# Sectoral Perspectives on Corruption

*November 2002*

# Corruption and the Agricultural Sector

Rodney Fink

The views and interpretations represented in this paper belong solely to
its author and should not be attributed to USAID or to MSI.

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# Abstract

Corruption in agricultural production poses problems for large and small
landholders around the globe. Corruption issues affect land title and
tenure, credit availability, quality of supplies, water allocation,
marketing, and the development of agribusinesses. These problems are
common to both developing and transition economies. In transition
economies, however, the governments are more involved in supplies,
production and marketing and so there are relatively more opportunities
for corruption. Yet societies depending on survival agriculture are
affected proportionally more by corruption as the bribes farmers pay
impact a higher percentage of their already low income. Case studies of
two projects with diverse outcomes are presented to illustrate how
management style and design can help reduce corruption and improve
outcomes. An emphasis on transparency, awareness, accountability,
prevention, and enforcement can do a great deal to facilitate this
cause.

# Introduction 

Agriculture in developing countries employs a large percentage of the
population and, for the most part, a very poor segment of the
population. Farms in these countries tend to be small: in Africa, for
example, over 90% of the farms are in the hands of small landholders. In
transition economies, by contrast, the agriculture sector employs less
than a third of the labor force and the average farm size is large. For
both groups of countries, corruption issues affect land title and use,
credit availability, quality of supplies, water allocation, product
standards and certification, marketing, and the development of
agribusinesses. In transition economies, however, the governments are
more involved in supplies, production and marketing and so there are
relatively more opportunities for corruption. Yet societies depending on
survival agriculture are affected proportionally more by corruption as
the bribes farmers pay impact a higher percentage of their already low
income. What follows is a more lengthy discussion of the different
manifestations of corruption in this sector. [^1]

**Land Title and Use**

Problems with land ownership, registration, tenure and sales impede
agricultural development in many countries. Multiple titles exist on
many parcels and the rights of family members, especially women and
children, are not well defined in some societies. Moreover, registration
of title is often a slow, complex, and costly process, which is
vulnerable to bribes offered or demanded for service. Informal
properties, that is parcels with no official documentation as to \"who
owns\" or \"occupies\" the land, are common. According to Barnes,[^2]
the absence of property adjudication and land market institutions is a
major institutional weakness in the sector. This problem is particularly
pronounced in transition economies, where properties rights were not
recognized in the socialist system. The development of an active land
market for buying, selling, leasing, mortgaging and inheriting the land
is a major objective of privatization, but bribes and payoffs abound in
the system.

**Credit Availability**

Credit must be available for the agriculture sector to flourish in
developing and transition countries. Yet corruption occurs in the
allocation of government-subsidized credit. Most typically, unnecessary
fees and percentage payments are ways that government officials garner
funds when granting credit.

**Supplies**

Corruption in government contracts or licenses for agricultural supplies
is common. Poor quality, undelivered goods and high prices are typical
outcomes from collusion between government officials and private sector
firms. An example is a government agency buying fertilizer from a
private sector company at an elevated price and receiving a share of the
profit. This increases the cost of agricultural production and
eliminates competition in the fertilizer industry as other firms have
little chance of getting the government contract. Along these lines, the
Egyptian chairman of the Agricultural Development Bank and Minister of
Agriculture was recently arrested on charges of taking bribes from a
company to whom he gave rights for importing pesticides.[^3] In another
example, the Philippine Center for Investigative Journalism has
documented that farmers receive low quality planting materials,
unhealthy farm animals and undelivered farm equipment from the
state.[^4]

**Water Allocation**

Irrigated agriculture is a favorite of bureaucratic and centralized
governments and promotes \"rent seeking.\"[^5] Rent seeking is described
as lobbying superior regulatory bodies to garner financial income not
matched by labor or investment. Rent seekers use political soliciting,
including bribery, as a means to get water or facilities to regions
favoring them. The allocation of water and irrigation facilities, thus,
often turns on connections and corruption rather than on economic and
development policy. Renger summarizes some steps important for
addressing irrigation problems.Error: Reference source not found These
include the importance of involving farmers in regulating and monitoring
financial responsibility so that resources are used for their original
purpose.

**Product Standards and Certification**

Product standards and certification constitute another source of
corruption, as individual producers attempt to bribe produce inspectors
to get the desired certification. The development of quality improvement
centers in rural communities has helped support objective grading of
products by pooling produce for inspection and eliminating the
opportunity for individual producers to offer bribes.

**Marketing**

The government's role in product pricing and the sale and purchase of
produce create significant opportunities for corruption. In a speech to
the U.S.-Russia Business Council's Ag Committee, for example, the
president and CEO of Dow Agro Sciences spoke of the role of local oblast
governments which try to control agricultural production and pricing.
[^6] Either they get directly involved in buying and selling produce, or
they place quotas on inter-regional exports. In either case, this breeds
corruption and graft. Many underpaid civil servants compromise their
integrity and solicit bribes in return for favors, which may involve
purchasing inputs or selling agricultural produce. Similarly,
agriculture marketing boards create opportunities for corruption in the
developing world. These parastatal boards provide a marketing avenue for
producers, but often deliver smaller profits to farmers than a
competitive market would provide because of embezzlement or because the
boards hold down food costs to consumers. The ability to set price
independent of market forces creates a further source of potential
pay-offs. Finally, the sale of PL-480 commodities, by public officials,
out of the country for personal gain provides another example of
corruption in agriculture marketing.[^7]

**Agribusiness**

Private sector agribusinesses are necessary for supplying inputs,
processing food, transporting and marketing of agricultural products,
yet corruption also impedes agribusiness development. The licensing and
permits for transportation, storage, processing and business startup are
sources of corruption, which put a check on the development of
competitive agribusiness.

**Petty corruption in donor programs**

Many examples of corruption are often overlooked as a cost of doing
business. Yet actions such as the following have a long-term negative
impact on donor programs:[^8]

-   Local hosts fill their gas tanks at their government pumps and then
    partially drain the tanks at a third party residence for resale

-   Local employees of USAID missions direct programs to support their
    own and family farming operations

-   Employees of an organization with a major \"bricks and mortar\"
    project build their own home and sell bricks to others with whom
    they have contact

-   Local host bill the donor for transportation costs and hire local
    transportation at a greatly reduced price

On occasions where a donor project manager knows about such corruption
and chooses to overlook it, he signals the acceptance of future
indiscretions.

# Risks of Corruption in Private Sector Groups 

Carrying out agricultural programs with private sector groups avoids the
bureaucratic corruption that may exist in the government, but runs the
risk of similar problems arising in these groups. Agricultural projects
may use NGOs, PVOs, and private farmer organizations to deliver services
and thereby bypass government, but these groups can also devolve into
corrupt relationships with farmers, suppliers, and purchasers. Members
of private sector organizations are often aligned with the government,
and use their connections for self-dealing.

The Middle East Regional Cooperation Program (MERC) serves as an example
of a private sector group operating a corrupt agricultural project. The
donor project aimed to introduce modern plant propagation methods,
initiate a pot-plant nursery, improve open-field production of tomatoes
and ornamentals, train specialists and expand the agribusiness
industries in Morocco. A US contractor managed the contract and Israeli
and Moroccan partners ran the project. As it turns out, the private
company was unwilling to account for funds and was reportedly corrupt.
The table below outlines some of the problems with the project.

  ------------------- ------------------------- -------------------------
  **Action Taken**    **How was it done**       **Evaluation**

  1\. Project set up  Little background work    The president of the
  with private sector done with the company     company, on background
  company             selected.                 check, had deficiencies.

  2\. Management      The two committees often  The structure was large
  assistance by       disagreed on major items. and unmanageable. Each
  nine-member         Technical committee was   committee had members
  committees:         to advise - steering      from 3 countries
  Technical &         committee didn\'t follow  including Morocco.
  Steering.           suggestions.              

  3\. Conflicts       The company wanted a      President of company
  between company and tissue culture laboratory declared a budget crisis
  contractor,         but the technical         because money promised
  steering committee  committee said no.        had not come. Audits
  and technical       Steering committee said   couldn't account for
  committee.          yes.                      funds.

  4\. Technical       Income not returned to    Advisor left over
  advisor had         the business. Income not  conflict with work and
  conflict with       regenerated.              questions of company
  company president.                            integrity.

  5\. Involvement     Project was to involve    Little local interaction
  with country        local scientists but few  or accountability.
  scientists          involved.                 
  ------------------- ------------------------- -------------------------

[Transparency]{.underline} was absent as the books were not available
and only the company president knew what happened to the money.
[Accountability]{.underline} was absent as the company did not account
to stakeholders, the government or the donor for their actions and use
of resources entrusted to them. [Awareness]{.underline} should have
determined the nature, extent and consequences of the corruption at an
early stage and taken a position of terminating or redirecting the
project. The technical committee and the steering committee lacked
agreement and the technical advisor and company president didn't trust
each other. Nepotism was likely as at least one family member was on the
payroll. [Prevention]{.underline} of corruption was absent as operation
was a closed system and access to books closely guarded. Designing and
implementation of a positive and open plan is the most effective way to
prevent corruption. [Enforcemen]{.underline}t of the objectives was not
forthcoming because control rested with one person. Guidelines for
implementing and enforcing the strategy should have been in place from
the beginning to see that the company was accountable. The project was a
high profile project and some phases (transplant nursery, for example)
were successful.

# Lessons for Fighting Corruption 

One lesson from this example is that placing a large amount of
responsibility on one person can make a project vulnerable to
corruption. Few checks and balances were written into the project and
being a private sector operation meant there was no oversight of the
company. Chances for success might have been better working with a
producers\' group, which would have provided a built-in oversight from
the many members of the group. Involvement of local scientists and
producers in the planning and execution of the project could have
provided a better threshold for success.

The procedure used by a small cooperative in Swaziland (Khutsala Poultry
Cooperative) serves as a guide for consideration. This poultry
cooperative was owned, managed and operated by women and consisted of a
central production and service unit which provided genetic stock,
veterinary supplies, feed and marketing[^9]. Women received their basic
stock from the central unit (which also provided a small loan if needed)
and provided basic feed, animal health supplies, genetic stock and
marketing on a fee basis. Each member had a share in the cooperative and
shared in the profits of the central unit. Some of their procedures are
described below:

  ----------------- ----------------------------- -----------------------
  **Initial         **How accomplished**          **Evaluation**
  action:**                                       

  1\. Donor         Initial meetings were         Those women who had an
  identified        conducted and the program     interest signed on.
  players.          described.                    

  2\. The operating Meetings were held (under a   Members were
  document for the  big tree) with the 100 +      enthusiastic and wanted
  coop was          women who became cooperative  to participate.
  prepared.         members.                      

  3\. Seed money    Donor agency presented their  All coop members knew
  was identified    financing potential and a     their responsibilities
  and payback set.  business plan adopted.        and accepted the
                                                  conditions.

  4\. Accounting of A simple accounting system    There were no secrets
  central business. was designed and was          in accounting process.
                    available.                    

  5\. Individual    Each member maintained books  Children of illiterate
  accountability.   and provided a monthly        parents did books.
                    report.                       

  6\. Cooperative   Held on a regular basis       Well received by all.
  meetings.         (under the same tree).        Good participation.

  7\. Government    Yes, the Ministry of          Ministry representative
  involvement?      Agriculture was informed and  gave technical support.
                    helped.                       

  8\. Did it work?  Yes. Major effort to provide  Successful project and
                    a quality product and keep    good organizational and
                    viable markets opened. Good   working procedures were
                    communication and             followed.
                    involvement.                  
  ----------------- ----------------------------- -----------------------

The project was a low-input project but carried out many of the steps
that must be taken if corruption is to be reduced in donor-funded
projects. The project had one technical assistant, some donor funds and
was self sustaining after two years of operation. There was trust among
those involved in the project and there was [transparency]{.underline}
in that open participation, access and information were provided. In
this case, the transparency was both in the public and private sector.
[Accountability]{.underline} was an integral part of the process for the
players, the manager and the donor. Accountability was built into the
process for the central unit and each individual unit. When it was time
to expand the central unit, all members had their say and eventual vote.
[Awareness]{.underline} of what was happening was one ingredient of the
success of this project. The project had standards that were understood
and totally open. [Prevention]{.underline} was built into the design of
the project. The entire strategy of the project was to decrease the
tolerance for corruption by reducing and eliminating the chances for
individual gain through corruption. [Enforcement]{.underline} of this
project was automatic as the rules of conduct had been established which
kept everyone informed of what was to take place. When a member didn't
live up to agreed standards, action was taken to ensure accountability.
The concept of openness and transparency was built into this project
from the beginning. In the event the egg market soured, the same
approach could have been used to establish another business. As a matter
of fact, members of the group were planning a new cooperative for
growing vegetables to sell in South Africa and local markets.

Certification issues are constant in Africa.[^10] A US company working
in West Africa dominated the baby food market with a good product and a
successful marketing approach. They advertised the safety of their
standards and quality, suggesting that local products didn't match in
standards and quality (which was probably true). Products produced in
these countries are often sold only if the marketers are willing to pay
a bribe or fee to get the product on the market. Buyers, who resell,
suggest the local product is of poor quality and they will only market
it if they receive a bribe. Local people, led by women's organizations,
put in place a local certification system to see that locally-produced
baby food met product quality and safety standards, and by bonding
together, they were able to have enough voice to be heard. The local
government, marketers and producers were involved and assisted with the
project. This intervention helped producers, improved food quality,
lowered food cost, reduced corruption and helped businesses succeed.

The time to insure that a project can be successful is in the planning
stages, before funds have been committed. Whenever possible, projects
should involve all players in a non-confrontational manner to set up
positive, descriptive and clear guidelines built around TAAPE. Full
disclosure and knowledge of what is to take place will help bring about
project success.

## Recommendations 

Efforts to fight corruption should emphasize TAAPE (Transparency,
Awareness, Accountability, Prevention, and Enforcement). Within this
framework, the following strategies have been useful.

-   Evaluate corruption in a country's agriculture sector by starting at
    the market and working backwards to production (warehousing,
    transportation, licenses, grading, etc.). Join private and
    government sources to remove impediments such as road inspection
    points and replace them with effective \"non rent-seeking\" methods.
    Build the case for the government to monitor problem areas while
    privatizing as many of the steps as possible. Work to shorten the
    commodity chain from the producer to the market by introducing
    contract arrangements between the cocoa farmers (for example) and
    the ultimate processor of the product.

-   Where commodity chains are shortened, explore the possibility of the
    processor granting credit to the farmer. Develop creative approaches
    for solving the credit problem and the supply chain simultaneously.

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-   Promote development of a land market by eliminating corruption in
    the registration and titling process. Facilitate simple and
    inexpensive procedures for transferring land title. Enhance
    involvement of the private sector in land survey, titling and real
    estate sales. Remove the legal and regulatory restraints to private
    ownership.

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-   Where marketing boards fail to be effective, encourage their entry
    into competition with emerging private sector businesses.

-   Promote Quality Improvement Centers (especially in Africa). Work
    with private and public groups to facilitate standards, grading and
    certification.

-   Develop projects with producers\' groups and involve stakeholders.
    Develop a broad base of cooperating host workers.

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-   Promote oversight of private sector groups.

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-   Avoid projects that allow rent seeking via hidden subsidies.

> Corruption in agriculture can be reduced by careful project selection
> and good procedures in project implementation. The key is to develop
> programs that have a wide range of support which, if properly
> implemented, can improve the quality of life and reduce corruption.
> Full disclosure between the public and private sector players
> (especially the farmers) can do a great deal to facilitate this cause.

**Bibliography**

Barnes, Grenville, David Stanfield, and Kevin Barthel. 2000. Land
Modernization in Developing Economics: A Discussion of the Main Problems
in Central/Eastern Europe, Latin America and the Caribbean. *URISA
Journal* 12, 4.

Fischer, Charles. A speech given to *U.S.--Russia Business Council's Ag
Committee*, Washington DC, October 2000.

Hill, Jeff. Telephone Conversation with author.

\"Ministry of Agriculture Official Arrested for Corruption". *Egypt
Politics:* August 26, 2002.

Renger, Jochen, and Birgitta Wolff. 2000. Rent Seeking in Irrigated
Agriculture: Institutional Problem Areas in Operations and Maintenance.
Deutsche Gesellschaft für Technische Zusammenarbeit.

Sarimiento, Prime. 2000. Agriculture Weighed Down by Corruption and
Waste. *Philippine Center for Investigative Journalism,*

[^1]: Conferences with USAID employees and contract employees were used
    to gain insight into corruption issues facing the agriculture
    sector. Discussions included a look at corruption problems in a
    variety of countries and approaches to the problems. Contacts
    included USAID employees Madalene O'Donnell (phone), Raymond Morton,
    David Soroko, Jim Dunn, & Mark Winters. Contract (or previous USAID
    employees) John Mullenax and Lance Jepson.

[^2]: Grenville Barnes, David Stanfield and Kevin Barthel, \"Land
    Modernization in Developing Economics: A Discussion of the Main
    Problems in Central/Eastern Europe, Latin America and the
    Caribbean.\" *URISA Journal* 12, 4 (2000).
    [http://www.urisa.org/journal/protect/Vol12%20No4barnes/10-10barnes%20extract.pdf](http://www.urisa.org/journal/protect/Vol12 No4barnes/10-10barnes extract.pdf)

[^3]: \"Ministry of Agriculture Official Arrested for Corruption,\"
    August 26, 2002. (October 10, 2002).
    <http://www.arabicnews.com/ansub/Daily/Day/020826/2002082616.html>

[^4]: Prime Sarimiento, "Agriculture Weighed Down by Corruption and
    Waste." *Philippine Center for Investigative Journalism,* January
    24-25, 2000 (October 11, 2002.
    <http://www.pcij.org/stories/2000/agri.html>

[^5]: Jochen Renger and Birgitta Wolff, \"Rent Seeking in Irrigated
    Agriculture: Institutional Problem Areas in Operations and
    Maintenance,\" 2000 (October 10, 2002).
    <http://www.padrigu.gu.se/EDCNews/Reviews/Renger2000.html>

[^6]: Charles Fischer, U.S.--Russia Business Council's Ag Committee,
    2000 (October 10, 2002).
    <http://www.dowagro.com/newsroom/speeches/101200sp.htm>

[^7]: PL-480 provides for U.S. government financing of U.S. agricultural
    commodities to developing countries and private entities on
    concessional credit terms.

[^8]: The list could be extended but is beneficial and presented to show
    that allowing minor corruption only perpetuates the acceptance of
    greater involvement in future activities

[^9]: The project was a joint USAID/Israel program implemented by the
    Israeli Embassy to Swaziland.

[^10]: Telephone conversation with Jeff Hill, USAID