Chapter 1

encouraging results and provides useful lessons and recom- The Government has been undertaking reforms in the
mendations (see World Bank Discussion paper 271, "Small agriculture sector since 1989, supported by two Bank
Enterprises Adjusting to Liberalization in Five African adjustment operations. Progress has been substantial on the
Countries"). reduction of input subsidies, while efforts have been more
* Unlike many large enterprises, which generally suffer from modest on the reduction of price supports and the deregutrade
liberalization and other measures to enhance market- lation of state-run marketing monopolies and farm extenbased
competition, small enterprises tend to thrive under
increased openness because they rely more on local resources
sion services.
and inputs, and the dynamic, better-educated, profit-moti- Increasing the role of market forces and
vated entrepreneurs adapt well to changing incentives and
economic conditions and can grow in market niches.
strengthening private initiatives
* Self-help groups, cooperatives, local nongovernmental On the input side, since 1989 subsidies have been substanorganizations,
and manufacturers' associations are poten- tially reduced for ferdlizers, animal feed, pesticides and hertially
the most effective intermediaries to raise the proba- bicides, seed, irrigation, and mechanized services (Mink
bility of survival and expansion among small enterprises by 1994). In addition to the remaining input subsidies, the
providing a support network (with dear cost-effectiveness Government makes direct grants available to private
criteria) to help deal with individual problems and commu- investments in agriculture, and lending interest rates in 'prinicate
with policymakers to address systemic problems. ority" activities like agriculture are fixed at 10-11 percent,
Levy and others (1994) also investigate these issues, or about 2 to 3 percentage points below market rates for
showing similar conclusions for four very different coun- commercial activities. Although these fixed, preferential
tries (Colombia, Indonesia, Japan, and the Republic of rates have increased considerably since 1986, the costs and
Korea). This report emphasizes that the best means for risks associated with lending to small and medium-size
SMEs to improve their quality and efficiency are through farmers are quite high, and this interest rate policy still protransactions
with buyers and suppliers, by having access to vides a significant element of subsidy. The total value of the
a network of specialized consultants, and through formal credit and investment subsidies (and price supports) as a
technology transfer agreements. The most successful meth- share of budgetary expenditures could not be estimated for
ods to help companies include: (1) decentralized technical this report but should be assessed to determine their full
and export marketing support that can respond to the diver- extent.
sity of enterprises across subsectors, (2) private industry The Government is increasingly opening up the proviassociations
that develop and diffuse sector-specific knowl- sion of agricultural support services to the private sector.
edge and skills that cannot be obtained by individual small The supply of farm inputs, collection of produce, provision
enterprises, and (3) joint efforts between industry associa- of mechanized plowing and harvesting, and fishery port sertions
and government. vices have all been privatized. Extension, veterinary, and
laboratory services are still essentially provided by the state,
Reforming agriculture but there is a growing recognition that the private sector
should be permitted to play a much stronger role in these
The agricultural sector employs roughly one-third of the activities. The few private extension agents and veterinarilabor
force and accounted for 16 percent of GDP and 11 ans who have recently begun providing services have been
percent of export earnings in 1993/94. The sector is highly extremely successful. The Government can play an instruvulnerable
to drought. For example, average growth for mental role in promoting further private sector expansion
the 1990-94 period was 8 percent a year, but fluctuated of these services through accreditation policies and by
from an increase of about 30 percent in 1990 to drought- removing subsidies on its own delivery of these services.
induced declines of -5.3 percent and -9.9 percent per year Progress towards reducing the state's dominance in food
in 1993 and 1994. Irrigated agriculture covers 6 percent of marketing has been slower. In cereals marketing, the
arable land, but accounts for 30 percent of agricultural National Agency for Cereal Marketing (OC) import
output. monopoly is being relaxed. The size of its operations, how-
38 TuNIsiA's GLOBAL INTEGRAnON AND SuSTAiNBLE DEVELOPMENr STRATEGIC CHOICES FOR THE 2 1ST CENTURY