A RESEARCH PROPOSAL

ON````

HOW NATIONAL POLICIES ENCOURAGE OR IMPEDE AGRIBUSINESS

INNOVATION: STUDY OF SIX AFRICAN COUNTRY

BY

ADEBAYO KAYODE EMMANUEL

AGP 15 / 16 / H / 0308

SUBMITTED TO

PROF. T. ALIMI

IN FULFILMENT OF THE REQUIREMENTS FOR M.Sc.

OBAFEMI AWOLOWO UNIVERSITY, ILE IFE OSUN STATE.

2016.
1.0 INTRODUCTION
AGRICULTURE AND INNOVATION

In recent years, a number of nations have sparked their economic performance through adoption
of what has come to be called the “new agriculture” (World Bank 2006: 8). In fact, the World
Development Report of 2008 is dedicated largely to an analysis of this phenomenon. In essence,
the “new agriculture” refers to a series of mutually supporting, often knowledge-intensive
innovations that enable a country’s agricultural producers to move up the value chain in the
competitive international market for agricultural exports. Examples include salmon farming in
Chile, palm oil production in Malaysia, floriculture in Kenya, fish exports in Uganda, herbal
remedies in India, shrimp farming in Bangladesh, pineapple production in Ghana, and numerous
others (Chandra 2006; World Bank 2006). The attraction of the “new agriculture” lies in the
possibility for a developing country to exploit its latecomer status to close the gap with
developed countries in particular commodities or sub-sectors through the application of more
knowledge-intensive and market driven production technologies.

In Sub-Saharan Africa, the agricultural sector is a prime candidate to benefit from innovation.
Agriculture continues to be Sub-Saharan Africa’s dominant economic activity, accounting for 40
percent of GDP, 15 percent of exports, and 60 to 80 percent of employment. But by world
standards, its productivity levels for many products are low and the importation of foodstuffs is
higher than it needs to be in some countries. Higher agricultural productivity is thus a
precondition for growth and development in most African countries, and increasing yields is a
key to raising incomes (and reducing poverty) in rural areas. Within the agricultural sector,
market-oriented production – frequently referred to as agribusiness or agro-industry – is where
innovation is likely to have the biggest economic (and social) impact. Farmers and commercial
producers may benefit especially if they can diversify their production into higher value, but
knowledge-demanding, products. This requires agricultural innovation.

Until it learns to grow its agricultural productivity, Africa is unlikely to register significant
developmental advances. Recognizing this reality, African governments adopted in 2002 a
Comprehensive Africa Agriculture Development Program under the auspices of their New
Partnership for African Development (NEPAD). This Program states that larger investments in
agricultural research, extension and education systems are required to achieve the targeted
increase in agricultural output of 6 percent a year over the next 20 years. In March 2005 the
international Commission for Africa, chaired by former British Prime Minister Tony Blair,
argued that greater attention should be paid to the economic growth agenda in Africa and
recommended higher investments in human resource capacities linked to agriculture, science and
technology, and tertiary education. Shortly thereafter, participants at the G-8 meeting convened
in Gleneagles, Scotland affirmed this report and committed their governments to provide
significant additional funding in support of its objectives. In 2006 NEPAD issued a Framework
for African Agricultural Productivity (FAAP) as a guideline to member states for attaining the
goal of 6 percent annual increases in production. As a result, many of the political and financial
elements necessary for a concerted effort to upgrade African agricultural productivity would
seem to be in place. What are now needed are public policies that create an enabling
environment for agricultural innovation which reduces risk and encourages investment so that
these new opportunities can be grasped.

1.1 INNOVATION SYSTEMS

Although the innovation systems concept is relatively new to agricultural policymakers and
agricultural research managers in developing countries, it is increasingly suggested as a way of
revisiting the question of how to strengthen agricultural innovation capacity (Hall et al. 2001;
Clark et al. 2003; Hall 2005).1 The concept is derived from more general conceptual work on
National Innovations Systems (NIS) carried out a decade earlier by Freeman (1987), Porter
(1990), and Romer (1990), and subsequently elaborated by Lund Val (1992), Nelson (1993), and
others. NIS is generally understood to refer to a network of organizations focused on bringing
new products, new processes, and new forms of organization into economic use, together with
the institutions and policies that affect their behavior and performance (World Bank 2006: 16).
In contrast to the earlier linear model of scientific discovery, diffusion and adoption, the NIS is
framed as an interactive network of diverse actors where innovation can arise at any point. 2 In
Attachment 2, there is an overview of the Attributes of an Innovation System

1
2
Innovation is not synonymous with invention. Invention culminates in the supply (creation) of
new knowledge, but innovation encompasses the factors affecting demand for and use of
knowledge in novel and useful ways. The notion of novelty is fundamental to invention, but the
notion of the process of creating local change that is new to the user, is fundamental to
innovation. Specifically, innovation is the process by which organizations “…master and
implement the design and production of goods and services that are new to them irrespective of
whether they are new to their competitors, their country, or the world” (Mytleka 2000).

Some of the distinguishing characteristics of innovations and the innovation process include
(World Bank 2006):

 Innovations are new creations of social and economic significance. They may be brand new,
but they are more often new combinations of existing elements.

 Innovation can comprise radical improvements but usually consists of many small
improvements and a continuous process of upgrading.

 These improvements may be of a technical, managerial, organizational, institutional (that is,

the way things are routinely done), or policy nature.

 Very often innovations involve a combination of technical, institutional, and other types of
changes.

 Innovation can be triggered in many ways. Bottlenecks in production within a firm, changes
in available technology, competitive conditions, international trade rules, domestic
regulations, or environmental health concerns may all trigger innovation processes
(Rosenberg 1976, Dosi et al. 1988, Chandler 1990, and Nelson 1993).

Innovations can be divided into four categories: technical, marketing, organizational, and
institutional/procedural. A particular innovation often combines changes in two or more of
these areas.
To date, however, most research on agricultural innovation has focused on the process whereby
a specific new product was identified and developed. Efforts to assess and improve the overall
performance of a national agricultural innovation system have been rare. This shortcoming
inspires the current research proposal, wherein public policy becomes the focus of
investigation.

1.2 THE ROLE OF PUBLIC POLICY

An important implication of the innovation systems approach is that innovations can emerge at
any point in the system as the result of consciously mediated or coordinated interactions among
different types of agents. Thus, the appearance of innovations does not necessarily depend on
any government action – although these actions can have great influence on the evolution and
strength of particular innovations. Seen from this perspective, an innovation system is larger than
the national research system (NRS), and larger than the set of public-sector organizations
charged with the creation and dissemination of new technologies.3 In other words, multiple
sources of innovation can be found to exist in practice (Davis et al. 2007: 9).

The innovation systems perspective has so far given little attention to policy analysis (Spielman
2006a: 49). This shortcoming may be caused by the depth, breadth, and complexity of de facto
innovation policy—which often embraces policies in industry, agriculture, trade, finance,
education, science and technology, labor, and others. To provide useful guidance for national
development purposes, analyses of innovation policy will need to move beyond case studies of
specific innovations to more comprehensive analyses of national and sectorial policies at a level
that is applicable for singling out policy options or for constructing cross-country benchmarks
and indications of best practice. By combining well-grounded empirical analysis with a good
understanding of the institutional context in which innovation occurs, innovation systems
research can be a powerful tool for designing public policy and associated incentive structures
(Omamo 2003).

3
Porter (1990:19) argues that the policies espoused by government can make a difference in
creating and sustaining national competitive advantage as a highly localized process.
Differences in national economic structures, values, cultures, institutions, and histories
contribute to competitive success. Thus, although the globalization of competition might
appear to make the nation-state less important, the role of the home nation has, in fact, become
stronger than ever. Therefore, public policy plays an important role in either facilitating or
impeding conditions that are favorable to innovation.

Porter (1990:617) reasons that public policy directly influences the national competitive
advantage of firms. Governments cannot create competitive firms; only firms can do this.
But governments can influence the operating conditions and institutional structures that
surround firms.4 Thus, governments’ most powerful roles are indirect rather than direct. That
is, they “steer” by shaping the business environment rather than by intervening directly. And
what is most often being shaped in the business environment are the incentives for innovation.
Thus, “with the benefit of hindsight, it is clear that leading industrial clusters in the OECD
economies, Singapore and Taiwan owe their existence to government actions” (Yusuf 2003).

Nelson (1993:9) also emphasizes the role of the overall policy environment, the educational
sector, and idiosyncratic institutions that affect innovation but for which international
comparison is difficult (e.g., the role of individual funding agencies in individual countries).
He underscores the active role played by specific institutional actors in shaping government
policies. In particular, he points to institutional and policy choices that influence: (1) the nature
of the university system; (2) the extent of intellectual policy protection; (3) the historical
evolution of industrial R&D organizations; and (4) the division of labor between private
industry, universities and government in R&D performance and funding.

In their study of the common factors which support innovation in most industries, Stern, Porter
and Furman (2000:11-25) highlight: (1) overall technological sophistication of the economy;
(2) the supply of scientifically and technically trained workers; (3) the extent of overall
investments in basic research and higher education; 5 and (4) the policies that affect the
4

5
incentives for innovation in any industry. In short, science and technology policy,
education/training policy, and fiscal policy are singled out as especially relevant for fostering
innovation. The authors find that countries which have located a higher share of their R&D
activity in the educational sector (as opposed to the private sector or government) have been
able to achieve significantly higher levels of innovation, as measured by patenting productivity.
They further conclude that government policies at the provincial and local level also play an
important role in shaping national advantage (Stern, Porter and Furman 2000:29).

In his study comparing economic returns to investments in education between open and closed
economies, Cohen (2001:27) finds that a combination of openness from the inside (i.e., labor
markets) as well as openness to the outside (i.e., international trade) generate the highest
returns from national investments in human resource development. Thus, labor and trade
policies are also identified as being influential in nurturing a nation’s economic
competitiveness.

In assessing common elements of technological adaptation derived from ten country studies of
technological leap-frogging into profitable export activities, Chandra and Kolavalli (2006: 6-7)
emphasize the importance of “tacit knowledge,” i.e., information, skills, interactions and pro cedures
imbedded in individuals or organizational structures such as firms, networks and public
institutions. This finding points up the important role played by organizational structures in the
innovation process and also illuminates the difficulties inherent within technology transfer
undertakings. It also serves to highlight the importance of technological learning processes in
their own right and to target them for special policy attention. The authors then go on to note
(2006: 13) that “National efforts to provide public support for technological adaptation, while
simultaneously encouraging institutional development, typically take some form of an industry-
specific policy.” Most often, these industry-specific policies combine incentives for private
initiative with the creation of government-facilitated institutions that perform coordinating,
regulating or facilitating functions.
Spielman (2006a) states that in an innovation system, the enterprise often constitutes the focal
agent of inquiry and represents the primary agent. In agriculture, this includes multinational and
national agribusiness companies, small/medium agro-enterprises, individual entrepreneurs,
farmer/producer associations, rural cooperatives, or other community-based groups. These agents
engage in the production, processing, marketing, and distribution of agricultural commodities, as
well as in the purchase of agricultural and agro-industrial inputs. He makes an important point,
which is that research on agricultural innovation must begin from the perspective of the
enterprise or firm. Spielman then highlights several aspects of institutional behaviour that lie at
the heart of the innovation systems approach. He points to co-operation (only one of several
forms of interaction) as one of the key behavioral aspects of agents in an innovation system.
Cooperation (e.g., networking, knowledge sharing, joint undertaking) is conditioned by the
institutions that promote or impede it. This concept is particularly relevant when studying
learning processes or relationships that blur the traditional roles of distinct actors—for example,
partnerships between public and private research entities.

In an empirically based analysis of learning to compete in African Industry, Oyelaran-

Oyeyinka (2006: 1) concludes that a major constraint on the competitiveness of African firms is
the absence of the right kinds of institutions to support technological change. 6 Examples
include those that carry out R&D, evaluative testing, quality assurance, enforcement of laws
and standards, networking, and information dissemination. Consequently, he argues that the
market alone is not sufficient to promote the organizational interactions required for
innovation, and therefore that an important role of the state is (a) to create new institutions
where they do not exist; (b) re-structure institutions in response to change; and (c) re-shape the
interactions among firms and organizations through the use of steering incentives (Oyelaran-
Oyeyinka (2006: 175). In short, one role of public policy is to change institutional actors and
modify institutional rules as new circumstances arise in order to encourage technological
learning. From this perspective, any state initiative to create new public agencies or re-
structure old ones is also an expression of public policy.

6
To recapitulate, public policies alone cannot produce innovation. But well-crafted policies can
facilitate, steer, and reinforce it as desirable behaviour by individuals, firms and institutions. In
the same way, poorly conceived public policies can stifle, retard or penalize innovation.
Although policies from a wide range of sectors may – depending on the technological
characteristics and production conditions associated with a particular good or service –
combine to exercise such positive or negative effects on innovation processes, studies carried
out to date suggest that policies most relevant to innovation tend to be found in the areas of
human development (especially worker training and technical/university education), trade,
taxes and subsidies, research and development, law and jurisprudence, labor and employment, 7
science and technology, and information flow and censorship.8

From these and other pieces of research on innovation, it is clear that a wide range of public
policies have a potential to foster or impede the innovation that leads to productivity gains,
which in turn translate into greater competitiveness. 9 But it is also clear that which policies are
most relevant to this process will vary from one country to another and be determined by local
values, institutional cultures, and business conditions surrounding key production inputs in a
particular sub-sector of the economy, e.g., agribusiness. This means that, although developing
countries can often learn useful lessons from the successful experiences of other nations, they
ultimately will have to devise their own unique strategies for development. In doing so, of
course, they may save time and find inspiration in adapting the approaches used by others. But
even these choices as to what to use and what to discard will be conditioned by local values,
institutional capacities, and economic conditions.

2.0 THE PROPOSAL

9
In order to assess the extent to which the prevailing national portfolio of public policies either
enhances or impedes the possibilities for growth-stimulating innovation in Africa’s agricultural
sector, a comparative assessment of six African nations will be carried out. The analysis will
encompass policies from all sectors that hold a potential for shaping the possibilities for
agricultural innovation. A working list of these policies is provided in Attachment 1. However,
it is recognized that this list, although a comprehensive reference, is too extensive to serve as a
useful framework for research analysis. Therefore, the study will seek to select the most relevant
sub-set of policies from this list and evaluate the extent to which the corresponding policy
environment created by these policies is conducive to agricultural innovation. The review of the
literature presented above suggests an initial framework that focuses on policies in six areas: (a)
education and human resources; (b) the creation of new knowledge; (c) the transmission and
adoption of knowledge; (d) business and enterprise; (e) innovation finance, outputs and markets;
and (f) interactions and linkages.10 The ultimate research goal will be to identify the four or five
policies that producers/firms see as placing the greatest constraints on their innovation efforts.

The countries to be assessed would be Ghana, Kenya, Mozambique, Rwanda Tanzania, and
Uganda. Several considerations justify these particular choices. First, in one way or another,
each of these countries has registered recent progress in the area of agricultural innovation.
Second, Kenya, Mozambique, Rwanda, Tanzania and Uganda are all in the process of launching
ambitious national science, technology and innovation plans. Third, policymakers from five of
these six countries attended a workshop organized by the World Bank Institute and the
Government of Ireland in March 2007 with the goal of advancing the innovation agenda in their
countries. Finally, four of these countries are current beneficiaries of Danish development
assistance in the form of Agricultural Sector Programme Support financing, where an improved
climate for innovation could enhance the results obtained from this collaboration.

Each of the country studies would be conducted by a national researcher familiar with the
literature on agricultural innovation systems. A list of possible candidates identified for each of
the six countries is presented in Attachment 2. Given the ground-breaking nature of this

10
research, many of them might require close guidance in order to conduct useful national-level
analyses of agricultural innovation systems and their policy environments.

Research Questions. The following topics would serve as a focus for the research undertaking:

 How do agribusiness representatives and other informed observers assess the overall
public policy climate for innovation in the agricultural sector?

 Which policies and/or public institutions are playing a useful role in this regard, and
which are not?

 What changes in policies and/or public institutions would be most conducive to improved
prospects for agricultural innovation in the country? Are some policies in conflict with
others, e.g., commodity focused agricultural research policies that are not supported by
trade policies?

 What types of technical, financial and marketing/export services might support this goal?

Scope of Inquiry. To keep the investigation manageable while ensuring a degree of

comparability and guarding against narrowness, it is proposed that the scope of inquiry will
focus on the three main sub-spheres of agricultural production within each country to be studied:
food staples (e.g., maize, rice, potatoes), high value products (e.g., flowers, vegetables, fruits),
and livestock (e.g., beef, dairy, pork).11

Methodology. This will be a labor-intensive undertaking, given that the investigation cuts across
several policy spheres and will be based on a number of personal interviews. Interviewing is
required because the topic does not lend itself to statistical analysis or a desk review of existing
research publications. In fact, key informant interviewing as been used to good effect in
assessing the conditions for innovation within countries. Perhaps the best known example of this
is the Global Competitiveness Index generated by the World Economic Forum. In their efforts to
develop appropriate indicators for agricultural innovation system performance, Spielman and
11
Birner (2007:23) advise that “the value of expert surveys as a method to collect data should not
be underestimated.”

Prior to the start of the research, the six country researchers would receive orientation and be
asked to develop a common research framework and agreement on the specifics of the
investigational approach. This exercise would seek to adjust the research design to what is
feasible in light of circumstances within the region, ensure comparability of the country cases,
and flesh out the research methodology. This would be done at a two-day workshop to be held
within the region early December 2007. This workshop would be organized and led to a large
extent by an experienced senior agricultural researcher (the Research Coordinator) familiar with
the concepts of agricultural innovation systems, who would also provide methodological support
to the researchers during the conduct of their investigations. One representative of WBI and
another from DANIDA would also participate. A member from FARA and of the Addis Ababa-
based IFPRI research team involved in the analysis of similar issues will also be invited as a
resource person. Accordingly, the workshop would involve around ten persons.

Each case study would begin with interviews of 25 to 30 senior managers from a cross-section of
domestic and international agribusiness firms and cooperatives operating in the country. The
interviewees would be equally distributed among the three categories identified in the Scope of
Inquiry above (i.e., food staples, high value products, and livestock). The purpose of this would
be to determine the main public policies and institutional cultures of public organizations that
generate positive or negative incentives for innovation in that country’s agribusiness sector; (2)
to evaluate the respective effects of these policies; and (3) to suggest ways in which each
identified policy might be either reinforced (positive) or rectified (negative). Because
agribusiness representatives are probably unaccustomed to thinking in terms of innovation
policies, the interview questions would have to focus on practical issues and be problem-
oriented. A tentative list of interview questions is presented in Attachment 3.
Next, each researcher would cross-check this initial list of identified policies by asking 8 to 10
representatives of NGOs, business associations, and applied research centers for their opinions
on this matter. The results of the two sets of interviews would be combined to assess the overall
policy environment for supporting agricultural innovation, and to identify policy improvements
that would enhance the prospects for innovation. The researcher would then select a final list of
key policies and analyze available documentation for each (e.g., legislative acts, government
regulations, etc.)

The third step would require the researcher to interview at least three persons from each ministry
or public agency with primary responsibility for the area covered by each selected policy. These
interviews would seek to ascertain the extent to which the institutional culture of the agency
supports or constrains innovation, and identify possible discrepancies between the written policy
and public officials’ verbal interpretation of it (i.e., “theory versus practice”). This step may
need to incorporate some type of institutional assessment that concentrates on characterizing the
agency’s organizational culture, understanding of innovation processes, staff attitudes towards
innovation, and its existing capacity to support innovation within the country.

Quality Control. To enrich interpretations and provide a measure of quality control, two
additional activities would be undertaken. On one hand, each researcher would also be asked to
comment in writing on one of the draft reports from another country (and receive comments
his/her draft report in return) in order to share insights and learn from these experiences. On the
other hand, the researcher would invite all persons interviewed to a seminar at which the main
conclusions of the study would be presented for comment, suggestion and validation.

Output. The assessment and recommendations of the public policy environment for agricultural
innovation in each country studied would be presented in the form of a single-spaced report of 25
to 30 pages in length. These reports would be shared with World Bank and DANIDA staff with
responsibilities for agricultural assistance programs in these countries. In addition, they would
be distributed or presented at a regional forum on “Developing Technology and Innovation in
Africa: Focus on Agriculture and Food Industry” to be held at Nairobi May 12-14 2008. The
purpose of this forum would be to promote greater awareness of the roles of innovation in
development, establish a baseline for agricultural innovation policy analysis in Sub-Saharan
Africa, and identify specific policy interventions that might jump-start producer innovation
within the agricultural sector.

Policies of Potential Relevance to Agribusiness Development

Agriculture Policy

 Land ownership structure

 Research strategy
 Extension/outreach strategy
 Seed policy
 Fertilizer policy
 Regulatory services; certification
 Support for development of rural organizations, e.g., producer associations, cooperatives.
 Priority for agribusiness and agro-industrial activities

Civil Service/Public Employment Policy

 Performance incentives
 Periodic performance evaluation and rewards
 Accountability
 Decentralized hiring and firing authority

Communications/ Information and Communications Technology Policy

 Cost structure and tariffs

 Public/private provision and competition
 Specific policies on rural access
 Wireless capacities
  Internet infrastructure and regulation
 Freedom of press and media

Economic Policy

 National growth strategy (and priority for specific economic activities)

 Taxation policy for corporations and individuals
 Macro-economic stability (e.g., exchange rates, interest rates)

Energy Policy

 Rural supply: Available? Sufficient?

 Cost structure, including possible subsidies for particular groups
 Reliability (i.e., power outages cause poor product quality, waste and lower productivity)

Environmental Policy

 Water supply and quality standards

 Waste water disposal and/or recycling
 Land management
 Tax incentives for good environmental practices, e.g., conservation.

Export Policy

 Certification procedures (e.g., organic, environmental, free trade, child labor, etc.)
 Efficiency of clearance process
 Tax or investment incentives for exports

Finance/Fiscal Policy

 Banking infrastructure
 Credit and collateral requirements for producers, role of gender in this
 Tax credits for R & D
  Foreign investment promotion policies
 Repatriation of profits policies
 Commercial interest rates
 Exchange rates and access to foreign exchange, e.g., for technology imports
 ICT-assisted banking transactions
 Venture capital and financing for experimental initiatives
 Insurance industry development policy
 Tax or financing incentives for facilities upgrading
 Efficiency of Letter of Credit facility

Governance/Participation Policy

 Opportunities for representation, voice and demand articulation within public institutions
such as research centers, universities, etc.
 Use of advisory boards with stakeholder representation, stakeholder consultations,
consensus decision making within public sector.
 Transparency of public policy formulation/decision process

Human Development /Education Policy

 Budget priority for education sector; for tertiary education

 The supply of scientifically and technically trained workers
 High education standards, accreditation, and quality assurance mechanisms
 Making teaching as a valued and prestigious profession in order to attract the best
personnel
 Ensuring that the majority of students receive education with some practical orientation
(e.g., math, computing, writing, basic sciences, languages);
 Attention to development of high quality, non-university tertiary level institutions, e.g.
polytechnics; technical colleges
 Encouraging close interaction between educational institutions and employers, e.g.,
curriculum advisory committees, student attachments in industry, etc.
 Incentives for firms to invest in in-house training
  Immigration policies that allow for in and out movement of people with specialized skills
 Informal education, adult education and distance education policies
 Business/entrepreneurship training programs
 Frequency and process for curricula reviews
 Role of gender articulated in the above.

Health and Sanitation Policy

 Urban food supply and nutrition policies

 Sanitation and hygiene requirements
 Quality standards and regulations (at an international level)
 Worker safety standards
 Child labor policy

Import Policy

 Duties, exemptions
 Time needed for processing
Information Policy

 The quality and amount of information available in a nation is of growing importance in

modern international competition. Government plays an important role in expanding the
stock of information available to firms, through statistics, publications, media licensing,
and disclosure regulations. It can also facilitate dissemination. An important
governmental role is “signaling” of important information or trends relevant to firms
(e.g., MITI study groups on trends in Japan).

Infrastructure Development Policy

 Rural roads
 Storage/warehousing
 Shipping (air and sea)
 Input suppliers
  Water supply
 Electrical supply

Legal Guarantees

 Intellectual property protection

 Patent protection
 Contract enforcement and remedies
 Licensing and franchising
 Enforcement of government weights and standards
 Property rights and remedies
 Efficiency of judicial system (i.e., time needed to reach a decision)
 Anti-corruption policies

Private Sector Development Policy

 Approaches to agribusiness
 Business incubators; government business spin-offs
 Information sharing mechanisms, e.g., newsletters, radio programs
 Special assistance to small and medium enterprises
 Role of NGOs and private advisory services in business development
 Inputs suppliers
 Metrological services (quality testing, standards compliance)

Science and Technology Policy

 Research and development emphasis on idea production versus goods production

 Research financing effort; research subsidies for specific industries; performance
incentives
  Funding arrangements promote cross-sector approaches, collaborative partnerships,
innovation
 The division of labor between private industry, universities and government in R&D
 Funding competitions for university research
 Establishment of national research laboratories
 Sharing in the cost of applied research
 Tax incentives for use of approved technologies
 Facilitating the acquisition and dissemination of technologies

Trade Policy

 Openness to international competition

 Subsidies for local producers
 Preferential trade agreements
 Free-trade or export promotion zones
 Trade associations
 Government export promotion policy
 Local content in exports requirements

2.1 Attributes of an Innovation System

An innovation system can be defined as a network of organizations focused on bringing new

products, new processes, and new forms of organization into economic use, together with the
institutions and policies that affect their behavior and performance in doing so. The following
paragraphs summarize eleven analytical insights taken from the innovation systems concept.
These insights can be used to develop a framework for using the innovation systems concept to
diagnose the strengths and weaknesses of existing innovation capacity in specific settings as well
as to guide investments and interventions to strengthen this capacity.

1. Focus on innovation rather than production. In contrast to most economic frameworks, which
focus on production or output, the focus here is on innovation. Innovation is understood to be
neither research nor science and technology, but rather the application of knowledge (of all
types) in the production of goods and services to achieve desired social or economic
outcomes. So, for example, the development by a research organization or a company of a new
packaging material is an invention. In contrast, a company packaging its product in new way
using new and/or existing information is an innovation.

2. Interaction and learning. Innovation is an interactive process through which knowledge

acquisition and learning take place. This process often requires quite extensive linkages with
different knowledge sources. These sources may be scientific and technical, but equally they can
be a source of other forms of knowledge, both tacit (e.g., experiential, indigenous) and codified.
Patterns of interaction between different knowledge sources form a central component of an
organization’s or sector’s capacity to innovate. Ideas like the creation of business incubators,
science parks, and export promotion zones are responses to the need to strengthen the intensity of
interaction to promote the process of innovation.

3. Linkages for accessing knowledge and learning. The relationships that sustain the
acquisition of knowledge and permit interactive learning are critical for innovation and can
take many forms. They can be partnerships, for example, in which two or more organizations
pool knowledge and resources and jointly develop a product, or they can be commercial
transactions, in which an organization purchases technologies (in which knowledge is embedded)
or knowledge services from another organization, in which case the relationship is defined by a
contract or license. Linkages may also take the form of networks, which provide an organization
with market and other early-warning intelligence on changing consumer preferences or
technology. Networks also embody the “know who” of knowledge sources, which can be tapped
as the need arises. These linkages and the relationships that govern them concern knowledge
flows. They must not be confused with the linkages and relationships that govern the movement
of commodities through value chains, although many of the same actors may be involved.
4. New actors, new roles. In the linear model of technological innovation, especially with respect
to developing countries, public research organizations are the prime movers. Following this
model, scientists undertake research and public extension services or private advisory firms carry
out the transfer technology. These roles remain compartmentalized and relatively static, even as
the external environment undergoes change (for instance, as the private sector begins to
participate more). The innovation systems concept recognizes that:

(1) There is an important role for a broad spectrum of actors outside government (see Box
1)

(2) The actors’ relative importance changes during the innovation process;

(3) As circumstances change and actors learn, roles can evolve;

(4) Actors can play multiple roles; for example, at various times they can be sources of
knowledge, seekers of knowledge, and coordinators of information links between others.

5. Attitudes and practices determine the propensity to innovate. The common attitudes,
routines, practices, rules, or laws that regulate the relationships and interactions between
individuals and groups largely determine the propensity of actors and organizations to
innovate. Some organizations have a tradition of interacting with other organizations; others
tend to work in isolation. Some have a tradition of sharing information with collaborators and
competitors, of learning and upgrading, whereas others are more closed in this respect. Some
resist risk-taking; others do not. Table 1 gives examples of commonly encountered attitudes and
practices that affect the processes important to innovation.
role for a broad spectrum of actors outside government (see Box 1); (2) the actors’ relative
importance changes during the innovation process; (3) as circumstances change and actors
learn, roles can evolve; and (4) actors can play multiple roles; for example, at various times
they can be sources of knowledge, seekers of knowledge, and coordinators of information
links between others.

5. Attitudes and practices determine the propensity to innovate. The common attitudes,
routines, practices, rules, or laws that regulate the relationships and interactions between
individuals and groups largely determine the propensity of actors and organizations to
innovate. Some organizations have a tradition of interacting with other organizations; others
tend to work in isolation. Some have a tradition of sharing information with collaborators and
competitors, of learning and upgrading, whereas others are more closed in this respect. Some
resist risk-taking; others do not. Table 1 gives examples of commonly encountered attitudes and
practices that affect the processes important to innovation.

Box 1. Small-scale equipment manufacturers and the adoption of zero tillage in South Asia

South Asia’s Indo-Gangetic Plains extend from Pakistan through India and Nepal to
Bangladesh. Zero-tillage practices are thought to offer environmental and economic
advantages for rice-wheat production systems in the Indo-Gangetic Plains. A
consortium of research organizations, led by the International Maize and Wheat
Improvement Center (CIMMYT) and Indian Council on Agricultural Research
(ICAR), tested and modified zero-tillage approaches used in other parts of the world to
suit local conditions. Scientists and farmers concluded that zero tillage might be an
appropriate response to the high cost of preparing land and the environmental problems
associated with burning crop residues.

The technology did not really take hold, however, until researchers and agricultural
 engineers from abroad began working with local, small-scale manufacturers to design
prototype zero-tillage seeders. Several modifications were made to the original design,
and manufacturers now produce and distribute a wide array of the new seeders. These
small-scale manufacturers were necessary for the local process of innovation to work
effectively, which allowed a good idea to grow into a profitable activity.

Farmers have rapidly adopted these practices since 2000. In 2004, a mission to evaluate
the Bank-funded National Agricultural Technology Project in India estimated that more
that 2 million hectares of rice-wheat area were under zero tillage and that yearly
savings in fuel and water were on the order of US$145 million.

Source: NATP Implementation Completion Report (World Bank 2005)

Table 1. Attitudes and practices affecting key innovation processes and relationships

Innovation Restrictive attitudes and Supportive attitudes and

processes and practices practices
relationships

Interacting, - Reactive planning - Anticipatory planning

knowledge flows,
- Mistrust of other - Trust, collaboration
learning
organizations
- Openness; transparency
- Closed to others ideas
- Sharing, reciprocity
- Secretiveness
- Confidence, decentralization
- Lack of confidence;
- Mutual respect
excessive and time-
consuming documentation - Flat management structure

- Professional hierarchies - Reflection and learning

between organizations and from successes and failures.

disciplines - Proactive networking

- Internal hierarchies - Trust in research

- Top-down cultures and community

bureaucratic approaches - Teamwork

- Covering up of failures - Private sector partnerships

- Limited scope and intensity

of interaction in sector
networks
- Exploitation
- Suspicion/mistrust of private
sector

Demand - Hierarchies - Consultative and

 articulation and - Top-down cultures and participatory attitudes
inclusiveness of approaches
- Representative governance
stakeholders
- Non-representative
governance

Risk-taking and - Conservative, traditional - Confident, creative

investing
- Maintain the status quo - Experimental, testing

Incentives - Encourage risk-avoidance - Reward performance

- Reward conformity with rules
- Reward loyalty
- Stable; depend little on
performance
- Reward preserving
institutional “turf” and
privilege
- Encourage risk-taking
- Reward innovation and
creativity
- Encourage challenging the
status quo
- Reward networking and
partnerships
-

6. Interaction of behavioral patterns and innovation triggers. Attitudes and practices also
determine how organizations respond to innovation triggers such as changing policies, markets,
and technology. Because such attitudes vary across organizations and across countries and
regions, actors in different sectors or countries may not respond in the same ways to the same set
of innovation triggers. Interventions that seek to develop the capacity for innovation must
give particular attention to ingrained attitudes and practices and the way these are likely to
interact with and skew the outcome of interventions (Engel and Solomon 1997).

7. The role of policies. Government cannot create competitive firms, only firms can accomplish
this. But through its public policies government can influence the context and institutional
structures that surround firms. Thus, government’s most powerful roles are indirect rather than
direct (i.e., “steering”). It often takes a decade or more for the benefits of correct policies to be
manifest (Porter 1990: 623). Policy support of innovation is not the outcome of a single policy
but of a set of policies that work together to shape innovative behavior. In evaluating the
effectiveness of policies on innovative performance it is therefore necessary to be sensitive
to a wide range of policies that affect innovation over time and to seek ways of coordinating
them. Also, because policies and attitudes and practices interact, effective policies will take
account of existing cultural values and behavioral patterns (Mytelka 2000). For example, the
introduction of more participatory approaches to research is often ineffective unless scientists’
traditional attitudes regarding who is qualified to be a researcher – and the incentives that
support this belief system – are changed. Policies to promote innovation must be attuned to
specific contexts.

8. Inclusion of stakeholders and the demand side. The innovation systems concept recognizes the
importance of the inclusion of stakeholders and the development of behavioral patterns that
make organizations and policies sensitive to stakeholders’ agendas or demands (Engel 1997).
Stakeholders’ demands are important signals that can shape the focus and direction of
innovation processes. They are not articulated by the market alone but can be expressed through
a number of other channels, such as collaborative relationships between users and producers of
knowledge, or mutual participation in organizational governance (for example, board
membership).

9. Learning and capacity building. The attitudes and practices critical to innovation are
themselves learned behaviors that shape approaches and arrangements and are continuously
changing in both incremental and radical ways. These changes include institutional innovations
that emerge through scientists’ experimentation and learning, such as farmer field schools or
participatory plant breeding. Alternatively a company may start using research to gain an edge
over its competitors. Another example would be organizational learning to discover that
partnering is a key strategy for responding rapidly to emerging market opportunities. The new
ways of working that result from learning enhance the ability of organizations and sectors
to access and use knowledge more effectively and therefore to innovate. For this reason, the
capability to learn to work in new ways and to incrementally build new competencies is an
important part of innovation capacity at the organization and sector or systems level.

10. Changing to cope with change. The classic response of more successful innovation systems,
when faced with external shocks, is to reconfigure linkages or networks of partners (Mytelka and
Farinelli 2003). A new pest problem may require new alliances between scientific disciplines; a
new technology, such as biotechnology, could require partnerships between the public and
private sector; or changing trade rules and competitive pressure in international markets could
require new alliances between local companies and between those companies and research
organizations. It is impossible to be prescriptive about the types of networks, linkages, and
partnerships that, for example, agricultural research organizations will need in the future,
because the nature of future shocks and triggers is unknown and to a large extent unknowable.
One way of dealing with this uncertainty, however, is to develop attitudes that encourage
dynamic and rapid responses to changing circumstances—by building self-confidence and
trust, fostering preparedness for change, and stimulating creativity.

11. Coping with “sticky” information. A number of key insights discussed above emphasize that
innovation can be based on different kinds of knowledge possessed by different actors: local,
context-specific knowledge (which farmers and other users of technology typically possess) and
generic knowledge (which scientists and other producers of technology typically possess). In an
ideal innovation system, a two-way flow of information exists between these sources of
knowledge, but in reality this flow is often constrained because information is embodied in
different actors who are not networked or coordinated. In these circumstances, information does
not flow easily; it is “sticky.” A central challenge in designing innovation systems is to
overcome this asymmetry—in other words, to discover how to bring those possessing
locally specific knowledge (farmers or local entrepreneurs) closer to those possessing
generic knowledge (researchers or actors with access to large-scale product development,
market placement, or financing technologies). Ways of dealing with this asymmetry include:
 Encouraging user innovation. For example, as the capacity of the private sector grows, the
private sector will undertake a greater proportion of innovation, because it possesses the
fundamental advantage of knowing the market.

 Developing innovation platforms for learning, sharing, communicating, and innovating. The
structure of public research systems must adapt to permit a more open, thorough, and
multifaceted dialogue with other key actors identified in the innovation system analysis.

 Investing in public research and advisory systems. Such investment must be based on
careful identification of knowledge demands and joint strategic planning with the multiple
stakeholders of the system.

2.2 Preliminary List of Interview Questions

The interview guide would be structured to cover the following six areas of government policy
as it relates to agriculture, as identified in the review of relevant research. It would focus on the
main issues identified under each:

 Education and human resources

o Supply and relevance of skilled human resources
o Government incentives for individuals to study and firms to train
o Quality of secondary and technical education

 Creation of new knowledge

o R&D funding and priorities
o Competitive remuneration for public researchers
o Performance incentives for public researchers

 Transmission and application of knowledge

o Extension and technical support services
o Intellectual property rights protection
o Media/communications policies on information access

 Business and enterprise

o Specific trade promotion policies
o Legal guarantees for contracts and property
 o Consistent enforcement of standards and regulations
o Innovations recently tried and adopted

 Innovation finance, outputs and markets

o Tax incentives for technology upgrading
o Risk-sharing on experimental approaches
o Investment incentives

 Interactions and linkages

o Government sponsored platforms, conferences, associations
o Government incentives for collaborative efforts
o Government facilitation of interactions, linkages and networks
o Membership in national, regional or international associations

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

Education and Human Resources

1. How would you assess the ‘preparedness for work’ among recent university graduates?
Among polytechnic or technical college graduates?

2. Do you find that the education system fails to impart to graduates certain skills or abilities
that are required by your firm? If so, please give examples.

3. Do you find that the university system is remiss in providing certain types of graduates that
would be useful for your firm? If so, please give examples.

4. Does the government provide any incentives to firms like yours to accept student work
placements? What incentives?

5. Does the government provide any incentives to firms like yours to upgrade worker skills
through training or other investments in skills development?

6. To what extent do universities or technical institutes consult firms like yours in setting their
strategic priorities, or incorporate representatives from private enterprise into their
institutional governance bodies such as university councils?

7. What is the most common short-coming characterizing new graduates hired by your firm?

Creation of New Knowledge

1. Do government research institutes consult firms such as yours in setting their research
priorities, or incorporate representatives from the private sector into their governing boards?

2. Does your firm conduct any research ‘in-house’? If so, what type(s)?

3. Does your firm seek to innovate in any aspect of production or marketing? How does it seek
to do this? Does it invest in research?

4. What do you see as the main impediment to research activities within your firm?

5. Does the government provide any incentive or support for private sector research?

6. To what extent does government science and technology policy support the efforts of private
firms in the agricultural sector?

Transmission and Application of Knowledge

1. From where does your firm obtain new knowledge relevant to your business operation and
information on the market conditions which affect your firm’s competitive performance?
Are you satisfied with the availability of such resources?

2. What is your working relationship with public agricultural research centers in terms of access
to knowledge and information? What do you find to be the most useful aspects of these
relationships?

3. What is your working relationship with local or national universities in terms of access to
knowledge and information? What do you find to be the most useful aspects of these
relationships?

4. What is your working relationship with input suppliers in terms of access to knowledge and
information? What do you find to be the most useful aspects of these relationships?

5. How do you find the advisory expertise necessary to diagnose problems that lie beyond the
technical capacities of your firm’s staff? Which organizations do you find particularly
helpful in this regard?

6. Does the government sponsor or facilitate agricultural expositions or other encounters among
representatives of the agricultural value chain at which information can be shared and new
ideas disseminated?

7. To what extent does your firm make use of information and communications technologies
(e.g., computers, cellular telephones, Internet access)? For what purposes?
8. How does your firm organize itself to identify and learn from relevant experiences elsewhere
in the country, the region, or the world?

Business and Enterprise

1. Has your firm experimented with new ideas or the use of new knowledge during the past
year? For example, new crop variety or shipping techniques. How did it do this?

2. Has your firm experimented with new forms of organizing activities or procedures during the
past year? For example, new marketing arrangements or more efficient product processing.
How did it do this?

3. What do you see at present as the main impediments to improved productivity and/or sales
by your firm?

4. Does your firm feel that current legal guarantees provided for contracts, intellectual property
and physical assets are adequate? If not, what changes would be beneficial?

5. Do you feel that existing standards, and the enforcement of them, for weights, quality or
environmental safety are consistent and fairly enforced?

6. Do government trade policies and procedures help or hinder the business prospects for your
firm? Please explain.

7. How would you characterize the attitude of Ministry of Agriculture officials towards the
challenge of promoting technological change in agriculture? Is it resistant, indifferent or
supportive? What is your evidence for this conclusion?

Innovation Finance, Outputs and Markets

1. Do you feel that your country contains adequate mechanisms for the provision of venture
capital? If not, what might be done to improve this situation?

2. Does the government offer any particular incentives for firms like yours to update or expand
their use of technology (e.g., loan guarantees, fertilizer subsidies, equipment subsidies, seed
subsidies)?

3. Does government share the risks of new investments with firms in any way? How so?

4. Does government financing for agricultural R&D encourage institutional collaborations or

partnerships of any kind? If so, please explain.

5. Does the tax system encourage or penalize experimentation and calculated risk taking by
firms? How so?

6. Does your firm cooperate with other firms or organizations in financing the development and
testing of new products, processes or technologies? If so, please explain how this occurs.

7. How does your firm find the resources it needs to test and evaluate new ideas? Can you give
an example?

8. Does your firm invest in information technology and internet access? Do you think this
provides your firm with any particular competitive advantage?
Interactions and Linkages

1. Who are the main external factors that affect your firm’s performance and influence its
decision-making? Public sector? Other firms? Collective or business associations?

2. For each identified actor, (i) characterize its main role from the perspective of your firm, (ii)
assess its facilitating/impeding relationship to your business activities, and (iii) evaluate its
performance in supporting technical change and innovation.

3. Do you work in partnership with any other firms or agencies? Which ones? What kinds of
partnerships? Are these partnerships facilitated by any government incentives or public
agencies?

4. What is the frequency of your firm’s contacts with local government, national parliament,
and the Ministry of Agriculture? Who initiates these contacts? What is their main purpose?

5. Do you participate in networks or maintain occasional communications with any firms or

organizations outside the country? If so, what is the main purpose of these communications?

6. Does your firm participate in any business or collective associations? If so, what is the main
motivation for doing so?
7. Has the government established any new public agencies within the past year or so whose
mandate is to facilitate coordination and collaboration among various types of
organizations/firms engaged in the agricultural sector? If so, why were they created and
what is their purpose?
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