and associated incentive structures (Omamo 2003).

Porter (1990:19) argues that the policies espoused by government can make a differencein creating and sustaining national competitive advantage as a highly localized process.Differences in national economic structures, values, cultures, institutions, and historiescontribute to competitive success. Thus, although the globalization of competitionmight appear to make the nation-state less important, the role of the home nation has, infact, become stronger than ever. Therefore, public policy plays an important role ineither facilitating or impeding conditions that are favourable to innovation.

Porter (1990:617) reasons that public policy directly influences the national competitive

advantage of firms. Governments cannot create competitive firms; only firms can dothis. But governments can influence the operating conditions and institutionalstructures that surround firms.4 Thus, governments most powerful roles are indirectrather than direct. That is, they steer by shaping the business environment rather than by intervening directly. And what is most often being shaped in the businessenvironment are the incentives for innovation. Thus, with the benefit of hindsight, it isclear that leading industrial clusters in the OECD economies, Singapore and Taiwanowe their existence to government actions (Yusuf 2003).

Nelson (1993:9) also emphasizes the role of the overall policy environment, theeducational sector, and idiosyncratic institutions that affect innovation but for which

international comparison is difficult (e.g., the role of individual funding agencies in3A countrys innovation system can be strong even when its national research system is weak. Ecuador andmany Central American countries, for example, have weak national research systems but strong innovationsystems that have allowed them to develop robust competitive export clusters in fresh fruits and vegetables.On the other hand, the Soviet Union of the 1970s had a strong research system coupled with a weakinnovation system.

4 In the United States, for example, government has played an influential role in the technologicaldevelopment of almost every globally competitive industry (Ruttan 2001).

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individual countries). He underscores the active role played by specific institutionalactors in shaping government policies. In particular, he points to institutional andpolicy choices that influence: (1) the nature of the university system; (2) the extent ofintellectual policy protection; (3) the historical evolution of industrial R&Dorganizations; and (4) the division of labor between private industry, universities and

government in R&D performance and funding.

In their study of the common factors which support innovation in most industries, Stern,Porter and Furman (2000:11-25) highlight: (1) overall technological sophistication ofthe economy; (2) the supply of scientifically and technically trained workers; (3) theextent of overall investments in basic research and higher education;5 and (4) thepolicies that affect the incentives for innovation in any industry. In short, science andtechnology policy, education/training policy, and fiscal policy are singled out asespecially relevant for fostering innovation. The authors find that countries which havelocated a higher share of their R&D activity in the educational sector (as opposed to theprivate sector or government) have been able to achieve significantly higher levels of

innovation, as measured by patenting productivity. They further conclude thatgovernment policies at the provincial and local level also play an important role inshaping national advantage (Stern, Porter and Furman 2000:29).

In his study comparing economic returns to investments in education between open andclosed economies, Cohen (2001:27) finds that a combination of openness from theinside (i.e., labor markets) as well as openness to the outside (i.e., international trade)generate the highest returns from national investments in human resource development.Thus, labor and trade policies are also identified as being influential in nurturing anations economic competitiveness.

In assessing common elements of technological adaptation derived from ten countrystudies of technological leap-frogging into profitable export activities, Chandra andKolavalli (2006: 6-7) emphasize the importance of tacit knowledge, i.e., information,skills, interactions and procedures imbedded in individuals or organizational structuressuch as firms, networks and public institutions. This finding points up the importantrole played by organizational structures in the innovation process and also illuminatesthe difficulties inherent within technology transfer undertakings. It also serves tohighlight the importance of technological learning processes in their own right and totarget them for special policy attention. The authors then go on to note (2006: 13) thatNational efforts to provide public support for technological adaptation, whilesimultaneously encouraging institutional development, typically take some form of anindustry-specific policy. Most often, these industry-specific policies combineincentives for private initiative with the creation of government-facilitated institutionsthat perform coordinating, regulating or facilitating functions.

5They use the fraction of GDP spent on secondary and tertiary education as a measure of the intensity ofhuman capital investment.

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Spielman (2006a) states that in an innovation system, the enterprise often constitutes thefocal agent of inquiry and represents the primary agent. In agriculture, this includesmultinational and national agribusiness companies, small/medium agro-enterprises,individual entrepreneurs, farmer/producer associations, rural cooperatives, or othercommunity-based groups. These agents engage in the production, processing, marketing,

and distribution of agricultural commodities, as well as in the purchase of agricultural andagro-industrial inputs. He makes an important point, which is that research on agriculturalinnovation must begin from the perspective of the enterprise or firm. Spielman thenhighlights several aspects of institutional behaviour that lie at the heart of the innovationsystems approach. He points to cooperation (only one of several forms of interaction) asone of the key behavioral aspects of agents in an innovation system. Cooperation (e.g.,networking, knowledge sharing, joint undertaking) is conditioned by the institutions thatpromote or impede it. This concept is particularly relevant when studying learningprocesses or relationships that blur the traditional roles of distinct actorsfor example,partnerships between public and private research entities.

In an empirically based analysis ofLearning to Compete in African Industry, Oyelaran-Oyeyinka (2006: 1) concludes that a major constraint on the competitiveness of Africanfirms is the absence of the right kinds of institutions to support technological change. 6

Examples include those that carry out R&D, evaluative testing, quality assurance,enforcement of laws and standards, networking, and information dissemination.Consequently, he argues that the market alone is not sufficient to promote theorganizational interactions required for innovation, and therefore that an important roleof the state is (a) to create new institutions where they do not exist; (b) re-structureinstitutions in response to change; and (c) re-shape the interactions among firms andorganizations through the use of steering incentives (Oyelaran-Oyeyinka (2006: 175).In short, one role of public policy is to change institutional actors and modifyinstitutional rules as new circumstances arise in order to encourage technologicallearning. From this perspective, any state initiative to create new public agencies or re-structure old ones is also an expression of public policy.

To recapitulate, public policies alone cannot produce innovation. But well-craftedpolicies can facilitate, steer, and reinforce it as desirable behaviour by individuals, firmsand institutions. In the same way, poorly conceived public policies can stifle, retard orpenalize innovation. Although policies from a wide range of sectors may dependingon the technological characteristics and production conditions associated with aparticular good or service combine to exercise such positive or negative effects oninnovation processes, studies carried out to date suggest that policies most relevant toinnovation tend to be found in the areas of human development (especially workertraining and technical/university education), trade, taxes and subsidies, research and

6 Institutions are understood here to be a set of rules, supported by a system of incentives and penalties andenforced by organizations, that translate the policies espoused by governments (Freeman 2002).

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development, law and jurisprudence, labor and employment,7 science and technology,and information flow and censorship.8

From these and other pieces of research on innovation, it is clear that a wide range of public policies have a potential to foster or impede the innovation that leads to

productivity gains, which in turn translate into greater competitiveness.9

But it is alsoclear that which policies are most relevant to this process will vary from one country toanother and be determined by local values, institutional cultures, and business conditionssurrounding key production inputs in a particular sub-sector of the economy, e.g.,agribusiness. This means that, although developing countries can often learn usefullessons from the successful experiences of other nations, they ultimately will have todevise their own unique strategies for development. In doing so, of course, they maysave time and find inspiration in adapting the approaches used by others. But even thesechoices as to what to use and what to discard will be conditioned by local values,institutional capacities, and economic conditions.

THE PROPOSAL

In order to assess the extent to which the prevailing national portfolio of public policieseither enhances or impedes the possibilities for growth-stimulating innovation in Africasagricultural sector, a comparative assessment of six African nations will be carried out.The analysis will encompass policies from all sectors that hold a potential for shaping thepossibilities for agricultural innovation. A working list of these policies is provided inAttachment 1. However, it is recognized that this list, although a comprehensivereference, is too extensive to serve as a useful framework for research analysis.Therefore, the study will seek to select the most relevant sub-set of policies from this listand evaluate the extent to which the corresponding policy environment created by thesepolicies is conducive to agricultural innovation. The review of the literature presentedabove suggests an initial framework that focuses on policies in six areas: (a) educationand human resources; (b) the creation of new knowledge; (c) the transmission andadoption of knowledge; (d) business and enterprise; (e) innovation finance, outputs andmarkets; and (f) interactions and linkages.10 The ultimate research goal will be to identifythe four or five policies that producers/firms see as placing the greatest constraints ontheir innovation efforts.

7 Labor policy is particularly important as it relates to incentives provided to firms to upgrade worker skillsand technologies. One way to do this is by encouraging linkages between firms and universities or otherknowledge generation and/or repository centers (Oyelaran-Oyeyinka 2006: 85).8 To some extent, indices used to assess the quality of the business environment across countries also

provide a reading on the climate for innovation, e.g., the World Banks annual Business Environment andEnterprise Performance Survey orEase of Doing Business rankings.9 Several observers note that the financing of innovation is often given insufficient attention within the

policy arena.10 The role of networks, linkages and informal relationships is particularly critical for the functioning ofagricultural innovation systems. Different actors integrate into innovation networks to achieve economiesof scale and scope, reallocate labor and human capital more efficiently, reduce transaction costs, exploitcomplementarities, and realize synergies in the innovation process. These networks can vary from informalinteractions..to very complex contracts. (Spielman and Birner 2007:32).

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The countries to be assessed would be Ghana, Kenya, Mozambique, Rwanda Tanzania,and Uganda. Several considerations justify these particular choices. First, in one way oranother, each of these countries has registered recent progress in the area of agriculturalinnovation. Second, Kenya, Mozambique, Rwanda, Tanzania and Uganda are all in the

process of launching ambitious national science, technology and innovation plans. Third,policymakers from five of these six countries attended a workshop organized by theWorld Bank Institute and the Government of Ireland in March 2007 with the goal ofadvancing the innovation agenda in their countries. Finally, four of these countries arecurrent beneficiaries of Danish development assistance in the form of Agricultural SectorProgramme Support financing, where an improved climate for innovation could enhancethe results obtained from this collaboration.

Each of the country studies would be conducted by a national researcher familiar with theliterature on agricultural innovation systems. A list of possible candidates identified foreach of the six countries is presented in Attachment 2. Given the ground-breaking nature

of this research, many of them might require close guidance in order to conduct usefulnational-level analyses of agricultural innovation systems and their policy environments.

Research Questions. The following topics would serve as a focus for the researchundertaking:

How do agribusiness representatives and other informed observers assess theoverall public policy climate for innovation in the agricultural sector?

Which policies and/or public institutions are playing a useful role in this regard,and which are not?

What changes in policies and/or public institutions would be most conducive toimproved prospects for agricultural innovation in the country? Are some policiesin conflict with others, e.g., commodity focused agricultural research policies thatare not supported by trade policies?

What types of technical, financial and marketing/export services might supportthis goal?

Scope of Inquiry. To keep the investigation manageable while ensuring a degree ofcomparability and guarding against narrowness, it is proposed that the scope of inquirywill focus on the three main sub-spheres of agricultural production within each country tobe studied: food staples (e.g., maize, rice, potatoes), high value products (e.g., flowers,

vegetables, fruits), and livestock (e.g., beef, dairy, pork).11

Methodology. This will be a labor-intensive undertaking, given that the investigationcuts across several policy spheres and will be based on a number of personal interviews.Interviewing is required because the topic does not lend itself to statistical analysis or adesk review of existing research publications. In fact, key informant interviewing as

11 These categories are used frequently by IFPRI in its analyses (e.g., Diao and Pratt 2007; Spielman andBirner 2007).

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been used to good effect in assessing the conditions for innovation within countries.Perhaps the best known example of this is the Global Competitiveness Index generated bythe World Economic Forum. In their efforts to develop appropriate indicators foragricultural innovation system performance, Spielman and Birner (2007:23) advise thatthe value of expert surveys as a method to collect data should not be underestimated.

Prior to the start of the research, the six country researchers would receive orientation andbe asked to develop a common research framework and agreement on the specifics of theinvestigational approach. This exercise would seek to adjust the research design to whatis feasible in light of circumstances within the region, ensure comparability of the countrycases, and flesh out the research methodology. This would be done at a two-dayworkshop to be held within the region early December 2007. This workshop would beorganized and led to a large extent by an experienced senior agricultural researcher (theResearch Coordinator) familiar with the concepts of agricultural innovation systems, whowould also provide methodological support to the researchers during the conduct of theirinvestigations. One representative of WBI and another from DANIDA would also

participate. A member from FARA and of the Addis Ababa-based IFPRI research teaminvolved in the analysis of similar issues will also be invited as a resource person.Accordingly, the workshop would involve around ten persons.

Each case study would begin with interviews of 25 to 30 senior managers from a cross-section of domestic and international agribusiness firms and cooperatives operating in thecountry. The interviewees would be equally distributed among the three categoriesidentified in the Scope of Inquiry above (i.e., food staples, high value products, andlivestock). The purpose of this would be to determine the main public policies andinstitutional cultures of public organizations that generate positive or negative incentivesfor innovation in that countrys agribusiness sector; (2) to evaluate the respective effectsof these policies; and (3) to suggest ways in which each identified policy might be eitherreinforced (positive) or rectified (negative). Because agribusiness representatives are probably unaccustomed to thinking in terms of innovation policies, the interviewquestions would have to focus on practical issues and be problem-oriented. A tentativelist of interview questions is presented in Attachment 3.

Next, each researcher would cross-check this initial list of identified policies by asking 8to 10 representatives of NGOs, business associations, and applied research centers fortheir opinions on this matter. The results of the two sets of interviews would becombined to assess the overall policy environment for supporting agricultural innovation,and to identify policy improvements that would enhance the prospects for innovation.The researcher would then select a final list of key policies and analyze availabledocumentation for each (e.g., legislative acts, government regulations, etc.)

The third step would require the researcher to interview at least three persons from eachministry or public agency with primary responsibility for the area covered by eachselected policy. These interviews would seek to ascertain the extent to which theinstitutional culture of the agency supports or constrains innovation, and identify possiblediscrepancies between the written policy and public officials verbal interpretation of it

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(i.e., theory versus practice). This step may need to incorporate some type ofinstitutional assessment that concentrates on characterizing the agencys organizationalculture, understanding of innovation processes, staff attitudes towards innovation, and itsexisting capacity to support innovation within the country.

Quality Control. To enrich interpretations and provide a measure of quality control, twoadditional activities would be undertaken. On one hand, each researcher would also beasked to comment in writing on one of the draft reports from another country (andreceive comments his/her draft report in return) in order to share insights and learn fromthese experiences. On the other hand, the researcher would invite all persons interviewedto a seminar at which the main conclusions of the study would be presented for comment,suggestion and validation.

Output. The assessment and recommendations of the public policy environment foragricultural innovation in each country studied would be presented in the form of asingle-spaced report of 25 to 30 pages in length. These reports would be shared with

World Bank and DANIDA staff with responsibilities for agricultural assistance programsin these countries. In addition, they would be distributed or presented at a regional forumon Developing Technology and Innovation in Africa: Focus on Agriculture and FoodIndustry to be held at Nairobi May 12-14 2008. The purpose of this forum would be topromote greater awareness of the roles of innovation in development, establish a baselinefor agricultural innovation policy analysis in Sub-Saharan Africa, and identify specificpolicy interventions that might jump-start producer innovation within the agriculturalsector.

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Attachment 1

Policies of Potential Relevance to Agribusiness Development

Agriculture Policy

Land ownership structure Research strategy Extension/outreach strategy Seed policy Fertilizer policy Regulatory services; certification Support for development of rural organizations, e.g., producer associations, cooperatives. Priority for agribusiness and agro-industrial activities

Civil Service/Public Employment Policy

Performance incentives Periodic performance evaluation and rewards Accountability Decentralized hiring and firing authority

Communications/ Information and Communications Technology Policy

Cost structure and tariffs Public/private provision and competition Specific policies on rural access Wireless capacities Internet infrastructure and regulation Freedom of press and media

Economic Policy

National growth strategy (and priority for specific economic activities) Taxation policy for corporations and individuals Macro-economic stability (e.g., exchange rates, interest rates)

Energy Policy

Rural supply: Available? Sufficient?

Cost structure, including possible subsidies for particular groups Reliability (i.e., power outages cause poor product quality, waste and lower productivity)

Environmental Policy

Water supply and quality standards Waste water disposal and/or recycling Land management Tax incentives for good environmental practices, e.g., conservation.

Export Policy

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Certification procedures (e.g., organic, environmental, free trade, child labor, etc.) Efficiency of clearance process Tax or investment incentives for exports

Finance/Fiscal Policy

Banking infrastructure Credit and collateral requirements for producers, role of gender in this Tax credits for R & D Foreign investment promotion policies Repatriation of profits policies Commercial interest rates Exchange rates and access to foreign exchange, e.g., for technology imports ICT-assisted banking transactions Venture capital and financing for experimental initiatives Insurance industry development policy Tax or financing incentives for facilities upgrading Efficiency of Letter of Credit facility

Governance/Participation Policy

Opportunities for representation, voice and demand articulation within public institutions such asresearch centers, universities, etc.

Use of advisory boards with stakeholder representation, stakeholder consultations, consensusdecision making within public sector.

Transparency of public policy formulation/decision process

Human Development /Education Policy

Budget priority for education sector; for tertiary education

The supply of scientifically and technically trained workers

High education standards, accreditation, and quality assurance mechanisms

Making teaching as a valued and prestigious profession in order to attract the best personnel

Ensuring that the majority of students receive education with some practical orientation (e.g.,math, computing, writing, basic sciences, languages);

Attention to development of high quality, non-university tertiary level institutions, e.g.polytechnics; technical colleges

Encouraging close interaction between educational institutions and employers, e.g., curriculumadvisory committees, student attachments in industry, etc.

Incentives for firms to invest in in-house training

Immigration policies that allow for in and out movement of people with specialized skills Informal education, adult education and distance education policies Business/entrepreneurship training programs Frequency and process for curricula reviews Role of gender articulated in the above.

Health and Sanitation Policy

Urban food supply and nutrition policies Sanitation and hygiene requirements Quality standards and regulations (at an international level) Worker safety standards

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Child labor policy

Import Policy

Duties, exemptions Time needed for processing

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Information Policy

The quality and amount of information available in a nation is of growing importance inmodern international competition. Government plays an important role in expanding the stock ofinformation available to firms, through statistics, publications, media licensing, and disclosureregulations. It can also facilitate dissemination. An important governmental role is signaling ofimportant information or trends relevant to firms (e.g., MITI study groups on trends in Japan).

Infrastructure Development Policy

Rural roads Storage/warehousing Shipping (air and sea) Input suppliers Water supply Electrical supply

Legal Guarantees

Intellectual property protection

Patent protection Contract enforcement and remedies Licensing and franchising Enforcement of government weights and standards Property rights and remedies Efficiency of judicial system (i.e., time needed to reach a decision) Anti-corruption policies

Private Sector Development Policy

Approaches to agribusiness

Business incubators; government business spin-offs Information sharing mechanisms, e.g., newsletters, radio programs Special assistance to small and medium enterprises Role of NGOs and private advisory services in business development Inputs suppliers Metrological services (quality testing, standards compliance)

Science and Technology Policy

Research and development emphasis on idea production versus goods production

Research financing effort; research subsidies for specific industries; performance incentives Funding arrangements promote cross-sector approaches, collaborative partnerships, innovation

The division of labor between private industry, universities and government in R&D Funding competitions for university research Establishment of national research laboratories Sharing in the cost of applied research Tax incentives for use of approved technologies Facilitating the acquisition and dissemination of technologies

Trade Policy Openness to international competition Subsidies for local producers Preferential trade agreements

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Free-trade or export promotion zones Trade associations Government export promotion policy Local content in exports requirements

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Attachment 2

Attributes of an Innovation System12

An innovation system can be defined as a network of organizations focused on bringing newproducts, new processes, and new forms of organization into economic use, together with theinstitutions and policies that affect their behavior and performance in doing so. The followingparagraphs summarize eleven analytical insights taken from the innovation systems concept.These insights can be used to develop a framework for using the innovation systems concept todiagnose the strengths and weaknesses of existing innovation capacity in specific settings as wellas to guide investments and interventions to strengthen this capacity.

1. Focus on innovation rather than production. In contrast to most economic frameworks, whichfocus on production or output, the focus here is on innovation. Innovation is understood to beneither research nor science and technology, but rather the application of knowledge (of all

types) in the production of goods and services to achieve desired social or economic

outcomes. So, for example, the development by a research organization or a company of a newpackaging material is an invention. In contrast, a company packaging its product in new wayusing new and/or existing information is an innovation.

2. Interaction and learning. Innovation is an interactive process through which knowledgeacquisition and learning take place. This process often requires quite extensive linkages withdifferent knowledge sources. These sources may be scientific and technical, but equally they canbe a source of other forms of knowledge, both tacit (e.g., experiential, indigenous) and codified.Patterns of interaction between different knowledge sources form a central component of anorganizations or sectors capacity to innovate. Ideas like the creation of business incubators,science parks, and export promotion zones are responses to the need to strengthen the intensity ofinteraction to promote the process of innovation.

3. Linkages for accessing knowledge and learning. The relationships that sustain theacquisition of knowledge and permit interactive learning are critical for innovation and can

take many forms. They can be partnerships, for example, in which two or more organizations pool knowledge and resources and jointly develop a product, or they can be commercialtransactions, in which an organization purchases technologies (in which knowledge is embedded)or knowledge services from another organization, in which case the relationship is defined by acontract or license. Linkages may also take the form of networks, which provide an organizationwith market and other early-warning intelligence on changing consumer preferences ortechnology. Networks also embody the know who of knowledge sources, which can be tappedas the need arises. These linkages and the relationships that govern them concern knowledgeflows. They must not be confused with the linkages and relationships that govern the movement

of commodities through value chains, although many of the same actors may be involved.

4. New actors, new roles. In the linear model of technological innovation, especially with respectto developing countries, public research organizations are the prime movers. Following thismodel, scientists undertake research and public extension services or private advisory firms carryout the transfer technology. These roles remain compartmentalized and relatively static, even asthe external environment undergoes change (for instance, as the private sector begins to

12 Adapted and drawn from World Bank 2006, pages 16 20.

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participate more). The innovation systems concept recognizes that: (1) there is an importantrole for a broad spectrum of actors outside government (see Box 1); (2) the actors relative

importance changes during the innovation process; (3) as circumstances change and actors

learn, roles can evolve; and (4) actors can play multiple roles; for example, at various times

they can be sources of knowledge, seekers of knowledge, and coordinators of information

links between others.

5. Attitudes and practices determine the propensity to innovate. The common attitudes,routines, practices, rules, or laws that regulate the relationships and interactions between

individuals and groups largely determine the propensity of actors and organizations to

innovate. Some organizations have a tradition of interacting with other organizations; others tendto work in isolation. Some have a tradition of sharing information with collaborators andcompetitors, of learning and upgrading, whereas others are more closed in this respect. Someresist risk-taking; others do not. Table 1 gives examples of commonly encountered attitudes andpractices that affect the processes important to innovation.

Box 1. Small-scale equipment manufacturers and the adoption of zero tillage in South Asia

South Asias Indo-Gangetic Plains extend from Pakistan through India and Nepal toBangladesh. Zero-tillage practices are thought to offer environmental and economic advantagesfor rice-wheat production systems in the Indo-Gangetic Plains. A consortium of researchorganizations, led by the International Maize and Wheat Improvement Center (CIMMYT) andIndian Council on Agricultural Research (ICAR), tested and modified zero-tillage approachesused in other parts of the world to suit local conditions. Scientists and farmers concluded thatzero tillage might be an appropriate response to the high cost of preparing land and theenvironmental problems associated with burning crop residues.

The technology did not really take hold, however, until researchers and agricultural engineersfrom abroad began working with local, small-scale manufacturers to design prototype zero-tillage seeders. Several modifications were made to the original design, and manufacturers nowproduce and distribute a wide array of the new seeders. These small-scale manufacturers werenecessary for the local process of innovation to work effectively, which allowed a good idea togrow into a profitable activity.

Farmers have rapidly adopted these practices since 2000. In 2004, a mission to evaluate theBank-funded National Agricultural Technology Project in India estimated that more that 2million hectares of rice-wheat area were under zero tillage and that yearly savings in fuel andwater were on the order of US$145 million.

Source: NATP Implementation Completion Report (World Bank 2005)

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Table 1. Attitudes and practices affecting key innovation processes and relationships

Innovation processes

and relationships

Restrictive attitudes and practices Supportive attitudes and practices

Interacting, knowledgeflows, learning

- Reactive planning

- Mistrust of other organizations

- Closed to others ideas

- Secretiveness

- Lack of confidence; excessive andtime-consuming documentation

- Professional hierarchies betweenorganizations and disciplines

- Internal hierarchies

- Top-down cultures and bureaucraticapproaches

- Covering up of failures

- Limited scope and intensity of

interaction in sector networks- Exploitation

- Suspicion/mistrust of private sector

- Anticipatory planning

- Trust, collaboration

- Openness; transparency

- Sharing, reciprocity

- Confidence, decentralization

- Mutual respect

- Flat management structure

- Reflection and learning fromsuccesses and failures.

- Proactive networking

- Trust in research community

- Teamwork

- Private sector partnerships

Demand articulationand inclusiveness ofstakeholders

- Hierarchies

- Top-down cultures and approaches

- Non-representative governance

- Consultative and participatoryattitudes

- Representative governance

Risk-taking andinvesting

- Conservative, traditional

- Maintain the status quo

- Confident, creative

- Experimental, testing

Incentives - Encourage risk-avoidance

- Reward conformity with rules

- Reward loyalty- Stable; depend little on performance

- Reward preserving institutionalturf and privilege

- Reward performance

- Encourage risk-taking

- Reward innovation and creativity- Encourage challenging the status

quo

- Reward networking andpartnerships

-

6. Interaction of behavioral patterns and innovation triggers. Attitudes and practices alsodetermine how organizations respond to innovation triggers such as changing policies, markets,and technology. Because such attitudes vary across organizations and across countries andregions, actors in different sectors or countries may not respond in the same ways to the same set

of innovation triggers. Interventions that seek to develop the capacity for innovation mustgive particular attention to ingrained attitudes and practices and the way these are likely tointeract with and skew the outcome of interventions (Engel and Solomon 1997).

7. The role of policies. Government cannot create competitive firms, only firms can accomplishthis. But through its public policies government can influence the context and institutionalstructures that surround firms. Thus, governments most powerful roles are indirect rather thandirect (i.e., steering). It often takes a decade or more for the benefits of correct policies to be

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manifest (Porter 1990: 623). Policy support of innovation is not the outcome of a single policy but of a set of policies that work together to shape innovative behavior. In evaluating theeffectiveness of policies on innovative performance it is therefore necessary to be sensitive to

a wide range of policies that affect innovation over time and to seek ways of coordinating

them. Also, because policies and attitudes and practices interact, effective policies will takeaccount of existing cultural values and behavioral patterns (Mytelka 2000). For example, the

introduction of more participatory approaches to research is often ineffective unless scientiststraditional attitudes regarding who is qualified to be a researcher and the incentives that supportthis belief system are changed. Policies to promote innovation must be attuned to specificcontexts.

8. Inclusion of stakeholders and the demand side. The innovation systems concept recognizes theimportance of the inclusion of stakeholders and the development of behavioral patterns that makeorganizations and policies sensitive to stakeholders agendas or demands (Engel 1997).Stakeholders demands are important signals that can shape the focus and direction of

innovation processes. They are not articulated by the market alone but can be expressed througha number of other channels, such as collaborative relationships between users and producers ofknowledge, or mutual participation in organizational governance (for example, board

membership).

9. Learning and capacity building. The attitudes and practices critical to innovation arethemselves learned behaviors that shape approaches and arrangements and are continuouslychanging in both incremental and radical ways. These changes include institutional innovationsthat emerge through scientists experimentation and learning, such as farmer field schools orparticipatory plant breeding. Alternatively a company may start using research to gain an edgeover its competitors. Another example would be organizational learning to discover thatpartnering is a key strategy for responding rapidly to emerging market opportunities. The newways of working that result from learning enhance the ability of organizations and sectors

to access and use knowledge more effectively and therefore to innovate. For this reason, thecapability to learn to work in new ways and to incrementally build new competencies is an

important part of innovation capacity at the organization and sector or systems level.

10. Changing to cope with change. The classic response of more successful innovation systems,when faced with external shocks, is to reconfigure linkages or networks of partners (Mytelka andFarinelli 2003). A new pest problem may require new alliances between scientific disciplines; anew technology, such as biotechnology, could require partnerships between the public and privatesector; or changing trade rules and competitive pressure in international markets could requirenew alliances between local companies and between those companies and research organizations.It is impossible to be prescriptive about the types of networks, linkages, and partnerships that, forexample, agricultural research organizations will need in the future, because the nature of futureshocks and triggers is unknown and to a large extent unknowable. One way of dealing with thisuncertainty, however, is to develop attitudes that encourage dynamic and rapid responses to

changing circumstancesby building self-confidence and trust, fostering preparedness forchange, and stimulating creativity.

11. Coping with sticky information. A number of key insights discussed above emphasize thatinnovation can be based on different kinds of knowledge possessed by different actors: local,context-specific knowledge (which farmers and other users of technology typically possess) andgeneric knowledge (which scientists and other producers of technology typically possess). In anideal innovation system, a two-way flow of information exists between these sources ofknowledge, but in reality this flow is often constrained because information is embodied in

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different actors who are not networked or coordinated. In these circumstances, information doesnot flow easily; it is sticky. A central challenge in designing innovation systems is toovercome this asymmetryin other words, to discover how to bring those possessing locally

specific knowledge (farmers or local entrepreneurs) closer to those possessing generic

knowledge (researchers or actors with access to large-scale product development, market

placement, or financing technologies). Ways of dealing with this asymmetry include:

Encouraging user innovation. For example, as the capacity of the private sector grows,the private sector will undertake a greater proportion of innovation, because it possesses thefundamental advantage of knowing the market.

Developing innovation platforms for learning, sharing, communicating, and innovating.The structure of public research systems must adapt to permit a more open, thorough, andmultifaceted dialogue with other key actors identified in the innovation system analysis.

Investing in public research and advisory systems. Such investment must be based on carefulidentification of knowledge demands and joint strategic planning with the multiplestakeholders of the system.

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Attachment 3

Preliminary List of Interview Questions

The interview guide would be structured to cover the following six areas of governmentpolicy as it relates to agriculture, as identified in the review of relevant research. It wouldfocus on the main issues identified under each:

Education and human resourceso Supply and relevance of skilled human resourceso Government incentives for individuals to study and firms to traino Quality of secondary and technical education

Creation of new knowledgeo R&D funding and prioritieso Competitive remuneration for public researcherso Performance incentives for public researchers

Transmission and application of knowledgeo Extension and technical support serviceso Intellectual property rights protectiono Media/communications policies on information access

Business and enterpriseo Specific trade promotion policieso Legal guarantees for contracts and propertyo Consistent enforcement of standards and regulationso Innovations recently tried and adopted

Innovation finance, outputs and marketso Tax incentives for technology upgradingo Risk-sharing on experimental approacheso Investment incentives

Interactions and linkageso Government sponsored platforms, conferences, associationso Government incentives for collaborative effortso Government facilitation of interactions, linkages and networkso Membership in national, regional or international associations

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An initial list of possible interview questions, organized under these six areas, is providedbelow.

Education and Human Resources

1. How would you assess the preparedness for work among recent universitygraduates? Among polytechnic or technical college graduates?

2. Do you find that the education system fails to impart to graduates certain skills orabilities that are required by your firm? If so, please give examples.

3. Do you find that the university system is remiss in providing certain types ofgraduates that would be useful for your firm? If so, please give examples.

4. Does the government provide any incentives to firms like yours to accept studentwork placements? What incentives?

5. Does the government provide any incentives to firms like yours to upgrade workerskills through training or other investments in skills development?

6. To what extent do universities or technical institutes consult firms like yours insetting their strategic priorities, or incorporate representatives from private enterpriseinto their institutional governance bodies such as university councils?

7. What is the most common short-coming characterizing new graduates hired by yourfirm?

Creation of New Knowledge

1. Do government research institutes consult firms such as yours in setting their researchpriorities, or incorporate representatives from the private sector into their governingboards?

2. Does your firm conduct any research in-house? If so, what type(s)?

3. Does your firm seek to innovate in any aspect of production or marketing? How doesit seek to do this? Does it invest in research?

4. What do you see as the main impediment to research activities within your firm?

5. Does the government provide any incentive or support for private sector research?

6. To what extent does government science and technology policy support the efforts ofprivate firms in the agricultural sector?

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Transmission and Application of Knowledge

1. From where does your firm obtain new knowledge relevant to your businessoperation and information on the market conditions which affect your firmscompetitive performance? Are you satisfied with the availability of such resources?

2. What is your working relationship with public agricultural research centers in termsof access to knowledge and information? What do you find to be the most usefulaspects of these relationships?

3. What is your working relationship with local or national universities in terms ofaccess to knowledge and information? What do you find to be the most usefulaspects of these relationships?

4. What is your working relationship with input suppliers in terms of access toknowledge and information? What do you find to be the most useful aspects of theserelationships?

5. How do you find the advisory expertise necessary to diagnose problems that liebeyond the technical capacities of your firms staff? Which organizations do you findparticularly helpful in this regard?

6. Does the government sponsor or facilitate agricultural expositions or other encountersamong representatives of the agricultural value chain at which information can beshared and new ideas disseminated?

7. To what extent does your firm make use of information and communicationstechnologies (e.g., computers, cellular telephones, Internet access)? For whatpurposes?

8. How does your firm organize itself to identify and learn from relevant experienceselsewhere in the country, the region, or the world?

Business and Enterprise

1. Has your firm experimented with new ideas or the use of new knowledge during the

past year? For example, new crop variety or shipping techniques. How did it do this?

2. Has your firm experimented with new forms of organizing activities or proceduresduring the past year? For example, new marketing arrangements or more efficientproduct processing. How did it do this?

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3. What do you see at present as the main impediments to improved productivity and/orsales by your firm?

4. Does your firm feel that current legal guarantees provided for contracts, intellectualproperty and physical assets are adequate? If not, what changes would be beneficial?

5. Do you feel that existing standards, and the enforcement of them, for weights, qualityor environmental safety are consistent and fairly enforced?

6. Do government trade policies and procedures help or hinder the business prospectsfor your firm? Please explain.

7. How would you characterize the attitude of Ministry of Agriculture officials towardsthe challenge of promoting technological change in agriculture? Is it resistant,indifferent or supportive? What is your evidence for this conclusion?

Innovation Finance, Outputs and Markets

1. Do you feel that your country contains adequate mechanisms for the provision ofventure capital? If not, what might be done to improve this situation?

2. Does the government offer any particular incentives for firms like yours to update orexpand their use of technology (e.g., loan guarantees, fertilizer subsidies, equipmentsubsidies, seed subsidies)?

3. Does government share the risks of new investments with firms in any way? How

so?

4. Does government financing for agricultural R&D encourage institutionalcollaborations or partnerships of any kind? If so, please explain.

5. Does the tax system encourage or penalize experimentation and calculated risk takingby firms? How so?

6. Does your firm cooperate with other firms or organizations in financing thedevelopment and testing of new products, processes or technologies? If so, pleaseexplain how this occurs.

7. How does your firm find the resources it needs to test and evaluate new ideas? Canyou give an example?

8. Does your firm invest in information technology and internet access? Do you thinkthis provides your firm with any particular competitive advantage?

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Interactions and Linkages

1. Who are the main external actors that affect your firms performance and influence itsdecision-making? Public sector? Other firms? Collective or business associations?

2. For each identified actor, (i) characterize its main role from the perspective of yourfirm, (ii) assess its facilitating/impeding relationship to your business activities, and(iii) evaluate its performance in supporting technical change and innovation.

3. Do you work in partnership with any other firms or agencies? Which ones? Whatkinds of partnerships? Are these partnerships facilitated by any governmentincentives or public agencies?

4. What is the frequency of your firms contacts with local government, nationalparliament, and the Ministry of Agriculture? Who initiates these contacts? What istheir main purpose?

5. Do you participate in networks or maintain occasional communications with anyfirms or organizations outside the country? If so, what is the main purpose of thesecommunications?

6. Does your firm participate in any business or collective associations? If so, what isthe main motivation for doing so?

7. Has the government established any new public agencies within the past year or sowhose mandate is to facilitate coordination and collaboration among various types oforganizations/firms engaged in the agricultural sector? If so, why were they createdand what is their purpose?

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