Forbes.com

Removing Trade Obstacles That Promote Hunger

Up to 1.3 billion tons of food are lost or wasted each year because of unnecessary trade barriers, and hunger is a dramatic consequence.

By Mark Gottfredson and Gerry Mattios

First published on julho 14, 2014
min read


This article originally appeared in Forbes.com. As the World Trade Organization nations approach the July 31 deadline to ratify the Bali Trade Facilitation Agreement, dozens of trucks wait in queue to cross the border from Kenya to Uganda. Hauling tomatoes along East Africa’s northern border, these truckers have lost up to four hours in reduced speed because of poor road conditions along some segments. But when they approach the border, the delays get longer. It takes on average a full day for them to complete the paperwork required to cross from Kenya into Uganda. The delay would cause financial losses with any freight, but it is especially troublesome with agricultural goods, where delays could leave much of a truckload unfit for sale at its destination. This same losing scenario plays out in different ways throughout the world. Guatemalan exporters sending goods overland to Mexico are forced to offload their cargo from Guatemalan trucks at the border and reload it onto Mexican trucks, a regulatory hurdle that both contributes to food spoilage and discourages commerce. In Nigeria, trucks hauling Cassava flour are required to carry about 50 different permits costing $75-$150 per truck per year, often making it uneconomical to transport the important food staple to markets where it is desperately needed. In a world where 12.5% of the population suffers chronic undernourishment, the fact that 30% of food produced for human consumption is lost or wasted between farm and fork is difficult to comprehend. Along the agricultural supply chain – from post-harvest storage through transportation and distribution – spoilage, spillage and other contributors to food loss remain a serious problem. Globally, up to 1.3 billion tons of food is lost or wasted each year, evidence that hunger is a dramatic consequence of unnecessary trade barriers. Even cutting that figure in half would make a significant contribution to improving world hunger. The Trade Facilitation Agreement, which was drawn up last December at the WTO’s Ministerial Conference in Bali, sets the stage for faster and more efficient customs procedures that could encourage dramatic improvements, not only in world hunger but also in environmental sustainability and economic development. Research conducted for the World Economic Forum by the World Bank and the management consulting firm Bain & Company found that reducing even a restricted set of supply chain barriers halfway to global best practice would yield a nearly 5% increase in GDP, or six times the benefit of removing all remaining tariffs. The benefits to emerging nations, in particular in Africa and South-East Asia, would be proportionally much higher. This agreement is a giant leap in the right direction. It supports effective cooperation between customs and other authorities on trade facilitation and customs compliance issues. It also provides for technical assistance that will help countries build electronic capabilities to speed the flow of goods. But while the agreement opens the door for improving inefficient – and, at times, corrupt – border administration, it will be up to governments and private enterprises to implement it and to systematically identify and eliminate the other supply chain barriers that keep people hungry and inhibit trade. Those hurdles include protectionist measures that limit market access, underdeveloped transportation infrastructure and services, and regulatory environments that preclude small-to-medium sized businesses. The public sector is best positioned to reduce these barriers, usually in partnership with private enterprises, and with both organizations benefiting from each the others’ strengths. Hopeful nations can point to the encouraging advances made by pioneering efforts. When Kenya’s government improved the Nairobi-Mombasa road and expanded the Mombasa port’s capacity and power, it led to much-needed private sector investment by exporters and transporters. Investments in refrigerated containers and covered trucks, along with support for smallholder farms to acquire export certification, helped reduce food loss and enabled Kenya to reach the tipping point at which it became profitable for the country’s enterprises to serve new European markets for its avocados. Also, by removing fertilizer price controls and subsidies, Kenya spurred competition that lowered fertilizer end prices, triggering a 14 percent increase in adoption rates among small farmers. Now, Kenya has plans to implement a fully automated customs system, allowing maritime, air and road shippers to submit all their official documents through one electronic portal. The benefits are many. It will enable shippers to operate more efficiently and save money. It will improve compliance, boosting the government’s revenues from import duties and other taxes. And the transparency created by the electronic system will reduce the corruption that has plagued international trade in the past. Kenya’s government expects the system to help raise the country’s ranking on the annual Doing Business report issued by the International Finance Corporation and the World Bank, and to help attract foreign direct investment. Such efforts to modernize border administration have helped Thailand cut the time for border clearance nearly in half – and the country is working to steadily improve. But it is South Korea that sets the standard for smart borders. When shippers release goods from a warehouse, they enter the necessary information into an electronic system, so that the Korean Customs Service doesn’t need to wait until the shipment arrives at a port or terminal. Imports require only about an hour and a half to clear customs. South Korea’s customs office also introduced a new automated risk management system, eliminating much of the need for manually inspecting packages. When it launched the operation, South Korea wisely incentivized customs agents according to the number of risky items they found in more targeted manual inspections, a move that keeps them motivated and makes it less tempting for them to engage in corrupt practices. Policy makers can learn from the best practices of countries like South Korea. These and other leaders usually follow a four-step process. They begin with a preparation phase designed to ensure all stakeholders agree to the objectives and governance structure. That’s followed by a diagnostic phase in which participants determine the impact trade facilitation will have on key industries. Next, they embark on a planning exercise to convert their vision into actionable steps. Only then do they execute – with a clear process for measuring and tracking results. When the WTO members ratify the Trade Facilitation Agreement, they can intensify efforts to apply what they’ve learned from these pioneering countries on their own soil. By eliminating supply chain barriers, they’ll set in motion a virtuous cycle, raising global productivity and tackling the enormous – and enormously rewarding – challenge of feeding the undernourished. Written by Mark Gottfredson, a Bain & Company partner based in Dallas, and Gerry Mattios, a Bain & Company principal based in Beijing.

This article originally appeared in Forbes.com.

As the World Trade Organization nations approach the July 31 deadline to ratify the Bali Trade Facilitation Agreement, dozens of trucks wait in queue to cross the border from Kenya to Uganda. Hauling tomatoes along East Africa’s northern border, these truckers have lost up to four hours in reduced speed because of poor road conditions along some segments. But when they approach the border, the delays get longer. It takes on average a full day for them to complete the paperwork required to cross from Kenya into Uganda.

The delay would cause financial losses with any freight, but it is especially troublesome with agricultural goods, where delays could leave much of a truckload unfit for sale at its destination. This same losing scenario plays out in different ways throughout the world. Guatemalan exporters sending goods overland to Mexico are forced to offload their cargo from Guatemalan trucks at the border and reload it onto Mexican trucks, a regulatory hurdle that both contributes to food spoilage and discourages commerce. In Nigeria, trucks hauling Cassava flour are required to carry about 50 different permits costing $75-$150 per truck per year, often making it uneconomical to transport the important food staple to markets where it is desperately needed.

In a world where 12.5% of the population suffers chronic undernourishment, the fact that 30% of food produced for human consumption is lost or wasted between farm and fork is difficult to comprehend. Along the agricultural supply chain – from post-harvest storage through transportation and distribution – spoilage, spillage and other contributors to food loss remain a serious problem. Globally, up to 1.3 billion tons of food is lost or wasted each year, evidence that hunger is a dramatic consequence of unnecessary trade barriers. Even cutting that figure in half would make a significant contribution to improving world hunger.

The Trade Facilitation Agreement, which was drawn up last December at the WTO’s Ministerial Conference in Bali, sets the stage for faster and more efficient customs procedures that could encourage dramatic improvements, not only in world hunger but also in environmental sustainability and economic development. Research conducted for the World Economic Forum by the World Bank and the management consulting firm Bain & Company found that reducing even a restricted set of supply chain barriers halfway to global best practice would yield a nearly 5% increase in GDP, or six times the benefit of removing all remaining tariffs. The benefits to emerging nations, in particular in Africa and South-East Asia, would be proportionally much higher.

This agreement is a giant leap in the right direction. It supports effective cooperation between customs and other authorities on trade facilitation and customs compliance issues. It also provides for technical assistance that will help countries build electronic capabilities to speed the flow of goods.

But while the agreement opens the door for improving inefficient – and, at times, corrupt – border administration, it will be up to governments and private enterprises to implement it and to systematically identify and eliminate the other supply chain barriers that keep people hungry and inhibit trade. Those hurdles include protectionist measures that limit market access, underdeveloped transportation infrastructure and services, and regulatory environments that preclude small-to-medium sized businesses.

The public sector is best positioned to reduce these barriers, usually in partnership with private enterprises, and with both organizations benefiting from each the others’ strengths. Hopeful nations can point to the encouraging advances made by pioneering efforts. When Kenya’s government improved the Nairobi-Mombasa road and expanded the Mombasa port’s capacity and power, it led to much-needed private sector investment by exporters and transporters. Investments in refrigerated containers and covered trucks, along with support for smallholder farms to acquire export certification, helped reduce food loss and enabled Kenya to reach the tipping point at which it became profitable for the country’s enterprises to serve new European markets for its avocados. Also, by removing fertilizer price controls and subsidies, Kenya spurred competition that lowered fertilizer end prices, triggering a 14 percent increase in adoption rates among small farmers.

Now, Kenya has plans to implement a fully automated customs system, allowing maritime, air and road shippers to submit all their official documents through one electronic portal. The benefits are many. It will enable shippers to operate more efficiently and save money. It will improve compliance, boosting the government’s revenues from import duties and other taxes. And the transparency created by the electronic system will reduce the corruption that has plagued international trade in the past. Kenya’s government expects the system to help raise the country’s ranking on the annual Doing Business report issued by the International Finance Corporation and the World Bank, and to help attract foreign direct investment.

Such efforts to modernize border administration have helped Thailand cut the time for border clearance nearly in half – and the country is working to steadily improve. But it is South Korea that sets the standard for smart borders. When shippers release goods from a warehouse, they enter the necessary information into an electronic system, so that the Korean Customs Service doesn’t need to wait until the shipment arrives at a port or terminal. Imports require only about an hour and a half to clear customs. South Korea’s customs office also introduced a new automated risk management system, eliminating much of the need for manually inspecting packages. When it launched the operation, South Korea wisely incentivized customs agents according to the number of risky items they found in more targeted manual inspections, a move that keeps them motivated and makes it less tempting for them to engage in corrupt practices.

Policy makers can learn from the best practices of countries like South Korea. These and other leaders usually follow a four-step process. They begin with a preparation phase designed to ensure all stakeholders agree to the objectives and governance structure. That’s followed by a diagnostic phase in which participants determine the impact trade facilitation will have on key industries. Next, they embark on a planning exercise to convert their vision into actionable steps. Only then do they execute – with a clear process for measuring and tracking results.

When the WTO members ratify the Trade Facilitation Agreement, they can intensify efforts to apply what they’ve learned from these pioneering countries on their own soil. By eliminating supply chain barriers, they’ll set in motion a virtuous cycle, raising global productivity and tackling the enormous – and enormously rewarding – challenge of feeding the undernourished.

Written by Mark Gottfredson, a Bain & Company partner based in Dallas, and Gerry Mattios, a Bain & Company principal based in Beijing.