Agricultural Trade Facilitation for Bangladesh and Findings from Business Process Analysis (BPA) Study

Khan Salehin Trade and Investment Division, ESCAP

Dhaka, 7 April 2014

OUTLINE

§ Agriculture trade in Asia-Pacific and Bangladesh

§ 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 Bangladesh’s export of Jute hessian bags and import of wheat

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 AsiaAgricultural Trade in Asia--PacificPacific

Source: FAO 2009

Source: FAO 2009 4

34%

5

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

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

Key Drivers of Agricultural Trade

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

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

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

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

Information,documents, procedures

Information, documents, procedures

Information, documents, procedures

Information, documents, procedures

15

Product Standards

Ensuring product standards for international trade of agricultural products is a complex topic and It encompasses: vInstitutions. vInfrastructure. vLogistics.vAdministrative Issues.

16

Trade Logistics

Poor Trade Related Infrastructure

and Transportation System

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

Source: ADB 2006

17

Spoilage during Post-harvest Handling: Absence of warehousing facility, inappropriate goods vehicles or trucks, long distance from nearby railways or inland waterways stations and so on.

v FAO (1994): Total loss of agro-products during storage and transport could be as high as 16%.

v 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).

v IFC estimated the wastage caused by poor transportation and logistics system at $13 billion per year there (2010).

v 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

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 Bangladesh’s Export of Jute Bags and

Import of Wheat

Why conduct a Business Process Analysis?

20

Business Process Analysis is a practical study o to understand attributes of business processes,

and their relationships

Who involved

Proceduresand Documents

required

Related Rulesand Regulations

Some quantitative

indicators

Use Case: Export of Jute from Bangladesh

EPB

DAE

CCI&E

1.1 Conclude Sales

Contract

2.1 Receive Payment through CAD

3.1) Prepare Consignment

3.4) Arrange for CustomsDeclaration

3.5) Get CustomsInspection & Clearance

Exporter (or

Representative)

Importer

Exporter’sBank

Importer’sBank

Local Supplier

Transport Company

3. Ship

1. Buy

2. Pay

Jute Goods Laboratory

C&F Agent

Bangladesh Customs

MCCI

3.3) Arrange Transport

3.2) Prepare Export Documents

3.6) Arrange for Border Crossing

Benapole Land Port Authority

Indian Land Port Authority

Time Chart: Export of Jute Hessian Bags from Bangladesh by land

Process Time required (in

Days)

1.1 Conclude Sales Contract 2

2.1 Receive Payment through CAD 2

3.1 Prepare Consignment 4

3.2 Prepare Export Documents

3.3 Arrange Transport 1

3.4 Arrange for Customs Declaration 0.1

3.5 Get Customs Inspection & Clearance 0.325

3.6 Arrange Border Crossing 0.075

Documents Required

Sl. Processes Documents

Required

Details Documents List

1.1 Conclude Sales Contract 3 Proforma Invoice, Purchase Order, Sales Contract

2.1 Receive Payment through CAD 4 Application for CAD, Proforma Invoice, Sales Contract,

Hard copy of CAD

3.1 Prepare Consignment 2 Sales Contract, Requisition Slip for Raw Materials

3.2 Prepare Export Documents 15 Application Form, Trade License, Membership

Documents of Business Chamber, Original Chalan, Copy

of Registration Fee, ERC, Undertaking Letter, Association

Membership Letter, Proforma Invoice, Packing List, Copy

of CAD,SAPTA Certificate, COO, Organization Request

Letter, Oil Content Certificate, Phytosanitary Certificate

3.3 Arrange Transport 1 Commercial Invoice

3.4 Arrange for Customs Declaration 6 Bill of Entry Form, Certificate of Origin, Invoice of

Transportation, Copy of Sales Contract, Packing List,

Chalan Receipt Copy

3.5 Get Customs Inspection &

Clearance

6 Declaration Rejection, Attested Documents same as 3.4.

3.6 Arrange Border Crossing 6 Attested Documents same as 3.4,Gate Pass

Use Case: Import of Wheat from India

Time Chart: Import of Wheat in Bangladesh by Sea

Process Time required (in

Days)

1.1 Conclude Sales Contract 5

2.1 Prepare Documents 3

2.2 Open L/C

2.3 Get Berthing Permission 2

2.4 Obtain Quarantine Certificate

2.5 Transship the Consignment 0.25

2.6 Arrange for Customs Declaration 0.50

2.7 Get Customs Clearance 2

2.8 Get Port Clearance

2.9 Arrange Transport to Importer’s Premises 1

3.1 Negotiate Concession on Price 3

3.2 Arrange Payment

Process Costs (Documents) for Import of Wheat from India by Sea

Sl. Procedures Total

1.1 Conclude Sales Contract Nil

2.1 Prepare Documents US$ 25.64 (Tk.2000)

2.2 Open L/C US$ 19.23 (Tk.1500)

2.3 Get Berthing Permission

2.3.1 Bulk Cargo (River Dues) US$ 0.44 Tk. 34 +15%VAT Per Metric Ton

2.3.2 Literage Costs US$ 3.20 (Tk. 250) Per Metric Ton

2.3.3 Literage Labor Costs US$ 2.82 (Tk. 220) Per Metric Ton

2.4 Obtain Quarantine Certificate US$ 25.64 (Tk. 2000)

2.5 Transship the Consignment

2.5.1 Dockyard Labor (Bulk) Tk. 1.00 Per Metric Ton

2.5.2 Dockyard Labor (Container) 20 ft TEU/40 ft TEU US$ 20.25 (Tk. 1580)/ US$ 25.64 (Tk.2000)

2.5.3 Weight Charges US$ 1.15 (Tk. 90) Per Metric Ton

2.6 Arrange for Customs Declaration US$ 0.08 (Tk.7.00) Per Metric Ton

2.7 Get Customs Clearance US$ 13.20 (Tk.1030)

2.8 Get Port Clearance

2.8.1 Port Security Guard US$ 57.69 (Tk.4500)

2.9 Transport to Importer’s Premises US$ 38.46 (Tk. 3000)

3.1 Negotiate Concession on Price

3.2 Arrange Payment

Specific Recommendations for Simplifying Export of Jute Hessian Bags

• The use and acceptance of hard copy of the CAD should be abolished. Instead, the traders and the associated bankers can use scanned copy of the CAD or wire transfer in the financial transaction.

• Currently the copies of the ERC and the CAD are required by the EPB and the MCCI to obtain the SAPTA and COO respectively. Similarly, copy of the COO is required by the DAE to issue the phytosanitary certificate. At least these documentary requirements need to be removed for ease of transaction. The preferred and bold step would be to remove the COO as the SAPTA certificate serves the same purpose.

• If the suggested reductions of documents are successful, a total of 1.5 days could be saved with little change in the costs.

• Since ASYCUDA++ exists at the Benapole land Port, electronic transmission of documents and information should be introduced for ease of transaction.

Specific Recommendations for Simplifying Import of Wheat

§ Currently hard copy of the L/C details and IRC are required in opening L/C. The process can be simplified if scanned copies of the details are accepted by the banks.

§ Business Process Analysis: Export of Jute Hessian Bags and Import of Wheat in Bangladesh

§ Further, banks should ask for the IP but not the IRC as the former is product specific whereas the latter is general.

§ Currently a copy of the IRC is required is obtaining a quarantine certificate. This is redundant information in issuing quarantine certificate and hence needs to be removed.

§ The use of the insurance is required between the traders and theshippers. Thus, this documentary requirement needs to be removed from the Customs declaration process.

§ If the suggested reductions of documents are successful, a total of 0.5 days could be saved with little change in the costs.

Business (trade) process analysis findings among South/Southeast Asian Countries

Cambodia (Maize/Cassava export to China)*

Lao PDR (Maize export to Thailand)*

Myanmar (Rice export via Yangon port)*

Bangladesh (Jute bag export to India)*

Bangladesh (shrimp export to Japan)**

Thailand (rice export to Europe)***

Number of days

19/20 16 19-23 10 33 12

Cost USD 1250 -1360

USD 735 USD 425 USD 500 USD 700

Number of actors involved

15 11 20 15 14 15

* source: ESCAP BPA Study Reports 2013-14, available at:http://unnext.unescap.org/tools/business_process.asp

** source: http://artnet.unescap.org/pub/wp9311.pdf

*** source: http://unnext.unescap.org/tools/business_process.asp

Obtaining Phyto Sanitary Certificates for agro-food products in South and Southeast Asian Countries

Bangladesh Cambodia Lao PDR Myanmar NepalNumber of

Days

Required

4 days 2-5 days At least 2 days 1-2 days 0.5 day

Documents

Required

(i) Proforma

invoice

(ii) packing list,

(iii) oil content

certificate,

(iv) COO

(i) Phyto

sanitary

certificate

application

(ii) Commercial

invoice

(iii) Packing lists

(iv) Release

container,

(v) Fumigation

certificate

(i) Packing list,

(ii) Import license,

(iii) Commercial

contract among

importer and

exporter;

(iv) Request for

import of animal

feed;

(v) Pro-forma

invoice;

(i) Shipping instructions

(ii) National Registration

Card

(iii) Sealed case file from

Customs head office

o Export

Declaration

o Export License

o Invoice

o Packing list

(i) Letter from

Customs to Food

Quarantine Office

(ii) Commercial

Invoice

(iii) Packing List

(iv) Customs

Declaration Form

(v) Sample

Stakeholders

Involved

• Exporter (or

representative)

• Department of

Agricultural

Extension

(DAE)

• Clearing and

Forwarding

(C&F) Agent

• Exporter

• MAFF/GDA

• Exporter or

representative

• Vientiane Capital

Agriculture Division -

Agriculture

Quarantine Section

• Ministry of agriculture

• Exporter

• Clearing agent

• Food Quarantine

Office

• Customs Office

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/publications/detail.asp?id=1480

THANK YOU!

salehin@un.org