REVISED: 13 November 2007

Research Proposal How National Public Policies Encourage or Impede Agribusiness Innovation: Studies of Six African Countries

AGRICULTURE AND INNOVATION

In recent years, a number of nations have sparked their economic performance through adoption of what has come to be called the new agriculture (World Bank 2006: 8). In fact, the World Development Report of 2008 is dedicated largely to an analysis of this phenomenon. In essence, the new agriculture refers to a series of mutually supporting, often knowledge-intensive innovations that enable a countrys agricultural producers to move up the value chain in the competitive international market for agricultural exports. Examples include salmon farming in Chile, palm oil production in Malaysia, floriculture in Kenya, fish exports in Uganda, herbal remedies in India, shrimp farming in Bangladesh, pineapple production in Ghana, and numerous others (Chandra 2006; World Bank 2006). The attraction of the new agriculture lies in the possibility for a developing country to exploit its latecomer status to close the gap with developed countries in particular commodities or sub-sectors through the application of more knowledge-intensive and market driven production technologies. In Sub-Saharan Africa, the agricultural sector is a prime candidate to benefit from innovation. Agriculture continues to be Sub-Saharan Africas dominant economic activity, accounting for 40 percent of GDP, 15 percent of exports, and 60 to 80 percent of employment. But by world standards, its productivity levels for many products are low and the importation of foodstuffs is higher than it needs to be in some countries. Higher agricultural productivity is thus a precondition for growth and development in most African 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 to have the biggest economic (and social) impact. Farmers and commercial producers may benefit especially if they can diversify their production into higher value, but knowledgedemanding, products. This requires agricultural innovation. Until it learns to grow its agricultural productivity, Africa is unlikely to register significant developmental advances. Recognizing this reality, African governments adopted in 2002 a Comprehensive Africa Agriculture Development Program under the auspices of their New Partnership for African Development (NEPAD). This Program states that larger investments in agricultural research, extension and education systems

are required to achieve the targeted increase in agricultural output of 6 percent a year over the next 20 years. In March 2005 the international Commission for Africa, chaired by former British Prime Minister Tony Blair, argued that greater attention should be paid to the economic growth agenda in Africa and recommended higher investments in human resource capacities linked to agriculture, science and technology, and tertiary education. Shortly thereafter, participants at the G-8 meeting convened in Gleneagles, Scotland affirmed this report and committed their governments to provide significant additional funding in support of its objectives. In 2006 NEPAD issued a Framework for African Agricultural Productivity (FAAP) as a guideline to member states for attaining the goal of 6 percent annual increases in production. As a result, many of the political and financial elements necessary for a concerted effort to upgrade African agricultural productivity would seem to be in place. What are now needed are public policies that create an enabling environment for agricultural innovation which reduces risk and encourages investment so that these new opportunities can be grasped.
INNOVATION SYSTEMS

Although the innovation systems concept is relatively new to agricultural policymakers and agricultural research managers in developing countries, it is increasingly suggested as a 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 more general conceptual work on National Innovations Systems (NIS) carried out a decade earlier by Freeman (1987), Porter (1990), and Romer (1990), and subsequently elaborated by Lundval (1992), Nelson (1993), and others. NIS is generally understood to refer to a network of organizations focused on bringing new products, new processes, and new forms of organization into economic use, together with the institutions and policies that affect their behavior and performance (World Bank 2006: 16). In contrast to the earlier linear model of scientific discovery, diffusion and adoption, the NIS is framed as an interactive network of diverse actors where innovation can arise at any point.2 In Attachment 2, there is an overview of the Attributes of an Innovation System.
1

Studies that use an innovation systems framework are able to analyze processes that are typically overlooked in the linear approach to research and development (R&D). Innovation systems studies often open the black box of innovation to analyze actors motives and behaviors; the institutions that shape these motives and behaviors; interactive, joint, and complementary processes of innovation; and the dynamics of institutional learning and change. They also provide analyses that extend beyond single industries or markets, capturing a wider range of agents (public and private), interactions (competition, cooperation, and learning), institutions (social practices and norms), and policies (science, technology, trade, education, and investment) that condition agents interactions and responses to innovation opportunities. Further, they often provide analyses of policy design from the perspective of policy as a continuous process that adapts to institutional and technological opportunities presented by socio-economic change and development. This differs significantly from the neoclassical assumption that policy is the domain of fully informed social planners who reconcile social and private welfare within a system of rational maximizers (Spielman 2006b:57).
2

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

Innovation is not synonymous with invention. Invention culminates in the supply (creation) of new knowledge, but innovation encompasses the factors affecting demand for and use of knowledge in novel and useful ways. The notion of novelty is fundamental to 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 which organizations master and implement the design and production of goods and services that are new to them irrespective of whether they are new to their competitors, their country, or the world (Mytleka 2000). Some of the distinguishing characteristics of innovations and the innovation process include (World Bank 2006): Innovations are new creations of social and economic significance. They may be brand 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 other types 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 innovation processes (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 or more of these areas. To date, however, most research on agricultural innovation has focused on the process whereby a specific new product was identified and developed. Efforts to assess and improve the overall performance of a national agricultural innovation system have been rare. This shortcoming inspires the current research proposal, wherein public policy becomes the focus of investigation.
THE ROLE OF PUBLIC POLICY

An important implication of the innovation systems approach is that innovations can emerge at any point in the system as the result of consciously mediated or coordinated interactions among different types of agents. Thus, the appearance of innovations does not necessarily depend on any government action although these actions can have great influence on the evolution and strength of particular innovations. Seen from this perspective, an innovation system is larger than the national research system (NRS), and 3

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

dissemination of new technologies.3 In other words, multiple sources of innovation can be 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 often embraces policies in industry, agriculture, trade, finance, education, science and technology, labor, and others (see Attachment 1). To provide useful guidance for national development purposes, analyses of innovation policy will need to move beyond case studies of specific innovations to more comprehensive analyses of national and sectoral policies at a level that is applicable for singling out policy options or for constructing cross-country benchmarks and indications of best practice. By combining well-grounded empirical analysis with a good understanding 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 difference in creating and sustaining national competitive advantage as a highly localized process. Differences in national economic structures, values, cultures, institutions, and histories contribute to competitive success. Thus, although the globalization of competition might appear to make the nation-state less important, the role of the home nation has, in fact, become stronger than ever. Therefore, public policy plays an important role in either 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 do this. But governments can influence the operating conditions and institutional structures that surround firms.4 Thus, governments most powerful roles are indirect rather 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 business environment are the incentives for innovation. Thus, with the benefit of hindsight, it is clear that leading industrial clusters in the OECD economies, Singapore and Taiwan owe their existence to government actions (Yusuf 2003). Nelson (1993:9) also emphasizes the role of the overall policy environment, the educational sector, and idiosyncratic institutions that affect innovation but for which international comparison is difficult (e.g., the role of individual funding agencies in
3

A countrys innovation system can be strong even when its national research system is weak. Ecuador and many Central American countries, for example, have weak national research systems but strong innovation systems 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 weak innovation system.
4

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

individual countries). He underscores the active role played by specific institutional actors in shaping government policies. In particular, he points to institutional and policy choices that influence: (1) the nature of the university system; (2) the extent of intellectual policy protection; (3) the historical evolution of industrial R&D organizations; 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 of the economy; (2) the supply of scientifically and technically trained workers; (3) the extent of overall investments in basic research and higher education;5 and (4) the policies that affect the incentives for innovation in any industry. In short, science and technology policy, education/training policy, and fiscal policy are singled out as especially relevant for fostering innovation. The authors find that countries which have located a higher share of their R&D activity in the educational sector (as opposed to the private sector or government) have been able to achieve significantly higher levels of innovation, as measured by patenting productivity. They further conclude that government policies at the provincial and local level also play an important role in shaping national advantage (Stern, Porter and Furman 2000:29). In his study comparing economic returns to investments in education between open and closed economies, Cohen (2001:27) finds that a combination of openness from the inside (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 a nations economic competitiveness. In assessing common elements of technological adaptation derived from ten country studies of technological leap-frogging into profitable export activities, Chandra and Kolavalli (2006: 6-7) emphasize the importance of tacit knowledge, i.e., information, skills, interactions and procedures imbedded in individuals or organizational structures such as firms, networks and public institutions. This finding points up the important role played by organizational structures in the innovation process and also illuminates the difficulties inherent within technology transfer undertakings. It also serves to highlight the importance of technological learning processes in their own right and to target them for special policy attention. The authors then go on to note (2006: 13) that National efforts to provide public support for technological adaptation, while simultaneously encouraging institutional development, typically take some form of an industry-specific policy. Most often, these industry-specific policies combine incentives for private initiative with the creation of government-facilitated institutions that perform coordinating, regulating or facilitating functions.

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

Spielman (2006a) states that in an innovation system, the enterprise often constitutes the focal agent of inquiry and represents the primary agent. In agriculture, this includes multinational and national agribusiness companies, small/medium agro-enterprises, individual entrepreneurs, farmer/producer associations, rural cooperatives, or other community-based groups. These agents engage in the production, processing, marketing, and distribution of agricultural commodities, as well as in the purchase of agricultural and agro-industrial inputs. He makes an important point, which is that research on agricultural innovation must begin from the perspective of the enterprise or firm. Spielman then highlights several aspects of institutional behaviour that lie at the heart of the innovation systems approach. He points to cooperation (only one of several forms of interaction) as one of the key behavioral aspects of agents in an innovation system. Cooperation (e.g., networking, knowledge sharing, joint undertaking) is conditioned by the institutions that promote or impede it. This concept is particularly relevant when studying learning processes or relationships that blur the traditional roles of distinct actorsfor example, partnerships between public and private research entities. In an empirically based analysis of Learning to Compete in African Industry, OyelaranOyeyinka (2006: 1) concludes that a major constraint on the competitiveness of African firms 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 the organizational interactions required for innovation, and therefore that an important role of the state is (a) to create new institutions where they do not exist; (b) re-structure institutions in response to change; and (c) re-shape the interactions among firms and organizations through the use of steering incentives (Oyelaran-Oyeyinka (2006: 175). In short, one role of public policy is to change institutional actors and modify institutional rules as new circumstances arise in order to encourage technological learning. From this perspective, any state initiative to create new public agencies or restructure old ones is also an expression of public policy. To recapitulate, public policies alone cannot produce innovation. But well-crafted policies can facilitate, steer, and reinforce it as desirable behaviour by individuals, firms and institutions. In the same way, poorly conceived public policies can stifle, retard or penalize innovation. Although policies from a wide range of sectors may depending on the technological characteristics and production conditions associated with a particular good or service combine to exercise such positive or negative effects on innovation processes, studies carried out to date suggest that policies most relevant to innovation tend to be found in the areas of human development (especially worker training and technical/university education), trade, taxes and subsidies, research and

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

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 also clear that which policies are most relevant to this process will vary from one country to another and be determined by local values, institutional cultures, and business conditions surrounding key production inputs in a particular sub-sector of the economy, e.g., agribusiness. This means that, although developing countries can often learn useful lessons from the successful experiences of other nations, they ultimately will have to devise their own unique strategies for development. In doing so, of course, they may save time and find inspiration in adapting the approaches used by others. But even these choices 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 policies either enhances or impedes the possibilities for growth-stimulating innovation in Africas agricultural 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 the possibilities for agricultural innovation. A working list of these policies is provided in Attachment 1. However, it is recognized that this list, although a comprehensive reference, 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 list and evaluate the extent to which the corresponding policy environment created by these policies is conducive to agricultural innovation. The review of the literature presented above suggests an initial framework that focuses on policies in six areas: (a) education and human resources; (b) the creation of new knowledge; (c) the transmission and adoption of knowledge; (d) business and enterprise; (e) innovation finance, outputs and markets; and (f) interactions and linkages.10 The ultimate research goal will be to identify the four or five policies that producers/firms see as placing the greatest constraints on their innovation efforts.
7

Labor policy is particularly important as it relates to incentives provided to firms to upgrade worker skills and technologies. One way to do this is by encouraging linkages between firms and universities or other knowledge 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 and Enterprise Performance Survey or Ease 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 of agricultural innovation systems. Different actors integrate into innovation networks to achieve economies of scale and scope, reallocate labor and human capital more efficiently, reduce transaction costs, exploit complementarities, and realize synergies in the innovation process. These networks can vary from informal interactions..to very complex contracts. (Spielman and Birner 2007:32).

The countries to be assessed would be Ghana, Kenya, Mozambique, Rwanda Tanzania, and Uganda. Several considerations justify these particular choices. First, in one way or another, each of these countries has registered recent progress in the area of agricultural innovation. 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 the World Bank Institute and the Government of Ireland in March 2007 with the goal of advancing the innovation agenda in their countries. Finally, four of these countries are current beneficiaries of Danish development assistance in the form of Agricultural Sector Programme Support financing, where an improved climate for innovation could enhance the results obtained from this collaboration. Each of the country studies would be conducted by a national researcher familiar with the literature on agricultural innovation systems. A list of possible candidates identified for each 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 useful national-level analyses of agricultural innovation systems and their policy environments. Research Questions. The following topics would serve as a focus for the research undertaking: How do agribusiness representatives and other informed observers assess the overall 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 to improved prospects for agricultural innovation in the country? Are some policies in conflict with others, e.g., commodity focused agricultural research policies that are not supported by trade policies? What types of technical, financial and marketing/export services might support this goal?

Scope of Inquiry. To keep the investigation manageable while ensuring a degree of comparability and guarding against narrowness, it is proposed that the scope of inquiry will focus on the three main sub-spheres of agricultural production within each country to be 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 investigation cuts 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 a desk 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 and Birner 2007).

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 by the World Economic Forum. In their efforts to develop appropriate indicators for agricultural innovation system performance, Spielman and Birner (2007:23) advise that the 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 and be asked to develop a common research framework and agreement on the specifics of the investigational approach. This exercise would seek to adjust the research design to what is feasible in light of circumstances within the region, ensure comparability of the country cases, and flesh out the research methodology. This would be done at a two-day workshop to be held within the region early December 2007. This workshop would be organized and led to a large extent by an experienced senior agricultural researcher (the Research Coordinator) familiar with the concepts of agricultural innovation systems, who would also provide methodological support to the researchers during the conduct of their investigations. One representative of WBI and another from DANIDA would also participate. A member from FARA and of the Addis Ababa-based IFPRI research team involved 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 crosssection of domestic and international agribusiness firms and cooperatives operating in the country. The interviewees would be equally distributed among the three categories identified in the Scope of Inquiry above (i.e., food staples, high value products, and livestock). The purpose of this would be to determine the main public policies and institutional cultures of public organizations that generate positive or negative incentives for innovation in that countrys agribusiness sector; (2) to evaluate the respective effects of these policies; and (3) to suggest ways in which each identified policy might be either reinforced (positive) or rectified (negative). Because agribusiness representatives are probably unaccustomed to thinking in terms of innovation policies, the interview questions would have to focus on practical issues and be problem-oriented. A tentative list of interview questions is presented in Attachment 3. Next, each researcher would cross-check this initial list of identified policies by asking 8 to 10 representatives of NGOs, business associations, and applied research centers for their opinions on this matter. The results of the two sets of interviews would be combined 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 available documentation for each (e.g., legislative acts, government regulations, etc.) The third step would require the researcher to interview at least three persons from each ministry or public agency with primary responsibility for the area covered by each selected policy. These interviews would seek to ascertain the extent to which the institutional culture of the agency supports or constrains innovation, and identify possible discrepancies 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 of institutional assessment that concentrates on characterizing the agencys organizational culture, understanding of innovation processes, staff attitudes towards innovation, and its existing capacity to support innovation within the country. Quality Control. To enrich interpretations and provide a measure of quality control, two additional activities would be undertaken. On one hand, each researcher would also be asked to comment in writing on one of the draft reports from another country (and receive comments his/her draft report in return) in order to share insights and learn from these experiences. On the other hand, the researcher would invite all persons interviewed to 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 for agricultural innovation in each country studied would be presented in the form of a single-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 programs in these countries. In addition, they would be distributed or presented at a regional forum on Developing Technology and Innovation in Africa: Focus on Agriculture and Food Industry to be held at Nairobi May 12-14 2008. The purpose of this forum would be to promote greater awareness of the roles of innovation in development, establish a baseline for agricultural innovation policy analysis in Sub-Saharan Africa, and identify specific policy interventions that might jump-start producer innovation within the agricultural sector.

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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 as research centers, universities, etc. Use of advisory boards with stakeholder representation, stakeholder consultations, consensus decision 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., curriculum advisory 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 in modern international competition. Government plays an important role in expanding the stock of information available to firms, through statistics, publications, media licensing, and disclosure regulations. It can also facilitate dissemination. An important governmental role is signaling of important 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 new products, new processes, and new forms of organization into economic use, together with the institutions and policies that affect their behavior and performance in doing so. The following paragraphs 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 to diagnose the strengths and weaknesses of existing innovation capacity in specific settings as well as to guide investments and interventions to strengthen this capacity. 1. Focus on innovation rather than production. In contrast to most economic frameworks, which focus on production or output, the focus here is on innovation. Innovation is understood to be neither 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 new packaging material is an invention. In contrast, a company packaging its product in new way using new and/or existing information is an innovation. 2. Interaction and learning. Innovation is an interactive process through which knowledge acquisition and learning take place. This process often requires quite extensive linkages with different knowledge sources. These sources may be scientific and technical, but equally they can be 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 an organizations 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 of interaction to promote the process of innovation. 3. Linkages for accessing knowledge and learning. The relationships that sustain the acquisition 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 commercial transactions, 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 a contract or license. Linkages may also take the form of networks, which provide an organization with market and other early-warning intelligence on changing consumer preferences or technology. Networks also embody the know who of knowledge sources, which can be tapped as the need arises. These linkages and the relationships that govern them concern knowledge flows. 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 respect to developing countries, public research organizations are the prime movers. Following this model, scientists undertake research and public extension services or private advisory firms carry out the transfer technology. These roles remain compartmentalized and relatively static, even as the 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 important role 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 tend to work in isolation. Some have a tradition of sharing information with collaborators and competitors, of learning and upgrading, whereas others are more closed in this respect. Some resist risk-taking; others do not. Table 1 gives examples of commonly encountered attitudes and practices 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 to Bangladesh. Zero-tillage practices are thought to offer environmental and economic advantages for rice-wheat production systems in the Indo-Gangetic Plains. A consortium of research organizations, led by the International Maize and Wheat Improvement Center (CIMMYT) and Indian Council on Agricultural Research (ICAR), tested and modified zero-tillage approaches used in other parts of the world to suit local conditions. Scientists and farmers concluded that zero tillage might be an appropriate response to the high cost of preparing land and the environmental problems associated with burning crop residues. The technology did not really take hold, however, until researchers and agricultural engineers from abroad began working with local, small-scale manufacturers to design prototype zerotillage seeders. Several modifications were made to the original design, and manufacturers now produce and distribute a wide array of the new seeders. These small-scale manufacturers were necessary for the local process of innovation to work effectively, which allowed a good idea to grow into a profitable activity. Farmers have rapidly adopted these practices since 2000. In 2004, a mission to evaluate the Bank-funded National Agricultural Technology Project in India estimated that more that 2 million hectares of rice-wheat area were under zero tillage and that yearly savings in fuel and water 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 Interacting, knowledge flows, learning Demand articulation and inclusiveness of stakeholders Risk-taking and investing Incentives Restrictive attitudes and practices Reactive planning Mistrust of other organizations Closed to others ideas Secretiveness Lack of confidence; excessive and time-consuming documentation Professional hierarchies between organizations and disciplines Internal hierarchies Top-down cultures and bureaucratic approaches Covering up of failures Limited scope and intensity of interaction in sector networks Exploitation Suspicion/mistrust of private sector Hierarchies Top-down cultures and approaches Non-representative governance Conservative, traditional Maintain the status quo Encourage risk-avoidance Reward conformity with rules Reward loyalty Stable; depend little on performance Reward preserving institutional turf and privilege Supportive attitudes and practices Anticipatory planning Trust, collaboration Openness; transparency Sharing, reciprocity Confidence, decentralization Mutual respect Flat management structure Reflection and learning from successes and failures. Proactive networking Trust in research community Teamwork Private sector partnerships

- Consultative and participatory attitudes - Representative governance - Confident, creative - Experimental, testing Reward performance Encourage risk-taking Reward innovation and creativity Encourage challenging the status quo - Reward networking and partnerships -

6. Interaction of behavioral patterns and innovation triggers. Attitudes and practices also determine how organizations respond to innovation triggers such as changing policies, markets, and technology. Because such attitudes vary across organizations and across countries and regions, 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 must give particular attention to ingrained attitudes and practices and the way these are likely to interact with and skew the outcome of interventions (Engel and Solomon 1997). 7. The role of policies. Government cannot create competitive firms, only firms can accomplish this. But through its public policies government can influence the context and institutional structures that surround firms. Thus, governments most powerful roles are indirect rather than direct (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 the effectiveness 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 take account of existing cultural values and behavioral patterns (Mytelka 2000). For example, the introduction of more participatory approaches to research is often ineffective unless scientists traditional attitudes regarding who is qualified to be a researcher and the incentives that support this belief system are changed. Policies to promote innovation must be attuned to specific contexts. 8. Inclusion of stakeholders and the demand side. The innovation systems concept recognizes the importance of the inclusion of stakeholders and the development of behavioral patterns that make organizations 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 through a number of other channels, such as collaborative relationships between users and producers of knowledge, or mutual participation in organizational governance (for example, board membership). 9. Learning and capacity building. The attitudes and practices critical to innovation are themselves learned behaviors that shape approaches and arrangements and are continuously changing in both incremental and radical ways. These changes include institutional innovations that emerge through scientists experimentation and learning, such as farmer field schools or participatory plant breeding. Alternatively a company may start using research to gain an edge over its competitors. Another example would be organizational learning to discover that partnering is a key strategy for responding rapidly to emerging market opportunities. The new ways 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, the capability 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 and Farinelli 2003). A new pest problem may require new alliances between scientific disciplines; a new technology, such as biotechnology, could require partnerships between the public and private sector; or changing trade rules and competitive pressure in international markets could require new 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, for example, agricultural research organizations will need in the future, because the nature of future shocks and triggers is unknown and to a large extent unknowable. One way of dealing with this uncertainty, however, is to develop attitudes that encourage dynamic and rapid responses to changing circumstancesby building self-confidence and trust, fostering preparedness for change, and stimulating creativity. 11. Coping with sticky information. A number of key insights discussed above emphasize that innovation 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) and generic knowledge (which scientists and other producers of technology typically possess). In an ideal innovation system, a two-way flow of information exists between these sources of knowledge, 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 does not flow easily; it is sticky. A central challenge in designing innovation systems is to overcome 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 the fundamental 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, and multifaceted dialogue with other key actors identified in the innovation system analysis.

Investing in public research and advisory systems. Such investment must be based on careful identification of knowledge demands and joint strategic planning with the multiple stakeholders 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 government policy as it relates to agriculture, as identified in the review of relevant research. It would focus on the main issues identified under each: Education and human resources o Supply and relevance of skilled human resources o Government incentives for individuals to study and firms to train o Quality of secondary and technical education Creation of new knowledge o R&D funding and priorities o Competitive remuneration for public researchers o Performance incentives for public researchers Transmission and application of knowledge o Extension and technical support services o Intellectual property rights protection o Media/communications policies on information access Business and enterprise o Specific trade promotion policies o Legal guarantees for contracts and property o Consistent enforcement of standards and regulations o Innovations recently tried and adopted Innovation finance, outputs and markets o Tax incentives for technology upgrading o Risk-sharing on experimental approaches o Investment incentives Interactions and linkages o Government sponsored platforms, conferences, associations o Government incentives for collaborative efforts o Government facilitation of interactions, linkages and networks o Membership in national, regional or international associations

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An initial list of possible interview questions, organized under these six areas, is provided below.
Education and Human Resources

1. How would you assess the preparedness for work among recent university graduates? Among polytechnic or technical college graduates? 2. Do you find that the education system fails to impart to graduates certain skills or abilities 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 of graduates 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 student work placements? What incentives? 5. Does the government provide any incentives to firms like yours to upgrade worker skills through training or other investments in skills development? 6. To what extent do universities or technical institutes consult firms like yours in setting their strategic priorities, or incorporate representatives from private enterprise into their institutional governance bodies such as university councils? 7. What is the most common short-coming characterizing new graduates hired by your firm?
Creation of New Knowledge

1. Do government research institutes consult firms such as yours in setting their research priorities, or incorporate representatives from the private sector into their governing boards? 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 does it 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 of private 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 business operation and information on the market conditions which affect your firms competitive performance? Are you satisfied with the availability of such resources? 2. What is your working relationship with public agricultural research centers in terms of access to knowledge and information? What do you find to be the most useful aspects of these relationships? 3. What is your working relationship with local or national universities in terms of access to knowledge and information? What do you find to be the most useful aspects of these relationships? 4. What is your working relationship with input suppliers in terms of access to knowledge and information? What do you find to be the most useful aspects of these relationships? 5. How do you find the advisory expertise necessary to diagnose problems that lie beyond the technical capacities of your firms staff? Which organizations do you find particularly helpful in this regard? 6. Does the government sponsor or facilitate agricultural expositions or other encounters among representatives of the agricultural value chain at which information can be shared and new ideas disseminated? 7. To what extent does your firm make use of information and communications technologies (e.g., computers, cellular telephones, Internet access)? For what purposes? 8. How does your firm organize itself to identify and learn from relevant experiences elsewhere 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 procedures during the past year? For example, new marketing arrangements or more efficient product 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/or sales by your firm? 4. Does your firm feel that current legal guarantees provided for contracts, intellectual property 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, quality or environmental safety are consistent and fairly enforced? 6. Do government trade policies and procedures help or hinder the business prospects for your firm? Please explain. 7. How would you characterize the attitude of Ministry of Agriculture officials towards the 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 of venture 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 or expand their use of technology (e.g., loan guarantees, fertilizer subsidies, equipment subsidies, 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 institutional collaborations or partnerships of any kind? If so, please explain. 5. Does the tax system encourage or penalize experimentation and calculated risk taking by firms? How so? 6. Does your firm cooperate with other firms or organizations in financing the development and testing of new products, processes or technologies? If so, please explain how this occurs. 7. How does your firm find the resources it needs to test and evaluate new ideas? Can you give an example? 8. Does your firm invest in information technology and internet access? Do you think this 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 its decision-making? Public sector? Other firms? Collective or business associations? 2. For each identified actor, (i) characterize its main role from the perspective of your firm, (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? What kinds of partnerships? Are these partnerships facilitated by any government incentives or public agencies? 4. What is the frequency of your firms contacts with local government, national parliament, and the Ministry of Agriculture? Who initiates these contacts? What is their main purpose? 5. Do you participate in networks or maintain occasional communications with any firms or organizations outside the country? If so, what is the main purpose of these communications? 6. Does your firm participate in any business or collective associations? If so, what is the main motivation for doing so? 7. Has the government established any new public agencies within the past year or so whose mandate is to facilitate coordination and collaboration among various types of organizations/firms engaged in the agricultural sector? If so, why were they created and what is their purpose?

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