Haiti - Agricultural sector review

Report No. 9357-HA Haiti Agricultural Sector Review April 30, 1991 Country Department IlIl Latin America and the Caribbean Regional Office FOR OFFICIAL USE ONLY DoCkent of the World Bank This document has , restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  FISCAL YEAR October 1 - September 30 CURRENCY-AND EOUIVALENCY UNITS Currency Unit - Gourde (G) Official Exchange Rate Effective February 1990 US$1.00 = G 5.00 WEIGHTS AND MEASURES Metric System GLOSSARY OF ABBREVIATIONS APA - Agriculture Producer Association BCA - Agricultural Credit Bank BNDAI - National Bank for Agricultural and Industrial Development BRH - Bank of the Republic of Haiti (Central Bank) CIAT - International Center of Tropical Agriculture CIDA - Canadian International Development Agency CIMMYT - International Center for the Improvement of Maize and Wheat CIP - International Potato Center CNC - National Corporative Council CRDA - Center for Research and Agricultural Documentation CRIN - Caribbean Rice Improvement Network DGI - Direction General dea Impots (Internal Revenue Service) FAO - Food and Agriculture Organization IDB Inter-American Development Bank IICA - Inter-American Institute for Cooperation on Agriculture IMF - International Monetary Fund IHSI - Haitian Institute of Statistics MARNDR - Ministry of Agriculture, Natural Resources and Rural Development Minoterie - Flour Mill ODPG - Organization for the Development of the Gonaives Plain ODN - Organization for the Development of the North ONACA - National Cadastre Office ODVA - Organization for the Development of the Artibonite Valley PRECODEPA - Regional Cooperative Program for Potato PROFRIJOL - Bean Cooperative Program for Central America, Mexico, and Caribbean PRONATHAR - National Bean Production Program PRONATMA - National Maize Production Program SIGR - Rural Irrigation ServJce SOFIHDES - Haitian Financial Corporation for Development UNDP - United Nations Development Program USDA - U.S. Department of Agriculture USAID - U.S. Agency for International Development  FOR OmCIAL USE ONLY AGRICZLTRA SECTOR REVIEW Table of Contents C2D.LRAZ& ABSZ=iC SARY AD CONCLUSIONLS . . . . . . . . . . . . . . . . ... . I. 2MERlEW OF SECTORAL PERFORMANCE AND POLICYs 1970-89 . . . . 1 A. Output Structure nd Trends .. . . . . . . . . . . . .o. . 1 B. Growth and Sources of Growth . . . . . . . . . . . . . . . . 3 C. Fiscal end Trade Polices, and Relative Prices . . . . . . . 5 Fiscal and Trade Policies ................ 5 The 1986 Reforms . . . . . . . . . . 6 TheEvolutionofPrices ................. 6 D. Conclusions . . . . . . . . . . . . &. . . . . . . .. . . . 7 II. AGRICUj.UuAL TXADE AND PRICING PQLICIES . . . . . . . . . . 8 A. The International Trade Regime . . . .. . .. . .# . . . . . 8 The Legal Import and Export Regime . . . . . . . . . . . . 8 Application of the Legal Trade Regime . . . . . . . . . . 8 Contraband . . . . . . . . . . . . . . . . . . . . . . . . 9 B. Agriculture's Trade Regime end Pricing Policies . . . . . . 9 Import Substtutng Sector ................. 9 Effect of Trade and Pricing Policies on Import Substitute Prices . .... ............... ..a 12 Export Sector . . . . . . o . ...... * * * * * * a * *# * 14 Non-Traditional Exports o.. 15 The Coffee Sector . 16 C. Conclusions . . . . . . . . . . . . . . . . . . . . . . . . 17 III. AGRICULTURAL CREDIT ... .................... 18 A. Government Credit . . . . . . . .*. . . . . . . . . . . . . 19 BCA . . .. .o. .... .. o. .. . .. . .. . 19 B. Comercial Banks . . . o . . * * . . . . . . . . . 19 C. Credit Unions . . . . . . . . . . . . . . . . . . . . . . . 20 Constraints to Credit Union Development . . . . . . . . 21 This report is based on the work of a World Bank missian which visited Haiti in September 1990. The mission comprised Mr. Hugo Diaz, Chief of mission, Mr. John Panzer (Sector Economist), Mr. Adrian Guissarri (Economiet, Consultant), Mr. George Mosselman. (Irrigation Consultant), Mr. Edward Pulver (Agriculture Consultant), Mr. Peter Jennings (Agriculture Co'nsultant) sad Mr. William Amponsah (Summer Intern). The report was written by Mr. John Panzer, who also led the discussions with Government, March 27-28, 1991. This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authofization.  - ii - Table of Content. PA-Ao No0 D. Informal Credit ... * 22 General Considerations Regarding Informal Credit 22 Rs Conclusions 23 IV. LCNDluion . . . . . . . . . . . . . . . . . . . . . . . . 23 A. Land Tenure Patterns and Characteristics 24 Lan Distribution .... 24 Public Lands t a . . . 24 Land's Exclusive Rights and Use . . . . . . . . . . . . 26 B. Land Titling and Tenure Security 27 Land Titling snd Land Security 27 The Supply and Dmand of Land Titling .. . . 28 National Cadastre .o . 29 C. Land Tenure and Economic Performance.. 29 Tenure Security and Desired Investment . . . . . . . . . 29 Access to Creddt .t... . . . .. ... 30 Land Tenure Patterns and Productivity . . . . . . ... . . . 30 Land Tenure, Tenancy and Production Decisions . . . 31 Do Conclusions . . . . . . * . . . . . . . . . . . . . 31 V. THE IRRIGATION-SUBSECTORECTOR......... .. 32 A. General Background un....... . 32 B. Design and Effectiveness of Rehabilitated Irrigation Systems 33 Design Maintenanance ........... . 33 Effectiveness of Irrigation Systems . . . . . . . 33 C. Water Pricing and Water Charges . . . . . 35 Gravity Systems . . . . . . . . . . . . 35 Pumping Systems . . . . . . . * .. . . .36 D. Subsector Strategy and Program .. ... ... . 37 E. Conclusions . . . . . . . . . . . . . . . . 37 VI. AGRICULTURE PRODUCTION. TECHNOLOGY GENERATION AND DISSEMINATION . . . . . . . . . . . . . . . . . . . . 37 A. Assessment of the Current Situation . . . . . . . . . . . 37 Rice o oo*9o-ooo 37 Maize o ooooo&o-*o38 Sorghum . . . . . . . . . . . . . . . . . . . . . . . . . 39 Grain Legumes . . . . . . . . . . . . 39 Ot'ter Food Crops. .......... *., 40 Nom-Food Crops . . . . . . 4 1 a . . * 41 Other Won-Basic Crops 41 Livesttck Production 42 B. Organization of Research and Extension Activities . . . . . 42 Varietal Development........... . . 42 Crop Management ..4.44.44544404 43 Fertilizer and Pesticide Use . O s.... . 43 Seed Production .............. *. .44  - iii - Table of Contents Pare No. Research, Extension and Irrigation . . . . . . . . . . . . 44 C. Institutional Arrangements .t . ... . . ..... .... . 45 Research . . . . . . . . . . . . . . . . . . . . . . . . 45 Extension . . . . . . . . . . . . . . . . . . . . . . . 45 D. Conclusions . . . . . . . . . . . * . . 46 VII. THE FORESTRY S JBSECCTOR .. O................... . 48 A. Forestry and the Environment. . . . . . . . . . . . . . 48 B. The Renewable Energy Sector ............... . 48 C. Agro-Forestr Activties ................... 48 D. The Government's Institutional Responsibilities and Constraints . . . . . . . . ... . ... . * . . . . . . . . 49 E. Conclusions . . . . . . .. . * . . . . *.* . . . . . . . . 49 APPENDICES 1 - Policy Matrix . . . . . ... *.. *.. . ... . ..*.*.. 51 2 - Statistical Appendix .................... 5 Ms: (IBRD 21143)  Pegs t of 2 HAITI - COUNTRY DATA SHEET __________________________ Area: 27,800 eq km Populatlon: 6.4 million (1069) Density: 223 per sq km _____ ---------- --------_ Rate of growths 1.6 X (1989) Population characteristics Health Crude birth rate (per 1,000): 34.4 Infent mortality (per 1,000 live birthe): 117 Crude deuth rate (per 1,000): 12.7 Popuustion per phyolcln: 7179 Population per hospital beds 1897 Income distribution Distrlbutlon of land ownership X of national Income, highest quintile: X ownod by top 1OX of owners: lowest quintilo: X owned by smallest 1OX Access to safe wator Access to electricity X of population - urban: 59 X of population - urbans 45 - rural: 80 - rural 8 Nutrition Education Calorie Intake as X of requiremnts: 80 Adult llteracy rate () 062.4 Per capita protein intake (g/day): 8o Primary school enrollment (X) of relevant age group: 78 eyp per capita (US8, 1989) 1/ : 400 ______________ GROSS NATIONAL PROWUCT, FY89 ANNUAL RATE OF 661W4H ( X , FY80 priece) US$ Mn X FYTS-60 FYSO-I6 FY6S-67 FY66 FY89 OWF at Market Prices 2552.3 100.0 5.2 -0.9 0.1 -1.6 -0.6 Gross Dometic Investment 291.6 11.4 10.1 -2.1 -5.0 -1.0 -1.0 Cross National Saving 14i.4 5.6 14.0 -8.5 -11.2 -1.9 -12.0 Current Account Bolance -126 9 -5.0 Export of Goods, NfS 259.8 10.1 10.8 -1.8 -6.6 0.8 -0.5 Import of Goods, NFS 428.5 16.6 10.0 -2.9 -5.6 -1.1 2.2 OUTPUT, EMPLOYMENT AND PRODUCTIVITY IN FY89 Value Added Labor Force V.A. per Worker US8 Mn U Mn x US$ Agriculture 889.9 19.1 2.0 6o.7 170.0 Industry 514.9 29.0 0.8 10.0 1716.8 Services 922.1 51.9 0.7 28t. 1817.8 Total / Average 1776.9 100.0 8.0 100.0 592.3 GOVERNMENT FINANCE __________________ Consolidated Public Sector Geneal Government a Mn Percent of CDP a Mn Percent of GOP FY69 FYN6 FY89 FY89 FY66 FY89 Current Roe-lpto 2097.4 16.1 17.7 1140.2 10.1 9.S Current Expenditure 2189.0 17.7 18.5 18898. 11.4 11.7 Current Surplus -91.6 0.4 -0.8 -249.6 -1.8 -2.1 Capital Expendituro 588.6 8.8 4.6 896.8 8.9 8.8 1/ World Bank Atlas ethodology.  Page 2 of 2 HAITI - COUNTRY DATA SHEET MONtJ, CREDIT A PRICES FY86 FY88 FY87 FY88 FY89 (Mn Gourdes outstanding at end of period) Broad Money Supply 2647.6 2S86.3 8133.6 348.8 8909.2 Bank Credit to Public Sector 2160.2 2113.6 2199.8 2828.0 2688.9 Bank Credit to Private Sector 1184.7 1172.4 1186.0 1279.2 1870.0 (Percentage or Index Numbers) Broad Money as % of GDP 26.4 26.8 29.0 81.8 88.0 General Price Index (FY80 - 100) 148.7 160.8 144.1 149.6 164.9 Annual porcentage changes in: General Price Index 8.4 8.6 -11.4 4.0 8.6 Bank Credit to Public Sector 12.0 0.9 8.2 8.0 9.1 Bank Credit to Private Sector 8.8 0.7 1.1 7.9 7.1 BALANCE OF PAYMENTS MERCHANDISE EXPORTS (AVERAGE FY84-89) F '"8 FY87 FY88 FY89 US$ Mn x (USS million) Coffee 42.8 20.3 Exports of Goods, NFS 291.8 281.S 273.4 269.3 Cocoa 4.8 2.8 Imports of Goods, NFS 423.3 461.8 426.6 423.6 Easential Oil. 4.8 2.1 ----- ----- ----- ----- Other Agriculture 6.7 8.2 Resource Gap (deficit = -) -131.7 -170.3 -162.2 -164.2 Manufactured Goods 180.9 62.7 Other Cormoditieo 19.8 9.6 Interest Payments (net) 9.1 8.4 6.8 10.9 ----- ----- Other Factor Payments (net) 7.6 6.9 10.7 11.1 Total 208.7 100.0 Net Current Transfers 62.0 66.8 68.4 59.8 ----- ----- Balance on Current Account -96.4 -129.3 -106.8 -120.9 EXTERNAL DEBT, SEPTEMBER 80, 1989 Direct Pvt. For. Investmont 4.8 5.0 10.1 9.4 -------------------------------- Net MLT Borrowing 83.0 56.2 34.4 15.5 Disbursements 43.8 67.0 48.3 28.9 USS Mn Amortization 10.8 11.8 18.9 13.4 ------ ___ - - ----- ----- Public Debt, nel. Quaranted 760.0 Subtotal (Dir.Inv.+Net MLT) 38.8 60.2 44.5 24.9 Non- Guaranteed Private Debt Total Outetonding A Disbursed 760.0 Other Capital (net) end Copital n.e.l. 89.8 104.6 122 98 NET DEST SERVICE RATIO FOR FY67 2/ Increase in Reserves (-) -31.2 -85.6 -60.2 9.0 Public Debt, inel. Guaranteed 19.8 Non- Guaranteed Prlvate Debt Gross Reserves 1/(end-year) 15.7 28.6 22.8 21.8 Total Outstanding A Disbursed 19.8 RATE OF EXCHANGE IBRD/IDA LENDIW' (Sept. 80,1987) Annual Average (end of period) IBRD IDA FY86 FY87 FY88 FY89 (USS Mn) ---- ---- ---- ---- Outstanding & Disbursed 0.0 268.8 US51.00 a 0 6.00 6.00 6.00 6.00 Undisbursed 0.0 SA.6 01.00 a USS 0.20 0.20 0.20 0.20 Outstanding incl.Undisbursed 0.0 345.9 -------------------------------------------------------------------__--------__-----_--------------------_-- 1/ Includeo gold holdings. 2/ Debt service, not of interest earned on foroign exchange reserves, as a percentage of Exports of Goode and NFS.  TITLE t Haiti - Agricultural Sector Review COUNTRY t Haiti REGION t Latin America and the Caribbean REPORAT t mE CLASSIF NUMBER LANGUAGES SEW Restricted 9357-HA English PUBDATE s April 30, 1991 ABSTRACT X The performance of Haiti's agricultural sector has been disappointing. Between 1985 and 1989, agriculture's average annual growth rate was -0.52, continuing the negative trend that began in 1980. Agricultural value added has been decreasing even though land and labor resources allocated to agricultural production have been increasing. Land and labor productivity losses have mainly resulted from the deterioration in the quality of the country's capital stock (e.g., soil properties, irrigation systems and roads), reflecting a political and economic environment in which investment has not taken place. Yields, with the exception of rice, show a negative trend and are becoming increasingly lower than those recorded in other countries of the region. The State's failure to supply much needed public goods has been the key factor hampering the development of an institutional framework conducive to growth. In agriculture, the most blatant failure has been the lack of adequate property rights resulting from lack of titling services and a reliable judicial system. This has led to alternative, less efficient titling arrangements that have constrained the development of the market for land and the ensuing modernization of agriculture. Other shortcomings include the State's inability to establish and collect adequate fees to cover the irrigation systems' operational and maintenance costs, causing their increased deterioration; the absence of publft sector leadership in technological growth and transfer, resulting in a series of uncoordinated donor-driven efforts with diminished impact on productivity; and the lack of prudential regulations necessary for the development of rural financial markets. In spite of the 1986 economic reforms, distortions persist. Agricultural exports have continued to be implicitly taxed through protection to import- substituting crops and by the implicit 132 export tax arising from the foreign exchange surrendering requirement. As a result, resources have not been directed to their area of comparative advantage and Haiti has become a net importer of agricultural commodities. Contraband activities have flourished in response to the protectionist policies and currently encompass 50X of total agricultural imports. However, the uncompetitive nature of the contraband trade--there is no free entry--has prevented it from annulling the protectionist effect of import restrictions. The sugar industry has been the sector's major beneficiary of Government-induced distortions. Subsidies to the mills comprising tax-free sugar import quotas and an indirect Central Bank export subsidy amount to US$8-12 million per annum, roughly 42 of total fiscal revenues.  SUMOARY AND CONCLUSIONS Backtround 1. Over the past decade, the people of Haiti have suffered a continuing decline in their standard of living as GNP per capita has dropped to US$400, one of the lowest levels recorded in the developing world. 2. Economic developments in Haiti have been affected by chronic political instability. But Haiti's recent democratically elected Government provide. a window of opportunity for the country to move towards sustained social and economic progress. In many ways, the economy and its economic policy are at a crossroads: important decisions regarding the country's development need to be made with urgency. But some of the factors benefiting Haiti in the past are no longer in place. Coffee and sugar, major sources of past agricultural growth, face unpromising prospects, and other agricultural exports have stagnated. beanwhile, domestic production costs have mounted, adoption of new technology has lagged, and Haiti's agricultural export potential prospects are clouded by dietortions. At a time when most old problems remain and new constraints are emerging, economic policies which will contribute to a revitalization of agriculture are much needed. Nevertheless, there are encouraging elements on which to base these new policies: absence of price interventions in most commodities and the positive legacy of import liberalization that has taken place since 1986. 3. The purpose of this report is to review the recent performance of Haiti's agricultural sector and to analyze issues critical to its growth. The report seeks explanations for the sector's historic stagnation and inability to abandon traditional technologies and institutions. Policy recommendations are focused on raising allocative and productive efficiency and on creating conditions that will encourage investment, technological change, and improve market operations. The first two chapters describe and analyze the economic policies which have, directly or indirectly, influenced the performance of the sector for the past twenty years. Chapter I provides an overview of the economic policies and the sector's performance during the 1970-89 period. Chapter II analyzes the impact of current trade and pricing policies. Chapters III through VI analyze the institutional framework in which agricultura' development has taken place. Chapter III provides an analysis of the factors and policies that have contributed to the lack of development of rural financial markets. Chapter IV deals with lend tenure issues and explains how its resolution could provide stimulus to the modernization of agriculture. Chapters V and VI review critical issues constraining technological change in agriculture--irrigation, research and extension. Finally, Chapter VII presents a brief analysis of the forestry sector. A policy matrix (Appendix 1) summarizes the report's issues and policy recommendations.  - il - Constraints to Amricultural Growth 4. The bulk of Haiti's agricultural practices are characterized as traditional. Most farming practices resemble those practiced many decades ago and, unlike more developed economies, market relations continue to be centered around a family/community structure. The shortcomings of that marketlinstitutional framework have become increasingly evident as population growth has posed a major stress on Haiti's resources. The sector faces continuing stagnation, sever. environmental degradation, and decreases in productivity and growth. 5. The key factor hampering the development of a market/institutional framework conducive to growth has been the State's failure to supply much needed public goods. In agriculture, the most blatant Government failure has been the lack of enforcement of property rights through titling services and the absence of a reliable judicial system. This has led to alternative, less efficient titling arrangements that have discouraged investment and constrainud the modernization of agriculture by limiting transactions within the traditional community sphere. Other serious shortcomings include the absence of public sector leadership in technology generation and transfer, in the maintenance of public irrigation systems, and of prudential regulations that could contribute to the development of rural financial markets. Finally, the sector's efficiency and growth have also been hampered by some policy- induced distortions, mainly restrictions to international trade and Government interventions in the financial markets. Performance of the Agriculture Sector 6. Between 1985 and 1989, agriculture's average annual growth rate was a disappointing -0.5Z, continuing the negative trend that began in 1980. Agricultural value added has been decreasing even though land and labor resources devoted to the sector have been increasing. Land and labor productivity losses have mainly resulted from the deterioration in the quality of the country's capital stock (i.e., soil properties, irrigation systems and roads), reflecting a political and economic environment in which investment has not taken place. Yields, with the exception of rice, show a negative trend and are becoming increasingly lower than those recorded in other countries of Latin America and the Caribbean. 7. Despite protectionist policies, food imports soared as a consequence of declining domestic food production. The sector--traditionally the country's most important source of foreign exchange--is currently a net importer of agricultural commodities. In 1988, agricultural imports (both legal and illegal) exceeded exports by roughly US$65 million. The sector's performance has strong implications on welfare. With an average annual population growth rate of 1.42, per capita food availability has been decreasing even though food imports (including contraband) have been increasing. In 1987, almost 501 of households consumed less than 752 of the recommended daily calorie intake, and nearly 36% consumed less than 752 of recommended protein levels.  - iii - Strgteaies and Recommendations for Promotina Efficiency. Technological Change and Growth 8. Changing the pattern of stagnation in the agricultural sector will require wide ranging policies. Specific policies are needed to provide improved access to credit, promote the use of improved technologies, improve the use of the irr4gation systems and curtail the present pace of coil erosion. These policies should form part of an economic framework free of distortions so that resources can be allocated in the most efficient manner. 9. The newly elected Government of Haiti has designed a strategy setting priorities for Government involvement in agriculture. The strategy would be implemented within a policy framework consistei.t -ith that proposed in this report. The plan foresees an important role of tna State in the areas of: (i) land tenure; (ii) agricultural research and extension; (iii) rural infrastructure (e.g., irrigation); and (iv) soil management. The strategy also calls for Government participation--albeit not in a leading role--in the development of rural financial markets, provision of information to assist the marketing of agricultural produce, the development of livestock, fisheries and aquaculture, and facilitating farmers' access to tools and machinery. 10. The Economic Policy Framework: Following a long period of increased Government intervention, a comprehensive economic reform was introduced in 1986. The reform sought to promote economic growth by eliminating distortions and inproving resource allocation. In the context of commercial and pricing policies, it focused on realigning domestic prices to world prices by liberalizing the international trade regime and local trade monopolies. In the agricultural sector, the reforms supported these objectives to the extent that export taxes on agricultural commodities were eliminated. Major agricultural commodities were granted special protection in spite of an overall tariff reform that decreased the country's average tariff level from roughly 40S to 20S. Imports of maize, sorghum, rice, and beans were subject to licensing requirements and to a 502 tariff; licenses and a 402 tariff were also introduced for meat imports while sugar and flour imports continued to be monopolies subjected to 402-502 tariffs. 11. The sector's allocation of resources continues to be distorted in favor of import substituting crops. Exportables are implicitly taxed through: (a) protection granted to import-substituting crops. In spite of the massive contraband of rice, flour and sugar (estimated at US$60 million per aimum, roughly 502 of total agricultural imports), tariff protection and import licenses on rice, maize. sorghum. sugar and flour have subsidized domestic producers, taxed consumers and expanded these sectors where the country does not have a comparative advantage. In 1990, the nominal protection coefficient for these products was roughly: 1.3 for rice, 1.5 for maize, 1.5 for sorghum, 1.5 for flour, and a lower bound of 1.5 for sugar. Although contraband has played a role in correcting these relative price distortionst its impact has been limited because its incidence has not been uniform across products. There are transaction costs involved in bypassing the law, and organized  - iv - large-scale contraband industry behavior has been non-competitive because of entry restrictions; and (b) the implicit export tax levied by the requirement that 40% of an exporter's foreign exchange proceeds be exchanged into Gourdes at the official exchange rate (G 5/USsi) instead of the market determined rate (G 7.5/US$1). Import transactions (except for petroleum products) take place at the market determined rate. During 1990, this surrendering requirement vas roughly equivalent to a 13Z tax on exports. 12. These policies have exacerbated the difficulties faced by the exportable sector. Coffeo producers face severe problems because the relative price of coffee with respect to competing crops (i.e., maize and sorghum) has not improved--in spite of the elimination of the export tax--because of the fall in the world price of coffee. These difficulties have been compounded by the outbreak of the coffee rust disease. Despite their promising prospects, mango exports have stagnated during the past five years because additional investments needed to increase output have not been undertaken. Investments have been discouraged by uncertainty, a consequence of an extremely unstable political environment, and by economic policies that have been detrimental to the export sector. 13. Suaar remains the most distorted commodity in the economy. Although nominal protection is relatively high, the industry allegedly cannot break even on its domestic production. To help the industry, the Government transferred the exclusive monopoly on raw sugar imports and over 502 of the refined sugar import permits to the mills. These licenses include tax exemptions--all the import-monopoly rents are thus captured by the importers. With international sugar prices ranging between US$0.11-0.15/lb and the domestic ex-mill price at roughly US$0.25/lb, these rents amount to US$7-11 million per annum; equivalent to roughly 122 of import duty revenues and 42 of total fiscal revenues. 14. Protectionist policies have been detrimental to: (i) consumers (especially urban consumers) who must pay higher prices; (ii) the Government and all the beneficiaries of public goods--as the economic rents generated by import constraints have been appropriated by the contraband industry and the sugar mills; (iii) the agricultural export sectors (iv) the environment--since the protected import-substituting commodities are annual crops whose productiorn in the hillsides hastens the erosion processt and (v) to the overall economy as resources have not been destined to their most efficient use. 15. For the economy to achieve an efficient allocation of resources, trade and pricing polices should be neutral and should not favor any particular sector at the expense of others. Moreover, given Haiti's lack of institutions, the trade regime should contain as little administrative discretionality as possible and the level of protection should be sufficiently low so as to make contraband unprofitable. Thus, it is recommended that: (i) all ouantitative import restrictions be eliminated, except for those related to the reasonable application of health regulations; (ii) agricultural  - v - commodities' tariffs be set at a 52 uniform level, and all imports be subject to the consumption (TCA) tax. This uniform tariff should be consistent with that to be applied to the rest of the economy; (iii) protection to the sugar industry be decreased; and (iv) the foreian exchange surrendering requirement be eliminated. 16. Credit Markets: Lack of access to the formal credit markets has limited farmers' production activities. As of June 30, 1988, even though the agricultural sector accounted for 35Z of GDP, less than 1I of the total credit outstanding from banking institutions had been channeled to agriculture, most of it from the Government-owned National Bank for Agricultural and Industrial Development (BNDAI). With the closing of BNDAI in 1989, the level of outstanding credit has probably been much lower. Another Government institution--the Bureau de Credit Agricole--channels credit to farmers at subsidized interest rates, however it does not have access to external resources. 17. Commercial banks have played an extremely limited role in Haiti's agricult.ral sector as a consequence of the country's farm size distribution. Recorded world experience has indicated that commercial banks seldom lend to small farmers because of high transaction costs, the inability of using untitled land as collateral, and the existence of interest rate caps which promote credit rationing and discrimination vis-a-vis more risky and more costly to service customers. 18. The cooperative system is the only source of formal credit available to farmers. Cooperatives mainly operate in urban areas. Their potential expansion to rural areas will depend on changing existing laws to allow payment of competitive rates on savings deposits and on developing an adequate legal and regulatory framework. 19. The Government has an important role to play in the development of financial institutions related to agriculture by providing nrudential reaulations and adeauate supervision. To facilitate farmers access to institutional credit, the Government would need to: (i) eliminate the 22Z cap on commercial bank lendina rates; (ii) eliminate the orohibition that 2recludes the use of land as collateral; (iii) eliminate the fixed 121 interest rate on credit union loans; and (iv) develop a suitable regulatorv and sunervisory framework for credit unions. 20. Land Tenure: Haiti's land titling system is under severe stress. An official cadastre does not exist and the number of hectares of titled land complying with all necessary legal requirements is exceedingly small. Nevertheless, individual property rights on land are recognized. Compliance with full legal formalities have been replaced by an informal system with partial legal compliance. This system provides some degree of land tenure security. 21. Land titlina and security issues are a contributing factor to the stagnation in the development of agriculture. The lack of legal titling prevents access to formal financial markets, hindering investment and technological change. Lack of tenure security also has a negative impact on  - vi - the environment as it discourages on-farm investments such as terracing and tree planting. More importantly, the modernization of agriculture will require that traditional family/community based economic relations be extended to market type relations, with well defined/enforced property rights. This will enhance the possibility that investors and entrepreneurs that have not been traditionally linked to the sector will participate in its development. Small farmers would also benefit from enhanced tenure security arrangements, since it would enable them to undertake profitable land-specific investments and, over the medium term, the farmers' access to credit would be enhanced. While the advantages of a formal titling system are enormous, the dangers are great in attempting such a reform without having in place a well functioning land administration/legal process which preserves the rights of those who have traditionally farmed the land and to prevent land grabbing. 22. Rather than attempt a compulsory national titling program, which at Haiti's current stage of development would not be feasible to implement effectively, the Government should establish the legislative and administrative framework which would Rermit the issuance of titles at a Race consistent with their demand. Land titling could be provided by the National Cadastre Office (ONACA) at subsidized rates--for a limited period--to encourage land registration once appropriate procedures are in place. Steps should be undertaken to facilitate the process of land registration which at present is controlled by a few notaries. Complementary measures should be taken to ensure that acquired titled rights do not carry restrictions regarding land transferability. Legislation Preventing foreigners from acquiring land. and legislation preventing land from beina used as collateral should be abolished. 23. State-owned lands comprise between 5% and 111 of total cultivable land. They are generally leased at below market rates, and the leases are not transferable outside the beneficiary's immediate family. A high proportion of these lands are subleased at market rates. The State does not know exactly how much land it owns nor who it is leased to. Current leasing arrangements have negative equity considerations arising from the non-transparent system of rent transfers to lessees, who benefit from below market fees. Moreover, the non-transferability of the leases has negative efficiency implications on the environment and growth since: (i) access to credit is limited because the land cannot be used as collateral; and (ii) erosion is enhanced since cultivation practices may be biased towards substituting annual crops for perennial crops. This is a consequence of tenancy (i.e., subleasing) arrangements not being conducive to the planting of perennial crops. 24. The State should divest most of its land. As a matter of principle there is no reason for the Government to be engaged in the real estate business, much less so when such an activity serves primarily as an unclear and untargeted rent transfer mechanism with negative efficiency implications. Caution should be exercised to prevent land grabbing by wealthy and well connected individuals at prices below real value. 25. Irrigation: Haiti's public irrigation systems have deteriorated considerably due to poor maintenance. At the core of this continuing problem is the fact that user's contribution to cover operation and maintenance (O&M)  - vii - costs are miniml. Maintenance problems ars extensive even in the autonomously administered public irrigation project. for which there is external financing. In the rehabilitated aravitv svste9s, the absence of users' fees to recover ongoing 0 & M costs stem from the Government's unwillingness to set and enforce them. Given current yields and cropping intensities, these payments would represent between 1Z and 32 of a farmer's annual income and are within the farmers' payment capacity. Pumoing systems are not economically efficient, their 0 & M costs being excessively high compared to the land's productivity and cannot be fully repaid by users. 26. Despite these difficulties, the rehabilitated gravitv schemes have experienced important increases in cropping intensity and yields. Average cropping intensities have doubled, and yield increases have ranged from 602 to 3002. These improvements still fall short of the projects' objectives (e.g., generally expected yields of 3.5 ton/ha for maize and sorghum, 4.5 ton/ha for rice and 1.5 ton/ha for beans) because neither the supporting technology is available, nor is there an effective extension service--particularly relating to water management. 27. A number of rehabilitation projects are currently being carried out vith donor support. Rehabilitation efforts should continue provided that: (i) the choice of nroiects is conditioned on it beina feasible to Dut in place adequate cost recovery mechanisms to cover 0 & M costs. Priority should be given to gravitv systems where 0 & M costs are within farmers' capacity to pay; (ii) the Government puts into effect mechanisms to charge and collect adequate water fees; (iii) design standards are upgraded to enhance the system's reliability and limit siltation in the canals. This requires more complete studies of water availability; and (iv) catchment protection becomes a part of all water resource development projects. 28. The severity of institutional weakness in the MARNDR precludes its ability to effectively participate in irrigation development. This problem has been perpetuated by funding agencies' tendency to work *ith local authorities in an effort to achieve results within a very weak institutional environment. The downside effect has been the perpetuation of the Government's inability to provide supporting services, including technology development and transfer, and an inadequate focus on environmental issues. Greater attention is needed to strengthen the Ministry of Agriculture, Natural Resources and Rural Develpment's role in irrigation development, provision of supporting services and the establishment of water users associations to administer irrigation schemes. To date, there has been little progress in the identification or formation of such associations. 29. Research and Extension: Productivity increases could be quite rapidly achieved in agriculture provided that properly designed and sustained research and extension programs are implemented. Past research and extension impact has been dismal as evidenced by Haiti's declining food and export crop production. Food grain production technology, except for rice, has largely failed. 30. An examination of Government institutions, external donors, NGOs and farmers' organizations reveals serious problems in the direction,  - viii - coordination end cooperation of the numerous agencies involved in technology generation and dissemination. There is no one agency/institution capable of assuming responsibility for research and extension. Collectively, there are more than sufficient human and financial resources available to accelerate technology. 31. A unifietd rogram of research and extension should be centered around several promising crops. In such an approach, the production system should be viewed in its entirety. Crop-specific action programs should assist in coordinating research, extension, input supplies, and resource management. It is critical that farmers support this initiative. They should not only participate in transferring technology but should also contribute to sustaining the program without requiring large amounts of external assistance. 32. In the short-term, the most promising improvements can be achieved in the irrigated rice-arowinR areas. Current annual rice imports of roughly 70,000 ton indicate that domestic production can increase significantly without a negative effect on producer prices. In the better irrigated areas of the Artibonite Valley, a program based on improved water management techniques could result in a 602 increase of an average farmer's annual income. Other areas would need prior rehabilitation of their irrigation schemes before significant improvements are achieved. However, the benefits of such rehabilitation are enormous. In the areas that do not suffer from drainage problems, the gross annual income per hectare could more than double, from roughly US$3,000 to US$7,000. In the most destitute areas with serious drainage problems, gross annual incomes could increase from US$1,000/ha/year to US$6,000/halyear. Rehabilitation costs per hectare are estimated at roughly US$1,000 and US$3,000, respectively. The improvement of these systems could have a significant payoff. Sorghum, maize and bean yields could increase by 152 in the short term if crop-management extension programs are successfully implemented. 33. Forestry: The existing degradation of Haiti's natural resources needs to be curtailed. The Government needs to develop adequate safeguards aimed at: (i) protecting the remaining forests and vital ecosystems from further destruction; (ii) increasing wood production through the management of State forest lands and through the promotion of agro-forestry by farmers; and (iii) reducing the pressure on the country's vegetation through conservation measures and, to the extent possible, by substituting mineral fuels for fuelvood over the medium term. The closing of open access to fuelwood is likely to increase the price of wood, making other sources of energy more competitive. Tree farming may become profitable in this circumstanc.s. Tree farming would also benefit from better defined/enforced private property rights. 34. The Government should: (i) increase forested areas by transferring State land to the Ministry of Agriculture to be rezoned as "public domain" for environmental protection; (ii) improve forest manaRement; and (iii) strenathen the legal and institutional framework that regulates forestrs and environmental issues.  I. OVERVIEW OF SECTORAI PERFORMANCE: 1970-89 A. Output Structure and Trends 1.1 Agriculture has traditionally been Haiti's key economic activity. Its Importance had initially been linked to the country's becoming a rich sugar producing colony and following independence to evolving into an economic and social structure largely based on self-sufficient, owner-operated, small- scale farming. Agriculture accounted for roughly 352 of GDP in 1989, directly effects 75Z of the 6.4 million inhabitants and employs 652 of the total labor force. Crop production accounts for 852 of the sector's value added. In 1985, the last year for which disaggregate information on value added per crop is available, agriculture's main crops and their respective share of total crop value added were rice (13.82), coffee (10.92), sweet potetoes (10.02), beens (9.52), bananas (8.22), yam/malanga (7.42), mangoes (4.62), sugarcane (4.62), maize (4.32), oranges/grapefruit (4.32) and sorghum (4.02). Livestock production--destined to the domestic market--included beef (36,000 ton), pork (12,000 ton), chicken (9,000 ton) and milk (50,000 ton). 1.2 The country's territory covers roughly 2.7 million ha. In 1987, approximately 1 million ha were cultivated, 0.5 million were used as pasture and only 100,000 remained as forests. Approximately 72 of cultivated land is irrigated. Most of the country was once covered with natural forests, but relentless population pressure has contributed to their disappearance, generating serious environmental problems. Approxim'ttely one million hectares of land have been eroded and can no longer support any agricultural use. Table 1.1: FARM SIZE AND DISTRIBUTION, 1971 Landholdings Parcels per Holding Farm Land (number) (average) (ha) Less than 1 ha 361,985 1.5 184,843 1 to 3 ha 195,530 2.1 349,299 3 to 5 ha 33,810 3.4 133,552 More than 5 ha 23.385 3.3 193.822 Total 616,710 1.8 863,516 Source: George Anglade, Eagace Haitien, 1974 (based on 1971 Census). 1.3 A distinct feature of the agricultural sector is the pattern of land distribution, with small landholdings'l under 4 ha accounting for almost I/ A farm is referred to as a landholding: the sum of different parcels a given farmer owns.  -2- 75S of cultivated lend. While small farms are not uncommon in Latin America and the Caribbean, their importance in Haiti is unique.31 This pattern of land distribution to further characterized by farms being sub-divided into several parcels. According to the 1971 census, the estimated number of farms was approximately 616,000, with an average farm size of only 1.4 ha. Moreover, since the total number of parcels was roughly 1.18 million, the average parcel size was under 0.8 ha. Although updated information regarding farm size and distribution is not available, all evidence points to a land distribution pattern of even smaller farms. 1.4 Agriculture's importance also stems from its participation in international trade, particularly exports. Until 1980 the sector accounted for at least 50S of total exports. Since 1980, agriculture's contribution to total exports has declined sharply as a consequence of: (i) the drop in the world price of coffee and lower volume of coffee exports; (ii) the fall in the value of traditional exports such as cocoa, essential oils, sisal and sugar which have either been affected by declining world demand or by loss of their competitiveness; and (iii) the stagnation of non-traditional exports. Table 1.2: AGRICULTURAL IMPORTS AND EXPORTS, 1970-88 8/ (in US$ million) 1970 1975 1980 1988 Exports Coffee 15.2 18.3 90.4 38.9 Agriculture 23.7 37.8 112.3 55.5 - as Z of all goods 58.5 46.5 50.0 28.9 Imuorts Wheat 2.3 14.7 31.9 18.0 Agriculture 10.4 33.4 100.5 119.6 -as Z of all goods 20.0 23.5 28.4 34.8 "Surplus" b/ Agriculture 13.3 4.4 11.8 (63.7) a/ Include meat, dairy products, cereals, and fishery and forestry products; exclude edible oil. b/ Defined as the difference between the value of exports and imports. Source: FAO. 1.5 Traditionally, agriculture has also been a net source of foreign exchange earnings. However, this role has been drastically reversed as imports have increased because of the sector's stagnation (Table 1.2). In 2/ In Jamaica 49% of all farms are under 4 ha, yet they account for only 262 of total cultivated land.  -3- 1988, imports of wheat and wheat flour from the United States accounted for roughly 402 of the sector's trade deficit. Macroeconomic factors have also affected the sector's performance. Maintenance of a fixed exchange rate regime in light of rising domestic inflation caused the real exchange rate to fall and reduced the relative price of traded goods with respect to non-traded goods. These developments stimulated imports and reduced the incentives to produce tradeables. B. Growth and Sources of Growth 1.6 During 1970-89, agriculture grew at about 0.4% annually, roughly 1.5 percentage points below the growth rate of the economy. Its sectoral share in GDP dropped from 47S in 1970 to 352 in 1989, a phenomenon more closely associated to the sector's stagnation than with the overall pattern of the country's development.3- While increasing coffee and rice production contributed to agricultural growth in the 1970s, output of most crops in the 1980s stagnated or decreased. Table 1.3: CONTRIBUTION OF AGRICULTURE TO GDP, 1960-89 (in percentage) Share in Annual Growth Rates Contribution to GDP GDP Agriculture GDP Growth a/ 1960-70 46.9 0.7 0.8 53.6 1970-75 42.3 4.3 2.1 20.4 1975-80 33.7 5.0 0.8 5.1 1980-85 35.3 -1.9 -1.3 1985-89 34.9 -0.2 -0.5 a/ Percentage of GDP growth explained by the expansion in agricultural value added. Source: Haitian Institute of Statistics (IHSI) and mission estimates. 1.7 Explanations of growth can be provided inter alla on the basis of changes in conventional factors of production: land, labor and capital and their efficient use. Available 1970-88 data shows increases in the use of cultivated land and labor. Data on capital in agriculture is not available; however, data on the evolution of agricultural machinery imports indicate that the capital stock increased during this period (Table A.6 Statistical Appendix). Trends on other input use is mixed: pesticide imports have increased and fertilizer imports have declined. In any event, these inputs' role in production is extremely limited and their current contribution to growth is negligible. 3/ Recorded experience has shown that agriculture's share of GDP tends to decline as countries reach more advanced stages in development.  - 4 - Table 1.4: AGRICULTURE'S SOURCES OF GROWTH (in percentage) Average Annual Growth Rates Apparent Productivity Gains a/ GDP Labor Land Labor Land 1970-88 0.43 0.31 0.69 0.12 -0,26 1980-88 -0.29 0.77 0.27 -1.06 -0.02 a/ Estimated as the difference between the growth rates of agricultural GDP and factors of production in agriculture. Source: Mission estimates. 1.8 A comparison of the rate of growth of output with that of land and labor shows that since 1970 labor has registered extremely small productivity gains, all of them attained during the 1970. (Table 1.4). During the 1980s, the productivity of both land and labor fell. The decline in factor productivity reflected the continuous deterioration in the quality of the country's capital stock arising from: (i) continuing land erosion; and (ii) very low levels of investment in basic infrastructure (i.e., irrigation systems, roads). Yields, with the exception of rice, show a negative trend and are becoming increasingly lower than those recorded in other countries of Latin America and the Caribbean (Table 1.5). table 1.5, YIELDS IN PRODUCTION, 1970-87 (ton/ha) 1970 1975 1980 1987 Rice Haiti 2.11 2.51 2.40 2.94 L. America a/ 1.78 1.91 2.00 2.24 Maize Haiti 1.04 0.92 0.90 0.91 L. America 1.47 1.55 2.05 1.87 Sugarcane Haiti 36.1 37.4 37.5 35.3 L. America 54.7 54.0 56.7 61.3 a/ Weighted average of Latin American and the Caribbean countries. Sources PAO.  1.9 The sector's performance has strong implications on welfare. With an average annual population growth rate of 1.42, per capita food availability (as measured by available kg calories) has been decreasing even though food imports (including contraband) have been increasing. The latest data on the population's nutritional status4/ shows that almost 502 of households consume less than 75Z of the recommended daily calorie intake, and nearly 362 consume less than 752 of recommended protein levels. Table 1.6: FOOD PRODUCTION AND NUTRITION, 1970-89 Food Production Per Capita Food Supply/Capita/day Index Food Production Calories Proteins Index (kg cal) (grs) 1970 86 103 1,910 43.9 1975 95 103 1,916 44.3 1980 100 100 1,888 44.8 1985 111 102 1,907 45.6 1989 106 90 1,788 a/ 45.0 a/ a/ Corresponds to 1987, the last year in which estimates of calorie and protein intake were available. Sources: Nutrition data for 1970-1985, FAO; nutrition data for 1987 from "Nutrition in Haiti", op. cit. Production indexes, FAO. C. Fiscal and Trade Policies, and Relative Prices Fiscal and Trade Policies 1.10 With the exception of the sugar and wheat flour markets, Government intervention in agriculture has traditionally been moderate--yet with a distinct anti-export bias. Market interventions have been closely linked to Haiti's fiscal policy and tax structure, based primarily on excise taxes and on taxes on international trade (Table A.7 Statistical Appendix) Y Accordingly, prior to the 1986 economic reforms, the main sources of interventions in agriculture weres (i) export taxes affecting coffee, cocoa, sisal, cotton and essential oils; (ii) import duties; and (iii) excise taxes on sugar and wheat flour. In addition, in 1985, the Government owned two of the four mills in the country, was involved in price fixing and enforcing the price sugar mills paid for sugarcane, had the monopoly on sugar imports (and 4/ "Nutrition in Haiti: Evidence from the Haiti Household Expenditure Consumption Survey", Iowa State University, draft, June 1989. 5/ The agricultural sector had a disproportionate role of government interventions because the very nature of its commodities makes them easy targets for taxation.  - 6 - on its sales), and regulated sugar's wholesale and consumer prices. Wheat production was monopolized by the Minoterie, which also had the monopoly on wheat and flour imports. The price of flour was established by the Ministry of Finance with the purpose of ensuxing that the Minoterie would become a healthy financial enterprise. The 1986 Reforms 1.11 The policy reforms undertaken in 1986 sought the realignment of domestic prices with international prices through the liberalization of the international trade regime and of the local trade monopolies. The reforms supported these objectives in the agricultural sector by eliminating direct Government price controls, and by liberalizing imports of agricultural inputs to the extent that export taxes were eliminated. Nevertheless, in contrast to an overall tariff reform that decreased the country's average tariff level from roughly 40% to 20%, agriculture's major commodities were granted special protection. Imports of maize, sorghum, rice, and bean were subjected to 50S tariffs and import licensing requirements. Licenses and 40Z tariffs were also introduced for imported meat parts (pork and chicken) and sugar, while flour imports remained under monopolistic conditions and subjected to a 50% tariff. Consequently, domestic prices of the protected products continued to exceed border prices. The 1986 reforms did not eliminate the prevailing distortions in the sugar and wheat flour industries. Distortions in the sugar market remain, while those in the wheat flour market were eliminated only in September 1990. The Evolution of Prices 1.12 While domestic production stagnated during 1970-89, the relative price of food increased during 1970-86 despite increased food imports. As the cost to consumers rose, the Government froze the retail price of sugar and flour between 1981 and 198911. In 1986 the Government opened the provincial ports, leading to a surge in contraband. Contraband's effect on reducing domestic food prices was magnified by the 1986 drop in the world price of rice (Table 2.3). 6/ These policies also helped contain the rise in the prices of substitutes such as maize and rice.  -7- Table 1.7t INDEX OF SELECTED DOMESTIC PRICES, 1970-89 a/ (1980-100) XPeod CYI 9-Rico Flour Sugar Coffee Non-food CPI CPI CPI CPI Maize 1971 75.9 76.8 172.5 85.6 64.4 1976 98.3 86.2 131.0 92.6 82.9 1980 100.0 100.0 100.0 100.0 100.0 1986 96.9 90.4 86.5 84.7 104.9 1989 78.9 81.4 90.8 90.3 52.6 a/ The prices of rice, flour and refined sugar correspond to the average annual consumer price. The coffee price corresponds to the annual average producer price. Source: Mission estimates basod in IHSI and IMF data. 1.13 The favorable change in the relative price of coffee which reflected the elimination of the export tax was offset by declining coffee prices in the world market from roughly US$1.70/lb in 1986 to US$0.90/lb in 1989. D. Conclusions 1.14 During 1970-89, agriculture grew at roughly 0.4t per annum, approximately 1.5 percentage points below the growth rate of the economy. While increasing coffee and rice production contributed to agricultural growth in the 1970s, output of most crops in the 1980s has stagnated or decreased. Between 1985 and 1989, agriculture's average annual growth rate was a dismal -0.5Z. The decline in agricultural value added has taken place even though land and labor resources devoted to agriculture have been increasing. Land and labor productivity losses are mainly the result of the deterioration in the quality of the country's capital stock (i.e., soil properties, irrigation systems and roads) that has resulted from a political and economic environment in which investment has not taken place. Yields, with the exception of rice, show a negative trend and are becoming increasingly lower than those recorded in other countries of Latin America and the Caribbean. 1.15 Despite protectionist policies, agricultural imports have soared as a result of declining domestic food production. The sector--traditionally the country's most important source of foreign exchange--is currently a net importer of agricultural commodities. In 1988, agricultural imports (both legal and illegal) exceeded exports by roughly US$65 million. The sector's performance has strong implications on welfare. With an average annual population growth rate of 1.4%, per capita food availability has been decreasing even though food imports (including contraband) have been increasing. In 1987, almost 502 of households consumed less than 752 of the recommended daily calorie intake, and nearly 362 consumed less than 752 of recommended protein levels.  8- II. AGIUTPLO II,AGRCULUR_ TRDEAND PRICING POLICIES A. The International Trade Regime 2.1 While current State intervention in Haiti's agricultural markets is not as prominent as in most other developing countries, its impact on the allocation of resources should not be overlooked since future economic growth will be contingent to a sound allocation of resources. The bulk of Government interventions is carried out through the trade regime by way of import duities/licenses and an implicit export tax levied by the foreign exchange surrendering requirement. While in other countries the degree of intervention can be ascertained from an analysis of the policy measures, in Haiti the actual level of Government intervention depends on the interplay of three factors: (i) the Government'e legal import-export regime; (ii) the Government's application of the legal regime; and (iii) contraband. The Legal Import and Export ReRime 2.2 The current legal regime resulted from the 1986 trade liberalization program where all quantitative import restrictions were lifted w'th the exception of seven agricultural products and specific tariffs were replaced by ad-valorem ones. The new tariff structure is comprised of tariff rates mostly in the 0-401 range. Inputs such as fertilizer and seeds are imported tax-free. Importers finance their imports with dollars purchased in the parallel market. Imports are also subject to a 3S consular fee tax, a 1% tax for services rendered by an independent import-value-appraisal firm, a 7 Gourdes specific tax per import application, and a 101 consumption tax (TCA)e As taxes are estimated on the valuation of imports at the official exchange rate, a 301 surcharge is applied to the US dollar value of imports in order to compensate for the Gourde's depreciation in the parallel market.21 Specific export taxes were abolished by the 1986 reforms. Application of the Legal TreAe Regime 2.3 Application of the import regime is the responsibility of three separate Government agencies: (i) the Ministry of Commerce, which has the 7/ As a result of these various taxes and the surcharge, an imported good with a nominal 201 tariff pays approximately a 30% tax. For US$100 CIF import, total taxes with a 202 tariff would be: 20% tariff on G 650 (US$100 x official exchange rate x 1.30): G 130.0 1% fee on G 650: G 6.5 3% consular fee on G 435 (US$85 FOB value of import x official exchange rate): G 13.0 Fixed tax per statement: G 7.0 102 TCA on G 780 (G 650 + G 130): G 78.0 Total taxess G 234.5 Overall taxes on US$100 CIF represent (G 234.5/G 750) 31.2% of CIF value. As the value of the specific tax on import applications gets watered down as the import value increases, total taxes per US$100 imports are somewhat lower.  - 9 power to grant licenses and some tax exemptions; (ii) the Ministry of Economies and Finance, entitled to grant tariff and TCA exemptions for imports; and (iii) the Customs Service, which ic oupposed to control contraband, ensure that licensing requirements are met, and collect import duties. Coordination among these agencies has been non-existent; the overall operation of the import regime has been non-transparent. Tax exemptions and import licenses have become rent tranefer instruments, and were used as such by the Government agencies. The relative price structure has been affected by these discretionary instruments and by contraband which have undermined the price signals which the tariff structure should have provided. Contraband 2.4 Contraband surged at a massive scale following the 1986 opening-up of provincial ports, previously closed for political reasons, and the weakening of Haiti's administrative structure that followed the 1986 change in Government. It was estimated at the time of this review that contraband encompassed ae much as 501 of total trade. Contraband is closely related to the enforcement of the import regime. It appears that a large part of contraband takes place within the legal system by way of underinvoicing. B. Agriculture's Trade Regime and Pricing Policies IMort Substituting Sector 2.5 The agricultural sector was largely insulated from the 1986 trade liberalization process. In contrast to an overall tariff reform that decreased the country's average tariff level from roughly 401 to 201, agriculture's major commodities were granted special protection. Imports of maize, sorghum, rice, and beans were subjected to 501 tariffs and import licensing requirements. Licenses and 401 tariffs were also introduced for importing meat parts (pork and chicken) and sugar, while flour imports remained under monopolistic conditions and subjected to a 50% tariff. 2.6 Import licenses are granted by the Ministry of Commerce, supposedly following consultation with the Ministry of Agriculture (MARNDR). The relevance of import licenses as a protection instrument--given the existing tariffs--is highly suspect given that tariff rates for licensed-protected- goods are sufficiently high to make licensed imports uncompetitive.!' Accordingly, licenses have an economic value as long as they are accompanied by some form of tax evasion, be it underinvoicing or tax exemptions granted by the Ministry of Economics and Finance. In fact, import licenses are granted on a small scale, and there is a very small demand for them, the exception being sugar, where import licenses carry automatic tax exemptions. Given 8/ Underinvoicing in rice licensed imports can be assessed when comparing the "declared" licensed rice import price (US$224/ton, Table 2.1) with the market price (US $388/ton, Table 2.3). 9/ The estimated nominal protection coefficients for licensed agricultural imports vary between 30X-50%. Thus, licensed imports paying the full tariff (501) and other taxes would be priced out of the market.  - 10