68221 JANUARY 2012 ABOUT THE AUTHORS It’s All About Teamwork: Unlocking ALBERTO CRISCUOLO is a Senior Private Sector Opportunities for Agribusiness in Ukraine Development Specialist with the Industry unit of the Investment Climate Department. He is a The Ukraine Investment Climate (IC) Project and the Sustainable Business member of the Agribusiness Advisory (SBA) Food Safety Project in Ukraine formed a partnership — one Global Product Team in the Investment Climate Business Line that has led to tangible results in the form of burdensome regulations being and was based in Kiev for 2 years, focusing on the abolished and businesses receiving advice on safety standards that will help agribusiness component of the them become more competitive in European Union (EU) markets. IC-SBA Ukraine Investment Climate Project. advice has helped facilitate IFC investments in Ukraine and helped set SHAELA RAHMAN triggers for World Bank lending. It has also defined the future of the work is an Operations Officer in the being done by these two business lines in the agribusiness sector. This Investment Climate Department. She leads strategic and corporate Smartlesson relates lessons and experiences of the teams in designing and communications for the department and the Investment implementing such an innovative and holistic technical assistance solution, Climate Business Line. She is also within a specific sector, for government and private sector clients. coauthor of the “Strategic Communications for Business Environment Reforms� toolkit. Background ADDITIONAL CONTRIBUTORS We would also like to thank Agribusiness is a key driver of the Ukrainian in $20.7 million annual compliance cost Serhiy Osavolyuk, task team economy: Some 70 percent of the country’s savings for the food processing industry leader (TTL) for the Ukraine Investment Climate Project, and total land area is dedicated to agriculture, and Sarah Ockman, TTL for the over 20 percent of the population is employed • Requirements for costly duplicative licenses Ukraine Food Safety Project, for in the agriculture sector. However, arcane for certain agribusiness activities were their invaluable input in shaping regulations for agricultural and food products canceled, including those for wholesale this SmartLesson. carried over from the Soviet era have held seed trading, rearing of domestic animals, APPROVING MANAGER business in this sector back. The regulatory and manufacturing of agrochemicals Cecilia Sager, Manager, Investment burden is particularly heavy with regard to Climate Department. the food safety system, which should aim to • Licenses for trading of agrochemical and ensure public safety and support the selling of biogas/biofuel, previously subject competitiveness of Ukrainian exports. to 5-year renewals, were made permanent Ukraine’s system instead placed a heavy burden on companies, with costly and • The President of Ukraine committed to duplicative controls imposed by multiple state establish a single food safety controlling agencies, without adequately increasing the agency instead of several agencies safety standards of food products. undertaking duplicative responsibilities, and prioritized food safety on the IFC Advisory Services (AS), the Investment deregulation agenda of the Committee for Climate (IC) and Sustainable Business Advisory Economic Reforms (SBA) teams worked together to address this, streamlining regulations and harmonizing • Amendments to the national food food safety management systems with legislation were drafted that will lead to a international and EU best practices (see further reduction of costs to food producers multimedia slideshow). The results of these (the estimation of the cost of food-related efforts have included: inspections in Ukraine is $8.6 million per year) and an increase in the safety and • Mandatory certification of food products competitiveness of Ukrainian food (excluding baby food and tobacco and products, since requirements will be alcohol products) was eliminated, resulting harmonized with EU requirements SMARTLESSONS — JANUARY 2012 1 • The teams helped develop six industry checklists on between IC and SBA on policy and food safety, and hazard analysis and critical control points (HACCP) in the coordination with other AS business lines and Investment poultry, eggs, and dairy sectors in collaboration with the Services (IS) to address additional challenges along the Veterinary Service and endorsed by the EU. These are value chain (see diagram below). expected to open up new opportunities for exports to EU markets From the investment climate side, this project was innovative in many ways and yielded lessons that are helping shape Businesses are already reaping the benefits of these our approach to other agribusiness interventions in the improvements. Europe and Central Asia (ECA) region and elsewhere. “The cancellation of mandatory certification has been very Lessons Learned favorable for us. We import tea and coffee from various parts of the world, and package and sell it in Ukraine. Lesson 1: Don’t just give lip service to collaboration; Previously we paid up to US$3,000 a month for certificates, “walk the talk� through an integrated approach across and it took a week and a lot of paperwork to obtain them. Business Lines. We also incurred additional costs of having the container sit at a port in case the certification was delayed for any The Ukraine Investment Climate Project worked jointly with reason, as customs clearance was not possible without it. So the SBA Food Safety team from an early stage, sharing staff the cancellation of these certificates will literally save us and resources: thousands in terms of cost and man hours per month!� said Volodymyr Barabash of the Monomakh tea and coffee • There was a clear and full complementarity between IC company. focusing on policy work and SBA focusing on firm-level work to present a unified private sector reform agenda The agribusiness work in Ukraine serves as an example of a fully-integrated country pilot with strong collaboration • There were three staff shared 50-50 between IC and SBA 2 SMARTLESSONS — JANUARY 2012 The value chain analysis presented in the report focused on the industry-specific regulatory framework (food safety regulation) as a way to provide an objective and quantitative reference point for addressing sector-specific regulatory constraints of the investment climate. At the same time, the report followed the view that better regulation is crucial in order to enable private sector–led growth and improve both economy-wide and industry-specific competitiveness. A central aspect of better regulation relates to minimizing the administrative burden of compliance with regulatory requirements for the private sector. More specifically, the SCM methodology and value chain analysis were combined to identify and assess the impact of all relevant types of regulatory (food safety) requirements (permits, licenses, certifications, inspections, conformity assessments, etc.) affecting the selected industry. This was a that had joint results agreements, dual clear reporting significant change from the traditional “horizontal� lines, and clear guidelines to deliver the joint components approach to regulatory analysis, in which the SCM between IC and SBA methodology is used to assess the administrative burden of a specific type of regulation (either inspections regime, or • On the investment climate side, there was also the licensing regime, or permits regime, or product certification, element of sharing knowledge between the global and etc.) without taking into account the cumulative effect of country team, with the agribusiness component team the different types of “horizontal� regulation on industry- leader’s time shared 50-50 between HQ and the IFC specific dynamics. region A second significant synergy, resulting from the combination • The teams held joint planning meetings and also tested of the value chain and SCM methodologies, relates to the approaches to jointly developing research products (as ability of this joint approach to identify and assess the outlined in Lesson 2, below) distributional effects of a specific piece of regulation throughout the selected value chain, and estimate the • The teams also held regular meetings/updates with all differential impact of policy proposals on the various stages other agribusiness-related AS projects and IS to check on (and stakeholders) of the chain. progress on joint strategic objectives Lesson 3: Taking a focused and industry-specific These efforts helped shape a joint technical assistance approach to reform can generate big wins. intervention that addressed issues both at the government/ policy level and at the firm level. A number of countries have invested significant amounts of resources and effort in undertaking reforms to their business Lesson 2: Innovative industry-specific diagnostics environment. However, most of these reform efforts are helped set clear reform targets and create consensus on “industry-blind,� as they seek to address economy-wide reform priorities. regulatory obstacles. While these type of economy-wide reforms are often required to level the playing field for An objective of the IC work was to use research and competitive businesses, combining or following these reforms diagnostic tools to help kick-start the dialogue with with sector-specific initiatives can significantly enhance the government, the private sector, and other stakeholders. probability, type, and extent of measurable impacts (as One of the studies produced jointly with the SBA team and widely promoted to stakeholders was the report “Reforming Food Safety Regulation in Ukraine — Proposals for Policymakers,� which emphasized the urgent need for change in policies governing this critical sector. The IC team also produced another report, “Investment Climate and Industry Competitiveness in Ukraine — an Industry-Level Regulatory Analysis of the Impact of Food Safety Regulation on the Dairy Sector in Ukraine,� which constitutes a first IFC analytical pilot combining the strengths of both industry- level value chain competitiveness analysis1 and regulatory analysis of the economic impact of regulation on the private sector through the standard cost model (SCM) analysis.2 1 See, among the vast literature on the subject, “Moving Toward Competitive- ness: A Value Chain Approach�, FIAS, The World Bank Group, 2007. 2 Also see, among the vast literature on the subject, “International Standard Cost Model Manual: measuring and reducing administrative burdens for busi- nesses�, Standard Cost Model Network, 2008. SMARTLESSONS — JANUARY 2012 3 illustrated by the well-known cases of the rise climate reform priorities on food safety of electronics in Malaysia and high-tech clusters among the overall economic policy reforms in East Asia, car parts and assembly in Eastern as part of the policy lending negotiations Europe, salmon farming in Chile, wine in South with the government. The key success factor Africa, among other cases). For a country of the internal “deal� was that the Bank put seeking to increase the competitiveness of its its financial weight behind the investment established businesses and attract new foreign climate policy triggers included in the policy and domestic investment, a sectoral approach lending vis-à-vis the Government of Ukraine, to reform and investment generation is while the IC team worked on a daily basis complementary and often necessary for success. with the government agencies charged with implementing the reforms to build their In investment climate, the idea of sector-specific capacity to adopt and operationalize them. policy reform is a relatively new one, being honed through projects like this one in Ukraine, Collaboration between IC and SBA helped the success of which has set the stage now for a closely align with the IFC IS agribusiness next phase of an investment climate program strategy in Ukraine and in ECA. The AS teams focused fully on agribusiness reform. have worked closely with the IS team and advised two IFC IS clients in Ukraine — Lesson 4: Go West — Customize the Globino and Khlibprom — on improving intervention to meet the client’s priorities. food safety management systems and introducing HACCP. This advice has facilitated The need to open up Ukrainian businesses to $25 million in investment so far, as well as a EU markets was a key factor that the project combined increase in sales by $24 million. team highlighted in order to keep the momentum on these reforms alive. In fact, a Conclusion key challenge faced by food processors, even the ones with state-of-the-art facilities, is The Investment Climate and Food Safety that access to the EU market is conditional projects in Ukraine came together in a way on the recognition of the Ukrainian public that has set a standard for collaboration food safety controls system by the EU. In this between the IC and SBA business lines. The respect, a key lesson is that the IFC team great teamwork and innovation seen in this adopted a gradual, yet strategic, advisory partnership have led to results, including support engagement by assisting the building a base for strong collaboration with Ukrainian State Committee for Veterinary other AS and IS units at the IFC and with the Services (a unified agency responsible for World Bank. It has also generated strong food safety in the country since 2011) in the learning and knowledge, which is now being development of EU-compliant food safety applied across other agribusiness projects controls procedures and checklists for across ECA – the IC and SBA teams are working priority agribusiness value chains in terms of together in Georgia, Belarus, and Moldova, export potential (see results in the with additional projects in Armenia, Tajikistan, “Background� section above). The prospects and the Balkans in the pipeline. For investment of being able to enable greater exports of climate, the work in Ukraine serves as a model food products from Ukraine to the EU, for a growing agribusiness portfolio and opening the huge new market for Ukraine’s pipeline that spans every region, and it has food processors, helped create strong fed into the new FY12-16 strategy for support for reform from the private sector, investment climate that is more focused on DISCLAIMER since this was fully aligned with their sector- and industry-specific reforms. SmartLessons is an awards business priorities. program to share lessons learned in development-oriented advisory services and investment 5) The battle of the giants for Ukraine’s operations. The findings, agribusiness development — Get the World interpretations, and conclusions Bank and IFC IS on board to leverage the AS expressed in this paper are those offerings. of the author(s) and do not necessarily reflect the views of IFC or its partner organizations, the The investment climate team also worked Executive Directors of The World closely with the World Bank to leverage Bank or the governments they policy lending. In Ukraine, agricultural policy represent. IFC does not assume any responsibility for the and any agribusiness-related reform initiative completeness or accuracy of the is a “big ticket� policy item, given the sheer information contained in this importance of the sector in the national document. Please see the terms economy. In this context, a small project like and conditions at www.ifc.org/ IC had to play it smart and join forces with smartlessons or contact the program at smartlessons@ifc.org. the World Bank to include the key investment 4 SMARTLESSONS — JANUARY 2012