Policy Note January 2017 Increasing Agribusiness Growth in Bhutan Policy Note january 2017 Increasing Agribusiness Growth in Bhutan ©2016 The World Bank Group 1818 H Street NW Washington, DC 20433 Telephone: 202-473-1000 Internet: www.worldbank.org All rights reserved. This volume is a product of the staff of the World Bank Group. The World Bank Group refers to the member institutions of the World Bank Group: The World Bank (International Bank for Reconstruction and Development); Inter- national Finance Corporation (IFC); and Multilateral Investment Guarantee Agency (MIGA), which are separate and distinct legal entities each organized under its respective Articles of Agreement. We encourage use for educational and non-commercial purposes. The findings, interpretations, and conclusions expressed in this volume do not necessarily reflect the views of the Directors or Executive Directors of the respective institutions of the World Bank Group or the governments they represent. 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Cover photos: Front: Rice field plowing in Punakha Valley, 2014; Back: Rice threshing in Thimphu Valley, 2015. All photos courtesy of © Olivier Jammes (olivierjammes.com) Contents Acknowledgements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . v Executive Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . vii Acronyms and Abbreviations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xi Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Factor Endowments of Agriculture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Agricultural Capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Agricultural Labor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Agricultural Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Institutions Supporting and Governing Agribusiness . . . . . . . . . . . . . . . . . . . . . . . . . 8 Ministry of Agriculture and Forests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 Ministry of Economic Affairs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 State-Supported Enterprises . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 Business Associations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 Development Partners . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 Composition of the Agribusiness Sector . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 Performance of the Agribusiness Sector . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 Legal and Regulatory Frameworks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 Subsidies and Incentives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 Access to Finance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 Innovation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 Trade in Agribusiness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 Trade Outcomes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 Market Access . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 Trade Logistics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 Investment in Agribusiness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 Investment Outcomes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 Investment Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 Exploring New Products and New Markets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 Conclusions and Recommendations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 Summary of Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 Specific Recommendations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 Business Enabling Environment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 Trade . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 Investment Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 New Products and New Markets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 iii Bibliography . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 Appendix 1: Spotlight on Mushrooms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43 Appendix 2: Enterprise Survey Tables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 Tables Table 1: Agricultural Production in Bhutan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Producer Price Differentials for Selected Agricultural Products Table 2:  in Bhutan and Comparator Countries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 Figures Figure 1: Share of the Economy by Sector, Bhutan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Figure 2: Sources of Monetary Income for Farm Households, Bhutan . . . . . . . . . . . . . 4 Figure 3: Production Versus Imports of Selected Livestock Products, Bhutan . . . . . 5 Figure 4: Sectoral Value Added, in Constant Local Currency Units (LCUs) . . . . . . . . . 5 Annual Labor Productivity Growth, Bhutan Figure 5:  and Comparator Countries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Figure 6: Brand Bhutan Logo . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 Figure 7: Distribution of Agribusinesses by Region, Bhutan . . . . . . . . . . . . . . . . . . . . . . 14 Figure 8: Firm Size in Agribusiness and Other Sectors, Bhutan . . . . . . . . . . . . . . . . . . 14 Legal Status of Agribusiness Firms and Firms in Other Sectors, Figure 9:  Bhutan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 Figure 10: Top Business Environment Obstacles as Perceived by Firms in Bhutan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 Figure 11: Percentage of Firms Directly Exporting at Least 1 Percent of Sales, Bhutan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 Figure 12: Growth in Bhutan’s Agricultural Exports, 2011–2014 . . . . . . . . . . . . . . . . . . 22 Figure 13: Correlation of Cost to Export with Agricultural Productivity, Bhutan and Other Countries, 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 Figure 14: Correlation of Time Required to Register a Property and Inflows of Foreign Direct Investment (FDI), Bhutan and Other Countries, 2014 . . . . 26 Boxes Box 1: The Bhutan Enterprise Surveys . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Box 2: Local Businesses Describe Competition from Farm Shops in Bhutan . . . . . . . 18 Bhutan Development Bank Lending Products for Producers Box 3:  and Agribusinesses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 Box 4: The Importance of End-Market Connectivity . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 Box 5: Mountain Hazelnut Ventures (MHV) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 Box 6: Ethiopia’s Commercial Farm Service Program . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 iv Increasing Agribusiness Growth in Bhutan Acknowledgements His Majesty King Jigme Khesar Namgyel Wangchuck and the Royal Gov- ernment of Bhutan (RGoB) are to be applauded for the excellent initiatives undertaken to simultaneously grow Bhutan’s economy, protect its natural environment, preserve its cultural heritage, and promote the social well-being of its citizens. Bhutan is an avant-garde model for the world we live in today. This policy note is part of an advisory program provided by the World Bank Group (WBG) to the Ministry of Economic Affairs (MoEA) on improving the investment climate and the competitiveness of the Bhutanese private sec- tor. The WBG team would like to thank the MoEA for commissioning this study and the Ministry of Agriculture and Forests (MoAF) for providing over- all direction in the analysis and recommendations contained here. The team greatly benefited from the knowledge of Bhutanese agriculture shared by colleagues at the Food and Agriculture Organization of the United Nations (FAO) as well. This note was prepared by Ed Keturakis, with contributions from Winston Dawes, Maria Ruth Jones, Blair Edward Lapres, and Loraine Ronchi, under the supervision of Massimiliano Santini. The note received inputs from Om Bhandari, Roberto Echandi, Christian Eigen-Zucchi, and Yoichiro Ishihara, and it was peer-reviewed by Elliot Wamboka Mghenyi, Chadho Tenzin, and Colin Xu. The WBG team would like to thank the following for their inputs and insight- ful exchanges during the field visits: Dr. Kuenga Namgay, MoAF, Policy and Planning Division, Deputy Chief Planning Officer; Sonam Norbu, MoAF, Dept. of Agricultural Marketing and Cooperatives, Marketing Specialist; Kencho Thinley, MoAF, Policy and Planning Division, Chief; Sithar Dorji, MoAF, Department of Livestock, Project Director; Sonam Riygel, Bhutan Development Bank Ltd., Deputy Managing Director; Pema Wangdi, Bhu- tan Development Bank Ltd, CEO Corporate Planning; Binai Lama, SNV, Senior Advisor; Phub Tshering, Bhutan Chamber of Commerce and Indus- try, Senior Advisor; Kinley Pelden, BAFRA, Chief; Karma Dema Dorji, National Soil Services Center, Program Director; Karma Nydup, Food Cor- poration of Bhutan Limited, CEO; Bhim Raj Gurung, Food Corporation v of Bhutan Limited, Marketing Advisor; Tshering Managing Director; Tshering Nidup, Regional Trade Yeshi, Bhutan Exporters Association, Secretary Gen- and Industry Office—Phuentsholing, Director; Singay eral; Arun Chatrevedi, Nutri-Soy, CEO; Kinley Dorji, Dukpa, Sersang Group, General Manager; and Sean Druk Phuentsholing Import Export Group, Manager; Watson, Mountain Hazelnut Venture Private Limited, Sonam Tobgay, Sonam Thuendrel Export and Import, Managing Director. vi Increasing Agribusiness Growth in Bhutan Executive Summary This Policy Note assesses the current state of Bhutan’s agribusi- ness sector and recommends steps the Royal Government of Bhutan (RGoB) might consider to increase the sector’s growth. The govern- ment regards agriculture as a priority for achieving the national objectives of diversifying the economy, reducing poverty, and creating more inclu- sive growth, as discussed in its Eleventh Five-Year Plan (2013–2018). This Note focuses on agribusinesses (specifically, nonfarm enterprises) and the business-enabling environment in which they operate. Agribusinesses drive improvements in farm production and productivity by creating demand for the products of commercial agriculture.1 A strong agribusiness sector is a crucial catalyst in the transformation from a primarily agrarian economy to an industrial society, pulling Bhutanese agriculture into global value chains and attracting private investment—all of which can foster inclusive economic growth, an RGoB objective. The analysis here relies primarily on the results from Enterprise Sur- veys conducted in Bhutan, one in 2009 and the other in 2015. The World Bank Group (WBG) conducts these surveys using fairly standardized methods in many of its member countries, and using firm-level interviews to systematically capture statistically useful data on how the private sector views the competitive landscape in which it operates. The insights obtained from the Enterprise Surveys are supplemented here by extensive literature reviews and by fieldwork conducted in Bhutan by WBG agribusiness experts to obtain qualitative data and information from key informants in the private and public sectors. The interviews gathered information from individuals from the Ministry of Agriculture and Forests (MoAF, 2010); business support agencies, such as the Bhutan Exporters Association (BEA) and the Bhutan Chambers of Commerce 1. This report distinguishes agribusiness from agriculture, with the latter defined as on-farm pro- duction and productivity. Most of the discussion here focuses on easily distinguishable forms of agribusiness. The Enterprise Surveys did not include any production-level agribusinesses. vii and Industry (BCCI); the Food Corporation of Bhutan appear to replace the private sector. Specific opportuni- (FCB); and private traders and agribusiness entities. ties to clarify this misperception include: »» Overall, the RGoB can realign subsidies to foster, Several overarching conclusions emerge from this not replace, the private sector. comprehensive analysis of agribusiness in Bhutan: »» The RGoB can support specific value chains by bal- »» First, consistent with the Economic Development ancing its interventions on each end of the value Policy (EDP) plans of the MoEA to promote chain, that is, in production and in marketing/export. more private-sector investments in agricultural »» The Farm Shops program could develop a clear trade and value addition, the RGoB and public- plan to transition away from the current model of sector institutions supporting agribusiness have the quasi-public ownership and operation toward full opportunity to refine their incentive structures for private ownership and operation. greater impact on the growth and development of »» A rigorous impact evaluation could be made of Bhutan’s private agribusinesses. the Farm Shops program. »» Second, Bhutan is already endowed with the »» Separation of FCB public and private functions agro-climatic conditions and technical capacity could improve the performance of both, while to produce and market several agricultural prod- encouraging private-sector growth. ucts, providing the RGoB with the opportunity to increase agribusiness export volumes and value. Establishing and growing domestic agribusinesses »» Third, although Bhutan has policies in place to require a favorable business environment, and evi- promote both domestic and foreign direct invest- dence from the Enterprise Surveys reveals ways to ment (FDI), the RGoB has additional opportuni- improve Bhutan’s agribusiness environment. The ties for spurring greater investment and innovation biggest business-environment obstacles for Bhutanese in agribusiness. agribusinesses in 2015 were access to finance, tax rates, »» Finally, while the agribusiness sector has experi- and informal competitors. Agribusinesses were signifi- enced significant gains in access to finance, more cantly more likely than other businesses to identify tax can be done in the banking sector to support rates as their most important constraint. They also per- marketing, processing, and exporting agri-food ceived customs delays to be greater in 2015 than in 2009, products. and management reported spending more time dealing with government regulations in 2015 than in 2009. These conclusions lead the team to make a number »» As a first step in addressing these concerns, the of specific recommendations: RGoB can work closely with the Bhutan Agricul- ture and Food Regulatory Authority (BAFRA), The RGoB has an opportunity to recast its public- responding to its proposals and assuring adequate sector programs, subsidies, and incentives to bet- funding to better tailor regulatory capacity to ter support the growth of the private sector. Several reform priority constraints. well-intentioned interventions—for example, the FCB, mega-farms, Farm Shops, and the Agricultural Machin- Agribusinesses were less banked than businesses ery Center (AMC)—may be simultaneously promoting in other sectors, although the Enterprise Surveys and suppressing private-sector efforts to enter and grow reveal recent progress in their increasing access to in the agribusiness space. In most cases, this occurs when finance. If agricultural investments and exports are to government programs serve private-sector functions and increase, access to finance must improve. The Bhutanese viii Increasing Agribusiness Growth in Bhutan financial sector has several opportunities to improve trade after controlling for workers’ level of education, microen- finance. The Bhutan Development Bank Ltd. (BDB), the terprises responding to the 2015 Enterprise Survey were primary financier of agribusinesses, noted several limita- 15 percent less likely to have introduced an innovation tions affecting it and the financial sector as a whole (such within the previous three years. as the inability to offer letters of credit, provide factoring, »» The RGoB should consider establishing entrepre- or handle foreign exchange transactions). neurship and innovation hubs catering specifically to agribusiness. Labor is less available and costlier for agribusi- nesses as compared to firms in other sectors, yet Interviews with agribusinesses and traders reveal farm mechanization remains low. One approach to that Bhutan’s agribusinesses are not very well net- overcoming these limitations is for the BDB and other worked, especially with external markets. Most banks to find ways to provide more large loans for capital farmers and traders sell to Bangladeshi or Indian mer- investments and to explore mechanisms for leasing agri- chants operating within Bhutan. This practice limits their business machinery and equipment to small entrepreneurs exposure to the valuable networking that leads to inno- (current arrangements favor leasing to cooperatives). vation in product types, product quality, marketing, and »» The former AMC has been restructured into distribution. The BEA and BCCI should be supported two agencies: the AMC (focused on training and in efforts to help their members reach out to and explore research and development) and the Farm Machin- export markets in Kolkata, Dhaka, and beyond, including ery Corporation Limited (FMCL) (focused on markets in Singapore, Hong Kong, and Dubai. sales and services). The resources of both have »» The RGoB should consider a grant to the BEA and been underutilized. Before investing further in the BCCI that will help each institution address these organizations as a means of introducing the capacity-building needs of their membership more effective mechanization, the RGoB should base for reaching export markets. critically examine the reasons for this underuse. »» The BDB should develop a leasing product The MoEA’s development of the Brand Bhutan label designed specifically for agricultural machinery is an excellent strategic initiative. Bhutan should and made available to both cooperatives and indi- continually seek to maximize the value of its full range vidual service providers to demonstrate a viable of exportable products by reaching higher-value markets business model that other private financial institu- and promoting products under the Brand Bhutan label. tions can adopt. To move forward with this strategy, the RGoB can work to create a legal and regulatory framework to properly Based on an indicator for innovation constructed manage Brand Bhutan. from Enterprise Survey data, the level of innovation »» The time is ripe for the RGoB to develop and in Bhutan’s agribusiness firms is low. Innovation implement a regulatory framework for the man- and growth in total factor productivity (TFP) go hand-in- agement of Brand Bhutan, including the regula- hand, yet agribusiness firms in Bhutan are less likely than tion of quality and other standards for the brand. other businesses to have made innovations in logistics, management, or marketing. Only one in 100 agribusi- In all sectors, Bhutan has very limited foreign nesses has a website, compared to one in six other busi- direct investment. The agribusiness sector reported nesses. Agribusiness firms also invest less in research and virtually no firms with foreign ownership (0.01 percent), development (R&D) than do firms in other sectors. Even and only 2 percent of firms in all sectors had any foreign Increasing Agribusiness Growth in Bhutan ix ownership. Despite progressively liberalizing FDI policy (matsutakes, morels, chanterelles); retail honey; since 2009 to allow more direct ownership by foreign crated fruit (mandarins and kiwi fruit); aspara- firms, Bhutan’s success in attracting FDI has been very gus; processed hazelnuts; walnuts; black pepper; limited. A more aggressive investment promotion effort Sichuan pepper; retail-packaged cardamom; and could increase the level of investment. processed ginger products. Although typically pro- »» The RGoB should consider establishing a stand- duced in low volumes, these items are critically important alone investment promotion agency and an invest- sources of income for many households in Bhutan. ment promotion strategy to support its investment »» Bhutan should explore the expansion of its exports policy. of mushrooms and other high-value niche prod- »» The RGoB should identify high-potential sectors ucts to increase the volume and unit value of the or subsectors and approach investors directly to current export trade. present and promote these opportunities. »» Bhutan should consider developing its competitive »» The BCCI should be closely involved in efforts to advantage in seed potato production. promote investment. »» Public policy on livestock should foster compet- itiveness to exploit opportunities for replacing Production of a number of low-volume, high-value imported animal protein products with domesti- agricultural products in Bhutan could grow consid- cally produced products. erably, including fresh wild-collected mushrooms x Increasing Agribusiness Growth in Bhutan Acronyms and Abbreviations AMC Agricultural Machinery Center ha hectare BAIL Bhutan Agro Industries Limited ICT  information and communication technology BAFRA  Bhutan Agriculture and Food Regulatory IFAD  International Fund for Agricultural Authority Development BCCI  Bhutan Chamber of Commerce and IFC International Finance Corporation Industry IMF International Monetary Fund BDB Bhutan Development Bank Ltd. IQF individual quick frozen (technology) BEA Bhutan Exporters Association kg kilogram BoP balance of payments LCU local currency unit BTN Bhutanese ngultrum MHV Mountain Hazelnut Ventures CAGR compounded annual growth rate MoAF Ministry of Agriculture and Forests CARLEP Commercial Agriculture and Resilient MoEA Ministry of Economic Affairs Livelihoods Enhancement Programme MSMEs Micro, small, and medium enterprises CNFA Cultivating New Frontiers in Agriculture MT metric ton DAMC  Department of Agricultural Marketing and NGO nongovernmental organization Cooperatives R&D research and development Danida Danish International Development Agency REDD  reducing emissions from deforestation and DB Doing Business forest degradation DCSI  Department of Cottage and Small Industries RGoB Royal Government of Bhutan EBA Enabling the Business of Agriculture RNR Renewable Natural Resources (sector) EDP Economic Development Policy RRCDP Remote Rural Communities Development ES Enterprise Surveys Project FAO  Food and Agriculture Organization of the SAARC South Asia Association for Regional United Nations Cooperation FCB Food Corporation of Bhutan Ltd. SDC  Swiss Agency for Development and FDI foreign direct investment Cooperation FMCL Farm Machinery Corporation Limited SMEs small and medium enterprises FSAPP  Food Security and Agriculture Productivity SPS sanitary and phytosanitary standards Project TFP total factor productivity FTA free trade agreement USD United States dollar GDP gross domestic product xi Introduction This Policy Note begins by briefly describing the purpose of this study of agribusiness in Bhutan, the data sources for the analysis, and the contextual information essential for interpreting the results of the analysis. The discussion first explains why the agribusiness sector is cru- cial for achieving national objectives, including inclusive economic growth. It then focuses on specific elements of the environment in which Bhutanese agribusinesses operate, describing the factor endowments of agriculture and reviewing the institutions that support and govern agribusiness. The second part of this note focuses on the results of the analysis; the third sets out the conclusions and recommendations. This Policy Note was prepared at the request of the Ministry of Eco- nomic Affairs (MoEA) of the Royal Government of Bhutan (RGoB) to inform MoEA’s Economic Development Policy, the key strategic and planning document for Bhutan’s economic growth. The Policy Note was developed in close consultation with the Ministry of Agriculture and Forests (MoAF), bilateral and multilateral development institutions working in Bhu- tan, and Bhutan’s private sector (particularly agribusinesses and the organiza- tions that represent them). The recommendations provided here are intended to support the MoEA’s proposal to transform Bhutan’s agribusiness sector into an engine for economic growth, a tool for poverty reduction, and a focus for greater private-sector investment. The agricultural sector, considered one of the “five jewels” of Bhu- tan’s economy, is a priority for Bhutan, given the potential for agri- culture to contribute to the government’s objectives of diversifying the economy, reducing poverty, and fostering more inclusive growth, as discussed in the Eleventh Five-Year Plan (2013–2018). The sector employs about 56 percent of the population, yet it contributed just 17.7 per- cent to gross domestic product (GDP) in 2014 and has exhibited relatively flat growth (RGoB Eleventh Five-Year Plan). 1 This Policy Note focuses on agribusiness because agricultural sector into global value chains. This activity of its central role in catalyzing growth, not only in creates a further impact on the providers of inputs (such agriculture but in the wider economy. For that rea- as veterinary services, machinery, fertilizer, seed, and son, the analysis and recommendations focus on non- labor) and professional support services (such as financial farm enterprises and the business enabling environment services, certifications, and logistics) that drive economic in which they operate. While the agricultural production growth (da Silva et al. 2009; Austin 1981). system is an integral part of the agribusiness sector— indeed, farms are agribusinesses in their own right—this The analysis for this Policy Note made use of two analysis concentrates on enterprises that provide agricul- recent Enterprise Surveys conducted in Bhutan tural inputs, agro-processing, as well as trade and market- (2009 and 2015), information obtained from inter- ing services to farmers and producers of processed goods. views with experts and with other key informants These nonfarm enterprises are crucial for a number of in Bhutan’s agribusiness sector, a literature review, reasons. They can drive the on-farm improvements in and data on the agribusiness sector and wider Bhu- production and productivity that aid in reducing rural tanese economy. The Enterprise Surveys (Box 1) cap- poverty. They also drive structural change within the ture the viewpoint of the private sector and indicate how economy, because the development of agribusinesses can Bhutan’s business-enabling environment, policies, regula- impel the structural and inclusive resource shifts that can tions, and laws might be reformed to improve the compet- transform a primarily agrarian economy into an indus- itiveness of the overall economy or of particular sectors. trial society. Agro-processing industries in the food and Additional fieldwork and a desk review enabled the World beverage manufacturing subsector, also included in the Bank Group team to deepen the analysis broached by the study, are a particularly effective conduit for pulling the Box 1: The Bhutan Enterprise Surveys In June 2015, the World Bank Group conducted an Enterprise this Policy Note in view, the 2015 Enterprise Survey oversampled the Survey in Bhutan, executed by the National Statistics Bureau. This agribusiness sector relative to other sectors in the economy to attain rich data set from a representative sample of firms across Bhutan is a fuller analysis of agribusiness. Of the 367 businesses included in supplemented by data from the 2009 Enterprise Survey. The sur- the 2015 survey, 64 were classified as agribusinesses (17.4 percent). veys cover a broad range of business environment topics, including Agribusinesses include manufacturers of food, beer, soft drinks, tex- access to finance, infrastructure, crime, corruption, competition, and tiles, or paper products; butchers; grocers; wholesalers of agricul- performance measures.† The surveys were conducted through inter- tural products (such as rice and oil); and producers of animal feed. views at firms selected by stratified random sampling drawn from the four most economically active regions in Bhutan. The 2015 survey in Bhutan included microenterprises (fewer than five employees), whereas the 2009 Enterprise Survey did not, The survey respondents were business owners and top managers. explaining the much larger number of agribusinesses in the 2015 The survey teams at times called on company accountants and data. Of the firms surveyed in 2009, 28 were classified as agribusi- human resource managers to answer questions in the surveys’ sales nesses; of these, only 8 persisted in the 2015 survey round. Of the and labor sections. Employee Surveys were conducted at 204 of 222 firms in 2009 not classified as agribusinesses, 104 persisted in the 367 firms sampled in 2015, and a total of 659 employees were 2015. Because of the small size of the 2009 agribusiness sample, the interviewed. panel data provided few insights. For that reason, the primary focus in this Policy Note is on cross-sectional comparisons, although trends The 2009 and 2015 surveys provide a glimpse into the evolution in for the panel are noted where significant. recent years of some circumstances pertinent to the private sector. When possible, the same firms were interviewed in both 2009 and Source: The authors. 2015 to create a firm-level set of panel data. With the purpose of † See http://www.enterprisesurveys.org/methodology. 2 Increasing Agribusiness Growth in Bhutan Enterprise Surveys and to make pertinent recommenda- 100 tions to the MoEA and MoAF. 80 Factor Endowments 60 Percent of Agriculture 40 20 In many respects, Bhutan presents singularly dis- tinctive conditions for agriculture and agribusi- 0 ness. The sections that follow examine the country’s 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 factor endowments for agriculture, paying particular attention to their implications for growth in the agribus- Services, etc., value added (% of GDP) iness sector. Industry, value added (% of GDP) Agriculture, value added (% of GDP) Figure 1:  Share of the Economy by Sector, Bhutan Agricultural Capital Source: World Bank World Development Indicators. Bhutan’s economy has undergone a significant tran- sition in the past decade as the country has sought greater engagement with the world economy metric tons (MT) of fish (MoAF, 2016b).3 The govern- while moving toward growth spurred by industri- ment’s Eleventh Five-Year Plan states that yields per hect- alization and services. Bhutan’s natural endowments are have been declining at a compounded annual rate of (hydropower and minerals) have allowed impressive but 1.84 percent over the last 27 years. This declining pro- variable growth. Growth has ranged from 3.6 percent ductivity contrasts starkly with trends in the rest of the to 12.6 percent per annum over the past 10 years, and world, where agricultural productivity increased on aver- the compounded annual growth rate (CAGR) was 6.75 age from 0.25 percent to 0.50 percent per year, depending percent (World Bank Group 2016c). The development on the region (Wik, Pingali, and Brocai 2008). Many rea- of “industry”—which grew to comprise 43 percent of sons help explain Bhutan’s relatively poor performance in GDP in 2014 (see Figure 1)—has catapulted Bhutan into agriculture. Public-sector investments in agriculture over high-value sectors, despite employing only 11 percent of the last 20 years seem to have declined in parallel with the population.2 In particular, the growth of the metals, the decline in productivity growth. A marked reduction mineral products, hydropower, and chemical sectors have in labor availability, a lack of mechanization, low input come to dominate Bhutan’s export economy. use, and wildlife depredation have also held back produc- tivity advances. While self-sufficiency in food production Although more than half of the population engages is not, and should not, be the goal, Bhutan can gain from in agriculture, Bhutan still relies heavily on signifi- increasing agricultural production and productivity and cant quantities of imported commodities, such as from growing its agribusiness sector. One opportunity cereals, fish, and vegetables. Bhutan imported over lies in diversification and specialization oriented toward US$32.5 million of staple cereals in 2014 and over 3,000 higher-value crops. 2. “Bhutan‘s high economic growth rate of close to 8 percent on Bhutan’s major agricultural products are maize (and average during the past couple of decades should have been enough other cereals), rice, potatoes, citrus, milk, eggs, and to absorb the increased labor force. However, with the changing structure of the economy, growth has been relatively capital-intensive rather than labor-absorbing. At the same time, construction, infra- structure building and hydropower projects have tended to rely on 3. Please note that, according to some accounts, rice imports have foreign labor rather than local labor. Thus, the growing Bhutanese been misreported. This misrepresentation may be due to efforts economy has not absorbed the labor force, currently in exodus from either to gain a subsidy or to avoid a tax. While the alleged misrep- the rural farming areas, to the extent one would have expected” resentation is unconfirmed, such incentives may be distorting official (UNDP 2013). trade data. Increasing Agribusiness Growth in Bhutan 3 Table 1: Agricultural Production (Figure 2), only 10 percent of farmers accounted for in Bhutan 73 percent of sales of horticultural crops (2008 data; Christensen, Fileccia, and Gulliver 2012).5 Commodity Production (MT) Value ($) Rice (paddy) 77,314 47,752,765 Despite the varied perceptions within the Buddhist Maize 66,779 27,497,235 religion regarding the slaughter of animals for con- Potatoes 52,959 19,470,221 sumption, the Bhutanese are fairly significant pro- Mandarin 38,184 32,007,176 Chili 7,312 9,247,529 ducers and consumers of animal products (Figure 3). Wheat 5,647 2,574,368 Bhutan’s cattle population, including yak, was 338,000 in Apple 5,410 4,773,529 2014 (MoAF, Dept. of Livestock, 2016a). Although not a Millet 5,024 1,625,412 large herd in absolute numbers, at 0.45 head per capita, Areca nut 4,036 2,284,376 Bhutan’s livestock levels are nearly twice India’s per capita Mustard 3,578 4,735,588 numbers for cattle and buffalo combined (0.25 head per Beans 3,459 2,085,574 capita). Yet in 2010, 80 percent of Bhutan’s demand for Barley 2,050 841,103 beef, 97 percent of that for fish, and 77 percent of that Cardamom 942 14,320,284 for pork were still met from imports.6 As in many coun- Mushrooms 9 76,412 tries around the world, poultry (chicken) production and consumption are surging in Bhutan (although disease Source: Renewable Natural Resources Census 2009, Vol. I, MoAF. affected output in 2013–14). The very large deficit in domestic pork production (at 0.02 head per capita) ver- spices such as cardamom and ginger (Table 1). Recent sus demand may represent the best opportunity for new trends indicate a noticeable split in primary agriculture: growth in livestock. Fish imports overshadow domestic A decreasing majority of producers grow cereal crops output and will probably continue to do so. Although the for subsistence, and an increasing minority grow high- value horticultural crops for export. Despite producing 5. “A limited number of farmers is engaged [sic] in market activity, staple crops primarily for their own consumption, Bhu- with 10% of farmers accounting for 73% of all crop sales in 2008” (Christensen, Fileccia, and Gulliver 2012). tanese farmers nevertheless are overall net buyers of staple 6. Draft Food and Nutrition Security Policy 2014. commodities. The major horticultural exports are citrus (mandarin), potatoes, chilies, areca nuts, cardamom, and ginger, and several niche crops are also produced or gath- ered (mushrooms, honey, asparagus, hazelnuts, black pep- per, and Sichuan pepper). Since 2011, Bhutan has added Off-farm activities over three million hazelnut trees to its agricultural capi- Horticulture crops tal, and the Mountain Hazelnut Venture (MHV) project intends to establish 10 million trees by 2018.4 This can be Livestock products compared with another of Bhutan’s significant tree crops, Remittances mandarin, which was estimated to consist of 3.3 million Cereal crops trees in 2007 (Joshi and Gurang 2009). Transport services Horticultural crops are a major source of monetary Non-wood forest products income, and many farmers produce them to some 0 50 100 degree. Although the biggest source of monetary income % households reporting for farmers, aside from off-farm activities, is horticulture Figure 2:  Sources of Monetary Income for Farm Households, Bhutan 4. See http://www.mountainhazelnuts.com/faqs/. Source: Renewable Natural Resources Census 2009, Vol. I, MoAF. 4 Increasing Agribusiness Growth in Bhutan 3500 3000 Production 2500 Imports 2000 1500 1000 500 0 2012 2013 2014 2012 2013 2014 2012 2013 2014 2012 2013 2014 Milk (100’s of MT) Chicken (MT) Pork (MT) Fish (MT) Figure 3:  Production Versus Imports of Selected Livestock Products, Bhutan Source: Renewable Natural Resources Census 2009, Vol. I, MoAF. Department of Livestock’s National Centre for Aqua- growth (the CAGR of agricultural value added over 10 culture encourages domestic fish production, the poten- years was 1.69 percent), an overall decline in its share tial seems to be rather limited. In the 2014–15 season, of GDP (17.73 percent in 2014) (Figure 4) and a steady the National Centre for Aquaculture developed just one decline in productivity, as noted above. acre of new ponds (34 in number), with the potential to increase national production by only 26 MT. As for milk, Bhutan’s circumstances somewhat resemble a domestic production is more than double imports. An model originally described by Harris and Todaro opportunity for more import replacement may exist, but (1970), in which the artificially high wages of an the unique segmentation of Bhutan’s fresh milk markets urban job market create an expectation of employ- should be first taken into account. Most domestic produc- ment at a higher-than-market-clearing wage rate. tion is fresh raw milk consumed in the household and/ Ultimately this prospect attracts a greater number of or traded in local markets. Most imports are of whole milk powder, shelf stable and used mainly by industrial 60,000,000,000 producers. To competitively replace whole milk powder Bhutanese Ngultrum 50,000,000,000 with processed, local fresh milk would require efficient large-scale aggregation prior to processing. Bhutan’s nat- 40,000,000,000 ural topographical features, however, present a real con- 30,000,000,000 straint to aggregation. 20,000,000,000 10,000,000,000 Agricultural Labor 0 1980 1983 1986 1989 1992 1995 1998 2001 2004 2007 2010 2013 As in many countries around the world, Bhutan’s population is urbanizing faster than the growth in Services, etc., value added (constant LCU) rural areas, which underlies the movement of labor Industry, value added (constant LCU) from rural areas to cities. The 2005 census docu- Agriculture, value added (constant LCU) mented 111,770 rural-to-urban migrants (World Bank Figure 4:  Sectoral Value Added, in Constant Local Group 2016a). At the same time, primary agriculture, Currency Units (LCUs) traditionally seen as labor-intensive, has witnessed low Source: World Bank World Development Indicators. Increasing Agribusiness Growth in Bhutan 5 individuals than employers can absorb, potentially lead- servants in 2005)9 were followed by a reduction of nearly ing to a substantial increase in unemployment. Artificially 85,000 in the agricultural labor force between 2003 and creating such a dualistic labor market could drain the 2005 (in relative terms, a 36.2 point reduction in the share most talented individuals from productive rural sectors, as of agricultural employment from 79.8 percent to 43.6 per- they move to try their luck with the higher paying urban cent (World Development Indicators). Similarly, a 35 per- jobs.7 Productive resources move from the rural economy cent increase in civil servant wages in 2009 (IMF 2009b)10 to the urban economy where they are underemployed, was followed in 2010 by a 13,400 person reduction in the and meanwhile agricultural productivity falls. This shift agricultural labor force (in relative terms, a nine-point in the labor market also has a gender aspect, in that more reduction from 65.4 percent in 2009 to 59.5 percent in males appear to move to urban areas than females. In 2010).11 Although urban unemployment dropped in this addition, MoAF statistics showed that in 2011 rural areas same period (2009–10) and remains moderate (6.8 per- experienced a gender imbalance of 3.7 percent in favor cent in 2014), and the (mostly unskilled) rural migrants of females, which rose to 7.5 percent among the primary appear to have been absorbed into the urban economy, workforce demographic (ages 15 to 64). the real impact of the RGoB’s employment policy seems to be on youths and in creating underemployment. Male The movement in skilled and unskilled work- underemployment increased from 4.2 percent in 2009 to ers may not be entirely the result of a welfare- 7.1 percent in 2011,12 and youth unemployment in urban improving structural shift in economic opportuni- areas is now 22.8 percent.13 ties. It may also reflect distortions in the labor market and a misallocation of human capital resources. Public- Aside from the influence of such distortions on sector employment policies may be partly responsible labor market equilibrium, they also have the poten- for drawing resources away from primary agriculture tial to affect competitiveness. These trends underlie and agribusinesses in rural areas.8 In understanding such labor market distortions, two factors are important: 9. “There have been three major wage hikes for civil servants since the effective compensation rate (wage plus benefits) for 2005. Civil servant pay was raised by 45 percent in 2005, followed by a further average 10 percent increase in 2006. . . . Past pay revisions, civil servants, and the scale of total public/government while significant and infrequent, were in line with economic growth employment. Bhutan seems to have inflated levels of both and inflation. Nominal wage bill for civil servants increased by about 50 percent between 2004/05 and 2007/08” (IMF 2009b). factors, split unevenly across the rural-urban divide. 10. “While the average civil service wage does not appear to be very high, it is relatively high as a share of GDP and government current expenditures compared with its peer group. After the 2009 pay Although panel data with appropriate variables raise, average wage income of civil servants is estimated to be about and controls are not available for a definitive study, 295 percent of GDP per capita, compared to an average of 300 per- cent in 11 Asian countries and 570 percent in 20 African countries employment statistics show that public-sector reported in a World Bank Group survey. The pay and allowances of labor policies may have had a significant influence Bhutan’s corporate sector, among which most high-performing com- panies are government-owned entities that have monopoly power, on the labor market. Three wage hikes leading up to are about 15 percent higher than comparable civil service positions. 2005 (including a 45 percent increase in wages of civil However, compared to the median level of 53 low-income and lower-middle-income countries, Bhutan spent 1.4 percent of GDP more on wages and salaries during 2000–2008. The recent wage hike is projected to increase public expenditure on wages and salaries by 7. “Rising youth unemployment calls for bold reforms to promote another 1.3 percent of GDP in the next five years” (IMF 2009b). private sector growth and job creation. While total unemployment 11. See http://data.worldbank.org/indicator/SL.AGR.EMPL.ZS/ remained low at 2.9 percent in 2013, youth unemployment was countries/1W-BT?display=graph. 9.6 percent and is on the rise. In addition, there is evidence that 12. UNDP 2013. Similarly, the persistence of high levels (38.5%) underemployment is large, especially in rural areas” (World Bank of long-term male unemployment (http://data.worldbank.org/ Group 2014b). indicator/SL.UEM.LTRM.MA.ZS) suggests that labor markets 8. “These rates are much more pronounced among youth in urban are characterized more by a “sense of cumulative advantage and areas compared to rural areas, rising sharply to 20.2 percent and low-level traps (Nelson 1966; Merton 1968; Doeringer and Piore 29.5 percent for male and female youth respectively” (UNDP 2013). 1971; Boudon 1973; Meade 1976) than as being unified in the sense High rates of urban youth unemployment combined with high rates that the next-best employer is essentially indistinguishable from the of long-term male unemployment in the face of a low national current one” (Fields 2005). unemployment rate reveal troubles in the labor market. 13. See http://www.molhr.gov.bt/blmis/. 6 Increasing Agribusiness Growth in Bhutan Bhutan (2015) 2.8 Myanmar (2014) 19.0 Timor-Leste (2009) 16.5 Philippines (2009) 12.8 Mongolia (2013) 8.5 Lao PDR (2012) 8.4 Fiji (2009) 7.5 Vanuatu (2009) 5.7 China (2012) 4.7 Tonga (2009) 0.6 Samoa (2009) –0.8 –5 0 5 10 15 20 Figure 5: Annual Labor Productivity Growth, Bhutan and Comparator Countries Source: Enterprise Surveys (www.enterprisesurveys.org). The World Bank. a more nuanced movement of the labor force, in which policies, Bhutan falls well below most regional bench- rural “skilled” labor migrates from traditional agricultural marks. Public employment policies have important effects activities to formal urban sectors in greater numbers. To on the overall competitiveness of the private sector and gain some insights on this and its potential impact on potential differential effects on agribusinesses (Figure 5). agribusiness, the team benchmarked annualized labor Agribusinesses arguably rely more on agricultural pro- costs and productivity growth for the Bhutanese economy ductivity and skilled rural labor, both of which appear at large against comparator countries. Labor costs were to be in decline due to the pull of skilled labor into the 45 percent higher in Bhutan than in neighboring India, urban job market, possibly driven largely by public-sector according to the 2010 Bhutan Investment Climate Assess- wage hikes. ment Report (World Bank 2010).14 Annualized labor pro- ductivity for several comparator countries was calculated Agricultural Land using Enterprise Survey data.15 Although growth in labor The same terrain16 that gives Bhutan its major productivity is driven by more than simple labor market export, hydropower-generated energy, creates a unique and challenging environment for agricul- 14. “Labor costs are higher in Bhutan than in neighboring countries, ture. Bhutan is situated in the southern portion of the highlighting the need to raise productivity to remain competitive. Eastern Himalayas and has five major rivers, all emp- Average labor costs in Bhutan work out to be almost 45 percent higher than in India. However, costs alone do not determine compet- tying into the Brahmaputra River in India. The rivers itiveness: they need to be weighed against labor productivity” (World of the Eastern Himalayas provide water for over a bil- Bank 2010). 15. The Enterprise Surveys measure annualized growth in labor pro- lion people (UNDP 2013a). Over 30 percent of agricul- ductivity where labor productivity is real sales (using GDP deflators) tural land is located on slopes of more than 50 degrees divided by full-time permanent workers. Annual labor productivity growth is the change in labor productivity reported in the current (RGoB 2014), and much of Bhutan’s limited agricultural fiscal year from a previous period. For most countries the difference land is being lost to nonagricultural development: The between the two fiscal year periods is two years, although for some countries the interval is three years; for that reason, an annualized measure is used. All values for sales are converted to US dollars using 16. With its mountainous terrain, Bhutan has approximately 95,000 the exchange rate in the corresponding fiscal year of the survey. Sales hectares of agricultural land; 70 percent is dry land, 20 percent is are then deflated to 2009 using the US dollar deflator. wetland, and 10 percent is land dedicated to cash crops/orchards. Increasing Agribusiness Growth in Bhutan 7 MoAF estimates that agricultural land surpassing 2,000 hectares was converted to nonagricultural uses between Institutions Supporting 1998 and 2009 (RGoB 2014). Bhutan’s admirable policy and Governing of maintaining at least 60 percent of land under forest Agribusiness cover presents another challenge for agriculture.17 While The institutional landscape is as important to the everything must be done to encourage and reward Bhu- growth of Bhutanese agribusiness as the physical tan for this contribution to protecting the environment, landscape is to agriculture. The sections that follow preserving biodiversity, and mitigating climate change, review the range of public, private, and nongovernmen- such environmental conservation efforts, in addition to tal institutions with a bearing on the prospects for agri- the challenges posed by the natural landscape itself, limit business in Bhutan. options to engage in more extensive agriculture. The nature of the landscape also inhibits farm Ministry of Agriculture mechanization, compounding the emerging issues and Forests of labor scarcity and low labor productivity. Nor- Agriculture in Bhutan is considered, along with for- mally, low labor availability and rising costs of day labor ests, to be part of the Renewable Natural Resources would create a strong push toward mechanization, yet (RNR) sector. The MoAF oversees the RNR sector, with most Bhutanese farmers still use animal traction. Agri- the dual objective of protecting forests and the environ- cultural land is 2,400 meters above sea level on average, ment and of creating a commercial agricultural sector. mostly on steep slopes with narrow terraces that restrict The MoAF has established several departments, agen- options for farm mechanization. Because the possibilities cies, and public-sector programs to support agriculture for using four-wheeled tractors are quite limited, two- and agribusiness: wheeled tractors and power tillers are seen as the best bets »» The Department of Agricultural Market- for mechanizing farm operations, yet even two-wheeled ing and Cooperatives (DAMC) was created as tractors are infrequently used. a key agency for the development of a commercial agricultural sector. These factors constrain Bhutan’s competitiveness »» The Bhutan Agriculture and Food Regu- in agriculture, especially in crops best suited to latory Authority (BAFRA) is responsible for a extensive agricultural production systems, such as host of regulatory functions, including food safety, maize and rice, and make access to markets more animal health, environmental protection, plant costly. Bhutan’s agricultural landscape is thus better health, quality control for agricultural inputs, and suited to production of higher-value crops, with better biosafety (including avian influenza and similar margins per hectare of land that enable farmers to absorb biosafety threats). the higher costs of transport and distribution. »» The (newly restructured) Agricultural Machin- ery Center (AMC)18 promotes and supports farm mechanization through the procurement and subsidized sale of agricultural machines; farm machinery training and research; and direct service provision. The AMC recently handed its private-sector functions in machinery sales and 17. Bhutan’s conscious strategy of maintaining its forests makes it a service provision to a state-owned enterprise, great candidate to benefit from REDD+, the global initiative focused on reducing emissions from deforestation and forest degradation. Bhutan is engaging in discussions with the UN REDD Program; it is hoped that the country will get credit for its excellent, longstanding 18. In July 2016, the original AMC was restructured into two sep- conservation efforts (see the Prime Minister’s Ted Talk: https://www arate entities: the revised AMC brief focuses on training, research, .ted.com/talks/tshering_tobgay_this_country_isn_t_just_carbon_ and development, while the newly created FMCL focuses on sales neutral_it_s_carbon_negative). and after-service support. 8 Increasing Agribusiness Growth in Bhutan the Farm Mechanization Corporation Limited services such as business management training, making (FMCL). business to business linkages and facilitating access to »» The National Plant Protection Centre pro- finance. They have also conducted market studies and cures and distributes pesticides and herbicides for identified opportunities in key value chains that are most all crops except rice. relevant to Bhutan’s MSMEs. »» The National Seed Centre is responsible for seed and seedling multiplication and distribution The MoEA created the Brand Bhutan Initiative to and the procurement and distribution of fertilizer promote Bhutan to the outside world, along with and rice herbicide. the export of premium goods and services originat- »» The Department of Agriculture advises the ing in Bhutan, including agricultural products. ministry on agricultural policy. They employ agri- cultural economists to examine the state of agri- The MoEA supports the Department of Cottage business in Bhutan. This unit may be best placed and Small Industries (DCSI). DCSI supports MSMEs to liaise between agriculture and agribusiness. through the establishment of a better business enabling environment, the provision of business development ser- vices such as business management training, making busi- Ministry of Economic Affairs ness to business linkages and facilitating access to finance. As noted, the MoEA is responsible for developing They have also conducted market studies and identified the new Economic Development Policy, a key stra- opportunities in key value chains that are most relevant to tegic planning document for all sectors in Bhutan, Bhutan’s MSMEs. including agribusiness. The aims of the 2010 Eco- nomic Development Policy include encouraging commer- The MoEA states in its draft of the Economic Devel- cial farming by offering a ten-year tax break to farmers opment Policy that, once developed, Brand Bhu- or companies and an additional five-year tax break for tan will indicate to consumers that the product or commercial organic farming. service offered embodies the principles of Gross National Happiness (for example, being sensitive to The MoEA supports the Department of Cottage Bhutanese culture, natural/organic, community-centric, and Small Industries (DCSI). DCSI supports MSMEs and reflective of Bhutan’s unspoiled environment). through the establishment of a better business enabling environment, the provision of business development State-Supported Enterprises The RGoB has established several state-owned enterprises or quasi-state-owned enterprises to replace rural private-sector initiatives perceived to be lagging. These enterprises include initiatives focused on input provision and processing, marketing, and export- ing agricultural products. The Food Corporation of Bhutan Ltd. (FCB), estab- lished in 1974 under a Royal Charter, has both public and private functions. One public-sector objective of the FCB is to catalyze growth in the agricultural sector by providing market outlets for Bhutan’s surplus production. The FCB sometimes acts as a trader in the marketplace, Figure 6: Brand Bhutan Logo buying and selling agricultural products from producers Source: Dept. of Trade, MoEA. and selling to other traders and processors. The FCB also Increasing Agribusiness Growth in Bhutan 9 provides an auction platform for the sale of agricultural small-industry development and in maintaining products. The corporation’s full set of mandated activities trade relations with India. BCCI has hosted several includes procuring and distributing food grains; promot- trade fairs within Bhutan, attended by Bhutanese and ing trade in agricultural and horticultural produce; con- Indian firms. The BCCI maintains active relations with structing and operating adequate warehouses; managing two of India’s principal business membership organiza- and operating auction centers; facilitating the marketing tions, the Federation of Indian Chambers of Commerce of domestic products; maintaining and servicing national and Industry and the Confederation of Indian Industries. and regional19 food security reserves and distribution; and administering and supervising the functioning of Coop- The Bhutan Exporters Association (BEA) oper- erative Marketing Societies.20 ates under the umbrella of the BCCI. Its activities and headquarters are centered in Phuentsholing. They The FCB is also responsible for training and staffing mainly serve as a policy and regulatory reform advocacy Farm Shops managers. Farm Shops were established body representing exporters, but they also provide train- by the DAMC to provide services to farmers in the most ing to their 150 members on various trade-related topics, remote rural areas by selling subsidized staple goods (such including access to and utilization of trade finance. as rice, oil, salt, and soap) to vulnerable and poor rural residents, selling inputs, and purchasing and marketing Development Partners primary agricultural products. The World Bank Group will start to implement an irrigation and rural livelihoods project in south- Bhutan Agro Industries Limited (BAIL) is a state- western Bhutan. The Food Security and Agriculture owned fruit and vegetable processing company, Productivity Project (FSAPP) supports the government’s established in 1993 with Danida funding.21 BAIL’s efforts to reduce rural poverty, food insecurity, and high mandate is to serve as a center of excellence for food levels of malnutrition through climate-smart approaches processing in Bhutan and to set up demonstrations to to improve agricultural productivity, food and nutrition improve awareness of the economic feasibility of pro- security, and farmers’ access to local and export mar- cessing specific fruit and vegetable products, yet it too kets. It addresses the interconnected problems faced by operates almost predominantly as a private-sector man- farmers and rural households through a set of integrated, ufacturer of processed food products, such that it is fairly consolidated, area-specific interventions responsive to indistinguishable from a private-sector actor. local constraints, potentials, and priorities. The project has multiple responsibilities, but three of the most central The Bhutan Development Bank Ltd. was given its are (1) supporting farmers, as the primary beneficiaries development bank mandate in 2010. Since then, it has and lead players in food security, nutrition, and com- been working to enhance access to financial services for mercialization of agriculture; (2) improving productiv- farmers and the rural poor. Among other approaches, it ity of food crops (rice, potatoes, vegetables, and pulses) has developed a number of non-collateralized loan prod- and of high-value crops (vegetables, citrus, and spices, ucts serving both individuals and small businesses. especially largely cardamom and ginger) for greater food security and nutrition; and (3) linking farmers to agri- Business Associations markets through a value-chain approach. The project will The Bhutan Chamber of Commerce and Indus- be implemented in Bhutan’s five southwestern districts: try (BCCI) is active in promoting cottage- and Chukha, Dagana, Haa, Samtse, and Sarpang. 19. The regional reserves of the South Asia Association for Regional The World Bank also supports an ongoing agri- Cooperation (SAARC). culture project, the Remote Rural Communities 20. See http://www.fcbl.bt/background.php. 21. Danida is the Danish International Development Agency. For Development Project (RRCDP), investing in staple more information on the project, see http://www.btnagro.bt/. commodities (rice, maize, and potatoes) and rural 10 Increasing Agribusiness Growth in Bhutan infrastructure (irrigation and farm roads) in Bhu- Trashiyangtse, and Trashigang) with high production tan’s southwestern and south central districts. and marketing potential in selected value chains. The RRCDP is designed to improve living conditions and incomes in the country’s poorer and more remote rural The Food and Agriculture Organization (FAO) has areas.22 maintained a presence in Bhutan since the mid- 1980s. It mostly provides technical assistance to MoAF In eastern Bhutan, the International Fund for Agri- on policy and strategy development in the agricultural cultural Development (IFAD) supports efforts to sector. improve rural livelihoods by fostering a transition to commercial agriculture through increased agri- Helvetas and the Swiss Agency for Development cultural productivity and better market linkages and Cooperation became development partners for farmers. The Commercial Agriculture and Resilient with Bhutan in the 1960s. Today, Helvetas Swiss Livelihoods Enhancement Programme (CARLEP) seeks Interoperation provides assistance to Bhutan in rural live- to transform the subsistence-based rural agricultural lihood development, governance, and skills development. economy into a market-driven productive sector based Under the rubric of rural livelihood development, Helve- on the development of sustainable agricultural value tas currently runs programs to help form producer orga- chains. Building on current and previous IFAD inter- nizations and to improve certain key value chains, such as ventions focused on increased agricultural production, dairy, vegetables, and non-wood forest products. CARLEP makes a basic shift in approach toward market- ing and climate-resilient farming practices, with the goal SNV, a Dutch NGO, has worked in Bhutan since of sustainably increasing smallholder farmers’ incomes 1998. In partnership with the Asian Development Bank and reducing rural poverty. To that end, it strengthens and IFAD, SNV implements programs to develop coop- capacity in communities and local institutions, targeting eratives and improve irrigation, farm-to-market roads, selected gewogs (groups of villages) in six eastern districts and market access for smallholder farmers. (Lhuntse, Mongar, Pemagatshel, Samdrup Jongkhar, Various microfinance projects target rural, agricul- tural households. RENEW, a nonprofit organization founded by Her Majesty the Queen Mother, implements a microfinance project to offer microloans, savings oppor- 22. The main objective of the project is to increase agricultural tunities, credit facilities, and insurance services to rural productivity in remote rural areas by improving access to markets, women. The Bhutan Development Bank recently intro- irrigation, agricultural technologies, and community infrastructure. Improvement in market access would be achieved by investments duced lockboxes to encourage savings in rural areas. The in farm roads and marketing infrastructure. Agricultural productiv- Business Opportunity and Information Center, an auton- ity and rural incomes would increase through improved irrigation and agronomic practices and rehabilitation of productive assets for omous agency of the Royal Government of Bhutan, key commodities. Community-led investments in the selected area offers a revolving fund for cottage industries and nonfor- will improve access for the poorest people to critical and missing infrastructure. mal rural activities. Increasing Agribusiness Growth in Bhutan 11 Rice transplantation in Tang Valley, 2014 Analysis The analysis that follows examines Bhutan’s agribusiness sector from several perspectives. Starting with summary data on the sector’s per- formance and composition, the analysis moves into a deeper exploration of the effects of the enabling environment, trade issues, and investment patterns on the sector’s performance and prospects. Composition of the Agribusiness Sector The Enterprise Survey also reaveals that agribusinesses in Bhutan are primarily microenterprises operating as sole proprietorships and are geographically concentrated in the Thimpu/Paro region. In the 2015 Enterprise Survey, 64 of the 367 sampled firms were agribusinesses. Extrap- olating to the full population, agribusinesses make up 20.2 percent of the firms in the Bhutanese economy: 726 of 3,592 firms in the total population. As Figure 7 indicates, the majority of agribusinesses (55 percent) are in the Thimphu/Paro region, 19 percent are in Gelephu/Sarpang, 16 percent are in Phuentsholing, and 10 percent are in Samdrup Jongkhar. The regional distri- bution is similar across other sectors, with one in two firms located in Thim- phu/Paro and one in ten located in Samdrup Jongkhar (Appendix 2, Table 1). Bhutanese agribusinesses are smaller than businesses in other sec- tors. The Enterprise Survey shows that 91 percent of agribusinesses are microenterprises (in other words, they have fewer than five employees) (Fig- ure 8). No agribusiness has more than 100 employees (the definition of a large firm for Bhutan); 6 percent are small enterprises (5–19 employees); and 3 percent are medium enterprises (20–99 employees). Firms outside the agri- business sector are much less likely to be microenterprises: Only 68 percent have fewer than five employees. Significantly more small and medium enter- prises (SMEs) also exist outside of the agribusiness sector (24 percent). Bhutan generally has few large enterprises: Even among non-agribusiness firms, only 1 percent have more than 100 employees (Appendix 2, Table 1). 13 The agribusiness sector as a whole was younger in 2015 compared to 2009. The average firm age in 76 2015 was 9.4 years, down from 20.8 years in 2009. The 135 trend is similar in other sectors and appears to be driven by the number of microenterprises. Data on the age of microenterprises are not available for 2009, but in 2015 117 the average age of micro-agribusinesses was 8.9 years, sig- 399 nificantly younger than the average age of 14.3 years for small and medium agribusinesses (Appendix 2, Tables 1 and 2). Performance of the Thimphu/Paro Gelephu/Sarpang Agribusiness Sector Phuentsholing Samdrup Jongkhar Agribusinesses in Bhutan perform at a lower level than do other sectors, based on real annual sales Figure 7: Distribution of Agribusinesses by Region, Bhutan growth and annual labor productivity figures from Source: World Bank Group staff estimates based on Bhutan Enterprise the 2015 Enterprise Survey (Appendix 2, Table 7). Survey 2015. Labels are population estimates of firm number. Real annual sales growth is 4.1 percent for agribusinesses overall, compared to 10 percent for other businesses Sole partnerships are estimated to be 99.7 percent (Appendix 2, Table 2). These differences disappear after of agribusinesses (725 firms). Sole proprietorships controlling for size of firm, however, indicating that lower are common across all sectors, making up 91 percent of performance is correlated with, and may even be driven the population of other firms (3,260 of the population by, the predominance of very small, young firms.23 of 3,592 firms). Compared to the agribusiness sector, however, firms in other sectors have significantly more firms that are not sole proprietorships: 6 percent are 23. Often the size of a firm is a significant determinant of outcomes for a range of parameters, and because most agribusinesses are partnerships or limited partnerships and 2.5 percent are microenterprises (91 percent), sector effects can sometimes be con- privately-held limited liability corporations (Appendix 2, flated with size effects. For that reason, this analysis controls for size effects and the results discussion notes when significant differences in Table 1). certain parameters may be explained by size effects. 21 34 45 258 Microenterprise (0–4) Small (5–19) 851 Medium (20–99) Large (100+) 661 2449 Agribusinesses All other sectors Figure 8: Firm Size in Agribusiness and Other Sectors, Bhutan Source: World Bank Group staff estimates based on Bhutan Enterprise Survey 2015. Labels are population estimates of firm number. 14 Increasing Agribusiness Growth in Bhutan All other sectors Agribusinesses 0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 1 Sole proprietorship Partnership Limited partnership Privately-held LLC Publicly listed Figure 9: Legal Status of Agribusiness Firms and Firms in Other Sectors, Bhutan Source: World Bank Group staff estimates based on Bhutan Enterprise Survey 2015. Agribusinesses differ in significant ways from Although most of Bhutan’s agribusinesses are very businesses in other sectors, and not surprisingly small firms and studies of the factors behind SME their perceptions about the environment in which growth show that regulatory compliance costs fall they operate tend to differ as well. Data from the disproportionately on small businesses (Crain and Enterprise Survey allows us to explore these perceptions Crain 2010), the Enterprise Survey data did not and provide some indications of reasons for the relatively indicate that Bhutan’s agribusinesses were dispro- slower growth of agribusiness firms. The critical con- portionately affected by regulatory burdens. Unlike cerns and trends pertain to the legal and regulatory con- firms in other sectors, agribusinesses are significantly less text, subsidies and incentives, access to finance, and the likely to identify their primary constraint as labor reg- capacity for innovation. ulations, transport, licensing and permits, electricity, or crime, theft, and disorder (Appendix 2, Table 1). Agri- businesses likely perceive labor regulations as less con- Legal and Regulatory Frameworks straining because most are microenterprises, and like Compared to other businesses in Bhutan, agri- microbusinesses in all sectors, they tend to rely little on businesses perceive their operating environment non-Bhutanese workers. significantly differently. Agribusinesses perceive their biggest obstacles in the business environment to Overall, the RGoB provides good support for be access to finance, tax rates, and informal competitors trade-related procedures, including export permits (Figure 10). Agribusinesses are twice as likely as other and sanitary and phytosanitary certification.24 Members of the BEA regarded BAFRA’s cooperation businesses to identify tax rates as the most important con- with traders highly favorably, noting that BAFRA staff straint: 22 percent (of 160 agribusinesses surveyed) did regularly choose to work overtime to get as many trucks so, compared to 11 percent of other businesses (Appen- across the border as possible prior to imminent strikes in dix 2, Table 1). This is unexpected, since the agribusi- India or Bangladesh. It is also noteworthy that Enterprise ness sector receives many tax breaks. For example, farm Survey data and the Doing Business Indicators indicate machinery and agricultural inputs are exempt from sales respondents’ perceptions that informal fees requested tax and import duties (RGoB 2014); agricultural outputs and corruption are very low at all levels of government. and inputs are exempt from internal and export taxes; and agricultural wages are not subject to income tax. BEA members raised the only tax-rate complaint the team considered well-founded: They consider the tax 24. Most agribusiness firms responding to the Bhutan Enterprise Surveys reported needing only one day to clear customs (ques- code unfavorable to seasonal businesses, and seasonality tion D4). Imports fare a little worse than exports (as confirmed in is characteristic of many agribusinesses. the question D14), and while the difference is not significant, it is important to note that a number of agribusiness firms in the sample indicated that their operations required imported inputs. Increasing Agribusiness Growth in Bhutan 15 37% Access to finance 40% 11% Tax rates 22% 4% Informal competitors 5% 16% Labor regulations 4% 1% Inadequately educated workforce 2% 5% Customs and trade regulation 1% 5% Electricity 1% 2% Access to land 1% 4% Crime, theft, disorder 0% 2% Licensing & permits 0% 3% Transport 0% 2% Political instability 0% 0% 5% 10% 15% 20% 25% 30% 35% 40% Other businesses Agribusiness Figure 10: Top Business Environment Obstacles as Perceived by Firms in Bhutan Source: Bhutan Enterprise Survey 2015. Despite favorable views of border services for trad- and 2). The relatively lower performance of agribusi- ers and agribusinesses’ perception that licensing ness firms noted over this time span cannot therefore be and permits are not their most important obstacle, explained by a proportionately greater regulatory bur- senior agribusiness managers interviewed for the den. The question remains: What is causing the relatively Enterprise Surveys appeared to spend consider- slower growth of Bhutan’s agribusiness firms relative to ably more time complying with government regula- firms in other sectors? tions in 2015 than 2009. In 2009, regulations took up 7.4 percent of senior managers’ time; by 2015, that activ- Subsidies and Incentives ity had increased by more than half, consuming 12.2 per- Growth in the agricultural sector is a critical com- cent of senior managers’ time. The time commitment ponent of the MoEA’s Economic Development Pol- indicated in the 2015 survey, however, is actually closer icy, yet government agricultural programs have to the reality for firms in other sectors of the economy. In been underfunded until recently, and the types of other words, agribusiness managers in 2009 spent signifi- support provided may still not be the most effec- cantly less time dealing with government regulations than tive means of promoting sustainable growth in did their counterparts in other sectors; by 2015 this dif- agriculture. More specifically: ference was no longer detectable (Appendix 2, Tables 1 16 Increasing Agribusiness Growth in Bhutan In Bhutan public expenditure on agricultural develop- the same activity budget, the MoAF also bought and hired ment as a percentage of total expenditures has been out agricultural equipment, ostensibly replacing private- gradually in decline from the Fifth Plan (1981–86) sector purchases, for a total of $954,970, or 18 percent onward. This figure stood at 9 percent of total expen- of the remaining activity budget. Finally, they managed ditures in the Fifth Plan, and had decreased to 3.1 per- several megafarms and demonstration farms, which com- cent during the Eighth Plan (1997–2002). The share pete with private businesses by selling their products into increased to 6.5 percent in the Ninth Plan (2002–2007), the same markets (MoF 2014). This raises the concern but experienced a slight decrease, to 5.5 percent, in that MoAF subsidies pursue a production-led strategy the 10th Plan (2008–2013). In parallel, agricultural rather than a demand-driven, market-led strategy. growth had fallen almost continuously since 2001, from 5 percent, reaching 0.4 percent in 2007 (Kakra The Farm Shops program illustrates how the pub- and Bhattacharjee 2009, 75). lic sector can affect the creation and growth of the private sector. To address low input use on small In the past, the government appears to have grad- farms, the MoAF established a public-sector network to ually shifted resources from the RNR sector to supply inputs, known initially as One-Stop-Shops and other public expenditure items when alternative now known as Farm Shops. This program was created investments promised quick gains in other sectors. under the DAMC, and the FCB is responsible for hiring The government responded to this trend by dedicating and training Farm Shops managers and providing market US$64 million (11 percent of the national budget) to links to and from the Farm Shops. Farm Shops are meant the RNR sector in fiscal 2014­ –15, and it has adopted a to increase the access to, and use of, inputs by all farmers policy to expand growth in the RNR sector through a in Bhutan, to provide an off-take market, and to provide strategy that gradually transitions smallholder produc- a safety net for vulnerable households by selling subsi- ers from subsistence agriculture to commercial farm- dized staple goods. Currently 16 shops are in operation ing (RGoB 2014). This new direction makes the role of in eastern Bhutan. Despite plans to expand the shops to agribusinesses—which provide many of the opportu- all gewogs, the program has come under scrutiny, and it nities to add value in agriculture (for example, through may be eliminated. Many local shop owners complain of input supply, transport, mechanization, trade, and mar- unfair competition from the Farm Shops. Ironically, the keting services)—ever more important to the RNR sec- Farm Shops, meant to support the local rural economy, tor strategy. The question now is whether this support is may instead be threatening the few rural enterprises that maximally effective. have emerged by competing with local shop owners and potential private-sector input suppliers (Box 2). The MoAF directly supports the agricultural sector through various programs and subsidies. Much of The MoAF channels much of its support for the the ministry’s investment in agribusiness focuses on sup- marketing and value-addition aspects of agribusi- porting production rather than activities downstream in ness through various public agencies that perform the value chain, such as aggregation, distribution, export, distinctly private-sector functions. These state- and marketing. MoAF’s main activity budget allocates a supported, or state-initiated, entities were created to total of US$9.78 million (65 percent) to road and irri- address perceived market failures in the agribusiness gation construction. The remainder of the activity bud- sector, but their continued existence (in their current get, US$5.25 million, provides fish stock (US$240,000 or form) may be creating distortions in labor and product 5 percent), parent stock for pork and chicken (US$480,000 markets and may be limiting the number and growth of or 9 percent), and vegetable seed (US$350,000 or 7 per- private agribusiness firms. As noted, the Enterprise Sur- cent), and only US$120,000 (2 percent) was channeled to veys identified no large agribusiness firms in Bhutan, and market sheds and collection centers (MoF 2014). Under only 3 percent could be considered medium sized. On Increasing Agribusiness Growth in Bhutan 17 do so. For example, it manages regional and national Box 2: Local Businesses Describe Competition from Farm Shops in Bhutan food stocks, releasing stocks, sometimes at the govern- ment’s request, to mitigate price swings in the markets. The [Sanam Tshongkhag] Farm Shop in Rangjung, Trashigang, Each of these entities compete with potential private- was inaugurated on July 15 last year to cater to the farmers of sector entrants into the agribusiness sector, which are eight gewogs in Trashigang. The 33 shopkeepers of Rangjung had appealed to the dzongkhag [Bhutan’s administrative and judicial now mostly microenterprises, yet these are relatively large district] administration objecting to the sale of basic food essential entities that enjoy some form of state support. The ques- items. . . . Tashi Dorji, a shopkeeper, said the close proximity of tion must be raised whether the RGoB provides a level the shop to the town was affecting their business. Consumers were playing field for potential new private-sector agribusiness opting for goods from the Farm Shop. entrants. Tshogpa of Rangjung town, Jambay, said the Farm Shop was purchasing essential items from the Food Corporation of Bhutan Furthermore, subsidies are provided to Bhutan’s (FCB) just like the shopkeepers did. “But the Farm Shop sold at a agribusiness sector in ways that risk diminishing lower rate than ours. Other shopkeepers were running on loss. We simply couldn’t compete,” said Jambay. the choices open to farmers and reducing the like- lihood that farmers will innovate or diversify. For Source: Kuensel Online, 5 April 2016. example, vegetable and rice farmers are given prepack- aged sets of inputs. Providing crop-specific subsidies dic- tates production choices: Similar support is not available the other hand, these quasi-public-sector firms could be for other commodities, and therefore cash-poor farmers considered either medium or large sized, thus amplifying are much more likely to choose to grow the subsidized their potential to influence the sector. commodity, suppressing any urge to diversify, innovate, or pursue other market opportunities. The best practice Examples of public agencies that serve essen- in managing subsidies allows farmers a wider choice of tially private-sector functions are the BAIL, AMC, crop type and input vendor. Such subsidies also deter DAMC, and megafarms. The BAIL is a publicly sup- investment by private-sector support services, such as ported agency that develops, distributes, and markets seed companies, fertilizer importers, and distributors. value-added (processed) agricultural goods just like any The presence of public-sector-generated subsidies and private-sector food processor. Other than Druk Brewery, incentives may mask truly market-based incentives, no similarly large, private food processor has emerged in thereby negatively affecting the growth of private-sector Bhutan. Despite the AMC’s long-term efforts to promote agribusinesses. and support farm mechanization by subsidizing sales of machinery and spare parts (and the exemption of farm Access to Finance machinery from sales taxes and import duties),25 FAO The Enterprise Surveys indicated that agribusi- reports that only 8 percent of farmers used a power tiller nesses are less banked than businesses in other in 2008. The FCB buys and sells agricultural produce, sectors. Agribusinesses use banks less often to finance creating a market for products even in remote areas. either working capital (7 percent of agribusinesses as Although it claims to be privately operated, the FCB also compared to 22 percent other sector businesses) or invest- performs functions resembling those of public agencies, ments (2 percent of agribusinesses compared to 5 per- and it is certainly supported through public funding to cent of other sector businesses). These results may be driven by the composition of the agribusiness sector. Microenterprises dominate the agribusiness sector across 25. See DAMC (undated); MoAF (2013b) states: “Economic Devel- opment Policy, 2010. In order to encourage commercial farming, the economy, and microbusinesses use banks to finance the EDP offers 10-year tax breaks to farms or companies and an investments or working capital at significantly lower rates additional five-year tax break for commercial organic farming. Sales tax and import duties are also exempted for farm machineries and than do larger businesses. Indeed, microenterprises fall agricultural inputs.” lower on all financial access indicators (Appendix 2, 18 Increasing Agribusiness Growth in Bhutan Table 6). Agribusinesses are also significantly less likely Access to bank financing matters if agribusinesses to have their annual financial statements reviewed by an are to grow and innovate. For agribusinesses, using a external auditor: only 3 percent of agribusinesses do so, bank to finance investments or working capital is associated as compared to 19 percent of other businesses. This dif- with an increase in real annual sales growth of 0.16 per- ference, again, is driven by the prevalence of microenter- centage points and annual labor productivity growth of prises in the sector: Across the economy, microenterprises 0.21 percentage points. When controlled for firm size and are 33 percentage points less likely to have statements access to loans, however, the finding becomes less robust. reviewed by an external auditor than are their larger Furthermore, being “banked” overall is associated with counterparts (Appendix 2, Table 15). an increase in the proportion of all firms buying fixed assets (by 24 percentage points) and an increase in the Even so, since 2009 agribusinesses have increased likelihood of innovating (by 60 percentage points), even their access to finance, and their perceptions about when controlling for firm size, access to loans, and region access to credit have also improved. In 2009, 45 per- (Appendix 2, Table 17). The improvements in access to cent of agribusinesses ranked poor access to finance as the finance should bode well for the future growth of agribus- top obstacle to their operations, compared to only 19 per- iness, but room for improvement in the financial sector cent of businesses in other sectors. By 2015, the propor- remains possible, especially in trade finance. The BDB, tion of agribusinesses identifying access to finance as their the primary financier of agribusiness in Bhutan, cannot top obstacle had decreased by 11 percent (5 percentage offer letters of credit, provide factoring, or handle foreign points). The same improvement was not seen in other exchange transactions. For additional information on the sectors: Access to finance remained the top obstacle for BDB’s loan products, see Box 3. non-agribusinesses in 2015, and the proportion of firms ranking it first increased from 19 percent to 37 percent Current BDB loan products encourage cooperative (Appendix 2, Tables 1 and 2). Controlling for firm size, ownership over—and sometimes to the exclusion agribusinesses with five or more employees are 13 percent- of—private individual ownership. For example, the age points less likely than firms in other sectors to report BDB makes group loans under the Group Loan Lending access to finance as their biggest obstacle (Appendix 2, Scheme at a rate of 10 percent, while individual loans Table 5). In addition, the proportion of firms reporting are made at 12 percent. Greenhouse subsidies for veg- that they did not need a loan increased dramatically: from etable producers favor group ownership over individ- 26 percent to 58 percent of firms in the cross-section, and ual ownership, as well; the group subsidy is 40 percent from 15 percent to 68 percent for the panel. This trend is similar for other sectors, suggesting an economy-wide improvement (Appendix 2, Tables 3 and 4). Box 3: Bhutan Development Bank Lending Products for Producers and Agribusinesses Agribusinesses report a greater reliance on exter- The BDB is the only bank focusing on farmers. Since 2010, it has nal financing than do other sector firms. By 2015, made substantial efforts to offer credit to agribusinesses, initiating 17 percent of agribusinesses (all with at least five employ- an Industrial Lending program to provide long-term finance and ees) used banks to finance investments, while none had working capital for industrial and agro-based ventures. It has also introduced a Farmers Outreach banking program that sends field reported doing so in 2009. The share of investments officers to visit farmers to disburse loans, collect payments, and financed internally dropped by more than half, from make deposits and withdrawals. In providing loans to farmers, the 93 percent to 44 percent. The trend in other sectors is just BDB has also made an effort to use land as collateral and has devel- the opposite: The proportion of non-agribusinesses using oped some non-collateralized products based on solidarity princi- ples, providing small loans to groups of three to seven farmers and banks to finance investments dropped from 35 percent in even to groups of three or more small and medium enterprises. 2009 to 16 percent in 2015, and the share of investments financed internally increased from 48 percent to 64 per- Source: Bhutan Development Bank, Ltd. Key Informant Interview cent (Appendix 2, Tables 1 and 2). 2016. Increasing Agribusiness Growth in Bhutan 19 of the capital cost, but individual farmers receive only (one of the objectives of Bhutan’s Waste Prevention 20 percent. Reducing bias in subsidies and providing and Management Act of 2009). According to FAO balanced incentives to both individual and cooperative (FAO 2011), our food systems waste more than 1/3 of the owners might support the development of a more diverse world’s food (more than a billion tons per year). Losses in and likely larger range of private agribusiness in Bhutan, South Asia are estimated to be some of the highest in the including especially individual service providers. world (greater than 50% along the entire value chain), but evidence indicates that investments in post-harvest handling, processing and distribution can significantly Innovation reduce these losses. FAO shows that post-harvest food Based on an indicator for innovation constructed losses are significantly less for industrialized regions; i.e., from a subset of questions/responses from the 39% of fruits and vegetables that come off the farm in Enterprise Surveys, agribusiness firms appear to South Asia are lost during post-harvest handling, process- be half as likely to innovate as firms in other sec- ing and distribution; whereas losses at those points in the tors.26 Only 17 percent of agribusinesses are considered value chain are much less in industrialized Asia (17%) innovative, as compared to 35 percent of other-sector and in Europe (16%). businesses. Micro-agribusinesses are 18 percentage points less likely to have introduced an innovation than are firms Beyond incubation activities, agribusiness firms in other sectors, even after controlling for region, work- serving output organizing functions (for example, ers’ levels of education, and firms’ access to bank services as fresh exporters, agro-processors, or wholesal- and credit (Appendix 2, Table 18). Given the prevalence ers) need to build specific capacities for engaging of microenterprises in Bhutanese agribusiness, evidence in the global value chain; in particular they need the suggests that catalyzing firm-level learning would assist ability to sustain marketing contacts abroad. Inter- their growth into progressively larger enterprises, and ventions to support incubation of microenterprises could help them to add more value to what they produce and provide firms an array of training opportunities: reduce losses. To improve the degree of such innovation, »» Sector-specific capacities: An introduction to Bhutan could both promote an effective innovation policy food-processing technologies and associated meth- framework and support agribusiness incubators to train ods for ensuring ever higher degrees of food safety firms in specific capacities. Such support at the firm level would put firms on a path to operating in new is necessary to promote industrial upgrading and to allow market segments. existing agribusinesses to step into unfilled market niches. »» Basic business capacities: Training on mar- keting, accounting, logistics, and so on would allow Innovations applied to food handling, processing firms to better contract and engage with the broader and distribution, not only add more value to exist- economy and with specific anchor investors. ing production, but help reduce losses and waste »» Market linkages: Support in basic marketing 26. A firm is considered innovative if it answers yes to at least one skills, identifying and targeting new markets, and of the following questions from the Enterprise Surveys: (1) During networking for market development would help the last three years, has this establishment introduced any new or significantly improved logistics, delivery, or distribution methods for firms to innovate and grow. inputs, products, or services? (2) During the last three years, has this »» Forming partnerships: Another avenue of establishment introduced any new or significantly improved sup- porting activities for your processes, such as maintenance systems or support for firm-level innovation and growth operations for purchasing, accounting, or computing? (3) During the would foster linkages between smaller agribusi- last three years, has this establishment introduced any new or signifi- cantly improved organizational structures or management practices? nesses and lead firms and potential joint venture (4) During the last three years, has this establishment introduced new partners, both FDI and domestic, thus providing or significantly improved marketing methods? (5) During the last three years, did this establishment spend on formal R&D activities, access to new technologies, better logistics, and either in-house or contracted with other companies, excluding mar- new markets. ket research surveys? 20 Increasing Agribusiness Growth in Bhutan Enterprise Survey data also indicate that agri- Trade Outcomes businesses in Bhutan make significantly less use After a deteriorating trade balance from 2010 to of information and communication technologies 2011, a reduction in imports and a slight improve- (ICTs) than do businesses in other sectors. Only one ment in exports helped reduce the trade deficit in 100 agribusinesses has a website, compared to one in in 2012. In that year—the latest for which complete six in other businesses. Agribusinesses make more use of trade data are available—the deficit for tradable goods email than of websites: 16.3 percent (119 firms in the agri- was US$460 million. For the years since 2012, mirror business population) use email to communicate with their data from exporting/importing trade partners suggest clients and suppliers. Note that email use is significantly (although they are too limited to confirm) a further reduc- higher for non-agribusiness firms, however (33.4 percent, tion in the trade deficit. For the RNR sector specifically or 1,200 firms). ICT deficits are largely explained by the (excluding hydropower), the deficit in 2012 was approx- high proportion of microenterprises in the agricultural imately US$140 million. The US$44 million in export sector: Microenterprises in all sectors are less likely than trade is significantly smaller than the US$185 million in larger firms to use these technologies. Yet even after con- imports, which typically supplied Bhutan with cereals and trolling for firm size, agribusinesses remain at a significant wood products. The limited trade data available for 2014 disadvantage with regard to ICT, particularly in terms of seem to reveal that wood and beverages are the leading having a website (Appendix 2, Table 15). agricultural exports. Trade in vegetables, fruits, and nuts now registers on the export balance sheet.27 Trade in Agribusiness The environment for trade inescapably influ- Relative to comparator countries, Bhutan does not ences agribusiness. The following analysis looks at perform strongly in export trade. Taking an economy- recent trade outcomes, access to markets, and the role wide view, Figure 11 shows the percentage of all of logistics in presenting opportunities or barriers for 27. Note that these statistics do not reflect the likely more substantial agribusinesses. cross-border trade (RGoB 2014). The data provided are also based on mirror data reported by the importing country (most likely India). Bhutan (2015) 3.4 Malaysia (2007) 54.7 Thailand (2006) 47.6 Lao PDR (2012) 18.6 Fiji (2009) 15.6 Samoa (2009) 14.8 Vietnam (2015) 12.6 China (2012) 10.8 Micronesia (2009) 10.5 Philippines (2009) 7.8 Indonesia (2015) 7.1 0 10 20 30 40 50 60 Figure 11: Percentage of Firms Directly Exporting at Least 1 Percent of Sales, Bhutan Source: Bhutan Enterprise Survey 2015. Increasing Agribusiness Growth in Bhutan 21 SMEs—excluding microenterprises—that participate in 12000 export markets across a range of comparator countries. Yet such low figures belie the true export competitiveness 10000 of Bhutanese firms. USD 1,000’s 8000 Agribusinesses export less than firms in other sec- tors, according to Enterprise Survey results. In 6000 Bhutan, only 3.4 percent of firms export at least 1 per- 4000 cent of their sales, and the Enterprise Surveys indicated that only 7 percent of all agribusinesses (20.2 percent 2000 of all firms) export at least 1 percent of their sales, even taking into account both indirect (domestic sale to third- 0 party exporter) and direct exports (Appendix 2, Table 1). ce ley es es its Po ts es s om m u Exporting closely correlates with firm size: Microen- fru ng Ri pl to ar oo ln am Ap ta ra /b te hr er rd at O Be us terprises are less likely to export regardless of sector th Ca he O M W (Appendix 2, Table 11). Medium-sized agribusinesses 2011 2014 are 16 percentage points more likely to export at least Figure 12: Growth in Bhutan’s Agricultural Exports, 1 percent of their sales as compared to smaller firms.28 2011–2014 Medium-sized Bhutanese firms fall behind in regional Source: Bhutan RNR Statistics, MoAF, 2016b. benchmarks, however. is encouraging.31 Crucially, horticultural growth has also Even so, Bhutan has experienced excellent growth in been driven by the expansion to rural areas of feeder exports of certain high-value horticultural products roads (RGoB 2014), providing producers with better and processed foods (Christensen, Fileccia, and Gul- access to markets and enabling them to benefit from the liver 2012). From 2011 to 2014, exports of all citrus climatic conditions preventing similar agricultural pro- increased by 66 percent,29 apples by 35 percent, potatoes duction further south in India during the off-season. by 175 percent,30 and betel (areca) nuts by 225 percent (Figure 12). Growth in agricultural GDP over 2013–14 Evidence suggests that annual growth in labor pro- is largely a function of the strong export performance ductivity is significantly stronger among the few in these products. The emergence of a commercialized Bhutanese agribusinesses that export their prod- agricultural sector catering to high-value export markets ucts. A regression of annual labor productivity growth as an indicator for exporters, controlling for firm size, region, 28. Only 9.3 percent of agribusinesses are classified as medium-sized and financial access, shows annual labor productivity firms, so while they are significantly more likely to export, overall growth 0.25 percentage points higher for exporters than export rates for the sector remain low. for nonexporter agribusinesses (no such trend is observed 29. Orange greening disease is an emerging crisis in Bhutan’s horticultural subsector. The disease weakens and kills mandarin for other businesses). Mean annual employment growth trees, seriously reducing the productivity of one of Bhutan’s major for agribusinesses is 1.1 percent, so the gain from being an export crops. Once infected, the trees cannot be saved and must be removed and burned. The BEA reports that between 2015 and early exporter is economically significant as well (Appendix 2, 2016 mandarin exports across the Phuentsholing crossing dropped to Table 17). Since exporting firms are key to wider economic approximately 20 percent of 2013 levels. While cyclic fluctuations in the citrus harvest are common (poor harvests typically succeed a year growth and the bulk of Bhutanese agribusinesses are not of good harvests), a reduction in exports of this magnitude signals exporting, determining how reforms and investment might a much larger problem, attributable primarily to orange greening disease. Although devastating, these losses might encourage contin- develop opportunities for trade requires understanding the ued diversification in horticultural exports and increased investment drivers behind the relatively low level of exports. in agricultural R&D. Possibly in response to this problem, the MoAF is exploring the production and export of kiwi fruit. 30. Potato exports from Bhutan have increased significantly over the 31. See http://atlas.media.mit.edu/en/visualize/stacked/hs92/ past several years and are now valued at US$11 million per year. export/btn/all/show/1995.2013/. 22 Increasing Agribusiness Growth in Bhutan Market Access Box 4: The Importance of End-Market Limited access to markets—reported by 60 per- Connectivity cent of farmers as a primary constraint to their Nepalese traders of cardamom discovered that the end markets in operations in the 2009 Agricultural Census—is Siliguri and Calcutta paid a premium for “pink” cardamom, which exacerbated by information barriers inherent in results from specific production and post-harvesting practices. In international trade. Bhutanese farmers are isolated response, they focused on developing those practices for a new both internally, where gaining access to markets in the variety of cardamom to meet the requirements of those high-value end markets. In 2014, Nepal accounted for about 48 percent of next town can be a challenge, and externally, because pink cardamom production, India 41 percent, and Bhutan 11 per- gaining access to a large number of trading partners is cent. This order reflects a recent reversal of dominance, since prior difficult and costly for a landlocked country such as Bhu- to 2014 India was one of the leading exporters, with nearly 54 per- tan.32 In these circumstances, Bhutan could benefit from cent of the market share. a cluster-based market intelligence unit to facilitate com- Source: Karki, Dewald, Polo, Strengthening Cardamom and Ginger Value munication between buyers and producers, improve coor- Chains in Eastern Nepal, Mercy Corps. dination, and channel demand into production systems. Indications show that some producers gain better Most cross-border trade with India and Bangladesh access to markets than others. To facilitate sales of occurs within Bhutan at border markets rather fruits and vegetables, FCB operates five auctions. The auc- than at the end market in the destination coun- tions trade potatoes, ginger, areca nut, peas, cauliflower, tries. For the most part, therefore, Bhutanese traders cabbage, carrots, beetroot, and chilies, with annual vol- (and by extrapolation, producers), are relatively out of umes of 24,000–30,000 MT (Christensen, Fileccia, and touch with the demands of their end markets and may Gulliver 2012). While export linkages facilitated by the not be capturing all the value possible. According to BEA, FCB give an increasingly large group of farmers access many of its member traders are not knowledgeable about to markets,33 the number of Indian and Bangladeshi trad- end markets, terms of trade, or even standard business ers interacting with the Phuentsholing market has also practices and skills, such as the use of trade finance.35 In increased (RGoB 2014).34 theory, closer connections with end markets will catalyze these sorts of developments. A similar understanding of quality and other requirements demanded in such mar- kets will be critical to giving any export sector a compet- 32. Bhutan enjoys open and dynamic trade relations with its very populous neighbors, India and Bangladesh, which provide an imme- itive edge (Box 4). diate market outlet for its surplus agricultural production. Bhutan even has some significant—albeit fluctuating—trade with Hong Kong, although probably not in agricultural commodities. Trade Logistics 33. To a lesser—but still notable—degree, foreign direct investments also enable exports. The transport picture is changing owing to efforts 34. Christensen, Fileccia, and Gulliver (2012) note that “the market- by the government and development partners to ing chains for export crops are somewhat better developed. Whole- increase the rural road network. Agribusinesses in sale markets exist, on or close to border crossing points into India, particularly for potatoes, although the buyers are largely foreign. 2015 no longer considered transport problems as primary An assembly process exists for citrus, but it is also driven by foreign obstacles to their operations. None of the agribusinesses buyers who advance seasonal credit as a means to secure supply, then buy the crop on the tree and pick and grade it themselves. Bhutanese listed transport as the most important obstacle in 2015, market agents are conspicuously absent in these activities.” In the whereas 12 percent did so in 2009 (Appendix 2, Tables 1 same study, Christensen, Fileccia, and Gulliver (2012) comment fur- ther that “these trends indicate that the current focus on investment and 2). Infrastructural challenges have improved overall: in rural roads as the key to sector growth has probably had much higher returns for commercial crops than for cereal crops. Increased connectivity has few advantages for crops that are consumed on the farm. Indeed, the expansion of farm roads may ultimately become 35. The reality that agribusinesses make much less use of the internet a disincentive to raise cereal production, as lower priced Indian rice and email than do businesses in other sectors also contributes to their imports will become more readily available in rural areas.” lack of knowledge in/of the market. Increasing Agribusiness Growth in Bhutan 23 Maintaining the historical affinity for free trade across Ag value added per worker $100,000 borders will be key to enabling growth, particularly since $80,000 Bhutan’s remote location makes it highly dependent on $60,000 $40,000 access to a limited number of export destinations,37 but $20,000 negotiations should not remain static and should con- $– tinue to advocate fair trading relationships. $ $2,000 $4,000 $6,000 $8,000 $(20,000) DB cost to export: deflated US$ per container One weakness to address is that Bhutanese trucks All countries Bhutan Lesotho x Nepal x Afghanistan Mongolia entering India must return to Bhutan empty, greatly Linear (all countries) increasing the cost for Bhutanese firms using Bhu- tanese trucks for exports. Indian trucker syndicates Figure 13: Correlation of Cost to Export with Agricultural Productivity, Bhutan “unofficially” impede Bhutanese-plated trucks from pick- and Other Countries, 2014 ing up goods on their return from Indian markets (in Cal- Source: World Bank World Development Indicators and Doing cutta, for example), so Bhutanese truckers tend to focus Business Data. on domestic transport, and few cross into India or Ban- Note: DB is Doing Business. gladesh, whereas Indian truckers readily cross into Bhu- Agribusinesses report fewer and briefer shortages of tan. This unfortunate development in Bhutanese trade water and power in 2015; however, micro-agribusinesses has virtually extinguished the Bhutanese export trucking still face significant challenges (Appendix 2, Table 9). A industry, partly explaining why transport features so little similar trend is apparent for non-agribusinesses. as a constraint in the Enterprise Surveys. Inescapably, however, Bhutan’s remote loca- Investment in tion adds significant international transport Agribusiness costs, which erode its export competitiveness. At US$2,577 per container, Bhutan’s freight forwarding The sections that follow examine investment out- costs for export are among the highest in the world and comes, investment policy, and market opportu- presumably limit agricultural competitiveness. Domestic nities. This information assists in understanding the market connectivity is another important area to address, prospects for Bhutan to attract greater private investment and the RGoB should seek investments from logistics inno- in agribusiness, produce new products, and reach new vators. Even with better, wider roads, Bhutan’s connec- markets. tivity issues will never completely disappear. The terrain itself will always dictate lower speeds and greater expense Investment Outcomes in its transport system than those of most other countries. The Enterprise Survey reveals that virtually all Figure 13 shows the correlation of cost to export with agribusinesses were fully domestically owned in agricultural productivity for Bhutan and other countries. 2015. A 2009 law enables foreign agribusinesses to invest directly in Bhutan, and the Land Act allows for long-term The RGoB has maintained excellent trade and diplomatic relations with India and Bangladesh.36 agro-processing (for export or domestic markets) will need to be highly competitive in order to succeed” (Christensen, Fileccia, and 36. “Bhutan is a very small, very open economy, which faces unre- Gulliver 2012). stricted trade for almost all agricultural commodities due to the free 37. At the same time, it is important to note that agribusinesses in trade agreements (FTAs) that govern trade with India and Bangla- the Enterprise Surveys faced greater delays at customs in 2015 than desh. While these FTAs create numerous attractive opportunities they had in 2009: 5.6 days to clear imports in 2015, up from 2 days for agricultural exports, they also mean unfettered competition from in 2009. In this instance, agribusiness appears to be catching up imports—including ‘strategic’ food commodities such as rice. The with the rest of the economy; non-agribusiness firms experienced lower wages, higher agricultural productivity and larger scale econo- no increase between 2009 and 2015, but they already faced average mies of agro-processing in these countries also mean that Bhutanese delays of 6 days in 2009. 24 Increasing Agribusiness Growth in Bhutan (30-year-plus) leases, but only one of the agribusinesses Box 5: Mountain Hazelnut Ventures (MHV) responding to the Enterprise Surveys reported any for- eign ownership, compared to 2 percent of firms in other Lead firm investors such as Mountain Hazelnut Ventures (MHV) sectors (approximately 73 firms in total). Clearly, although connect Bhutan’s smallholders to distant, high-value markets. MHV is a private, social enterprise partnered with Bhutan’s foreign ownership in Bhutanese businesses is limited smallholder farmers to grow and export Bhutanese hazelnuts in overall, the share of private foreign ownership is signifi- commercial quantities. The company’s ultimate goal is to plant cantly lower for agribusinesses (Appendix 2, Tables 1 and hazelnuts on 22,000 ha, working with a similar number of farmers, 12). Note, however, that the largest agribusiness firm in and to export 33,000 MT of hazelnuts. As of end of 2015, MHV has partnered with nearly 6,000 farmers to establish plantations on Bhutan, Mountain Hazelnut Ventures (MHV), is foreign over 6,000 ha and is currently Bhutan’s single largest private-sector owned. employer. MHV processes and exports hazelnuts to a Chinese pro- cessor, but it intends to diversify this market over time to include Bhutan currently lacks some characteristics that European confectioners. would make it more attractive as a foreign invest- Source: Interview with Sean Watson, Managing Director, MHV. ment destination. Bhutan has none of the three basic types of FDI—natural resource seeking, domestic market seeking (for consumer goods and services), and efficiency specialization allows local industry to produce at the scale seeking—and is thus unlikely to attract FDI investors, necessary to be competitive globally. except possibly those seeking low-cost electricity. FDI in Bhutan will therefore likely be limited to investors seeking FDI can also provide a platform for transfers of opportunities unique to Bhutan. Tourism is an obvious technology and knowledge that spur growth. A cross- example, and Bhutan’s wholesome image, as embodied sectional study of 66 developing countries found FDI to be by Brand Bhutan, could help attract food and agribusi- a significant contributor to advancing economic growth ness investors. and trade (Makki and Somwaru, undated). The effects of FDI on growth have been found to be stronger when Investment Policy the host country has higher levels of human capital and Foreign Direct Investment (FDI) can offer local pro- greater financial development (Alfaro, Chanda, Kalemli- ducers access to global value chains.38 A World Bank Ozcan, and Sayek 2006). These considerations validate Group flagship study on agribusiness competitiveness39 Bhutan’s investments in education and reinforce the ben- highlights the significant role that lead firms have played efits of developing the financial sector. throughout South Asia in linking countries with global value chains. This experience from other parts of South Certain dimensions of the underlying business Asia, along with experience from elsewhere around the environment help facilitate FDI, and correspond- world, shows that firms in developing countries, rather ingly, their absence helps explain low rates of for- than developing comprehensive value chains, can special- eign ownership. The World Bank Group’s yearly Doing ize in those portions of the production process in which Business (DB) assessment quantifies elements of the they have comparative advantages, while foreign off-tak- business environment in countries throughout the world. ers organize further value-chain actions. MHV serves as Given the land intensities of Bhutan’s agribusiness sector, a good example of a lead firm in Bhutan (Box 5). Such particularly for corporate farms, the DB indicator Regis- tering a Property is particularly important for understanding the sector’s capacity to attract FDI. The ease of register- 38. Foreign firms can effectively upgrade domestic capacities and ing property relates as well to gaining access to credit—a facilitate the transfer of technology, knowledge, and skills, particu- larly for more knowledge-intensive crops and processes. known constraint in Bhutan’s agribusiness—given that 39. World Bank Group, forthcoming 2016c. Increasing Agribusiness Growth in Bhutan 25 $100,000,000,000 $80,000,000,000 Foreign direct investment, net inflows $60,000,000,000 (BoP, current US$) $40,000,000,000 $20,000,000,000 $– 0 100 200 300 400 500 600 $(20,000,000,000) $(40,000,000,000) DB registering a property: time (days) All countries Bhutan Mongolia x Nepal x Mali Botswana Afghanistan Lesotho Linear (all countries) Figure 14: Correlation of Time Required to Register a Property and Inflows of Foreign Direct Investment (FDI), Bhutan and Other Countries, 2014 Source: World Bank, Doing Business 2016. Note: BoP is balance of payments; DB is Doing Business. 98 percent of agribusiness firms in the 2015 Enterprise Exploring New Products Survey reported needing collateral for loans.40 and New Markets Internationally comparable FAO statistics make it Transferring a property title in Bhutan takes on possible to assess potential new markets for Bhu- average 77 days.41 Key informants cite this long delay tan by benchmarking Bhutanese producer prices as a major constraint. The average number of days for a suite of crops produced in Bhutan against required for Bhutanese nationals (buyers and sellers) to prices in countries likely to compete in the same transfer a property title also figures in the property regis- markets. Subtracting the producer prices42 of the com- tration indicator. A correlation between the two emerges parator countries from the producer prices in Bhutan when cross-country data is used to plot Bhutanese per- yields the producer price differential between the coun- formance on the DB property indicator against FDI (Fig- tries. This analysis can reveal where Bhutanese producers ure 14). For foreign investors, the administrative hurdles hold a cost advantage or disadvantage.43 Bhutan appears could be even higher, possibly deterring prospective for- to be a competitive producer of several commodities with eign investors, especially those interested in property-­ no regional competition: asparagus, lemons/limes, mush- intensive agribusinesses. Few foreign agribusiness firms rooms (with the exclusion of China, which competes at have the wherewithal to establish operations in Bhutan, the low-value end of the market), and walnuts (Table 2). given these administrative barriers and the high cost of Notably, producers in Bangladesh—Bhutan’s second- traveling to Bhutan to push the process along. largest trading partner for agricultural goods—outcompete 40. “Ensuring formal property rights is fundamental. Effective 42. A five-year average was taken for crop prices for each country administration of land is part of that. If formal property transfer is for which data were available. Note that no producer price data are too costly or complicated, formal titles might go informal again. And available for India. where property is informal or poorly administered, it has little chance 43. While this analytical lens assumes that the quality and variety of of being accepted as collateral for loans—limiting access to finance” the produce is uniform and that producer prices are not affected by (World Bank Group 2016b). associated shifts in economies of scale, the result helps confirm find- 41. World Bank Group (2016b). ings from fieldwork on crops with export potential, such as asparagus. 26 Increasing Agribusiness Growth in Bhutan Table 2: Producer Price Differentials for Selected Agricultural Products in Bhutan and Comparator Countries (average 2010–14, US$/MT)* Absolute Bhutan Benchmarked Against Comparator Countries: Producer Price 2010–2014 Average Producer Price Differential (USD/Tonne) in Bhutan Rep. Products 2010–2014 Avg. Bangladesh Nepal Pakistan Thailand Malaysia Indonesia Singapore China Australia Netherlands Korea Turkey Apples $1,749.19 — $(872.12) $(1,185.74) — — — — $(882.59) $(102.79) $(991.52) $64.36 $(1,095.02) Areca nuts $2,128.03 $126.14 — — — — $(1,665.98) — — — — — — Asparagus $905.54 — — — $1,282.66 $3,723.76 — — $188.92 $5,552.37 $3,523.33 — $7,335.48 Barley $388.85 — $(112.73) $(124.15) — — — — $(32.42) $(172.78) $(139.94) $246.15 $(98.12) Beans, green $834.18 $(591.12) — — $(218.34) — $(97.21) — $179.51 $2,338.96 — — $382.52 Cabbages and $485.54 $(358.07) — — $(91.73) $(103.81) $(75.61) $611.16 $(241.77) — $(216.53) — $94.18 other brassicas Carrots and $673.05 — — — — $(133.05) $(72.06) — $(370.28) $(25.79) $(480.19) $(89.10) $(303.86) turnips Cauliflowers and $792.27 $(619.56) — — $(157.33) $297.36 — — $(341.43) $(152.46) $180.04 — $(93.71) broccoli Chillies and $1,368.92 $(874.60) $(308.54) — — $32.73 $1,539.35 — $(742.29) $899.17 $(67.04) $8,414.83 $(694.73) peppers, green Eggplants $679.03 — — — $(267.57) $(5.74) $(276.68) — $(110.71) — $460.11 $3.75 $(83.75) (aubergines) Eggs, hen, in shell $2,843.13 $(887.75) $(824.69) — $(1,372.15) $(1,172.60) — $(1,162.59) $(1,600.97) $6.51 $(1,635.83) $(994.60) $(636.91) Garlic $1,632.95 $(940.87) $(680.97) $245.20 $(105.81) — $(282.29) — $(1,134.13) — — $950.59 $224.51 Ginger $1,963.46 $(1,113.25) $(1,391.81) $(202.69) $(852.73) $(253.89) — — $(709.76) — — $841.49 — Lemons and limes $301.22 — $1,108.33 $32.33 $1,405.50 $596.52 — — $1,773.28 $1,248.61 — — $139.62 Maize $307.55 $(94.18) $(34.09) $(78.60) $(55.31) $(126.91) $35.66 — $59.38 $(56.33) — $250.16 $15.74 Mangoes, $1,062.34 $(636.01) $(479.12) $(616.28) $(462.48) $(114.88) $(487.92) — $1,113.47 $1,433.37 — — — ­mangosteens, guavas Meat, buffalo $2,444.57 $(1,480.97) $291.27 — $1,570.00 $1,325.62 — — — — — — $6,596.76 Meat, cattle $2,429.47 $(1,387.74) — — $882.56 $4,185.52 — — $3,607.34 $841.52 — $10,270.30 $7,424.00 Meat, chicken $2,729.65 $(1,687.92) $(149.17) — $(964.41) $(424.46) $1,186.81 — $89.27 $(725.09) — — $353.06 Meat, goat $3,376.94 $(1,814.34) $2,649.57 $1,768.79 — $5,327.06 $3,668.48 — $2,596.22 $(810.07) — $15,417.33 — Meat, pig $2,759.43 — $(229.51) — $138.64 $554.84 — — $371.95 $(82.87) — — $5,338.38 Meat, sheep $3,376.49 $(1,692.35) $1,204.51 $1,171.48 — $5,118.66 — — $3,307.92 $762.73 — $34,625.08 — Mushrooms and $1,120.22 — — — $970.84 — — $8,203.28 $(181.72) $4,261.22 $638.86 $1,649.51 $752.56 truffles Onions, dry $1,231.27 $(873.89) $(736.55) $(1,008.24) $(907.55) — $(5.59) — — $(540.89) $(1,056.20) — $(864.81) Oranges $900.35 $(569.09) $(288.20) $(649.15) — $(224.05) $(282.48) — $(390.26) $(138.56) — $(214.04) $(521.33) Pears $666.71 — $(330.97) $(414.94) — — — — $219.53 $354.51 $158.36 $663.98 $255.26 (continued) 28 Table 2: continued Absolute Bhutan Benchmarked Against Comparator Countries: Producer Price 2010–2014 Average Producer Price Differential (USD/Tonne) in Bhutan Rep. Products 2010–2014 Avg. Bangladesh Nepal Pakistan Thailand Malaysia Indonesia Singapore China Australia Netherlands Korea Turkey Plums and sloes $632.31 — $(292.68) $(104.08) — — — — $731.08 $2,188.99 — $934.62 $254.99 Potatoes $408.52 $(276.64) $(115.73) $(224.55) $(52.50) — $282.74 — $(58.66) $84.34 $(223.84) — $(24.05) Pumpkins, squash $396.76 $(222.85) — — $(4.46) $(77.14) $183.02 — $(7.13) — — $479.41 $642.10 and gourds Rice, paddy $1,026.22 $(808.81) $(760.39) — $(741.87) $(761.06) $(342.00) — $(613.92) $(727.02) — $608.01 $(369.27) Spinach $533.75 $(383.94) — — $777.41 $(90.21) $(61.09) $210.12 $(21.65) — — $873.96 $172.20 Tomatoes $828.91 $(592.62) $(369.73) — $(378.11) $(159.34) $(175.35) $2,392.50 $(328.82) $173.88 $(23.38) $493.03 $(324.30) Walnuts, with shell $313.74 — — $1,447.03 — — — — $4,435.26 $5,088.72 — — $4,447.74 Watermelons $721.91 — — — $(387.69) $(424.00) $(324.96) — $(192.94) — — — $(454.86) Legend: Bhutanese Producer Cost Advantage, Bhutanese Producer Cost Disadvantage, “—” Omitted Data. Source: Author’s Calculation based on FAOSTAT Producer Price Data. Note: Average differential based on available price data between 2010–2014. *FAO data did not mention hazelnuts for Bhutan; based on what the team learned in Bhutan, however, the farm-gate price for hazelnuts there is about $0.30/kg in-shell. The kernels, approximately half the weight of the in-shell product, are traded from US$2.50/kg to over US$7.00/kg. Bhutanese producers on the cost of all crops produced in corresponding trade volumes recorded for raw or associ- both countries except for areca nuts. Bhutan also does ated products) suggests that market failures or constraints not appear to be particularly competitive in citrus. While prohibit output organizers from responding to foreign negative values do not necessarily bar Bhutanese produc- price signals. Such constraints often include information ers of the crops and livestock products shown in the table and coordination barriers, trade and logistics barriers, the from participating in global markets, the analysis suggests inability to meet sanitary and phytosanitary standards, that Bhutanese producers have smaller margins than those and quality standards. of their international competitors or compete in different seasons/segments. To compete more sustainably on a As noted, Bhutan’s potato exports have increased cost basis on the global market, Bhutanese producers of significantly over the past several years and are these products will need to reduce their production cost now valued at $11 million per year. Potatoes from structures, most likely through reforms or interventions in Bhutan have a reputation for good flavor, but they are specific input markets and through increased efficiencies used mostly by farmers in India and Bangladesh as seed in aggregation, processing, and export. potatoes.45 Bhutan is surrounded by the world’s largest potato-producing countries: India, Bangladesh, and For products of comparator countries for which China. Poor quality seed is recognized as the single most Bhutan maintains positive producer price important factor hindering potato production in Asia differentials—and where the value advantage is (Naik and Karihaloo 2007). Bhutan, much like Himachal large enough to offset the costs of trade, includ- Pradesh, where India produces most of its seed potatoes, ing logistics and tariffs—Bhutanese producers has natural advantages conducive to seed-potato produc- could potentially compete in the same markets tion: a cool climate with a lengthy period from April to as the comparator country producers.44 The per- October experiencing low aphid pressure. Bhutan’s seed sistence of positive producer price differentials (without potato production and export constitute a high-potential value chain for Bhutan. 44. The challenge for Bhutan will be to find export markets in which it can overcome the barriers presented by sanitary and phytosanitary standards. 45. Interview with the BEA (key informant), 2016. Increasing Agribusiness Growth in Bhutan 29 View of Laya village, 2015 Conclusions and Recommendations Summary of Conclusions Bhutan needs greater investment and private-sector participation in its agribusiness sector. The sector includes very few medium and large agribusiness firms, and across the spectrum of Bhutanese agribusinesses, innovation and technological advancement are relatively low. A major conclusion of this analysis is that the RGoB and public insti- tutions that govern and support agribusiness need to reexamine their incentive structures to exert a more positive influence on the growth and development of private agribusinesses in Bhutan. Currently the RGoB’s impact on the labor market, as well as the MoAF’s interventions in agricultural product markets, may be absorbing much of the human capital and market opportunities required for development of a dynamic set of pri- vate agribusinesses. The public sector should redirect some of its investments toward activities that grow, rather than subtly replace, the private sector. Second, the MoEA can grow its private agribusiness sector by cap- italizing on several relatively untapped opportunities to add value and improve export markets, which in turn will catalyze growth in agricultural production and productivity. Taking advantage of these opportunities will require not only greater capital investment (to replicate established technologies) but also, to a large degree, increases in total factor productivity (TFP) (to raise productivity through innovation and investments in knowledge). Third, although Bhutan has policies in place to allow FDI, the MoEA should make a focused investment promotion effort. FDI is crucial not only to draw needed capital into the country but to help introduce innova- tion and unique management processes that increase total factor productivity (TFP). 31 Finally, while the agribusiness sector has experi- Business Enabling Environment enced significant gains in access to finance, more Subsidies and incentives. Realign subsidies to needs to be done in the banking sector to support foster, rather than replace, the private sector. In agribusinesses that market, process, and export designing programs to provide subsidies or other incen- agri-food products. These enterprises will require tives, governments should adhere to certain guiding prin- greater access to larger sums of long-term capital for ciples found to increase effectiveness. The World Bank investments and better trade finance options. Group developed the following guiding principles while examining government-led fertilizer subsidy programs,47 Important lessons can also be drawn from similar but they apply to all kinds of incentive and subsidy pro- small, geographically isolated countries. In their grams. The RGoB, by adhering to these principles, would book Some Small Countries Do It Better, former World Bank help to ensure success in its efforts to promote a more Group economists Shahid Yusuf and Kaoru Nabeshima competitive agribusiness sector. take a close look at how Finland, Singapore, and Ire- »» Favor market-based solutions. Interventions land (the Sifre countries) were able to initiate significant designed to promote increased use of fertilizer economic growth during 1985–2005.46 Bhutan can take should be designed to support market develop- away several lessons from this analysis. Sifre’s experience ment, not to undermine incentives for private- illustrates that neither small size nor geographic isolation sector investment. necessarily impedes growth, provided a credible develop- »» Promote competition. Competition in fertilizer ment plan is in place and adhered to rigorously. Some markets is needed to ensure good performance. elements of growth in Sifre were (1) establishment of lead Barriers to entry into fertilizer distribution should development and planning agencies and development of be reduced (except possibly in the very short run), mechanisms for interagency coordination to implement and markets should be competitive to ensure the economic policies (Bhutan’s Economic Development Pol- lowest cost and best quality service. icy is a step on that path); (2) commitment to boosting »» Pay attention to demand. Farmers’ effective secondary and tertiary education (Bhutan already does demand, shaped by the financial profitability of this well); (3) investment by multinational corporations to fertilizer use, should be the ultimate driving force bring small, isolated economies into global value chains of input supply systems. (MHV provides an example in Bhutan, but more are »» Insist on economic efficiency. Interventions needed); and (4) creation of vibrant knowledge and inno- designed to promote increased use of fertilizer vation hubs, typically in urban areas (Bhutan must bridge should be carried out only where fertilizer use is, this gap in agribusiness innovation). on average, economically efficient. »» Empower farmers. Farmers should be in the Specific driver’s seat. Interventions designed to promote Recommendations increased use of fertilizer should empower farmers to make their own decisions on the most appropri- A number of specific recommendations emerge ate way forward. from this analysis. Foremost are actions to improve the »» Devise an exit strategy. Public-sector interven- business enabling environment, facilitate trade, encour- tions designed to promote increased use of fertil- age investment, and explore Bhutan’s options for new izer should be designed with a clear exit strategy, products and markets. except for a few long-run public-good functions, such as market regulation, infrastructural develop- ment, and R&D on natural resource management. 46. Yusuf and Nabeshima (2012). 47. Morris, Ronchi, and Rohrbach (2011). 32 Increasing Agribusiness Growth in Bhutan »» Ensure sustainability. Solutions must be Box 6: Ethiopia’s Commercial Farm Service designed for the long term. Interventions designed Program to promote increased use of fertilizer should be economically, institutionally, and environmentally With the help of Cultivating New Frontiers in Agriculture (CNFA, a development partner), Ethiopia recently initiated its Commercial sustainable. Farm Service Program. Program implementation relied on a pro- cess for evaluating competitive business plans to select Ethiopian The RGoB should balance and coordinate support entrepreneurs and enterprises to receive matching grant funding to specific value chains by working strategically on averaging US$40,000, with a minimum matching requirement of 1:1. The selected entrepreneurs would establish a Farm Ser- both ends of those chains. Currently, support from vice Center in their communities. The Farm Service Centers offer MoAF emphasizes the supply (production or “push”) “one-stop shops” with a range of inputs, services, information, and side of the value chain, and little support goes toward output marketing linkages to smallholders that support farmers marketing (“pull”). Assisting production in the absence of transitioning from subsistence to commercial agriculture. markets willing to absorb the surplus may not work and A broad outreach campaign publicized the program and explained could even discourage future investment and risk taking. the application, evaluation, and selection processes to interested As noted in the analysis, the MoAF should allow farmers entrepreneurs. CNFA selected its six grantees through a process greater choice in deciding which crops to grow and where scoring applicants on the following criteria: corporate capability, business strategy, and potential impact. In evaluating the business to buy inputs. In other words, the ministry should not plans developed by prospective grantees, CNFA conducted an offer crop-specific subsidies but should consider estab- independent market analysis of proposed locations to verify local lishing a voucher system or something similar to India’s demand and appropriately tailor the design of the Farm Service Kisan Credit Card.48 The vouchers or funds could then Center. The six business partners selected to establish the service centers included one woman-owned enterprise, two cooperative be spent at any private-sector input provider (including unions, and three private entrepreneurs. the Farm Shops) for any product. Source: Adapted from http://www.cnfa.org/program/commercial- The Farm Shops program should develop a clear farm-service-program/. plan to transition away from the current model of quasi-public ownership and operation and toward food staples should be reexamined and possibly altered to full private ownership and operation. Bhutan should integrate vouchers and allow private-sector operators to retain the Farm Shops program, but with modifications. flourish in conjunction with them. Useful adaptations can be studied in comparable oper- ations elsewhere in the world. Ethiopia’s Commercial Separate the public and private roles of the FCB. Farm Service Program may provide a model for Bhutan The FCB maintains the national (Bhutan) and regional to develop its Farm Shop network (Box 6). (SAARC) food reserves. At the same time, the FCB acts privately in the market, trading in agricultural produce The Farm Shop model should also be the subject of procured in rural areas to generate its profit margins. a well-designed impact evaluation. This evaluation Because the price and timing of reserve grain sales can should examine the positive effects on farmers’ produc- significantly affect market activity, an entity such as tivity and asset acquisition in relation to their operational FCB, which also buys and sells in private-sector mar- costs. Negative impacts on the local economy should be kets, cannot always disentangle its public and private considered as well, such as the potential to crowd out the services. While managing food reserves is very important private sector. The Food Shops’ retail sales of subsidized for regional food security, to avoid conflicts of interest, FCB’s terms of operation should clarify how that activ- 48. The Kisan Credit Card, introduced in India in 1998/99, pro- vides short-term credit to all farmers, small and large, as a revolving ity is funded and how decisions are made. Similar poten- fund based on the land area the farmer wants to mortgage. Borrow- tial conflicts of interest exist for the other commodities ers get a paper passbook or an electronic card that they can take to a local bank [to receive a non-specific cash advance, much like an traded by FCB. To resolve these issues, FCB’s public and overdraft facility] (Keturakis et. al. 2011). private functions should, at the very least, have separate Increasing Agribusiness Growth in Bhutan 33 accounting, reporting, and management systems. Ideally, when individual firms own the equipment and offer pri- however, the RGoB would explore complete separation vate-hire services, and the WBG Team agrees with this of FCB’s public and private functions, fully supporting suggestion. For this reason, the government should con- its public functions with funds from the national budget. sider developing policies to encourage the BDB and other private financial institutions to develop a leasing mecha- MoAF should work closely with BAFRA to respond nism for its agribusiness lenders. The Farm Machinery to its proposals for restructuring and to assure Corporation Limited (FCML), created with substantial adequate funding. Given that BAFRA will be respon- government support, risks displacing any individual pri- sible for managing many enforcement issues for Brand vate-sector service providers. Bhutan, the importance of establishing correct structure, function, and funding arrangements for this agency can- Access to finance. The BDB and other private not be overstated. RGoB should consider thoroughly the financial institutions should develop a product for BAFRA design proposals and should ensure that BAFRA leasing agricultural machinery. The key informant has the resources it needs to fulfill all of its mandated interviews indicated that the Bhutanese prefer individual responsibilities. Among the structural solutions proposed, ownership models over cooperative ownership, yet the for example, BAFRA seeks to hand over the management government incentivizes the establishment of coopera- of the Centenary Farmers Market to another entity, cre- tives over the individual ownership models. Such incen- ate common border checkpoints under the Ministry of tives perpetuate a business model unsuited to maximizing Health and Cultural Affairs, and create separate agen- the productivity of such capital. Individual ownership cies under its umbrella for drug regulation and organic models place responsibility for maintenance and income certification. generation strategies in the hands of one person, which tends to facilitate decision making and innovation. Leas- BAFRA must continually work to streamline its ing provides the rural poor, who lack collateral and assets, regulations and inspections and to purge outdated with one of the best opportunities for obtaining equip- processes and requirements as newer, more mod- ment, and in some cases it can provide a more effective ern ones come online. BAFRA should closely investi- option than cooperative ownership. gate the concerns revealed by agribusinesses to determine where and how to reduce the time and costs of compli- Innovation. Establishing an entrepreneurship and ance with government regulations. To some degree, a innovation hub could address unemployment and survey conducted by the Enabling the Business of Agri- the lack of small and medium agribusinesses, as culture (EBA) team can reveal specific areas within the seen in the Sifre countries. Innovation is synonymous agribusiness sector requiring improvement. To this end, with growth in TFP49 (Yusuf and Nabeshima 2012; Jor- an EBA survey should be conducted in Bhutan as an genson, Ho, and Samuels 2012), which will be the source initial means to diagnose causes underlying agribusiness of much of Bhutan’s future growth. TFP growth will concerns. depend heavily on technology and innovation in pro- duction, logistics, processing, waste reduction, and mar- Critical examination should further investment in keting. A growth and innovation hub for SMEs, specific the AMC, to determine the reasons for its under- to agro-processing and marketing, would be an ideal performance and improve the effectiveness of way to meet this need. The RGoB should consider the mechanization. The FAO, in its agriculture sector review of Bhutan, states that the AMC’s farm mech- anization effort has met with limited success, yet more funding is currently being put into providing power til- 49. The successful introduction of new products and new or altered lers to small cooperatives formed for that purpose. The processes, organizational structures, systems, and business models generates growth in output that exceeds the growth of capital and AMC suggests that mechanization is more successful labor input. 34 Increasing Agribusiness Growth in Bhutan establishment of such an entity, possibly similar to the transport agreement enforced with the Indian WBG’s Agricultural Entrepreneurship Program.50 trucking syndicate to allow Bhutanese trucks to backhaul from Assam and West Bengal. Bhutanese trade negotiators should attempt to assure more recipro- Trade cal and fair trading practices by asking the Indian govern- Market access. The MoEA and/or MoAF should con- ment to halt inference with the Bhutanese trucking and sider grants to the BEA and the BCCI that begin trading industries. The extensive work RGoB has done by diagnosing members’ real issues and lack of to maintain the roads and border infrastructure for its capacity and that incorporate programs address- major export corridors needs to continue, and the pro- ing observed weaknesses in the organizations’ posed expansion of the infrastructure for the Phuentshol- membership bases. The BEA and the BCCI have solid ing border crossing should be completed. private-sector memberships and are thus excellent con- duits for supporting off-farm segments of the agribusiness sector. Public policy should support these actors in their Investment Policy efforts to facilitate linkages with international markets, The MoEA and/or the MoAF should do more to where Bhutanese producers currently have less exposure. develop an FDI strategy that focuses not on Bhu- tan’s resource or location opportunities but on the The MoEA must formally launch Brand Bhutan and country’s unique value proposition: Bhutan is car- create a framework for its management. Brand Bhu- bon neutral, peaceful, stable, and culturally unique. tan is the right intervention at the right time. Currently Investment promotion should go beyond providing a the MoEA holds overall responsibility for the brand, but single window for investment. The FDI Division should BAFRA and the Bhutan Standards Bureau certainly have work with other relevant ministries, including the MoAF, a role to play. The RGoB should develop a Brand Bhutan to identify high-potential sectors or subsectors around Policy and/or brand management strategy to (1) estab- which to develop an FDI promotion strategy. Targeted lish standards for all potential categories of products to investment promotion should then present and promote be sold under Brand Bhutan; (2) outline procedures for those opportunities directly to potential investors. Only the private sector to access and use the brand; (3) estab- after the strategy is defined, however, should Bhutan con- lish and publish sanctions and penalties for misuse of the sider establishing a stand-alone investment promotion brand; and (4) create systems for controlling the quality agency to conduct this outreach. Bangladesh and the of products sold under the brand. Indian state of Orissa have excellent experience in pro- moting agribusiness investment and could provide good Trade logistics. To foster effective trade ties, the models for Bhutan’s investment promotion efforts. The RGoB should address at least two trade-related World Bank Group’s Agribusiness Investor Targeting issues with the Government of India: (1) better Toolkit (World Bank Group 2014c) also provides a useful access to the Calcutta port, and (2) a reciprocal step-by-step guide in the design and conduct of outreach campaigns aimed at investors, along with many practi- cal tools for project teams to use in developing outreach 50. The Agribusiness Entrepreneurship Program aims to help catalyze inclusive and sustainable growth of a value-adding agribus- plans. The BCCI is the natural entity to engage in any iness industry. It contributes to achieving this objective by deriving investment promotion effort, including housing the inde- new solutions that (1) connect innovative, high growth potential agro‐processing entrepreneurs with the knowledge, capital, and pendent export promotion agency, with support from the markets they need to grow their enterprises; (2) showcase business RGoB, when it is formed. models linking entrepreneurs with farmers, industry, suppliers, and financiers; (3) create a demonstration effect that inspires latent entrepreneurs and agribusiness stakeholders to take action; and Lead firm investors, such as Mountain Hazelnut (4) can be scaled up through the programming of the World Bank Group and its development partners (see http://www.infodev.org/ Ventures (MHV), represent a unique opportu- agribusiness-entrepreneurship). nity to connect Bhutan’s smallholders to distant, Increasing Agribusiness Growth in Bhutan 35 high-value markets. Although it is difficult to repro- produced in volumes comparable to commodities such as duce such initiatives, lead firms with creative ideas and grains, for instance, but their potential is significant. The access to technology, knowledge, and markets can be price analysis described previously indicates that Bhutan excellent drivers for sector productivity and economic already has a potential competitive advantage in produc- growth. Pitching Bhutan as an agribusiness investment ing asparagus, lemons/limes, and mushrooms. With good destination can catalyze this type of investment (again, branding, packaging, and the right market linkages, Bhu- the experiences of Orissa and Bangladesh may be useful tan could realize greater value addition in such products to consider). as fresh wild-collected mushrooms (matsutakes, morels, chanterelles), retail honey, crated fruit (mandarins and With the Brand Bhutan label, backed by Bhutan’s kiwi fruit), processed hazelnuts, walnuts, black pepper, unique and very positive image, Bhutanese export- Sichuan pepper, retail-packaged cardamom, and pro- ers should target the highest-value markets possi- cessed ginger products. Ginger, areca nut, and cardamom ble and make the most of the limited volumes they are also suited for commodity markets in India, but their produce. In most cases, Bhutan’s agricultural exports production is still limited. have a reputation for superior quality, but they may not receive the full quality premium in the markets of India, Bhutan should explore the expansion of its mush- Bangladesh, and other traditional export partners. Pol- room exports. Some Bhutanese households reportedly icies should facilitate exploration by BCCI members of obtain as much as 70 percent of their annual cash income more distant markets, which may be more likely to pro- from mushrooms (MoAF 2013a). This value chain has vide a higher quality premium while offsetting increased many segments, and each holds potential for Bhutan’s transport costs. Singapore, Hong Kong, and Dubai are producers, collectors, processors, and exporters. Bhutan potential hubs for these higher value markets. already has some commercial producers of cultivated mushrooms, like shiitake. And, owing to the extensive The RGoB should reduce the time required to reg- forest cover, the collection of wild-growing mushrooms ister a property. This action will create a more positive is a very common livelihood in rural Bhutan. It is recom- enabling environment for prospective investors, who may mended that the BEA make a special effort to consult with otherwise be deterred from vertically integrating into traders and brokers in the European Union, Canada, and production/processing operations that require sufficient Japan to explore whether it is feasible for Bhutan to gain a land to produce high volumes of output delivered on a share of these markets. (Appendix 1 discusses the poten- pre-determined schedule. tial for Bhutanese mushroom exports in greater detail.) Public-sector wages should not be increased until Bhutan should consider developing its compet- they are competitive with the natural market- itive advantage in seed potato production. This clearing wage. Similarly, the public sector should not effort would require investments in good laboratories and increase the scale of employment, as it will divert human development of inspection protocols for field-propagated resources from the private sector. seed potatoes, but the effort presents a clear opportu- nity. Research into new varieties and the development of micro-tuber production would be a great investment for New Products and New Markets Bhutan. Seed potato production fields must be rotated Aside from the products currently included in its with other crops (such as maize or onions), to keep dis- export statistics, Bhutan has several potential eases in check, so this specialized effort would require niche crops—noncommoditized products with development of a viable set of alternative crops. low volumes of international trade—that could command high value in export markets like Bang- For Bhutan to develop exports of multi- kok, Singapore, and Dubai. These products are not ple high-value niche products to more distant 36 Increasing Agribusiness Growth in Bhutan markets, a government policy promoting innova- linkages to higher-value routes and to service the freight- tions in domestic storage and logistics will be cru- forwarding industry more efficiently (thus helping export- cial. Indeed, the EDP mentions plans to promote trade ers of high-value agricultural items). among the dzongkhags (Bhutanese administrative and judicial districts) to enhance domestic marketing of agri- The increasing demand for livestock products in cultural produce. Increasing the ease of trade domesti- Bhutan represents an excellent expansion opportu- cally is a priority initiative. To achieve this objective, the nity for domestic farmers and agribusinesses,51 and RGoB should identify potential logistics innovators both public policy on livestock should encourage greater inside and outside Bhutan and invite them to work with replacement of imported animal protein products. the government and the World Bank Group in the search Domestic markets for milk, beef, pork, poultry, and honey for solutions. A program to promote innovations in stor- have room to grow. Much of the Department of Live- age and logistics should furthermore be directly linked to stock’s budget is spent on the developing and managing and integrated with the RGoB’s export promotion policy model farms for all types of livestock rearing, processing, and the Brand Bhutan initiative. and marketing, yet these efforts risk suppressing private initiatives in their zone of influence. The MoAF plan, The RGoB should also examine the feasibility of an as described in the EDP, includes support to establish export terminal at the Paro airport, perhaps man- commercial-scale animal feed plants to alleviate that aged in partnership with a private-sector investor. major constraint in Bhutan’s domestic livestock subsec- To enable this type of trade, this facility would require tor. Government support to the livestock subsector should cold storage, customs, and loading facilities. The facility also emphasize linking smaller domestic market hubs and at the Lahore Airport in Pakistan, from which the famous establishing market infrastructure in Bhutan’s second- Kinnow mandarin is exported, could serve as a bench- ary cities. Creating separate livestock product markets in mark for such a facility. major urban areas and hub cities would better serve this subsector. Livestock trading, specifically, live animal mar- Selective deregulation in the airline and tourism kets and abattoir inspections (a unique issue for Bhutan sectors can also help improve the potential for given its relationship with religious leaders), requires par- multimodal, ground-to-air logistics. Such regulatory ticular attention. Bhutan should work now to encourage enhancements would make it more feasible for Bhutan to investments in abattoirs and to create the proper regula- connect to high-value export markets beyond India and tory framework, including Bhutan’s unique guidelines on Bangladesh. The RGoB might, for example, consider lib- animal welfare, to support growth of the post-harvest and eralizing the airline sector through privatization or through marketing aspects of the livestock subsector. fairer competition policies. Currently government- imposed regulations appear to limit airline opera- 51. 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International Develop- icy 2014. Thimphu: Royal Government of Bhutan. http://www ment Association and International Finance Corporation. Increasing Agribusiness Growth in Bhutan 41 Washington, DC: World Bank. Retrieved from http://www-wds ———. 2016c. World Bank Open Data: Kyrgyz Republic. Febru- .worldbank.org/external/default/WDSContentServer/WDSP/ ary 7. Retrieved from Global Economic Prospects: Forecasts: IB/2014/09/03/000442464_20140903111410/Rendered/ http://data.worldbank.org/country/kyrgyz-republic. PDF/885970CPS0P148000Box385310B00OUO090.pdf. ———. Forthcoming 2016. Make in South Asia: Boosting Competi- ———. 2014c. Public Private Partnerships: Reference Guide. Vol. 2. tiveness in the Region. Washington, DC: World Bank. Washington DC: World Bank. Retrieved from http://www-wds World Bank, Doing Business 2016: Measuring Regula- .worldbank.org/external/default/WDSContentServer/ tory Quality and Efficiency, Economy Profile Bhutan. Washing- WDSP/IB/2014/09/08/000442464_20140908133431/ ton, DC: The World Bank. Retrieved from http://www Rendered/PDF/903840PPP0Refe0Box385311B000 .doingbusiness.org/data/exploreeconomies/bhutan/~/ PUBLIC0.pdf. media/giawb/doing%20business/documents/profiles/ ———. 2015. Corporate Governance of State-Owned Enterprises: A country/BTN.pdf. Toolkit. Washington D.C.: World Bank. Retrieved from http:// World Bank Group Trade and Competitiveness Global Prac- wbdocs.worldbank.org/wbdocs/viewer/docViewer/index1 tice. 2014. Investment Promotion: A Guide to Investor Targeting in .jsp?objectId=090224b082d5dcdc&standalone=true& Agribusiness. Washington, DC: World Bank. Retrieved from respositoryId=WBDocs. file:///C:/Users/wb381297/Downloads/94928.pdf. ———. 2016a. Bhutan’s Labor Market: Towards Gainful and Quality World Integrated Trade Solutions. 2016. HH Market Concen- Employment for All. Washington, DC: World Bank. tration Index 2010–2014. March 7. Retrieved from http://wits ———. 2016b. National Accounts Data, and OECD National .worldbank.org/CountryProfile/en/Country/BTN/Start Accounts Data Files. World Development Indicators. November 1. Ye a r / 2 0 1 0 / E n d Ye a r / 2 0 1 4 / I n d i c a t o r / H H - M K T- Retrieved from World DataBank: http://databank.worldbank CNCNTRTN-NDX. .org/data/reports.aspx?source=world-development- Yusuf, S. and Nabeshima, K. 2012. Some Small Countries Do It indicators#. Better. Washington DC: World Bank. 42 Increasing Agribusiness Growth in Bhutan Appendix 1 Spotlight on Mushrooms Bhutan’s vast forest reserves, mountainous terrain, and cultural tradition of mushroom collection, consumption, and export indicate its potential to become a notable exporter of mushroom products. Bhutan already cultivates shiitake mushrooms commercially and has developed export markets for shi- itake, matsutake, and a few other varieties of wild mushrooms. It presently exports only 1–4 MT of mushrooms per year, but the average value per ton is about US$40,000. With a reasonable increase in volume, mushrooms could quickly become a significant agricultural export. In parallel with continued development of the cultivated mushroom market and the niche market for matsutakes, Bhutan can also explore expanding its presence in other mush- room market segments: fresh wild mushrooms such as chanterelles, morels (Morchella spp.), coral, oyster, porcini (Boletus spp.), and others; fresh cultivated mushrooms (shiitake as well as any other cultivated types, such as Aspergillus spp.); frozen wild mushrooms (chanterelles and porcini); and dried wild mush- rooms of many varieties (morels, black trumpet, porcini, matsutake, and others). Each of these segments has its particular requirements. For example, fresh mushroom exports rely on cold-chain technology and excellent logistics. Due to the expense of transport, only certain varieties are suitable for this trade (for example, morels and matsutakes). Frozen mushrooms require IQF (individual quick frozen) processing and, of course, a reliable frozen goods cold chain. Because these mushrooms are likely to be exported by container, they must be produced in sufficient volumes to warrant such transport. Only high-volume mushrooms, such as chanterelles and porcini, fit into this segment. 43 Dried mushrooms, because they are a shelf-stable, high- value product, have great potential for reaching exter- nal high-value markets and suit a variety of distribution modes (Figure A1.1). A kilogram of dried morels can retail for up to 500 euros, but even lesser-valued dried mushrooms such as porcini and trumpet mushrooms have excellent market potential. Bhutan has many more varieties of mushroom than are mentioned here that war- rant investigation for their market potential. Figure A1.1: Turkish Retail Packaging for Dried Mushrooms Source: With permission of Niobe Foods, LLC. 44 Increasing Agribusiness Growth in Bhutan Appendix 2 Enterprise Survey Tables Table 1: Descriptive Statistics, 2015 Enterprise Survey Agribusinesses Other business t-test Variable Label Mean SE N Mean SE N Diff P-value Sig. bus2 Days to obtain operating 1.00 0.00 54 1.87 0.50 275 –0.87 0.08 * license bus5 % firms identifying business 0.02 0.01 64 0.07 0.02 303 –0.05 0.05 * licensing/permits as major constraint car1 age of firm 9.42 2.38 64 10.37 0.95 301 –0.95 0.71 car2 % private domestic 99.92 0.06 63 97.66 0.98 302 2.26 0.02 ** ownership in firm car3 % private foreign ownership 0.04 0.04 63 1.69 0.93 302 –1.65 0.08 * in firm car4 % govt/state ownership in 0.00 0.00 63 0.28 0.22 303 –0.28 0.19 firm car5 % other ownership in firm 0.04 0.04 63 0.36 0.19 302 –0.32 0.10 * corr1 % firms expect to give gifts 0.00 0.00 59 0.00 0.00 241 0.00 0.76 in mtgs w tax officials corr10 % firms expect to give gifts 0.00 0.00 54 0.00 0.00 276 0.00 for operating license corr11 % firms identifying 0.02 0.02 64 0.02 0.01 303 0.00 0.88 corruption as major constraint corr12 % firms believe court system 0.77 0.10 64 0.68 0.05 303 0.08 0.46 fair, impartial, uncorrupted corr2 % firms who have secured or 0.09 0.05 64 0.13 0.02 303 –0.04 0.47 attempted govt contract corr4 % total sales firms expect to 0.00 0.00 63 0.01 0.01 301 –0.01 0.32 give as gifts to public officials crime1 % firms paying for security 0.10 0.06 64 0.18 0.04 303 –0.08 0.23 crime10 % firms experiencing loss 0.12 0.07 64 0.20 0.04 302 –0.07 0.35 due to theft/vandalism (continued) 45 Table 1: continued Agribusinesses Other business t-test Variable Label Mean SE N Mean SE N Diff P-value Sig. crime2 Security costs (% annual 0.00 0.00 64 0.13 0.05 299 –0.13 0.02 ** sales) crime8 % firms identifying crime, 0.10 0.06 64 0.09 0.03 303 0.00 0.98 theft & disorder as major constraint crime9 % firms identifying courts as 0.01 0.01 64 0.02 0.01 303 –0.02 0.24 major constraint ent_size_1 micro, 1–4 employees 0.91 0.03 64 0.68 0.04 303 0.23 0.00 *** ent_size_2 small, 5–19 employees 0.06 0.03 64 0.24 0.04 303 –0.17 0.00 *** ent_size_3 medium, 20–99 employees 0.03 0.01 64 0.07 0.01 303 –0.04 0.03 ** ent_size_4 large, 100+ employees 0.00 0.00 64 0.01 0.00 303 –0.01 0.00 *** fin12 % firms using banks to 0.02 0.01 64 0.05 0.01 303 –0.03 0.02 ** finance investments fin13 % firms using banks to 0.07 0.03 64 0.22 0.04 303 –0.15 0.00 *** finance working capital fin14 % firms with a bank loan/ 0.18 0.07 64 0.30 0.05 300 –0.12 0.13 credit line fin15 % firms with checking or 0.72 0.09 64 0.73 0.05 302 –0.01 0.92 savings acct fin16 % firms identifying access to 0.16 0.07 64 0.21 0.04 303 –0.06 0.49 finance as major constraint fin18 % sales sold on credit 19.84 3.58 64 18.73 2.68 299 1.10 0.81 fin19 % working capital financed 5.44 2.50 64 16.86 2.73 301 –11.43 0.00 *** by external sources fin20 % firms not needing a loan 0.56 0.10 64 0.53 0.05 303 0.03 0.81 fin21 % firms whose recent loan 0.00 0.00 64 0.01 0.01 303 –0.01 0.17 application was rejected fin6 % working capital financed 94.56 2.50 64 83.14 2.73 301 11.43 0.00 *** by internal funds fin7 % working capital financed 5.16 2.47 64 13.63 2.52 301 –8.47 0.02 ** by banks fin8 % working capital financed 0.07 0.05 64 0.40 0.13 301 –0.33 0.02 ** by supplier credit fin9 % working capital financed 0.21 0.19 64 2.84 1.20 301 –2.63 0.03 ** by other sources gend1 % firms with female 0.57 0.11 64 0.59 0.05 303 –0.02 0.88 participation in ownership gend2 % permanent full-time 0.38 0.11 32 0.19 0.04 83 0.19 0.12 workers that are female gend3 % permanent full-time non- 0.20 0.09 30 0.36 0.09 78 –0.16 0.23 production workers that are female gend4 % firms with female top 0.46 0.10 64 0.51 0.05 303 –0.05 0.67 manager 46 Increasing Agribusiness Growth in Bhutan Agribusinesses Other business t-test Variable Label Mean SE N Mean SE N Diff P-value Sig. gend5 % permanent full-time 0.40 0.11 32 0.10 0.03 80 0.30 0.01 *** production workers that are female gend6 % firms with majority female 57.18 10.65 64 55.97 4.96 302 1.20 0.92 ownership graft3 bribery incidence (% firms 0.00 0.00 64 0.00 0.00 303 –0.00 0.45 experiencing >=1 bribe payment request) inf10 % electricity from generator 0.04 0.03 64 0.57 0.22 301 –0.53 0.01 ** inf11 % firms identifying transport 0.03 0.03 64 0.10 0.03 303 –0.07 0.08 * as major constraint inf12 % firms identifying 0.06 0.05 64 0.09 0.02 303 –0.02 0.65 electricity as major constraint inf14 % product lost to breakage/ 1.77 0.77 42 1.12 0.31 238 0.66 0.43 spoilage during domestic shipping inf15 Average total time of power 0.00 0.00 17 0.00 0.00 78 0.00 outages per month (hours) inf2 Number electrical outages in 0.36 0.24 61 0.30 0.13 291 0.07 0.80 typical month inf3 Duration of typical electrical 0.00 0.00 17 0.00 0.00 78 0.00 outage (hours) inf4 losses due to electrical 1.28 0.86 23 2.36 0.54 119 –1.08 0.29 outages (% annual sales) inf6 number water shortages in 0.72 0.37 29 1.53 0.89 72 –0.80 0.41 typical month inf9 % firms own/share 0.01 0.01 64 0.05 0.01 303 –0.04 0.01 ** generator infor1 % firms competing against 0.05 0.03 64 0.12 0.03 300 –0.07 0.13 unregistered/informal firms infor2 % firms identifying practices 0.09 0.05 64 0.11 0.03 303 –0.02 0.72 of informal competitors as major constraint infor4 % firms formally registered 0.95 0.05 64 0.98 0.01 302 –0.03 0.51 when started operations in country infor5 Number years operated 7.16 0.96 62 9.87 0.84 290 –2.71 0.03 ** without formal registration lform1 % firms with legal status of 0.00 0.00 64 0.01 0.00 303 –0.01 0.03 ** publicly listed company lform2 % firms with legal status of 0.00 0.00 64 0.02 0.01 303 –0.02 0.02 ** privately held LLC lform3 % firms with legal status of 0.99 0.00 64 0.90 0.02 303 0.09 0.00 *** sole proprietorship (continued) Increasing Agribusiness Growth in Bhutan 47 Table 1: continued Agribusinesses Other business t-test Variable Label Mean SE N Mean SE N Diff P-value Sig. lform4 % firms with legal status of 0.00 0.00 64 0.04 0.02 303 –0.04 0.03 ** partnership lform5 % firms with legal status of 0.00 0.00 64 0.02 0.01 303 –0.02 0.00 *** limited partnership loc_size_1 capital city 0.00 0.00 64 0.00 0.00 303 0.00 loc_size_2 city with 1 million +, not 0.00 0.00 64 0.00 0.00 303 0.00 capital loc_size_3 city with 250,000–1 million 0.00 0.00 64 0.00 0.00 303 0.00 loc_size_4 city with 50,000–250,000 0.55 0.11 64 0.58 0.05 303 –0.04 0.76 loc_size_5 city with <50,000 0.45 0.11 64 0.42 0.05 303 0.04 0.76 obst1 biggest obstacle is access to 0.40 0.10 64 0.37 0.05 303 0.03 0.83 finance obst10 biggest obstacle is labor 0.04 0.02 64 0.16 0.04 303 –0.13 0.00 *** regulations obst11 biggest obstacle is political 0.00 0.00 64 0.02 0.01 303 –0.02 0.14 instability obst12 biggest obstacle is informal 0.05 0.03 64 0.04 0.02 303 0.01 0.84 competitors obst13 biggest obstacle is tax 0.00 0.00 64 0.00 0.00 303 –0.00 0.10 * administration obst14 biggest obstacle is tax rates 0.22 0.08 64 0.11 0.03 303 0.11 0.23 obst15 biggest obstacle is transport 0.00 0.00 64 0.03 0.01 303 –0.03 0.01 *** obst2 biggest obstacle is access to 0.01 0.00 64 0.02 0.01 303 –0.02 0.24 land obst3 biggest obstacle is licensing & 0.00 0.00 64 0.02 0.01 303 –0.02 0.09 * permits obst4 biggest obstacle is corruption 0.00 0.00 64 0.00 0.00 303 –0.00 0.62 obst5 biggest obstacle is courts 0.00 0.00 64 0.00 0.00 303 –0.00 0.32 obst6 biggest obstacle is crime, 0.00 0.00 64 0.04 0.02 303 –0.04 0.05 * theft, disorder obst7 biggest obstacle is customs 0.01 0.01 64 0.05 0.02 303 –0.04 0.10 and trade regulation obst8 biggest obstacle is electricity 0.01 0.01 64 0.05 0.02 303 –0.04 0.09 * obst9 biggest obstacle is 0.02 0.02 64 0.01 0.01 303 0.01 0.75 inadequately educated workforce perf1 real annual sales growth 0.04 0.02 52 0.10 0.02 256 –0.06 0.04 ** perf2 annual employment growth 0.07 0.04 55 0.06 0.02 272 0.01 0.87 perf3 annual labor productivity 0.01 0.04 50 0.09 0.02 245 –0.07 0.09 * growth perf4 % firms buying fixed assets 0.12 0.06 64 0.16 0.03 303 –0.04 0.56 reg1 Senior mgmt time spent 12.21 5.22 64 23.05 4.21 303 –10.84 0.11 dealing with govt regulation 48 Increasing Agribusiness Growth in Bhutan Agribusinesses Other business t-test Variable Label Mean SE N Mean SE N Diff P-value Sig. reg2 Avg number mtgs or visits 1.25 0.18 59 1.22 0.14 245 0.03 0.88 with tax officials reg4 % of firms identifying tax 0.09 0.05 64 0.16 0.03 303 –0.06 0.32 rates as major constraint reg5 % firms identifying tax 0.03 0.03 64 0.06 0.02 303 –0.03 0.45 admin as major constraint region_1 a2==Thimphu/Paro 0.55 0.11 64 0.58 0.05 303 –0.04 0.76 region_2 a2==Phuentsholing 0.16 0.10 64 0.20 0.05 303 –0.04 0.74 region_3 a2==Gelephu/Sarpang 0.19 0.08 64 0.13 0.03 303 0.06 0.49 region_4 a2==Samdrup Jongkhar 0.11 0.05 64 0.09 0.02 303 0.01 0.80 t1 % firms with internationally- 0.00 0.00 64 0.01 0.00 298 –0.01 0.02 ** recognized quality certificate t2 % firms with annual 0.03 0.02 64 0.19 0.04 303 –0.15 0.00 *** financial stmt reviewed by external auditor t3 capacity utilization (%) 69.61 5.25 30 67.90 3.70 78 1.70 0.79 t4 % firms using tech licensed 0.03 0.02 32 0.09 0.04 83 –0.06 0.14 from foreign companies t5 % firms with own website 0.01 0.00 64 0.16 0.04 302 –0.15 0.00 *** t6 % firms using email for 0.16 0.06 64 0.33 0.04 303 –0.17 0.03 ** client/supplier comm tr10 direct + indirect exports as 0.74 0.32 64 5.69 1.82 298 –4.95 0.01 *** % of total sales tr14 days of inventory of main 31.03 12.84 32 81.41 19.65 82 –50.38 0.03 ** input tr15 % firms exporting >=1% of 0.01 0.00 64 0.02 0.01 303 –0.02 0.20 sales tr4 domestic sales as % of total 99.26 0.32 64 94.27 1.82 299 5.00 0.01 *** sales tr5 direct exports as % of total 0.33 0.18 64 0.89 0.24 298 –0.56 0.07 * sales tr6 indirect exports as % of total 0.41 0.24 64 4.79 1.79 298 –4.39 0.02 ** sales tr7 % total inputs of domestic 60.99 14.80 32 60.04 7.61 83 0.95 0.95 origin tr8 % total inputs of foreign 39.01 14.80 32 39.96 7.61 83 –0.95 0.95 origin tr9 % firms identifying customs 0.06 0.04 64 0.08 0.03 303 –0.02 0.69 and trade regs as major constraint wk1 % firms offering formal 0.05 0.02 64 0.16 0.03 302 –0.11 0.01 *** training programs for permanent, full-time employees (continued) Increasing Agribusiness Growth in Bhutan 49 Table 1: continued Agribusinesses Other business t-test Variable Label Mean SE N Mean SE N Diff P-value Sig. wk10 % firms identifying an 0.01 0.01 64 0.08 0.03 303 –0.07 0.01 *** inadequately educated workforce as a major constraint wk11 Average number of 0.60 0.21 64 8.88 3.89 303 –8.28 0.03 ** temporary workers wk12 Number of permanent full- 3.70 0.87 64 8.07 0.91 303 –4.37 0.00 *** time workers wk13 % unskilled workers (out of 0.32 0.15 32 0.30 0.08 81 0.02 0.90 all production workers) wk3 Average number of skilled 3.33 1.12 32 9.24 2.23 84 –5.91 0.02 ** production workers wk4 Average number of unskilled 1.57 0.58 32 2.67 0.74 84 –1.10 0.24 production workers wk6 Number of permanent 4.89 1.20 32 11.91 2.78 84 –7.01 0.02 ** production workers wk7 Number of permanent non- 2.45 0.71 32 6.16 1.46 83 –3.71 0.02 ** production workers wk8 Years of the top manager’s 8.06 1.47 64 8.90 0.69 303 –0.84 0.60 experience working in the firm’s sector wk9 % firms identifying labor 0.13 0.06 64 0.11 0.03 303 0.02 0.81 regulations as a major constraint wk_educ Indicator for completed 0.05 0.02 64 0.17 0.04 303 –0.12 0.01 *** higher secondary school or above wk_male Indicator for male employee 0.73 0.16 30 0.55 0.07 174 0.18 0.30 wk_ Indicator for non-Bhutanese 0.12 0.10 64 0.05 0.03 303 0.07 0.52 migrant worker wk_ Annual Salary USD 210.51 148.70 26 717.07 145.47 140 –506.56 0.02 ** salary_usd 50 Increasing Agribusiness Growth in Bhutan Table 2: Descriptive Statistics, 2009 Enterprise Survey Agribusinesses Other businesses t-test Variable Label Mean SE N Mean SE N Diff P-value Sig. bus5 % firms identifying business 0.04 0.03 28 0.10 0.03 222 –0.06 0.11 licensing/permits as major constraint car1 age of firm 20.90 3.08 28 20.54 0.93 222 0.35 0.91 car2 % private domestic 83.37 8.71 28 94.38 1.67 222 –11.00 0.22 ownership in firm car3 % private foreign ownership 16.63 8.71 28 5.06 1.64 222 11.57 0.19 in firm car4 % govt/state ownership in 0.00 0.00 28 0.33 0.19 222 –0.33 0.09 * firm car5 % other ownership in firm 0.00 0.00 28 0.24 0.24 222 –0.24 0.32 corr1 % firms expect to give gifts 0.00 0.00 22 0.03 0.01 166 –0.03 0.03 ** in mtgs w tax officials corr11 % firms identifying 0.00 0.00 28 0.07 0.03 222 –0.07 0.01 *** corruption as major constraint corr12 % firms believe court system 0.81 0.08 28 0.71 0.04 222 0.10 0.28 fair, impartial, uncorrupted corr2 % firms who have secured or 0.00 0.00 28 0.47 0.05 221 –0.47 0.00 *** attempted govt contract corr4 % total sales firms expect to 1.02 0.84 28 0.29 0.12 211 0.73 0.39 give as gifts to public officials crime1 % firms paying for security 0.19 0.07 28 0.35 0.04 221 –0.16 0.07 * crime10 % firms experiencing loss 0.18 0.08 28 0.16 0.04 222 0.02 0.82 due to theft/vandalism crime2 Security costs (% annual 0.00 0.00 28 1.36 0.41 217 –1.35 0.00 *** sales) crime8 % firms identifying crime, 0.02 0.02 28 0.05 0.02 222 –0.03 0.29 theft & disorder as major constraint crime9 % firms identifying courts as 0.02 0.02 28 0.08 0.03 222 –0.06 0.11 major constraint ent_size_2 small, 5–19 employees 0.81 0.06 28 0.74 0.03 222 0.08 0.25 ent_size_3 medium, 20–99 employees 0.15 0.05 28 0.20 0.02 222 –0.05 0.42 ent_size_4 large, 100+ employees 0.04 0.03 28 0.07 0.01 222 –0.03 0.30 fin10 Value of collateral (% of 7.14 4.11 10 8.42 2.17 104 –1.28 0.78 loan amount) fin11 % loans requiring collateral 1.00 0.00 10 0.97 0.03 120 0.03 0.31 fin12 % firms using banks to 0.00 0.00 28 0.35 0.05 222 –0.35 0.00 *** finance investments fin13 % firms using banks to 0.43 0.10 28 0.61 0.05 222 –0.18 0.11 finance working capital fin14 % firms with a bank loan/ 0.23 0.08 28 0.62 0.05 219 –0.39 0.00 *** credit line (continued) Increasing Agribusiness Growth in Bhutan 51 Table 2: continued Agribusinesses Other businesses t-test Variable Label Mean SE N Mean SE N Diff P-value Sig. fin15 % firms with checking or 0.94 0.05 28 0.92 0.02 221 0.01 0.80 savings acct fin16 % firms identifying access to 0.23 0.09 28 0.30 0.05 222 –0.07 0.47 finance as major constraint fin18 % sales sold on credit 53.72 6.82 28 50.04 4.43 219 3.68 0.65 fin19 % working capital financed 28.01 6.97 28 49.55 3.24 222 –21.53 0.01 *** by external sources fin20 % firms not needing a loan 0.26 0.09 28 0.28 0.04 222 –0.02 0.87 fin5 % investments financed by 7.19 6.94 7 4.14 1.76 114 3.05 0.67 other sources fin6 % working capital financed 71.99 6.97 28 50.45 3.24 222 21.53 0.01 *** by internal funds fin7 % working capital financed 17.24 5.63 28 33.64 3.35 222 –16.40 0.01 ** by banks fin8 % working capital financed 5.09 2.80 28 6.92 1.50 222 –1.83 0.57 by supplier credit fin9 % working capital financed 5.68 4.32 28 8.98 1.86 222 –3.30 0.48 by other sources gend1 % firms with female 0.34 0.10 28 0.31 0.04 222 0.03 0.80 participation in ownership gend2 % permanent full-time 0.12 0.03 28 0.15 0.02 220 –0.03 0.32 workers that are female graft3 bribery incidence (% firms 0.00 0.00 28 0.06 0.03 222 –0.06 0.03 ** experiencing >=1 bribe payment request) inf1 Delay in obtaining electrical 9.40 2.09 3 19.74 6.91  43 –10.34 0.16 cxn (days after app) inf10 % electricity from generator 0.57 0.27 27 1.10 0.48 218 –0.53 0.34 inf11 % firms identifying transport 0.08 0.04 28 0.18 0.04 222 –0.10 0.09 * as major constraint inf12 % firms identifying 0.02 0.02 28 0.06 0.02 222 –0.04 0.11 electricity as major constraint inf2 Number electrical outages in 0.48 0.23 27 0.65 0.15 214 –0.17 0.55 typical month inf6 number water shortages in 3.91 1.40 28 2.52 0.54 214 1.38 0.36 typical month inf7 average duration water 55.89 28.79 27 21.13 4.88 212 34.75 0.24 shortages in typical month inf8 delay in obtaining telephone 2.86 1.25 4 6.19 1.88  66 –3.33 0.14 cxn (days after app) inf9 % firms own/share 0.22 0.08 28 0.17 0.03 222 0.05 0.60 generator infor1 % firms competing against 0.27 0.09 28 0.19 0.04 220 0.07 0.45 unregistered/informal firms 52 Increasing Agribusiness Growth in Bhutan Agribusinesses Other businesses t-test Variable Label Mean SE N Mean SE N Diff P-value Sig. infor2 % firms identifying informal 0.02 0.02 28 0.12 0.04 222 –0.11 0.01 ** competitors as major constraint infor4 % firms formally registered 0.92 0.06 28 1.00 0.00 220 –0.08 0.21 when started operations in country infor5 Number years operated 18.90 2.66 26 20.38 0.93 219 –1.48 0.60 without formal registration lform1 % firms with legal status of 0.02 0.02 28 0.02 0.01 222 –0.00 0.95 publicly listed company lform2 % firms with legal status of 0.04 0.03 28 0.02 0.01 222 0.01 0.63 privately held LLC lform3 % firms with legal status of 0.93 0.04 28 0.90 0.02 222 0.02 0.61 sole proprietorship lform4 % firms with legal status of 0.00 0.00 28 0.01 0.00 222 –0.01 0.16 partnership lform5 % firms with legal status of 0.02 0.02 28 0.04 0.02 222 –0.02 0.34 limited partnership loc_size_1 capital city 0.06 0.04 28 0.45 0.05 222 –0.39 0.00 *** loc_size_2 city with 1 million +, not 0.00 0.00 28 0.00 0.00 222 0.00 capital loc_size_3 city with 250,000–1 million 0.00 0.00 28 0.00 0.00 222 0.00 loc_size_4 city with 50,000–250,000 0.51 0.11 28 0.18 0.02 222 0.33 0.00 *** loc_size_5 city with <50,000 0.43 0.11 28 0.37 0.05 222 0.07 0.58 obst1 biggest obstacle is access to 0.45 0.11 28 0.19 0.04 222 0.26 0.02 ** finance obst2 biggest obstacle is access to 0.00 0.00 28 0.03 0.02 222 –0.03 0.10 land obst3 biggest obstacle is licensing & 0.06 0.06 28 0.07 0.02 222 –0.01 0.85 permits obst4 biggest obstacle is corruption 0.00 0.00 28 0.04 0.02 222 –0.04 0.05 ** obst5 biggest obstacle is courts 0.00 0.00 28 0.02 0.02 222 –0.02 0.26 obst6 biggest obstacle is crime, 0.00 0.00 28 0.04 0.02 222 –0.04 0.10 * theft, disorder obst7 biggest obstacle is customs 0.02 0.02 28 0.03 0.02 222 –0.02 0.55 and trade regulation obst8 biggest obstacle is electricity 0.02 0.02 28 0.00 0.00 222 0.01 0.47 obst9 biggest obstacle is 0.04 0.03 28 0.11 0.03 222 –0.07 0.05 * inadequately educated workforce obst10 biggest obstacle is labor 0.06 0.06 28 0.10 0.03 222 –0.04 0.56 regulations obst11 biggest obstacle is political 0.00 0.00 28 0.00 0.00 222 –0.00 0.32 instability (continued) Increasing Agribusiness Growth in Bhutan 53 Table 2: continued Agribusinesses Other businesses t-test Variable Label Mean SE N Mean SE N Diff P-value Sig. obst12 biggest obstacle is informal 0.10 0.06 28 0.06 0.03 222 0.04 0.56 competitors obst13 biggest obstacle is tax 0.04 0.04 28 0.07 0.03 222 –0.03 0.57 administration obst14 biggest obstacle is tax rates 0.08 0.05 28 0.13 0.03 222 –0.05 0.44 obst15 biggest obstacle is transport 0.12 0.07 28 0.09 0.03 222 0.04 0.61 perf1 real annual sales growth 0.14 0.06 25 0.14 0.02 201 0.00 0.99 perf2 annual employment growth 0.08 0.02 26 0.09 0.02 209 –0.01 0.68 perf3 annual labor productivity 0.02 0.12 24 0.01 0.04 196 0.01 0.95 growth perf4 % firms buying fixed assets 0.15 0.06 28 0.55 0.05 222 –0.40 0.00 *** reg1 Senior mgmt time spent 7.39 2.05 28 18.03 2.12 216 –10.64 0.00 *** dealing with govt regulation reg2 Avg number mtgs or visits 2.60 0.53 22 2.44 0.35 164 0.16 0.80 with tax officials reg4 % of firms identifying tax 0.11 0.06 28 0.17 0.04 222 –0.06 0.34 rates as major constraint reg5 % firms identifying tax 0.10 0.06 28 0.13 0.04 222 –0.02 0.73 admin as major constraint region_1 a2==Thimphu/Paro 0.06 0.04 28 0.58 0.04 222 –0.52 0.00 *** region_2 a2==Phuentsholing 0.51 0.11 28 0.19 0.03 222 0.32 0.00 *** region_3 a2==Gelephu/Sarpang 0.00 0.00 28 0.04 0.01 222 –0.04 0.00 *** region_4 a2==Samdrup Jongkhar 0.43 0.11 28 0.19 0.03 222 0.24 0.04 ** t1 % firms with internationally- 0.06 0.03 27 0.05 0.02 217 0.00 0.94 recognized quality certificate t2 % firms with annual 0.40 0.10 28 0.51 0.05 222 –0.11 0.32 financial stmt reviewed by external auditor t4 % firms using tech licensed 0.05 0.03 28 0.07 0.02 220 –0.02 0.69 from foreign companies t5 % firms with own website 0.04 0.04 28 0.33 0.05 222 –0.29 0.00 *** t6 % firms using email for 0.32 0.09 28 0.61 0.05 222 –0.30 0.00 *** client/supplier comm tr10 direct + indirect exports as 11.38 5.15 28 5.62 1.08 222 5.76 0.27 % of total sales tr12 direct export products lost 0.88 0.85 7 1.64 1.15  35 –0.77 0.59 due to theft (% total value) tr15 % firms exporting >=1% of 0.15 0.06 28 0.07 0.01 222 0.08 0.19 sales tr2 days to clear imports from 1.99 0.46 18 5.88 0.89 143 –3.90 0.00 *** customs tr4 domestic sales as % of total 88.62 5.15 28 94.38 1.08 222 –5.76 0.27 sales 54 Increasing Agribusiness Growth in Bhutan Agribusinesses Other businesses t-test Variable Label Mean SE N Mean SE N Diff P-value Sig. tr5 direct exports as % of total 10.13 5.04 28 5.07 1.02 222 5.05 0.33 sales tr6 indirect exports as % of total 1.26 0.91 28 0.55 0.30 222 0.71 0.46 sales tr7 % total inputs of domestic 27.79 7.65 28 37.73 3.68 221 –9.94 0.24 origin tr8 % total inputs of foreign 72.21 7.65 28 62.27 3.68 221 9.94 0.24 origin tr9 % firms identifying customs 0.04 0.03 28 0.10 0.03 222 –0.06 0.13 and trade regs as major constraint Table 3: Descriptive Statistics, Agribusiness Panel 2009–2015 Agribusinesses Other businesses t-test Variable Label Mean SE N Mean SE N Diff P-value Sig. bus1 Days to obtain import license 7.00 0.00 1 5.86 1.52 2 1.14 0.53 bus5 % firms identifying business 0.00 0.00 14 0.08 0.08 9 –0.08 0.33 licensing/permits as major constraint car1 age of firm 23.18 4.69 14 22.61 4.34 9 0.57 0.93 car2 % private domestic 100.00 0.00 14 83.83 14.95 9 16.17 0.29 ownership in firm car3 % private foreign ownership 0.00 0.00 14 16.17 14.95 9 –16.17 0.29 in firm corr2 % firms who have secured or 0.21 0.13 14 0.00 0.00 9 0.21 0.11 attempted govt contract corr4 % total sales firms expect to 0.00 0.00 14 0.67 0.69 9 –0.67 0.34 give as gifts to public officials crime1 % firms paying for security 0.08 0.06 14 0.21 0.13 9 –0.13 0.36 crime10 % firms experiencing loss 0.13 0.12 14 0.00 0.00 9 0.13 0.29 due to theft/vandalism crime2 Security costs (% annual 0.00 0.00 14 0.01 0.01 9 –0.01 0.31 sales) ent_size_2 small, 5–19 employees 0.40 0.14 14 0.71 0.15 9 –0.32 0.13 ent_size_3 medium, 20–99 employees 0.08 0.06 14 0.29 0.15 9 –0.20 0.21 fin10 Value of collateral (% of 14.59 8.73 5 12.14 6.86 5 2.45 0.83 loan amount) fin11 % loans requiring collateral 0.72 0.24 6 1.00 0.00 5 –0.28 0.26 fin12 % firms using banks to 0.05 0.05 14 0.00 0.00 9 0.05 0.34 finance investments (continued) Increasing Agribusiness Growth in Bhutan 55 Table 3: continued Agribusinesses Other businesses t-test Variable Label Mean SE N Mean SE N Diff P-value Sig. fin13 % firms using banks to 0.37 0.14 14 0.47 0.19 9 –0.09 0.70 finance working capital fin14 % firms with a bank loan/ 0.39 0.14 14 0.44 0.19 9 –0.06 0.81 credit line fin16 % firms identifying access to 0.24 0.14 14 0.24 0.20 9 0.00 1.00 finance as major constraint fin18 % sales sold on credit 31.17 9.35 14 36.35 10.09 9 –5.18 0.71 fin19 % working capital financed 33.45 10.42 14 23.39 9.58 9 10.06 0.48 by external sources fin20 % firms not needing a loan 0.68 0.15 14 0.15 0.11 9 0.52 0.01 *** fin6 % working capital financed 66.55 10.42 14 76.61 9.58 9 –10.06 0.48 by internal funds fin7 % working capital financed 28.00 10.43 14 9.64 3.92 9 18.36 0.11 by banks fin8 % working capital financed 0.00 0.00 14 13.75 9.18 9 –13.75 0.15 by supplier credit gend1 % firms with female 0.36 0.15 14 0.37 0.18 9 –0.01 0.97 participation in ownership gend2 % permanent full-time 0.23 0.11 7 0.06 0.03 9 0.18 0.15 workers that are female inf12 % firms identifying 0.08 0.06 14 0.07 0.07 9 0.02 0.86 electricity as major constraint inf6 number water shortages in 0.14 0.13 7 1.19 1.00 9 –1.05 0.32 typical month inf7 average duration water 2.00 0.00 1 28.54 24.54 9 –26.54 0.31 shortages in typical month inf9 % firms own/share 0.00 0.00 14 0.15 0.11 9 –0.15 0.18 generator infor1 % firms competing against 0.13 0.12 14 0.39 0.18 9 –0.26 0.25 unregistered/informal firms infor2 % firms identifying informal 0.04 0.04 14 0.08 0.08 9 –0.03 0.71 competitors as major constraint infor4 % firms formally registered 0.95 0.05 14 0.93 0.07 9 0.02 0.81 when started operations in country infor5 Number years operated 22.74 4.89 13 22.58 4.66 8 0.16 0.98 without formal registration loc_size_1 capital city 0.00 0.00 14 0.13 0.10 9 –0.13 0.18 loc_size_4 city with 50,000–250,000 0.09 0.06 14 0.63 0.19 9 –0.54 0.01 ** loc_size_5 city with <50,000 0.91 0.06 14 0.24 0.20 9 0.68 0.00 *** obst1 biggest obstacle is access to 0.34 0.14 14 0.70 0.15 9 –0.36 0.09 * finance 56 Increasing Agribusiness Growth in Bhutan Agribusinesses Other businesses t-test Variable Label Mean SE N Mean SE N Diff P-value Sig. obst12 biggest obstacle is informal 0.04 0.04 14 0.08 0.08 9 –0.03 0.71 competitors obst14 biggest obstacle is tax rates 0.11 0.10 14 0.08 0.08 9 0.03 0.84 obst2 biggest obstacle is access to 0.13 0.12 14 0.00 0.00 9 0.13 0.29 land obst4 biggest obstacle is corruption 0.05 0.05 14 0.00 0.00 9 0.05 0.34 obst8 biggest obstacle is electricity 0.08 0.06 14 0.07 0.07 9 0.02 0.86 obst9 biggest obstacle is 0.00 0.00 14 0.07 0.07 9 –0.07 0.34 inadequately educated workforce perf1 real annual sales growth 0.17 0.08 14 0.16 0.14 9 0.02 0.92 perf2 annual employment growth 0.03 0.03 13 0.10 0.04 9 –0.07 0.17 perf3 annual labor productivity 0.13 0.12 13 0.02 0.17 9 0.10 0.63 growth perf4 % firms buying fixed assets 0.09 0.06 14 0.30 0.17 9 –0.21 0.25 reg1 Senior mgmt time spent 29.87 10.48 14 5.17 2.35 9 24.71 0.03 ** dealing with govt regulation reg2 Avg number mtgs or visits 5.99 4.38 13 1.82 0.33 7 4.17 0.35 with tax officials reg4 % of firms identifying tax 0.04 0.04 14 0.08 0.08 9 –0.04 0.67 rates as major constraint reg5 % firms identifying tax 0.00 0.00 14 0.08 0.08 9 –0.08 0.34 admin as major constraint region_1 a2==Thimphu/Paro 0.09 0.06 14 0.13 0.10 9 –0.05 0.67 region_2 a2==Phuentsholing 0.41 0.14 14 0.63 0.19 9 –0.21 0.39 region_3 a2==Gelephu/Sarpang 0.05 0.05 14 0.00 0.00 9 0.05 0.34 region_4 a2==Samdrup Jongkhar 0.46 0.15 14 0.24 0.20 9 0.22 0.39 t2 % firms with annual 0.32 0.13 14 0.45 0.19 9 –0.13 0.57 financial stmt reviewed by external auditor t6 % firms using email for 0.44 0.15 14 0.36 0.16 9 0.07 0.74 client/supplier comm tr1 days to clear direct exports 2.36 1.23 3 2.50 0.40 2 –0.14 0.92 through customs tr10 direct + indirect exports as 8.44 4.78 14 4.04 3.53 9 4.40 0.47 % of total sales tr15 % firms exporting >=1% of 0.13 0.07 14 0.13 0.10 9 –0.01 0.94 sales tr2 days to clear imports from 5.38 2.03 3 1.64 0.61 7 3.74 0.11 customs tr4 domestic sales as % of total 91.56 4.78 14 95.96 3.53 9 –4.40 0.47 sales tr5 direct exports as % of total 4.60 3.19 14 2.02 1.55 9 2.58 0.47 sales (continued) Increasing Agribusiness Growth in Bhutan 57 Table 3: continued Agribusinesses Other businesses t-test Variable Label Mean SE N Mean SE N Diff P-value Sig. tr6 indirect exports as % of total 3.84 2.93 14 2.02 2.07 9 1.82 0.62 sales tr7 % total inputs of domestic 64.28 15.51  7 27.07 16.06 9 37.21 0.12 origin tr8 % total inputs of foreign 35.72 15.51  7 72.93 16.06 9 –37.21 0.12 origin Table 4: Descriptive Statistics, Other Businesses Panel 2009–2015 Agribusinesses Other businesses t-test Variable Label Mean SE N Mean SE N Diff P-value Sig. bus1 Days to obtain import license 10.19 1.88 22 13.23 2.84 23 –3.04 0.38 bus5 % firms identifying business 0.07 0.03 99 0.12 0.04 104 –0.05 0.29 licensing/permits as major constraint car1 age of firm 21.56 1.64 98 18.92 1.29 104 2.64 0.21 car2 % private domestic 97.67 1.42 98 95.04 2.26 104 2.64 0.32 ownership in firm car3 % private foreign ownership 1.13 1.13 98 4.79 2.25 104 –3.66 0.15 in firm car4 % govt/state ownership in 0.73 0.51 99 0.17 0.17 104 0.56 0.30 firm corr1 % firms expect to give gifts 0.00 0.00 72 0.02 0.02 75 –0.02 0.20 in mtgs w tax officials corr11 % firms identifying 0.03 0.02 99 0.03 0.01 104 –0.01 0.71 corruption as major constraint corr12 % firms believe court system 0.70 0.05 99 0.77 0.06 104 –0.07 0.37 fair, impartial, uncorrupted corr2 % firms who have secured or 0.36 0.05 99 0.40 0.07 103 –0.04 0.64 attempted govt contract corr4 % total sales firms expect to 0.19 0.19 99 0.10 0.06 99 0.09 0.64 give as gifts to public officials crime1 % firms paying for security 0.30 0.05 99 0.34 0.06 104 –0.04 0.66 crime10 % firms experiencing loss 0.11 0.04 98 0.14 0.05 104 –0.02 0.70 due to theft/vandalism crime2 Security costs (% annual 0.53 0.29 97 1.95 0.72 103 –1.43 0.07 * sales) crime8 % firms identifying crime, 0.04 0.02 99 0.01 0.01 104 0.03 0.12 theft & disorder as major constraint crime9 % firms identifying courts as 0.01 0.01 99 0.04 0.03 104 –0.03 0.45 major constraint 58 Increasing Agribusiness Growth in Bhutan Agribusinesses Other businesses t-test Variable Label Mean SE N Mean SE N Diff P-value Sig. ent_size_1 micro, 1–4 employees 0.26 0.05 99 0.00 0.00 104 0.26 0.00 *** ent_size_2 small, 5–19 employees 0.43 0.05 99 0.79 0.04 104 –0.36 0.00 *** ent_size_3 medium, 20–99 employees 0.28 0.05 99 0.18 0.03 104 0.10 0.08 * ent_size_4 large, 100+ employees 0.04 0.02 99 0.04 0.01 104 0.00 0.99 fin1 % investments financed by 68.62 6.08 35 48.02 8.67 42 20.61 0.06 * internal funds fin10 Value of collateral (% of 6.07 2.16 36 5.14 1.48 44 0.93 0.72 loan amount) fin12 % firms using banks to 0.12 0.03 99 0.24 0.06 104 –0.11 0.13 finance investments fin13 % firms using banks to 0.47 0.05 99 0.60 0.07 104 –0.13 0.12 finance working capital fin14 % firms with a bank loan/ 0.47 0.05 99 0.59 0.07 102 –0.12 0.17 credit line fin15 % firms with checking or 0.96 0.02 99 0.93 0.04 103 0.04 0.38 savings acct fin16 % firms identifying access to 0.09 0.03 99 0.30 0.07 104 –0.21 0.01 *** finance as major constraint fin18 % sales sold on credit 36.07 3.47 99 51.20 6.54 103 –15.14 0.04 ** fin19 % working capital financed 32.94 4.04 99 49.20 5.23 104 –16.26 0.01 ** by external sources fin2 % investments financed by 23.16 6.27 35 38.89 9.28 42 –15.73 0.16 banks fin20 % firms not needing a loan 0.70 0.05 99 0.38 0.07 104 0.31 0.00 *** fin21 % firms whose recent loan 0.01 0.01 99 0.00 0.00 104 0.01 0.32 application was rejected fin3 % investments financed by 0.00 0.00 35 2.68 2.24 42 –2.68 0.24 supplier credit fin4 % investments financed by 3.13 1.80 35 3.08 1.87 42 0.05 0.98 equity/stock sales fin5 % investments financed by 5.09 3.43 35 7.34 3.97 42 –2.25 0.67 other sources fin6 % working capital financed 67.06 4.04 99 50.80 5.23 104 16.26 0.01 ** by internal funds fin7 % working capital financed 29.31 3.91 99 34.25 5.50 104 –4.94 0.46 by banks fin8 % working capital financed 1.61 0.87 99 4.73 1.86 104 –3.12 0.13 by supplier credit fin9 % working capital financed 2.02 0.92 99 10.21 2.89 104 –8.20 0.01 *** by other sources gend1 % firms with female 0.41 0.05 99 0.33 0.07 104 0.08 0.37 participation in ownership gend2 % permanent full-time 0.14 0.03 35 0.13 0.02 104 0.01 0.82 workers that are female (continued) Increasing Agribusiness Growth in Bhutan 59 Table 4: continued Agribusinesses Other businesses t-test Variable Label Mean SE N Mean SE N Diff P-value Sig. graft3 bribery incidence (% firms 0.01 0.01 99 0.05 0.03 104 –0.04 0.25 experiencing >=1 bribe request) inf11 % firms identifying transport 0.09 0.03 99 0.17 0.05 104 –0.07 0.23 as major constraint inf12 % firms identifying 0.09 0.03 99 0.03 0.01 104 0.06 0.05 * electricity as major constraint inf6 number water shortages in 0.89 0.54 33 2.34 0.76 102 –1.45 0.12 typical month inf7 average duration water 80.14 49.01 7 16.94 5.40 101 63.21 0.20 shortages in typical month inf9 % firms own/share 0.16 0.04 99 0.12 0.04 104 0.04 0.47 generator infor1 % firms competing against 0.12 0.04 99 0.20 0.06 102 –0.08 0.26 unregistered/informal firms infor2 % firms identifying informal 0.09 0.03 99 0.13 0.05 104 –0.04 0.55 competitors as major constraint infor5 Number years operated 21.45 1.69 94 18.84 1.29 103 2.61 0.22 without formal registration lform1 % firms with legal status of 0.03 0.02 99 0.01 0.01 104 0.02 0.27 publicly listed company lform2 % firms with legal status of 0.06 0.03 99 0.02 0.01 104 0.05 0.08 * privately held LLC lform3 % firms with legal status of 0.77 0.04 99 0.92 0.03 104 –0.15 0.01 *** sole proprietorship lform4 % firms with legal status of 0.05 0.02 99 0.00 0.00 104 0.05 0.02 ** partnership lform5 % firms with legal status of 0.08 0.03 99 0.06 0.03 104 0.02 0.65 limited partnership loc_size_1 capital city 0.00 0.00 99 0.54 0.07 104 –0.54 0.00 *** loc_size_4 city with 50,000–250,000 0.44 0.05 99 0.13 0.03 104 0.31 0.00 *** loc_size_5 city with <50,000 0.56 0.05 99 0.33 0.06 104 0.23 0.01 *** obst1 biggest obstacle is access to 0.18 0.04 99 0.21 0.06 104 –0.03 0.71 finance obst10 biggest obstacle is labor 0.23 0.05 99 0.08 0.04 104 0.15 0.01 ** regulations obst12 biggest obstacle is informal 0.08 0.03 99 0.09 0.05 104 –0.01 0.83 competitors obst13 biggest obstacle is tax 0.02 0.01 99 0.12 0.05 104 –0.11 0.06 * administration obst14 biggest obstacle is tax rates 0.09 0.03 99 0.11 0.05 104 –0.02 0.71 obst15 biggest obstacle is transport 0.10 0.03 99 0.09 0.04 104 0.01 0.82 60 Increasing Agribusiness Growth in Bhutan Agribusinesses Other businesses t-test Variable Label Mean SE N Mean SE N Diff P-value Sig. obst2 biggest obstacle is access to 0.02 0.01 99 0.01 0.01 104 0.01 0.51 land obst3 biggest obstacle is licensing & 0.03 0.02 99 0.08 0.03 104 –0.05 0.15 permits obst4 biggest obstacle is corruption 0.02 0.01 99 0.01 0.01 104 0.00 0.79 obst6 biggest obstacle is crime, 0.02 0.01 99 0.03 0.03 104 –0.02 0.61 theft, disorder obst7 biggest obstacle is customs 0.04 0.02 99 0.06 0.03 104 –0.02 0.69 and trade regulation obst8 biggest obstacle is electricity 0.03 0.02 99 0.00 0.00 104 0.03 0.20 obst9 biggest obstacle is 0.03 0.02 99 0.10 0.04 104 –0.07 0.07 * inadequately educated workforce perf1 real annual sales growth 0.05 0.02 87 0.16 0.03 95 –0.11 0.01 ** perf2 annual employment growth 0.05 0.02 94 0.08 0.02 98 –0.03 0.34 perf3 annual labor productivity 0.03 0.02 84 0.04 0.05 93 –0.02 0.77 growth perf4 % firms buying fixed assets 0.35 0.05 99 0.45 0.07 104 –0.10 0.27 reg1 Senior mgmt time spent 26.37 3.62 99 16.95 3.19 102 9.42 0.05 * dealing with govt regulation reg2 Avg number mtgs or visits 5.02 3.68 72 2.38 0.52 75 2.65 0.48 with tax officials reg4 % of firms identifying tax 0.14 0.04 99 0.14 0.05 104 0.01 0.93 rates as major constraint reg5 % firms identifying tax 0.08 0.03 99 0.13 0.05 104 –0.06 0.36 admin as major constraint region_1 a2==Thimphu/Paro 0.44 0.05 99 0.66 0.06 104 –0.22 0.00 *** region_2 a2==Phuentsholing 0.27 0.05 99 0.14 0.03 104 0.13 0.02 ** region_3 a2==Gelephu/Sarpang 0.07 0.02 99 0.03 0.01 104 0.04 0.16 region_4 a2==Samdrup Jongkhar 0.22 0.05 99 0.17 0.04 104 0.05 0.44 t1 % firms with internationally- 0.08 0.03 97 0.06 0.03 103 0.01 0.74 recognized quality certificate t2 % firms with annual 0.43 0.05 99 0.55 0.07 104 –0.12 0.18 financial stmt reviewed by external auditor t4 % firms using tech licensed 0.05 0.04 35 0.07 0.03 104 –0.02 0.75 from foreign companies t5 % firms with own website 0.32 0.05 99 0.32 0.07 104 0.01 0.94 t6 % firms using email for 0.71 0.05 99 0.55 0.07 104 0.16 0.07 * client/supplier comm tr1 days to clear direct exports 35.49 23.84 4 2.73 0.82 13 32.77 0.19 through customs tr10 direct + indirect exports as 9.04 2.76 98 3.44 1.12 104 5.60 0.06 * % of total sales (continued) Increasing Agribusiness Growth in Bhutan 61 Table 4: continued Agribusinesses Other businesses t-test Variable Label Mean SE N Mean SE N Diff P-value Sig. tr13 direct export products lost 0.00 0.00 4 0.66 0.40 14 –0.66 0.11 due to breakage/spoilage (% total val) tr15 % firms exporting >=1% of 0.06 0.02 99 0.05 0.02 104 0.01 0.77 sales tr2 days to clear imports from 18.31 8.41 15 5.71 1.50 64 12.60 0.14 customs tr4 domestic sales as % of total 90.96 2.76 98 96.56 1.12 104 –5.60 0.06 * sales tr5 direct exports as % of total 4.11 1.85 98 3.11 1.06 104 1.01 0.64 sales tr6 indirect exports as % of total 4.93 2.03 98 0.33 0.27 104 4.60 0.03 ** sales tr7 % total inputs of domestic 61.72 7.81 35 39.73 6.25 103 21.99 0.03 ** origin tr8 % total inputs of foreign 38.28 7.81 35 60.27 6.25 103 –21.99 0.03 ** origin tr9 % firms identifying customs 0.07 0.03 99 0.06 0.03 104 0.01 0.82 and trade regs as major constraint 62 Increasing Agribusiness Growth in Bhutan Table 5: Biggest Obstacles est_obst1 est_obst2 est_obst3 est_obst4 est_obst5 Licensing & Access to finance Access to land permits Corruption Courts Increasing Agribusiness Growth in Bhutan b/se b/se b/se b/se b/se b/se b/se b/se b/se b/se Agribusiness –0.13* –0.06 0.03 0.03 –0.01* –0.02 0.01 0.01 0 0 0.08 0.09 0.05 0.05 0.01 0.01 0.02 0.02 0 0 Microbusiness 0.20** 0.25*** –0.02 –0.02 0.01 0.01 –0.01 –0.01 0 0 0.09 0.09 0.02 0.02 0.02 0.02 0.01 0.01 0 0 Agribusiness * Microbusiness 0.12 0.07 –0.04 –0.04 –0.01 –0.01 –0.01 –0.01 0 0 0.15 0.16 0.05 0.06 0.02 0.02 0.02 0.02 0 0 Thimpu/Pharo 0.36*** 0.01 –0.01 0 0 0.08 0.02 0.01 0 0 Phuentsholing 0.51*** 0 –0.02 0 0 0.15 0.02 0.01 0 0 Gelephu/Sarpang 0.05 0 0.06 0.01 0 0.11 0.02 0.07 0.01 0 _cons 0.24*** –0.11 0.03** 0.03* 0.01* 0.02 0.01 0.01 0 0 0.06 0.08 0.01 0.02 0.01 0.01 0.01 0.01 0 0 N 367 367 367 367 367 367 367 367 367 367 R-squared 0.04 0.15 0.01 0.01 0.01 0.03 0.01 0.02 0 0 Notes: Regression estimates control for survey design effects, using wmedian as the sampling weight. Microbusinesses are defined to have fewer than 5 employees. The omitted region is Samdrup/Jongkhar. (continued) 63 64 Table 5: continued est_obst6 est_obst7 est_obst8 est_obst9 est_obst10 Inadequately Crime, theft, Customs and trade educated disorder regulation Electricity workforce Labor regulations b/se b/se b/se b/se b/se b/se b/se b/se b/se b/se Agribusiness –0.08 –0.08 –0.02** –0.03* 0.06 0.08 –0.03*** –0.02** 0.06 0.02 0.05 0.05 0.01 0.02 0.06 0.06 0.01 0.01 0.17 0.15 Microbusiness –0.06 –0.06 0.04 0.03 0.03 0.03 –0.02 –0.02 –0.09 –0.11 0.05 0.05 0.03 0.03 0.03 0.03 0.01 0.01 0.07 0.07 Agribusiness * Microbusiness 0.06 0.07 –0.03 –0.02 –0.12* –0.13* 0.04 0.04 –0.18 –0.14 0.05 0.05 0.03 0.04 0.07 0.07 0.02 0.02 0.17 0.16 Thimpu/Pharo –0.04 –0.03 0.06* 0.01 –0.31*** 0.05 0.06 0.03 0.01 0.1 Phuentsholing 0 –0.05 –0.01 0 –0.25* 0.08 0.05 0.01 0.01 0.14 Gelephu/Sarpang –0.05 0.04 –0.01 –0.01 –0.2 0.05 0.09 0.01 0.01 0.12 _cons 0.08 0.11* 0.02** 0.05 0.03** –0.01 0.03*** 0.02 0.23*** 0.49*** 0.05 0.06 0.01 0.05 0.01 0.03 0.01 0.01 0.05 0.1 N 367 367 367 367 367 367 367 367 367 367 R-squared 0.03 0.05 0.01 0.03 0.01 0.04 0 0.01 0.05 0.11 Increasing Agribusiness Growth in Bhutan est_obst11 est_obst12 est_obst13 est_obst14 est_obst15 Informal Political instability competitors Tax administration Tax rates Transport b/se b/se b/se b/se b/se b/se b/se b/se b/se b/se Increasing Agribusiness Growth in Bhutan Agribusiness –0.01 –0.01 0.17 0.16 –0.01* –0.01* 0.12 0.14 –0.08*** –0.08*** 0.01 0.01 0.13 0.13 0.01 0.01 0.12 0.11 0.03 0.03 Microbusiness 0.01 0.01 –0.01 –0.01 –0.01* –0.01* 0.03 0.02 –0.08** –0.08** 0.02 0.02 0.03 0.03 0.01 0.01 0.05 0.05 0.03 0.03 Agribusiness * Microbusiness –0.01 –0.01 –0.17 –0.17 0.01* 0.01* –0.02 –0.05 0.08** 0.07** 0.02 0.02 0.13 0.14 0.01 0.01 0.15 0.14 0.03 0.03 Thimpu/Pharo 0 –0.02 0 0.18*** 0.01 0.03 0.06 0 0.05 0.01 Phuentsholing –0.02 –0.04 0 0 –0.02 0.02 0.05 0 0.02 0.01 Gelephu/Sarpang –0.02 0.03 0 0.13 –0.01 0.02 0.09 0 0.09 0.01 _cons 0.01 0.02 0.05** 0.06 0.01* 0.01* 0.09*** –0.03 0.08*** 0.08*** 0.01 0.02 0.02 0.06 0.01 0.01 0.03 0.04 0.03 0.03 N 367 367 367 367 367 367 367 367 367 367 R-squared 0 0.01 0.01 0.02 0.01 0.01 0.02 0.07 0.05 0.06 Notes: Regression estimates control for survey design effects, using wmedian as the sampling weight. Microbusinesses are defined to have fewer than 5 employees. The omitted region is Samdrup/Jongkhar. 65 66 Table 6: Finance est_fin6 est_fin7 est_fin8 est_fin9 est_fin12 est_fin13 % Working % Working % Working capital financed % Working capital financed capital % Firms using % Firms using by internal capital financed by supplier financed by banks to finance banks to finance funds by banks credit other sources investments working capital b/se b/se b/se b/se b/se b/se b/se b/se b/se b/se b/se b/se Agribusiness –1.69 –2.69 5.16 5.39 –0.49 –0.43 –2.98 –2.27 0.01 0.02 0 0 11.39 11.33 11.23 11.1 0.7 0.69 2.04 1.94 0.1 0.09 0.16 0.16 Microbusiness 19.54*** 19.86*** –17.64*** –17.96*** –1.25*** –1.24*** –0.65 –0.66 –0.15*** –0.16*** –0.30*** –0.31*** 5.52 5.32 5.22 5.03 0.4 0.4 2.5 2.5 0.04 0.04 0.07 0.07 Agribusiness * Microbusiness 9.56 10.42 –10.6 –10.75 0.49 0.44 0.54 –0.1 –0.01 –0.02 –0.09 –0.09 12.02 12.08 11.79 11.76 0.7 0.69 2.53 2.63 0.1 0.09 0.16 0.16 Thimpu/Pharo –0.23 –3.14 0.34** 3.02* 0.05*** –0.03 7.29 7.1 0.15 1.68 0.02 0.1 Phuentsholing 7.89 –7.56 0.19 –0.52 –0.01 –0.09 7.79 7.7 0.23 0.73 0.02 0.11 Gelephu/Sarpang 7.33 –6.96 0.09 –0.46 0.02 –0.08 7.75 7.66 0.11 0.57 0.02 0.12 _cons 69.80*** 67.23*** 25.67*** 30.09*** 1.25*** 0.99*** 3.28 1.68 0.16*** 0.13*** 0.43*** 0.48*** 4.6 7.64 4.41 7.43 0.4 0.34 2.01 1.94 0.04 0.03 0.06 0.1 N 365 365 365 365 365 365 365 365 367 367 367 367 R-squared 0.12 0.14 0.11 0.12 0.02 0.03 0.01 0.03 0.12 0.13 0.14 0.15 Increasing Agribusiness Growth in Bhutan est_fin14 est_fin15 est_fin16 est_fin18 est_fin19 est_fin20 est_fin21 % Firms identifying % Firms access to % Working whose % Firms with % Firms with finance capital financed recent loan a bank loan/ checking or as major % Sales sold by external % Firms not application credit line savings acct constraint on credit sources needing a loan was rejected b/se b/se b/se b/se b/se b/se b/se b/se b/se b/se b/se b/se b/se b/se Agribusiness –0.09 –0.08 0.03 0.04 0.02 0.06 11.64 9.92 1.69 2.69 –0.05 –0.08 –0.01 –0.01 0.16 0.15 0.08 0.08 0.09 0.08 10.53 10.56 11.39 11.33 0.15 0.16 0.03 0.03 Microbusiness –0.33*** –0.33*** –0.26*** –0.26*** 0.16** 0.15** –12.24** –13.13** –19.54*** –19.86*** –0.14 –0.13 –0.04* –0.04* 0.08 0.09 0.08 0.08 0.07 0.06 5.25 5.45 5.52 5.32 0.09 0.09 0.02 0.02 Agribusiness * 0.04 0.04 0.02 0.01 –0.12 –0.16 –8.55 –6.92 –9.56 –10.42 0.12 0.15 0.01 0.01 Microbusiness 0.18 0.18 0.14 0.14 0.13 0.13 11.7 11.64 12.02 12.08 0.2 0.21 0.03 0.03 Thimpu/Pharo –0.09 0.05 0.16 –15.66*** 0.23 –0.25** 0.01 0.11 0.11 0.1 5.57 7.29 0.11 0.01 Phuentsholing –0.15 0.11 –0.14* –16.48* –7.89 –0.01 0 0.15 0.16 0.08 9.15 7.79 0.16 0.01 Gelephu/ –0.19 0.04 –0.11 –12.50* –7.33 –0.22 0.03 Sarpang 0.12 0.15 0.09 7.39 7.75 0.16 0.02 _cons 0.53*** 0.64*** 0.91*** 0.84*** 0.10*** 0.06 27.10*** 41.71*** 30.20*** 32.77*** 0.63*** 0.79*** 0.04* 0.03* 0.06 0.11 0.05 0.11 0.03 0.09 3.95 6.49 4.6 7.64 0.05 0.11 0.02 0.02 N 364 364 366 366 367 367 363 363 365 365 367 367 367.00* 367 R-squared 0.11 0.12 0.07 0.07 0.03 0.14 0.05 0.08 0.12 0.14 0.01 0.06 0.03 0.04 Notes: Regression estimates control for survey design effects, using wmedian as the sampling weight. Microbusinesses are defined to have fewer than 5 employees. The omitted region is Samdrup/Jongkhar. 67 68 Table 7: Business & Performance Constraints est_bus2 est_bus5 est_perf1 est_perf2 est_perf3 est_perf4 % Firms identifying business licensing/ Annual Annual labor Days to obtain permits as Real annual employment productivity % Firms buying operating license major constraint sales growth growth growth fixed assets b/se b/se b/se b/se b/se b/se b/se b/se b/se b/se b/se b/se Agribusiness –2.51 –2.41 0.12 0.11 –0.03 –0.03 0.02 0.03 –0.06 –0.06 –0.1 –0.09 1.67 1.57 0.11 0.11 0.08 0.08 0.03 0.03 0.1 0.1 0.11 0.11 Microbusiness –2.4 –2.35 0.01 0 –0.06 –0.06* –0.02 –0.02 0.03 0.03 –0.23*** –0.24*** 1.67 1.65 0.04 0.04 0.04 0.03 0.04 0.03 0.04 0.04 0.06 0.06 Agribusiness * 2.35 2.28 –0.19 –0.19* –0.02 –0.02 –0.01 –0.02 –0.02 –0.02 0.13 0.12 Microbusiness 1.67 1.6 0.12 0.11 0.09 0.09 0.06 0.06 0.11 0.11 0.13 0.13 Thimpu/Pharo 0.61 –0.08 0.01 0.05 0.02 0.02 0.56 0.08 0.03 0.04 0.04 0.06 Phuentsholing 0.88 –0.14* 0.02 0.01 0.04 –0.11* 0.67 0.07 0.03 0.03 0.04 0.06 Gelephu/Sarpang 0.06 –0.06 0.07 0.05 0.01 –0.02 0.22 0.1 0.06 0.06 0.05 0.08 _cons 3.57** 3.00** 0.06** 0.15* 0.14*** 0.12*** 0.07*** 0.04 –0.07** 0.04 0.31*** 0.33*** 1.67 1.34 0.02 0.08 0.03 0.04 0.02 0.03 0.03 0.04 0.05 0.07 N 329 329 367 367 308 308 327 327 295 295 367 367 R-squared 0.01 0.01 0.02 0.04 0.04 0.05 0 0.02 0.02 0.03 0.08 0.1 Notes: Regression estimates control for survey design effects, using wmedian as the sampling weight. Microbusinesses are defined to have fewer than 5 employees. The omitted region is Samdrup/Jongkhar. Increasing Agribusiness Growth in Bhutan Table 8: Corruption est_corr1 est_corr2 est_corr4 est_corr11 est_corr12 est_graft3 % Total sales % Firms expect % Firms who have firms expect % Firms % Firms believe Bribery incidence to give gifts secured to give as identifying court system (% firms in mtgs w tax or attempted gifts to public corruption as fair, impartial, experiencing >=1 Increasing Agribusiness Growth in Bhutan officials govt contract officials major constraint uncorrupted bribe request) b/se b/se b/se b/se b/se b/se b/se b/se b/se b/se b/se b/se Agribusiness 0 0 –0.25*** –0.27*** –0.03 –0.03 –0.02** –0.03* 0.09 0.07 –0.01* –0.01* 0 0 0.07 0.08 0.03 0.04 0.01 0.02 0.15 0.15 0.01 0.01 Microbusiness 0 0 –0.29*** –0.31*** –0.03 –0.03 –0.01 –0.01 0.18** 0.16* –0.01* –0.01* 0 0 0.05 0.05 0.03 0.03 0.01 0.01 0.08 0.09 0.01 0.01 Agribusiness * 0.00* 0.00* 0.30*** 0.32*** 0.03 0.04 0.03 0.04 –0.05 –0.04 0.01** 0.01** Microbusiness 0 0 0.1 0.1 0.03 0.04 0.03 0.03 0.19 0.2 0.01 0.01 Thimpu/Pharo –0.01 –0.05 –0.08 –0.09 –0.11 –0.01 0.01 0.06 0.08 0.06 0.09 0.01 Phuentsholing –0.01 –0.15** –0.08 –0.10* –0.19 –0.01 0.01 0.07 0.08 0.06 0.17 0.01 Gelephu/Sarpang –0.01 0.13 –0.08 –0.10* –0.07 –0.01 0.01 0.11 0.08 0.06 0.12 0.01 _cons 0 0.01 0.33*** 0.38*** 0.03 0.1 0.02** 0.11* 0.56*** 0.69*** 0.01* 0.02** 0 0.01 0.05 0.07 0.03 0.1 0.01 0.06 0.06 0.1 0.01 0.01 N 300 300 367 367 364 364 367 367 367 367 367 367 R-squared 0 0.01 0.14 0.2 0 0 0 0.05 0.03 0.04 0.01 0.01 Notes: Regression estimates control for survey design effects, using wmedian as the sampling weight. Microbusinesses are defined to have fewer than 5 employees. The omitted region is Samdrup/Jongkhar. 69 70 Table 9: Infrastructure est_inf2 est_inf4 est_inf6 est_inf9 Number electrical Losses due to electrical Number water shortages % Firms own/share outages in typical month outages (% annual sales) in typical month generator b/se b/se b/se b/se b/se b/se b/se b/se Agribusiness 0.47 0.41 –5.49*** –5.00*** –2.39* –2.27* –0.03 –0.04 0.43 0.47 1.31 1.35 1.44 1.36 0.07 0.07 Microbusiness 0.09 0.04 –4.70*** –4.70*** –2.16 –2.52 –0.09*** –0.10*** 0.2 0.16 1.37 1.37 1.46 1.62 0.03 0.03 Agribusiness * –0.46 –0.44 5.76*** 5.64*** 3.27** 4.33** 0.02 0.02 Microbusiness 0.54 0.54 1.69 1.71 1.56 1.99 0.07 0.07 Thimpu/Pharo 0.04 0.42 0.81 0 0.2 2.05 1.04 0.02 Phuentsholing –0.21 –1.77 –1.03 –0.03 0.18 2.05 0.98 0.02 Gelephu/Sarpang 0.52 –0.7 –1.89** 0.07 0.73 2.09 0.93 0.07 _cons 0.23*** 0.23 5.80*** 5.63** 2.44* 2.38** 0.11*** 0.11*** 0.06 0.19 1.26 2.2 1.44 1.19 0.03 0.03 N 352 352 142 142 101 101 367 367 R-squared 0 0.03 0.1 0.12 0.04 0.07 0.05 0.07 Increasing Agribusiness Growth in Bhutan est_inf10 est_inf11 est_inf12 est_inf14 % Firms identifying % Firms identifying % Product lost % Electricity transport as major electricity as major to breakage/spoilage from generator constraint constraint during domestic shipping Increasing Agribusiness Growth in Bhutan b/se b/se b/se b/se b/se b/se b/se b/se Agribusiness –0.82 –0.95* –0.03 –0.01 –0.03 –0.06 –0.38 –0.22 0.51 0.56 0.06 0.06 0.07 0.08 1.48 1.44 Microbusiness –0.98** –1.09** 0.02 0.01 –0.05 –0.07 –2.35** –2.60*** 0.47 0.44 0.04 0.04 0.05 0.04 0.92 0.95 Agribusiness * 0.56 0.66 –0.05 –0.06 0.02 0.04 1.66 1.49 Microbusiness 0.58 0.58 0.08 0.08 0.09 0.1 1.71 1.67 Thimpu/Pharo –0.36 0 –0.19** –0.59 0.35 0.08 0.09 0.69 Phuentsholing –0.69* –0.12 –0.23** –3.43*** 0.37 0.07 0.09 0.89 Gelephu/Sarpang 0.57 –0.09 –0.07 –0.25 1.04 0.08 0.13 0.93 _cons 1.24*** 1.59*** 0.09*** 0.13* 0.12*** 0.30*** 2.78*** 3.48*** 0.39 0.52 0.02 0.08 0.03 0.1 0.91 0.98 N 365 365 367 367 367 367 280 280 R-squared 0.01 0.02 0.01 0.04 0.01 0.07 0.06 0.08 Notes: Regression estimates control for survey design effects, using wmedian as the sampling weight. Microbusinesses are defined to have fewer than 5 employees. The omitted region is Samdrup/Jongkhar. 71 72 Table 10: Regulation and Crime est_reg1 est_reg2 est_reg4 est_reg5 Senior mgmt time % of firms identifying % Firms identifying spent dealing with govt Avg number mtgs or tax rates as major tax admin as major regulation visits with tax officials constraint constraint b/se b/se b/se b/se b/se b/se b/se b/se Agribusiness –7.99 –6.12 1.51 1.53 0.01 0.03 –0.02 –0.02 9.41 11.58 2.08 1.99 0.09 0.09 0.06 0.06 Microbusiness –10 –3.49 –0.59 –0.64 0.02 0.01 –0.04 –0.04 7.18 5.88 0.47 0.52 0.06 0.06 0.04 0.04 Agribusiness * Microbusiness –0.63 –1.31 –1.46 –1.47 –0.08 –0.1 0.01 0.01 12.55 12.48 2.08 1.99 0.12 0.12 0.08 0.08 Thimpu/Pharo 12.26*** –1.74 0.06 –0.06 3.12 1.2 0.09 0.08 Phuentsholing 62.58*** –1.66 –0.12 –0.14* 7.81 1.28 0.08 0.07 Gelephu/Sarpang 0.17 –1.66 –0.03 –0.12* 1.11 1.19 0.1 0.07 _cons 29.87*** 5.86 1.64*** 3.21** 0.14*** 0.14* 0.08*** 0.17** 3.95 4.48 0.47 1.57 0.03 0.08 0.03 0.07 N 367 367 304 304 367 367 367 367 R-squared 0.03 0.44 0 0.01 0.01 0.04 0.01 0.04 Increasing Agribusiness Growth in Bhutan est_crime1 est_crime2 est_crime9 est_crime8 est_crime10 % Firms % Firms identifying % Firms identifying crime, theft & experiencing % Firms paying Security costs courts as major disorder as major loss due to theft/ Increasing Agribusiness Growth in Bhutan for security (% annual sales) constraint constraint vandalism b/se b/se b/se b/se b/se b/se b/se b/se b/se b/se Agribusiness 0.02 0.03 –0.39** –0.37** 0.05 0.05 0.04 0.07 –0.05 –0.03 0.13 0.12 0.17 0.16 0.06 0.06 0.06 0.06 0.09 0.08 Microbusiness –0.07 –0.05 –0.39** –0.39** 0.01 0.01 0.11** 0.11*** 0.05 0.05 0.07 0.08 0.17 0.17 0.02 0.02 0.04 0.04 0.07 0.08 Agribusiness * Microbusiness –0.09 –0.11 0.39** 0.37** –0.07 –0.07 –0.07 –0.09 –0.03 –0.05 0.16 0.15 0.17 0.16 0.06 0.06 0.1 0.1 0.13 0.12 Thimpu/Pharo 0.14*** 0.11* –0.04 0.04 0.08 0.04 0.06 0.06 0.08 0.09 Phuentsholing 0.28** 0.06 –0.06 –0.09 –0.04 0.14 0.11 0.05 0.07 0.13 Gelephu/Sarpang 0.08 0.02 –0.06 –0.12 –0.06 0.07 0.03 0.05 0.07 0.1 _cons 0.23*** 0.06 0.40** 0.32** 0.01 0.05 0.02** 0.03 0.16*** 0.13 0.04 0.06 0.17 0.14 0.01 0.05 0.01 0.07 0.04 0.09 N 367 367 363 363 367 367 367 367 366 366 R-squared 0.02 0.06 0.02 0.02 0.01 0.02 0.03 0.07 0.01 0.03 Notes: Regression estimates control for survey design effects, using wmedian as the sampling weight. Microbusinesses are defined to have fewer than 5 employees. The omitted region is Samdrup/Jongkhar. 73 74 Table 11: Trade est_tr4 est_tr5 est_tr6 est_tr7 est_tr8 Domestic sales as Direct exports as % Indirect exports as % Total inputs of % Total inputs of % of total sales of total sales % of total sales domestic origin foreign origin b/se b/se b/se b/se b/se b/se b/se b/se b/se b/se Agribusiness 6.12 4.9 1.01 1 –6.98** –5.77* 7.65 16.52 –7.65 –16.52 4 3.84 2.18 2.16 3.18 3 13.86 11.31 13.86 11.31 Microbusiness 7.94** 7.94** –2.55*** –2.51*** –5.24 –5.29 –9.75 –17.78 9.75 17.78 3.8 3.75 0.76 0.76 3.71 3.68 16.43 15.31 16.43 15.31 Agribusiness * Microbusiness –3.2 –2.1 –1.09 –1.06 4.15 3.03 –5.79 –4.4 5.79 4.4 4.58 4.66 2.18 2.16 3.88 4 28.24 29.42 28.24 29.42 Thimpu/Pharo –5.04** –0.6 5.59** –30.74** 30.74** 2.55 0.68 2.44 15.09 15.09 Phuentsholing 0.79 –0.23 –0.54 –51.93*** 51.93*** 1.47 0.82 1.06 15.34 15.34 Gelephu/Sarpang 0.95 –1.07* 0.12 –32.59 32.59 0.99 0.63 0.65 28.41 28.41 _cons 88.84*** 91.52*** 2.64*** 3.14*** 8.38*** 5.23* 64.17*** 96.10*** 35.83*** 3.9 3.09 3.03 0.75 1.01 2.98 2.83 7.53 14.32 7.53 14.32 N 363 363 362 362 362 362 115 115 115 115 R-squared 0.04 0.06 0.02 0.02 0.02 0.05 0.02 0.1 0.02 0.1 Increasing Agribusiness Growth in Bhutan est_exporter est_tr9 est_tr10 est_tr14 est_tr15 est_exporter_c % Firms identifying customs and Direct + indirect Increasing Agribusiness Growth in Bhutan trade regs as exports as % Days of inventory % Firms exporting % of firms major constraint of total sales of main input >=1% of sales exporting b/se b/se b/se b/se b/se b/se b/se b/se b/se b/se Agribusiness 0.05 0.05 –5.97 –4.77 –10.43 –5.75 0.04 0.04 –0.04 –0.03 0.09 0.09 4 3.84 9.28 10.98 0.04 0.04 0.05 0.05 Microbusiness 0.01 0 –7.80** –7.79** 101.19*** 95.94** –0.02 –0.02 –0.08* –0.08* 0.04 0.04 3.8 3.76 36.96 40.72 0.02 0.02 0.04 0.04 Agribusiness * Microbusiness –0.08 –0.08 3.06 1.97 –96.75** –89.90* –0.06 –0.06 0.02 0 0.11 0.1 4.58 4.66 41.55 45.41 0.04 0.04 0.07 0.07 Thimpu/Pharo 0.02 4.99* –5.73 0.01 0.08** 0.06 2.55 37.2 0.02 0.03 Phuentsholing –0.05 –0.76 –25.21 0.01 0 0.06 1.46 33.56 0.01 0.02 Gelephu/Sarpang 0.02 –0.95 –32.64 –0.01 –0.01 0.09 0.99 35.7 0.01 0.01 _cons 0.07*** 0.07 11.02*** 8.37*** 38.36*** 48.66 0.03*** 0.03* 0.14*** 0.09*** 0.03 0.06 3.09 3.03 6.98 34.25 0.01 0.02 0.03 0.03 N 367 367 362 362 114 114 367 367 367 367 R-squared 0 0.01 0.04 0.06 0.29 0.3 0.01 0.01 0.02 0.05 Notes: Regression estimates control for survey design effects, using wmedian as the sampling weight. Microbusinesses are defined to have fewer than 5 employees. The omitted region is Samdrup/Jongkhar. 75 76 Table 12: Firm Characteristics est_car1 est_car2 est_car3 est_car4 est_car5 % Private foreign % Govt/state % Private domestic ownership ownership % Other ownership Age of firm ownership in firm in firm in firm in firm b/se b/se b/se b/se b/se b/se b/se b/se b/se b/se Agribusiness –0.35 –2.27 4.37* 4.80** –2.81 –3.18 –0.89 –0.9 –0.68 –0.72 2.79 3.35 2.32 2.35 2.08 2.11 0.68 0.7 0.76 0.78 Microbusiness –6.28*** –7.02*** 4.34* 4.47* –2.31 –2.49 –0.89 –0.8 –1.14* –1.19* 1.95 1.71 2.42 2.36 2.24 2.19 0.68 0.61 0.59 0.62 Agribusiness * Microbusiness 0.9 2.43 –3.41 –3.86 1.85 2.25 0.89 0.91 0.68 0.7 3.96 4.08 2.51 2.38 2.29 2.14 0.68 0.72 0.76 0.77 Thimpu/Pharo –5.63** 5.23 –5.29 –0.02 0.08 2.73 5.41 5.39 0.08 0.23 Phuentsholing –2.94 4.95 –5.71 0.92 –0.16 3.21 5.42 5.33 0.83 0.24 Gelephu/Sarpang 6.35 5.46 –6 0.03 0.5 4.75 5.4 5.35 0.07 0.61 _cons 14.66*** 18.24*** 94.70*** 89.89*** 3.27 8.37 0.89 0.65 1.14* 1.09** 1.64 2.92 2.22 5.34 2.03 5.27 0.68 0.5 0.59 0.54 N 365 365 365 365 365 365 366 366 365 365 R-squared 0.06 0.21 0.03 0.04 0.01 0.03 0.01 0.02 0.02 0.02 Increasing Agribusiness Growth in Bhutan est_infor1 est_infor2 est_infor4 est_infor5 % Firms identifying % Firms competing practices of informal % Firms formally Number years against unregistered/ competitors as major registered when started operated without Increasing Agribusiness Growth in Bhutan informal firms constraint operations in country formal registration b/se b/se b/se b/se b/se b/se b/se b/se Agribusiness 0.24* 0.24* 0.13 0.16 0 0.02 –0.55 –1.92 0.14 0.14 0.13 0.13 0.02 0.03 2.8 2.92 Microbusiness 0.10* 0.09* 0.07 0.06 0 0.01 –6.86*** –7.20*** 0.05 0.05 0.05 0.05 0.02 0.02 1.85 1.68 Agribusiness * Microbusiness –0.36** –0.36** –0.19 –0.21 –0.03 –0.05 –0.68 0.64 0.15 0.15 0.14 0.15 0.06 0.06 3.08 3.08 Thimpu/Pharo –0.04 0.05 0 –5.60** 0.09 0.09 0.01 2.72 Phuentsholing –0.14* –0.1 0 –3.02 0.08 0.07 0.01 3.2 Gelephu/Sarpang –0.08 –0.12 –0.16* 1.31 0.11 0.07 0.09 3.58 _cons 0.05** 0.12 0.07** 0.07 0.98*** 0.99*** 14.55*** 18.58*** 0.02 0.08 0.03 0.08 0.01 0.01 1.67 2.92 N 364 364 367 367 366 366 352 352 R-squared 0.04 0.06 0.01 0.06 0.01 0.13 0.12 0.2 Notes: Regression estimates control for survey design effects, using wmedian as the sampling weight. Microbusinesses are defined to have fewer than 5 employees. The omitted region is Samdrup/Jongkhar. 77 78 Table 13: Gender est_gend1 est_gend2 est_gend3 est_gend4 est_gend5 est_gend6 % Permanent % Permanent % Firms full-time full-time with female % Permanent non-production % Firms with production % Firms with participation in full-time workers workers that are female top workers that majority female ownership that are female female manager are female ownership b/se b/se b/se b/se b/se b/se b/se b/se b/se b/se b/se b/se Agribusiness –0.07 –0.05 0.21 0.26** 0.06 0.1 –0.01 0.03 0.25* 0.29** 1.03 2.94 0.16 0.17 0.14 0.12 0.18 0.19 0.16 0.17 0.15 0.13 16.43 16.91 Microbusiness 0.23*** 0.24*** –0.06 –0.13* 0.33 0.26 0.34*** 0.34*** –0.14*** –0.19*** 32.57*** 32.86*** 0.09 0.09 0.09 0.07 0.22 0.22 0.09 0.09 0.04 0.05 8.54 8.85 Agribusiness * 0 –0.02 0 0.08 –0.52* –0.48 –0.12 –0.16 0.12 0.2 –7.94 –9.62 Microbusiness 0.21 0.21 0.22 0.21 0.29 0.29 0.21 0.21 0.21 0.19 21.17 21.39 Thimpu/Pharo 0.11 –0.13 –0.17 0.20* 0.05 8.73 0.11 0.12 0.2 0.11 0.05 11.61 Phuentsholing 0.03 –0.33*** –0.25 0.06 –0.16** 2.41 0.17 0.12 0.18 0.17 0.07 17.54 Gelephu/Sarpang –0.01 –0.42*** –0.2 0.03 –0.27** –0.62 0.16 0.16 0.22 0.15 0.13 16.04 _cons 0.43*** 0.36*** 0.22*** 0.39*** 0.26*** 0.44** 0.28*** 0.15 0.17*** 0.19*** 33.76*** 28.05** 0.06 0.12 0.04 0.11 0.06 0.18 0.06 0.11 0.04 0.06 5.59 12.29 N 367 367 115 115 108 108 367 367 112 112 366 366 R-squared 0.04 0.05 0.09 0.23 0.14 0.17 0.08 0.11 0.23 0.35 0.08 0.09 Notes: Regression estimates control for survey design effects, using wmedian as the sampling weight. Microbusinesses are defined to have fewer than 5 employees. The omitted region is Samdrup/Jongkhar. Increasing Agribusiness Growth in Bhutan Table 14: Legal Structure est_lform1 est_lform2 est_lform3 est_lform4 est_lform5 % Firms with legal % Firms with legal % Firms with % Firms with % Firms with legal status of publicly status of privately legal status of sole legal status of status of limited Increasing Agribusiness Growth in Bhutan listed company held LLC proprietorship partnership partnership b/se b/se b/se b/se b/se b/se b/se b/se b/se b/se Agribusiness –0.02** –0.02** –0.06* –0.06* 0.16*** 0.15*** –0.04** –0.03 –0.05*** –0.05*** 0.01 0.01 0.03 0.03 0.05 0.05 0.01 0.02 0.02 0.02 Microbusiness –0.02** –0.02** –0.08*** –0.08*** 0.16*** 0.16*** 0.01 0.01 –0.05*** –0.05*** 0.01 0.01 0.03 0.03 0.05 0.05 0.03 0.03 0.02 0.02 Agribusiness * Microbusiness 0.02** 0.02** 0.06* 0.06* –0.11** –0.10* –0.01 –0.01 0.05*** 0.05*** 0.01 0.01 0.03 0.03 0.05 0.06 0.03 0.03 0.02 0.02 Thimpu/Pharo –0.01 0.03** –0.05 0.04 –0.01 0.01 0.01 0.04 0.03 0.02 Phuentsholing –0.01 –0.01 0.02 0 –0.02 0.01 0.01 0.03 0.01 0.02 Gelephu/Sarpang 0 0 0.03 –0.01 –0.02 0.01 0.01 0.03 0.01 0.02 _cons 0.02** 0.03*** 0.08*** 0.06** 0.79*** 0.82*** 0.04** 0.01 0.05*** 0.07*** 0.01 0.01 0.03 0.02 0.04 0.04 0.01 0.02 0.02 0.02 N 367 367 367 367 367 367 367 367 367 367 R-squared 0.02 0.02 0.06 0.07 0.08 0.09 0.01 0.02 0.03 0.04 Notes: Regression estimates control for survey design effects, using wmedian as the sampling weight. Microbusinesses are defined to have fewer than 5 employees. The omitted region is Samdrup/Jongkhar. 79 80 Table 15: Technology est_t1 est_t2 est_t3 est_t4 % Firms with internationally- % Firms with annual % Firms using tech recognized quality financial stmt reviewed licensed from foreign certificate by external auditor Capacity utilization (%) companies b/se b/se b/se b/se b/se b/se b/se b/se Agribusiness –0.01 –0.01 –0.11 –0.09 2.84 3.55 –0.07 –0.08 0.03 0.03 0.14 0.12 7.52 5.46 0.09 0.08 Microbusiness –0.04*** –0.04*** –0.33*** –0.30*** –10.16 –11.11* –0.16*** –0.16** 0.01 0.01 0.08 0.08 7.22 6.32 0.06 0.06 Agribusiness * Microbusiness 0.01 0.01 0.03 0.02 2.36 8.09 0.07 0.1 0.03 0.03 0.15 0.13 11.72 8.9 0.09 0.09 Thimpu/Pharo 0.01 0.08*** 17.85*** –0.03 0.01 0.03 6.67 0.05 Phuentsholing 0 0.34** 1.74 0.03 0.01 0.15 6.98 0.07 Gelephu/Sarpang 0.01 0.01 –10.27 –0.10* 0.01 0.03 8.92 0.06 _cons 0.04*** 0.04*** 0.42*** 0.28*** 72.38*** 60.54*** 0.16*** 0.18*** 0.01 0.01 0.06 0.07 4.15 6.84 0.06 0.07 N 362 362 367 367 108 108 115 115 R-squared 0.03 0.03 0.19 0.28 0.05 0.25 0.08 0.09 Increasing Agribusiness Growth in Bhutan est_innovate est_t5 est_t6 est_innovate_c % Firms using email for % of firms that introduced % Firms with own website client/supplier comm any innovation in past 3 years Increasing Agribusiness Growth in Bhutan b/se b/se b/se b/se b/se b/se Agribusiness –0.20*** –0.18*** –0.1 –0.06 0.05 0.08 0.06 0.06 0.17 0.15 0.16 0.15 Microbusiness –0.18*** –0.17** –0.50*** –0.50*** –0.20** –0.19** 0.07 0.07 0.08 0.08 0.09 0.09 Agribusiness * Microbusiness 0.1 0.09 0.05 0.01 –0.2 –0.22 0.08 0.08 0.19 0.17 0.19 0.18 Thimpu/Pharo 0.08* 0.13 0 0.04 0.08 0.1 Phuentsholing 0.09 –0.04 –0.03 0.11 0.14 0.17 Gelephu/Sarpang –0.02 –0.1 –0.19 0.03 0.07 0.12 _cons 000.28*** 0.21*** 0.68*** 0.62*** 0.48*** 0.50*** 0.05 0.06 0.06 0.09 0.06 0.11 N 366 366 367 367 367 367 R-squared 0.09 0.1 0.25 0.29 0.07 0.09 Notes: Regression estimates control for survey design effects, using wmedian as the sampling weight. Microbusinesses are defined to have fewer than 5 employees. The omitted region is Samdrup/Jongkhar. 81 Table 16: Employee Survey est_wk1 est_wk3 est_wk4 est_wk6 % Firms offering formal training Average number Average number Number of programs for of skilled of unskilled permanent permanent, full- production production production time employees workers workers workers b/se b/se b/se b/se b/se b/se b/se b/se Agribusiness 0.23 0.22 –6.48 –11.82** –1.41 –2.95 –7.89 –14.77** 0.16 0.15 3.92 5.68 1.88 2.25 4.98 6.86 Microbusiness –0.13** –0.15** –14.34*** –12.65*** –3.68*** –3.21*** –18.03*** –15.86*** 0.06 0.06 3.29 2.72 1.18 0.91 4.1 3.32 Agribusiness * Microbusiness –0.34** –0.33** 6.49 9.62* 1.9 2.99 8.39* 12.62* 0.16 0.16 3.94 5.4 1.99 2.17 5 6.58 Thimpu/Pharo 0 –3.52 –0.45 –3.98 0.08 2.71 1.03 3.37 Phuentsholing –0.11 14.63* 4.42 19.05* 0.07 7.65 3.34 9.85 Gelephu/Sarpang 0.1 –3.56 –1.39 –4.94 0.11 4.07 1.45 5.16 _cons 0.25*** 0.27*** 15.28*** 15.53*** 4.22*** 3.90*** 19.50*** 19.43*** 0.04 0.08 3.28 3.37 1.16 1.27 4.09 4.18 N 366 366 116 116 116 116 116 116 R-squared 0.07 0.1 0.12 0.22 0.05 0.09 0.11 0.21 Notes: Regression estimates control for survey design effects, using wmedian as the sampling weight. Microbusinesses are defined to have fewer than 5 employees. The omitted region is Samdrup/Jongkhar. Employee survey analysis uses the average employee response by firm. 82 Increasing Agribusiness Growth in Bhutan Table 16: continued est_wk7 est_wk8 est_wk9 est_wk10 Number of Years of the % Firms identifying permanent top manager’s % Firms identifying an inadequately non-production experience working labor regulations as a educated workforce workers in the firm’s sector major constraint as a major constraint b/se b/se b/se b/se b/se b/se b/se b/se –4.7 –7.41** –0.64 –1.79 0.16 0.13 0.02 0.02 2.98 3.22 2.62 2.66 0.16 0.15 0.1 0.09 –9.66*** –8.75*** –5.90*** –6.24*** –0.04 –0.06 –0.01 –0.01 2.11 1.82 1.51 1.37 0.05 0.05 0.04 0.04 5.13* 7.01** 1.25 2.23 –0.15 –0.12 –0.1 –0.1 3 3.08 3.13 3.03 0.18 0.16 0.11 0.09 –0.84 –4.83*** –0.28*** –0.12 1.38 1.71 0.11 0.08 7.92* –2.43 –0.35*** –0.19** 4.5 2.31 0.1 0.08 –2.41 1.27 –0.23* –0.18** 2.27 2.61 0.13 0.08 10.31*** 9.70*** 12.93*** 16.30*** 0.14*** 0.42*** 0.09*** 0.22*** 2.1 1.83 1.37 1.98 0.03 0.1 0.03 0.08 115 115 367 367 367 367 367 367 0.11 0.17 0.11 0.19 0.01 0.09 0.02 0.06 (continued) Increasing Agribusiness Growth in Bhutan 83 Table 16: continued est_wk11 est_wk12 est_wk13 est_wk_educ % Unskilled Indicator for Average number Number of workers (out of completed higher of temporary permanent full all production secondary school workers time workers workers) or above b/se b/se b/se b/se b/se b/se b/se b/se Agribusiness –22.15* –22.48* 0.03 0.23 –0.04 –0.04 –0.08 –0.06 12.22 12.23 7.39 7.27 0.11 0.13 0.14 0.13 Microbusiness –24.45** –25.49** –18.81*** –18.66*** 0.12 0.12 –0.28*** –0.26*** 12.15 12.6 2.5 2.46 0.17 0.16 0.07 0.08 Agribusiness * Microbusiness 21.37* 21.69* –0.14 –0.31 0.04 0.1 0.02 0.01 12.23 12.33 7.4 7.28 0.28 0.29 0.15 0.14 Thimpu/Pharo –8.91 1.37 0.35*** 0.06 15.29 1.16 0.13 0.05 Phuentsholing –17.59 1.81 0.17 0.11 15.74 2.24 0.12 0.13 Gelephu/Sarpang –11.59 0.6 0.02 –0.05 14.2 1.6 0.18 0.04 _cons 25.55** 36.40* 20.89*** 19.56*** 0.24*** –0.02 0.36*** 0.29*** 12.14 21.15 2.5 2.32 0.06 0.12 0.05 0.08 N 367 367 367 367 113 113 367 367 R-squared 0.01 0.01 0.18 0.18 0.03 0.16 0.14 0.15 Notes: Regression estimates control for survey design effects, using wmedian as the sampling weight. Microbusinesses are defined to have fewer than 5 employees. The omitted region is Samdrup/Jongkhar. Employee survey analysis uses the average employee response by firm. 84 Increasing Agribusiness Growth in Bhutan Table 16: continued est_wk_male est_wk_migrant est_wk_salary_usd Indicator for Indicator for male employee non–Bhutanese worker Annual salary USD b/se b/se b/se b/se b/se b/se –0.04 –0.07 –0.07 –0.07 142.14 182.03 0.13 0.11 0.05 0.06 395.46 396.39 0.17 0.03 –0.04 –0.01 38.41 68.17 0.15 0.13 0.06 0.06 342.87 358.67 0.23 0.18 0.16 0.17* –885.34* –939.76* 0.24 0.17 0.13 0.1 498.34 498.62 0.16 0 474.29** 0.16 0.01 226.71 0.59*** 0.34** 530.56 0.17 0.14 326.31 0.65*** 0 5944.54*** 0.19 0.02 1303.63 0.49*** 0.17 0.08 –0.01 704.80*** 166.44 0.07 0.14 0.05 0.05 160.03 174.68 204 204 367 367 166 166 0.08 0.32 0.02 0.31 0.04 0.21 Increasing Agribusiness Growth in Bhutan 85 86 Table 17: Determinants of Performance (agribusinesses) est_perf1 est_perf2 est_perf3 Real annual sales growth Annual employment growth Annual labor productivity growth b/se b/se b/se b/se b/se b/se b/se b/se b/se b/se b/se b/se Microbusiness –0.03 –0.06 –0.08 –0.06 –0.04 –0.04 –0.04 –0.04 0.07 0.02 0.01 0.02 0.07 0.07 0.08 0.07 0.04 0.05 0.05 0.05 0.09 0.09 0.11 0.09 Uses bank to finance 0.16** 0.07 0.06 0.02 0.13 0.14 0.21* 0.03 0 investments or working capital 0.07 0.07 0.07 0.03 0.08 0.09 0.12 0.12 0.12 Has bank loan or credit line –0.06 –0.06 –0.05 –0.07 –0.13 –0.13 –0.06 –0.03 –0.01 0.05 0.05 0.04 0.05 0.08 0.08 0.1 0.1 0.09 Exports at least 1% of sales 0.12** 0.13** –0.06* –0.11 0.21*** 0.25*** 0.05 0.06 0.04 0.07 0.05 0.08 Thimpu/Pharo –0.13* –0.15** 0.14* 0.15* –0.24** –0.28*** 0.07 0.07 0.09 0.09 0.1 0.1 Phuentsholing –0.08 –0.09 –0.01 0 –0.11 –0.13 0.06 0.06 0.02 0.02 0.08 0.08 Gelephu/Sarpang –0.18** –0.18*** –0.01 –0.01 –0.27*** –0.28*** 0.07 0.07 0.02 0.02 0.09 0.09 _cons 0.06 0.21** 0.1 0.21** 0.12*** 0.05 0.10*** 0.05 –0.07 0.17 –0.01 0.18 0.07 0.09 0.07 0.1 0.03 0.05 0.02 0.05 0.09 0.12 0.1 0.12 N 355 355 355 355 358 358 358 358 353 353 353 353 adj_r2 0.1 0.25 0.07 0.29 0.02 0.19 0.01 0.21 0.05 0.24 0.04 0.3 Increasing Agribusiness Growth in Bhutan est_perf4 est_innovate % of firms that introduced % Firms buying fixed assets any innovation in past 3 years b/se b/se b/se b/se b/se b/se b/se b/se Microbusiness –0.03 0.02 –0.06 0.05 –0.14 –0.13 –0.36** –0.1 Increasing Agribusiness Growth in Bhutan 0.1 0.12 0.11 0.11 0.18 0.2 0.16 0.21 Uses bank to finance investments 0.24* 0.41*** 0.36** 0.60*** 0.68*** 0.64*** or working capital 0.13 0.14 0.14 0.21 0.21 0.21 Has bank loan or credit line –0.14* –0.13* –0.12** –0.08 –0.08 –0.07 0.07 0.07 0.06 0.08 0.08 0.06 Exports at least 1% of sales 0.63*** 0.65*** 0.62*** 0.62*** 0.21 0.2 0.21 0.2 Thimpu/Pharo 0.22** 0.17** 0.06 0.02 0.09 0.08 0.11 0.11 Phuentsholing 0.11* 0.06 –0.06 –0.1 0.07 0.06 0.11 0.11 Gelephu/Sarpang 0.39 0.37 0.2 0.18 0.24 0.24 0.25 0.25 _cons 0.15* –0.12 0.16* –0.13 0.27 0.19 0.48*** 0.18 0.09 0.12 0.09 0.11 0.17 0.24 0.15 0.24 N 367 367 367 367 367 367 367 367 adj_r2 0.04 0.14 0.13 0.26 0.2 0.25 0.17 0.33 (continued) 87 88 Table 17: Determinants of Performance (other businesses) est_perf1 est_perf2 est_perf3 Real annual sales growth Annual employment growth Annual labor productivity growth b/se b/se b/se b/se b/se b/se b/se b/se b/se b/se b/se b/se Microbusiness –0.05 –0.06 –0.05 –0.05 –0.02 –0.03 –0.01 –0.02 0.03 0.03 0.02 0.03 0.04 0.03 0.04 0.04 0.03 0.03 0.04 0.03 0.04 0.04 0.04 0.04 Uses bank to finance 0.02 0.01 0.01 0.02 0.01 0.02 –0.03 –0.04 –0.04 investments or working capital 0.04 0.04 0.04 0.03 0.03 0.03 0.04 0.05 0.05 Has bank loan or credit line 0.01 0.01 0.02 –0.03 –0.02 –0.02 0.03 0.04 0.04 0.04 0.04 0.04 0.04 0.04 0.04 0.04 0.04 0.04 Exports at least 1% of sales 0.05 0.06 0.11* 0.12* –0.03 –0.04 0.06 0.07 0.06 0.06 0.04 0.04 Thimpu/Pharo 0.05 0.05 0.02 0.01 0.11*** 0.11*** 0.04 0.04 0.04 0.04 0.04 0.04 Phuentsholing 0.06* 0.06* 0 0 0.10** 0.10** 0.04 0.04 0.04 0.04 0.04 0.04 Gelephu/Sarpang 0.16** 0.16** 0.08 0.08 0.13*** 0.13*** 0.08 0.08 0.08 0.08 0.05 0.05 _cons 0.13*** 0.07 0.13*** 0.06 0.08*** 0.06 0.06*** 0.05 0.06* –0.03 0.07** –0.03 0.03 0.04 0.03 0.04 0.03 0.04 0.02 0.04 0.04 0.04 0.03 0.04 N 319 319 320 319 334 334 336 334 308 308 309 308 adj_r2 0.02 0.07 0.02 0.07 0.01 0.02 0.03 0.05 0.01 0.04 0.01 0.04 Increasing Agribusiness Growth in Bhutan est_perf4 est_innovate % of firms that introduced % Firms buying fixed assets any innovation in past 3 years b/se b/se b/se b/se b/se b/se b/se b/se Increasing Agribusiness Growth in Bhutan Microbusiness –0.18*** –0.19*** –0.22*** –0.18*** –0.18* –0.16* –0.18** –0.14 0.06 0.06 0.06 0.06 0.09 0.1 0.09 0.1 Uses bank to finance investments 0.14 0.13 0.13 0.14 0.14 0.14 or working capital 0.09 0.09 0.09 0.11 0.11 0.11 Has bank loan or credit line 0.02 0.01 0.02 –0.11 –0.12 –0.12 0.06 0.06 0.06 0.09 0.09 0.09 Exports at least 1% of sales 0.14 0.12 0.2 0.15 0.16 0.16 0.16 0.16 Thimpu/Pharo –0.01 –0.02 0.03 0.01 0.08 0.08 0.11 0.11 Phuentsholing –0.14* –0.14* 0 0 0.08 0.08 0.19 0.19 Gelephu/Sarpang –0.13* –0.12* –0.30*** –0.29*** 0.07 0.07 0.09 0.09 _cons 0.24*** 0.30*** 0.30*** 0.29*** 0.47*** 0.48*** 0.45*** 0.46*** 0.06 0.09 0.05 0.09 0.08 0.12 0.06 0.12 N 364 364 367 364 364 364 367 364 adj_r2 0.12 0.14 0.1 0.15 0.05 0.1 0.05 0.11 89 Table 18: Determinants of Innovation est_innovate % of firms that introduced any innovation in past 3 years b/se b/se b/se b/se Agribusiness 0.05 0.08 0.08 0.09 0.16 0.14 0.14 0.13 Microbusiness –0.20** –0.09 –0.07 –0.07 0.09 0.09 0.09 0.09 Agribusiness * Microbusiness –0.2 –0.21 –0.19 –0.21 0.19 0.16 0.16 0.16 Average worker education level 0.40*** 0.39*** 0.38*** 0.11 0.11 0.12 Uses bank to finance investments or working capital 0.15 0.14 0.11 0.1 Has bank loan or credit line –0.1 –0.11 0.08 0.08 Thimpu/Pharo –0.03 0.09 Phuentsholing –0.08 0.14 Gelephu/Sarpang –0.19* 0.11 _cons 000.48*** 0.34*** 0.32*** 0.38*** 0.06 0.07 0.08 0.1 N 367 367 364 364 adj_r2 0.07 0.15 0.16 0.17 c_micro_agribiz –0.35 –0.21 –0.18 –0.18 s_micro_agribiz 0.09 0.09 0.1 0.1 0 0.03 0.07 0.07 90 Increasing Agribusiness Growth in Bhutan