BizCLIR

The business of agriculture is typically heavily regulated. Moreover, it is often regulated in a way that requires business owners to actively search out what can seem like, under the best of circumstances, inconsistent and counterintuitive licensing requirements. Operating licenses enable governments to control where, how, and under what circumstances businesses may operate. But the licensing process is generally disaggregated, with different licenses and permits required for specific activities and the authority to issue such licenses and permits delegated to a wide range of administrative units in different locations.

Licensing is a common way to regulate activity in all fields. It permits the authorities to track activity, monitor compliance with rules, and acquire promises that licensees will behave in certain ways. The fees collected permit the licensing bodies to remain self-sufficient.

Examples of the kinds of activities that are typically monitored and regulated through licensing include:

• the initial establishment of an agribusiness so that authorities can influence land use according to policy;
• the establishment of quality standards for both processes and products;
• the limitation of environmental damage by requiring licensing for various emissions (e.g., smoke, water, other effluents) that a business may produce;
• the use of certain chemicals to monitor and limit dangers to the environment as well as the consuming public;
• the services sometimes outsourced by agribusiness (such as pesticide spraying and harvesting); and
• the export and import of product and inputs.

A licensing regime must be efficient, fair, transparent, and predictable or it will impede agribusinesses’ ability to contribute to growth. An inefficient licensing regime can lead to wholesale avoidance of protocol and to corruption and cheating.

Bureaucratic impediments to licensing stop or slow business investment and growth and reduce competition. Excessively high licenses fees can encourage the operation of illegal businesses and/or environmentally damaging pollution.

Agribusinesses of all sizes generally have to deal with licenses or permits at some point, although the importance of the licensing process is typically more important, and more complicated, for larger and more complex agribusinesses. As in any sector, agribusinesses need permits to construct warehouses and stores, access water and electricity, operate transport vehicles, acquire certification of quality standards for their products, or receive certification for their environmental management procedures.1 Licensing regimes more specific to the agricultural sector are also common, especially because of the important public health and environmental safety issues associated with agriculture. Agricultural traders are sometimes licensed to trade in certain areas or in certain commodities, with the license based upon their demonstrated knowledge of that commodity or market. Distributors of agricultural inputs (e.g., fertilizers, seeds, herbicides, pesticides) often need to be licensed to deal in such products in the interests of assuring public health and quality control. Food processors are required to be licensed—and are closely overseen to make sure terms of licenses are being fulfilled—for reasons of public health or safety. And virtually all other processors are increasingly subject to licenses or permits aimed at reducing harmful environmental effluents.

While small farmers or animal producers may not need to apply formally for licenses to operate, they are, however, subject indirectly to the licensing regimes that affect other players in the supply chain. For example:

• the improved seeds small farmers buy are often produced under license;
• the products they sell either as individuals or as members of a cooperative may need to be quality or safety certified; and
• their access to transport and other utilities and services may also be subject to licensing and permitting procedures.

1 Construction of a warehouse is, in fact, the test case for the Doing Business assessment.