The Asian Development Bank (ADB)’s attempt to modernise the agriculture commodities’ marketing system in Punjab has failed due to delay in legal reforms, institutional bottlenecks and red tapism, says the technical assistance completion report of the bank.
The report recommends that the ADB’s resources should only be utilised after the government has undertaken the requisite legal reforms to liberalize the agricultural marketing system, and create the space for fair competition through changes in the law and the creation of a skeletal regulatory body.
ADB had approved $800,000 technical assistance in December 2009. It says the ownership of the project within the Planning and Development Department and the Agricultural Marketing Department was fragmented partly due to the high turnover of senior staff, quality of outputs, the long implementation period which further diluted stakeholder interest and ownership, and because the project team and consultants were unsuccessful in reaching out to several key actors in the value chain.
The report identified key issues in the supply chain of horticultural products such as high post-harvest losses, limited cold storage, poor regulation, inadequate market information, and the market constraints under the Agricultural Marketing Act. These issues were to be addressed through project investment and policy/regulatory reform.
The lessons on how to design wholesale markets should be synthesised in a knowledge product, which should be peer reviewed by relevant sector groups that is the urban, environment and natural resources, and private sector groups.
For major reforms such as liberalising of an agricultural marketing system, where systems and value chains built over hundred years are to be reformed with a multitude of stakeholders, a critical mass of champions at all levels, strong political will and broad-based ownership, and incentives are necessary ingredients for success.
In market-based projects, the private sector is the natural actor to forge linkages, and should be an integral part of the dialogue while preparing projects. Projects that have high public-private partnership potential but where the sector is traditionally under public control, require a strong legal and regulatory framework and financial products upfront before risks can be fairly redistributed across key stakeholders.
During the 7-year project processing period, three rounds of inputs were required in order to produce an acceptable feasibility report that allowed informed decision to be undertaken on the project by the ADB.
This required that the legal framework, financial management assessment, financial internal rate of return and economic internal rate of return, project administration manual, procurement plan, risk assessment and management plan, design and process flow of the market had to be revised.
Several factors were inadequately considered in the feasibility report such as role, scope and size of the market; throughput, backward and forward linkages; road networks and prerequisites for private sector involvement.
Although senior government officials championed the project at different points over the 7 years, they had insufficient traction to implement the legal and regulatory reforms or overcome resistance within the government departments and stakeholders from the markets and value chain.
ADB’s financial leverage also whittled down to one-fifteenth of its original size. Moreover, in the absence of an ongoing dialogue on reforms, the reform related outputs from this project have not been implemented. Overall assessment and rating the technical assistance has been rated unsuccessful.
The feasibility report for the Market Infrastructure Project was completed in 2011, 3 years after approval and more than 2 years after the original account closing date. The planned inputs under the TA were 18 person-months for international consultants and 33 person-months for national consultants, while the actual inputs were 18.92 person-months and 28.67 person-months respectively.
When the proposed project was shared with the EA and circulated for comments within the ADB, several concerns were raised on the concept (i.e. process flows, economic/financial analysis, and the legal framework). At the time of project preparation, the TOR did not focus sufficiently on the sequencing of TA inputs.
Although the TA was divided in two phases, it would have benefited from a clear description of milestones that needed to be achieved on policy and regulatory reforms in phase 1 as a prerequisite for expending additional TA resources in phase 2.
‘THE OMELETTE IS AS GOOD AS IT IS EVER GOING TO BE’:
The TOR was also ambitious in giving three months for the formulation of policy and sector reforms. In addition, it missed out on the critical element of risk taking behavior. It was premised on the assumption that transaction costs charged by the middlemen were high without an analysis of the financial cost of risks incurred by middlemen.
The TOR also assumed that the transaction costs could be lowered through the introduction of more efficient and transparent system of auctioning, reduction in production/transportation losses, packaging, storing, and grading in the absence of financial instruments for distributing risks in the horticulture value chain.
The TA was delayed due to unrealistic timelines and ambitious reforms. Although the fact-finding mission noted the challenges with private sector participation, these were not reflected in the TORs and DMF; delays in approvals from the government; lack of commitment to sector reforms; administrative issues including the issuance of visas for consultants; change of site for the market at the draft final stage of the TA; related land acquisition issues; and insufficient supervision by ADB (the first review mission was fielded 3 years after the fact finding mission and two years after the original TA closing date).
The change of site did lead to loss of consultants’ inputs but the project team had been notified of this in April 2011. While the TA account was closed in 2012, the division continued to process the project until 2015. As remaining TA funds were inadequate to finalise the feasibility required for project preparation, staff consultants were hired (financed by CWUW staff consultant budget).
The key staff consultant hired for the new site did not visit the field, nor did they consult with stakeholders, adequately prepare a financial model, or articulate clearly the essential legal reforms required for project processing.
A second round of staff consultants were hired (financed by the Urban Sector Group’s funds) to redesign the project after receipt of government’s comments and interdepartmental circulation. The new team undertook widespread consultations, designed and implemented a survey, and redesigned the project within three months.
The team put forward three prerequisites for the government to meet prior to expending more resources including legal and institutional reforms; support for ‘innovation’ within the EA and IA and a joint understanding by all the parties that the new location had very limited potential for efficiency improvement through grading, packaging, production and transportation losses as it was outside the product base.