RESUME EXECUTIF

Les exportations légales des diamants bruts en provenance de la République centrafricaine ont connu une baisse considérable depuis le début de la crise militaro-politique de 2013. Si une certaine proportion a toujours quitté le pays sans suivre la chaîne de traçabilité légale du PK, celle-ci ne représentait pas une partie majeure de la production. En 2018, les exportations légales étaient de 11.526 carats, soit 3% des 365.917 carats exportées en 2012, tandis que la production continue dans toutes les zones diamantifères. En effet, selon une étude scientifique par l’USGS, les cinq (5) zones autorisées par le PK à exporter ont produit 164.000 carats en 2017, soit la moitié de la production nationale estimée à 330.000 carats. Il est donc raisonnable de conclure que l’écart entre les exportations actuelles et la production historique et estimée représente le volume qui quitte le territoire en contrebande.

La contrebande est devenue dominante et implique un large éventail d’acteurs: les acheteurs légaux ne déclarent qu’une partie des achats, les acheteurs illégaux achètent des diamants ouvertement en province comme dans la capitale, les vols internes transportent des diamants depuis des zones contrôlées par des groupes armés, et les réseaux de l’aéroport international facilitent le passage des colis. L’objectif de cette étude n’est pas de cartographier tous les itinéraires de la contrebande, mais une partie importante de la contrebande transitent par le Cameroun via des frontières terrestres et les vols réguliers de Bangui.

L’étude diagnostique visait à recueillir les perspectives des parties prenantes et des experts sur la manière dont la contrebande est devenue largement plus importante que les exportations légales et comment inverser la tendance. Bien que financée par le projet DPAM, l’étude a été réalisée conjointement par les spécialistes du projet, les cadres du Ministère des Mines et de la Géologie et le Secrétariat Permanent du Processus de Kimberley. Cette approche visait non seulement à découvrir les facteurs clés de la contrebande, mais également à créer un consensus au niveau technique sur les stratégies et les changements à prendre en compte par le Gouvernement et les parties prenantes internationales. En tant que telle, l’approche de l’étude visait à contribuer à l’amélioration de l’élaboration des politiques et à identifier les priorités en matière d’engagement extérieur.

Le rapport est organisé autour de trois groupes de facteurs expliquant la situation actuelle. Le premier facteur est les difficultés dans la mise en œuvre du Cadre opérationnel pour la reprise des exportations de diamants bruts de la RCA, adopté par le Processus de Kimberley en 2015. L’objectif du PK avec ce Cadre opérationnel était d’alléger la pression sur la RCA, qui dépendait fortement des diamants pour les recettes et les moyens de subsistance de la population, en permettant une reprise partielle des exportations des zones répondant à certains critères. Cependant, le Cadre opérationnel ne fonctionne pas. Non seulement les diamants provenant de zones sous le contrôle de groupes armés entrent-ils facilement dans la chaîne d’approvisionnement mondiale, mais la chaîne de traçabilité du SCPK s’est effondrée. Cela est dû en partie à une incompatibilité fondamentale entre les exigences du Cadre opérationnel et les réalités de la chaîne d’approvisionnement organisée autour de bureaux d’achat opérant avec des marges serrées et des besoins élevés en fonds de roulement. Toutefois, cette défaillance est également due aux faiblesses institutionnelles qui existaient bien avant la suspension du PK en 2013, mais qui se sont aggravées après la crise.

Le deuxième groupe de facteurs concerne les changements et les dysfonctionnements dans la chaîne d’approvisionnement en diamants bruts. Le Cadre opérationnel du PK est l’une des causes principales de ces dysfonctionnements, notamment en ce qui concerne l’absence de financement et le départ des bureaux d’achat majeurs, mais ce n’est pas le seul problème. Les effets de la violence intercommunautaire dans les régions de l’Ouest, entraînant le déplacement d’acheteurs musulmans au Cameroun, est un facteur qui se fait sentir toujours car plusieurs acheteurs continuent d’acheter depuis l’autre côté.

Il y a également l’effet de la rupture du « tissu social » de la chaîne. La chaîne d’approvisionnement repose sur des relations socio-économiques complexes et des règles non-dites sur les rôles et le partage des bénéfices. Aujourd’hui, le système est marqué par l’aversion au risque, la méfiance et la confusion des rôles. Les artisans miniers sont moins enclins à accepter les marges des assureurs car ils connaissent le «vrai» prix payé par les contrebandiers. En plus, tout le monde est lourdement endetté, donc le peu de financement qui entre dans le système est mal utilisé. De même, les anciens acheteurs des bureaux d’achat ayant accès aux marchés internationaux deviennent des collecteurs. Ils asphyxient ainsi les collecteurs locaux sans accès à l’étranger. Plus généralement, les tendances internationales contribuent à la réduction des marges et à l’évolution des pratiques. L’émergence de l’exploitation aurifère a également une incidence sur la disponibilité de main-d’œuvre pour l’extraction de diamants et a créé de nouveaux défis à relever.

Le troisième groupe de facteurs concerne l’impunité en matière de contrebande et la prévalence d’autres activités illégales et frauduleuses. Bien que la fraude a toujours posé un problème en RCA, elle a atteint un point tournant où elle est devenue quasiment la norme. Plus la contrebande augmente, plus cela devient difficile à la contourner. Avant la crise, au moins une partie des personnes trouvées à l’aéroport de Bangui tentant la contrebande de diamants a été interpellés, grâce en partie aux avantages financiers que tiraient les agents effectuant les saisies. Aujourd’hui, la question se pose de pourquoi aucun contrebandier depuis quelques années n’a subi des conséquences pour ses actions, un fait qui montre l’inefficacité des contrôles et la puissance des réseaux de trafic.

En analysant ces différents facteurs, l’étude diagnostique visait à identifier des solutions pratiques à tous les niveaux. Pour le PK, un débat sérieux devrait avoir lieu sur la viabilité du Cadre opérationnel, en particulier l’obligation de vérifier à distance les colis chaque mois avant l’exportation. En outre, un examen sérieux de l’utilisation des diamants saisis par le gouvernement centrafricain ou d’autres pays est nécessaire sinon la lutte contre la contrebande sera en vain.

Pour le Gouvernement centrafricain, les responsables devraient voir dans le présent moment une opportunité rare pour repenser leur système de chaîne d’approvisionnement, notamment en ce qui concerne la manière dont les artisans miniers sont organisés, les données sont collectées et utilisées et le rôle institutionnel du Secrétariat Permanent du Processus de Kimberley. En ce qui concerne la chaîne d’approvisionnement, des consultations avec les bureaux d’achat et des experts externes sont nécessaires pour réévaluer les redevances et les taxes et l’organisation de la chaîne.

Cependant, aucun changement ne se produira sans le strict minimum en matière d’application des mesures de contrôles et de la répression, notamment à l’aéroport de Bangui, mais également en ce qui concerne les protections accordées aux trafiquants ou aux acteurs semi-industriels illicites opérant en coopérative. Les réseaux de trafic international nécessitent une attention particulière. Néanmoins le point de départ pour renverser la tendance devrait être l’application de la loi par le Gouvernement centrafricain, car tant que des efforts tangibles ne seront pas déployés, la chaîne d’approvisionnement légale restera affaiblie et le Gouvernement ne sera pas crédible dans ses efforts pour amener le PK à lever totalement la suspension.

De manière plus générale, la RCA pourrait bénéficier d’un dialogue approfondi sur le secteur minier, peut-être sous forme des états généraux, surtout en tenant compte de l’Accord de Khartoum et des activités d’extraction semi-industrielle et l’exploitation aurifère qui se développent. Le dialogue contribuera à susciter l’adhésion à la réforme, à générer des idées techniques et surtout à restaurer la confiance dans la chaîne d’approvisionnement, qui, à la fin du compte, ne concerne pas les pierres, mais les personnes – leurs vies, leurs moyens de subsistance et leur bien-être. La contrebande de diamants bruts touche donc des questions fondamentales de la gouvernance en RCA et devrait être considérée comme une priorité et une occasion de contribuer au processus plus large de consolidation de la paix et de relance économique.

Artisanal Mining and Property Rights (USAID AMPR) Task Order Under the Strengthening Tenure and Resource Rights II (STARR II) IDIQ
JUNE 2019

Introduction 

The Artisanal Mining and Property Rights (AMPR) project supports the USAID Land and Urban Office to improve land and resource governance and strengthen property rights for all members of society, especially women. Its purpose is to address land and resource governance challenges in the artisanal and small-scale mining (ASM) sector, using a multidisciplinary approach and incorporating appropriate and applicable evidence and tools. The USAID AMPR project began in September 2018, and will run for 3 to 5 years, conducting most activities in the Central African Republic.

The purpose of Component 4 of the USAID AMPR project is to “Improve USAID Programming through Increased Understanding of Linkages Between ASM and Key Development Issues.” Activity 4.1.1 of the USAID AMPR Annual Work Plan (2018-2019) envisages actions to “Support relevant USAID operating units to assess the link between ASM and development issues.” Like other activities under Component 4, the purpose is to fill gaps and improve programming of USAID Operational Units and other U.S. government agencies as needed.

The USAID Sahel Regional Mission requested USAID AMPR support to conduct a desk review of the Artisanal and Small-scale Gold Mining (ASGM) sector in Burkina Faso. Globally ASGM has been steadily increasing from the 1990s, but the current global boom took off when gold prices spiked in 2011 and 2012. This boom has been especially pronounced in Africa. A recent analysis of UN trade statistics reported the UAE (Dubai) importing 446 tons of gold from Africa in 2016, all of which is almost certainly artisanal.[1] This represents around 15% of worldwide global production from 2016, including gold sourced from industrial mines.[2]

While ASGM offers a crucial livelihood for tens of millions of people in 35 countries[3] it is also associated with numerous challenges including environmental impacts (especially mercury emissions), workplace accidents, child labor, gender-based violence, money laundering and terrorist financing (Hunter 2019). The objective of the present desk review is not to provide a comprehensive analysis of the sector, but rather to assist USAID Sahel Regional to better understand the context and realities surrounding ASGM in Burkina Faso, with an emphasis on lessons and opportunities for constructive donor and private sector engagement.

The consultant carried out an in-depth literature review covering donor reports, academic studies, government documents and news reports (see full list in Annex A). In addition, the consultant identified key informants and completed 12 telephone interviews, in addition to email exchanges with other experts. Stakeholders included government officials, other donors/partners, private mining companies and independent experts (see full list in Annex B). The report’s organization is based on the key questions in the Scope of Work (see Annex C), providing an overview of the ASGM sector, an examination of general and Burkina-specific best practices with respect to ASM formalization and ASM-LSM cohabitation, and challenges and opportunities for donor engagement.

[1] “Gold worth billions smuggled out of Africa.” Reuters. April 24, 2019. https://www.reuters.com/investigates/special-report/gold-africa-smuggling/. The study reviewed the destination of industrial gold, which was mostly exported to Europe or South Africa.
[2] 2016 production was around 3,000 tons, according to the World Gold Council. https://www.gold.org/about-gold/gold-supply/gold-mining/how-much-gold
[3] Source: ILO. See https://www.ilo.org/global/about-the-ilo/newsroom/news/WCMS_007929/lang–en/index.htm

Background and Purpose 

The USAID Artisanal Mining and Property Rights (USAID AMPR) Project’s main purpose is to address land and resource governance challenges around the Artisanal and Small-Scale Mining (ASM) sector. Field activities of USAID AMPR take place mainly in the Central African Republic (CAR), with a primary focus on diamonds and a secondary focus on gold. The project forms part of assistance in implementing the Kimberley Process, the international mechanism that sets rules and norms for the trade in conflict-free rough diamonds. Through its activities USAID AMPR promotes legal, responsible supply chains and strengthens social cohesion in mining areas. The project’s four components are:

1. Support the government of the Central African Republic to improve compliance with the KP requirements to promote legal economic activities
2. Strengthen community resilience, social cohesion and capacity to manage violent conflict in CAR
3. Assess and better understand the opportunities and challenges of establishing responsible artisanal gold supply chains in CAR
4. Improve USAID’s programming through better understanding of links between ASM and major development challenges

As part of Component 4, USAID AMPR provides on-demand short-term technical assistance on development challenges associated with ASM to various USAID Operating Units around the globe, with an emphasis on sub-Saharan Africa.

The Ghana ASGM scoping mission was designed as a Component 4 activity in response to an expression of interest by the U.S. Embassy in Ghana on learning more about best practices and options for engaging with the ASGM sector. The Embassy has followed closely the recently lifted ban on illegal mining and the activities of the Inter-Ministerial Committee on Illegal Mining (IMCIM). In the past two years they have organized several roundtables and seminars related to ASGM, and have dialogued with key actors like the Ghana National Association of Small-Scale Miners (GNASSM). The scoping mission aimed at taking stock of the situation and identifying options for further engagement, either through the USAID AMPR Component 4 mechanism or other means.

In addition, the report responded to a need of the USAID Integrated Land and Resource Governance (ILRG) project which is setting up the Supporting Deforestation-Free Cocoa in Ghana initiative. The initiative is a collaboration with the private sector to rehabilitate small farmer-owned cocoa plantations with an emphasis on tenurial arrangements and land-use planning. A November 2018 evaluation carried out by the USAID Communications, Evidence, and Learning (CEL) project suggested that ASGM, often termed galamsey in Ghana, may affect significantly the long-term prospects of the cocoa economy in the pilot area in Wassa Amenfi West District. These impacts include environmental damage from ASGM but also the potential to undermine investments in cocoa production due to high returns from gold. The ASGM scoping mission therefore was intended to contribute additional information on ASGM for use by ILRG as they prepare for additional field activities.

Methodology and Limitation 

The main methods used were direct observation, key informant interviews and review of relevant literature / documentation. The week-long mission was organized around the following activities:

1. Literature Review. The consultant prepared a partial bibliography of documents (academic literature, project documents, reports) relevant to ASGM in Ghana, especially in cocoa-growing regions, and read these documents to identify key issues and trends.
2. Attendance of the “Africa Conference on Artisanal and Small-Scale Mining and Quarrying” organized by a local professor with Australian government support on the 28th and 29th of March. The consultant gave a presentation on best practices of ASM formalization (see Annex C), observed discourse and dynamics among actors, and held conversations / interviews with conference participants.
3. Field Visit to Wassa Amenfi West District. The consultant traveled to Asankrangwa to interview stakeholders, visit gold mining sites and cocoa-producing villages/towns of Kwabeng, Amoamang, Domeabra, and Sikayeakona. In addition, the consultant visited a gold-mining concession north of Akropong in Wassa Amenfi East District.
4. Key Informant Interviews. The consultant conducted formal and informal stakeholder interviews in Accra, in addition to an out-brief with Maurice Jackson, an Economic Officer at the U.S. Embassy.

The consultant was assisted by an experienced logistician, Mr. René Dogbe, who also had in-depth knowledge of the land tenure dynamics in the communities visited, having worked with the ILRG project previously.

During site visits and key informant interviews, the consultant focused questions around the following:

• Organization of production and trade, both in theory and in practice
• Economics of production and trade, including pre-financing and income streams
• Political economy of ASGM at local and national level including role of elites and foreigners
• Role of customary chiefs and local communities in mining management
• Role of government technical institutions at national and local level
• Perceptions/attitudes of stakeholders about legal and illegal mining
• Environmental impacts, including destruction of cocoa plantations and use of mercury
• Land tenure dynamics, including compensation mechanisms between miners and land owners

The key limitation of the scoping mission was its short duration (2.5 days in the field, 2.5 days in Accra). While an effort was made to learn the maximum amount of information, there was insufficient time to triangulate and nuance findings. The recommendations section identifies areas that merit further in-depth research.

Finally, regarding terminology, this report will avoid using the politically charged term galamsey, generally referring to illegal artisanal miners. Due to the negative connotations of this term, as well as its lack of precision, the more neutral term ASM or ASGM is preferable, except when talking about national policy and discourse on the issue. Using the term ASGM also allows an examination of existing practices irrespective of their legal status or political debates.

In addition, while Ghanaian law lumps together small-scale and artisanal mining, which is common practice, this report will generally differentiate between artisanal and small-scale, even if they often occur in symbiosis. Small-scale mining refers to semi-mechanized or fully mechanized ore extraction and treatment in well-defined concessions owned or operated by relatively wealthy individuals or small companies and in which workers are generally employees. Artisanal mining refers to non-mechanized or semi-mechanized mining by highly mobile self-employed individuals or small groups who are often financed by buyers and often from poorer backgrounds. Mechanized mining includes the use of earth movers and fixed installation wash plants, whereas semi-mechanized includes portable machines like water pumps and small crushers / sluices while relying heavily on manual labor.

Introduction

Objectives

The Artisanal Mining and Property Rights (AMPR) project supports the USAID Land and Urban Office in improving land and resource governance and strengthening property rights for all members of society, especially women. Its specific purpose is to address land and resource governance challenges in the artisanal and small-scale mining (ASM) sector, using a multidisciplinary approach and incorporating appropriate and applicable evidence and tools. The project builds upon activities and lessons from the Property Rights and Artisanal Diamond Development (USAID PRADD) project in its first (2008-2013) and second (2014-2018) generation.

USAID AMPR is structured around four objectives:

• Objective 1: Assist the Government of the Central African Republic to improve compliance with Kimberley Process requirements to promote licit economic opportunities.
• Objective 2: Strengthen community resilience, social cohesion, and response to violent conflict in CAR.
• Objective 3: Increase awareness and understanding of the opportunities and challenges of establishing responsible gold supply chains in CAR.
• Objective 4: Improve USAID programming through increased understanding of linkages between ASM and key development issues.

As part of the project’s component 1, AMPR Activity 1.2.3 intends to pilot a system for taxing diamond revenues for community development. This activity is based on the successful “SODEMI Model” that was supported by PRADD II in Cote d’Ivoire. Under this model, communities organized as cooperatives participate in mine site monitoring  in exchange for taking a percentage of revenue for community-led infrastructure projects.

The central question guiding this research is to enquire whether a model that worked in northern Côte d’Ivoire might be transferred to the southwestern Central African Republic despite very different socio-economic contexts.  With this objective in mind, this study first describes the core  components of the “SODEMI” model, and second, from field information gathering analyzes how the local features of a few preselected southwestern Central African mining communities might respond to these core components from a socio-cultural and economic perspective. From the outset, the author did not expect to suggestion replication of the Ivoirian model, but rather to look at it for inspiration. This said, it is worth noting that in 2013 the Ivoirian diamond economy bore many traits that are common with the Central African economy today, including such features as the absence of a legal chain of custody; an embargo on diamond exports enforced by the Kimberley Process; a strong presence of illegal armed groups in the marketing system; and a contradiction whereby subsurface rights belong by law to the state while in practice these rights are also claimed by local communities.

Finally, it is important to stress that the spirit of the present study was more practical and programmatic than theoretical and legalistic. Its aim was not to design a model of local governance to reform the Central African legislation, but to propose a workable system to be piloted, as an experiment, in one of two local communities where the USAID AMPR project is expected to work in the years to come.

Background

The diamond economy in the Central African Republic has been experiencing an unprecedented crisis since the 2013 political and military crisis. Despite the election of a legitimate government in March 2016 and the redeployment of mining governance structures in the Western mining areas—Kimberley Process Permanent Secretariat, including KP Monitoring Committees or Comités Locaux de Suivi (CLS), Direction d’Appui à la Production Minière (DAPM) and Directions Régionales (DR)—the government does not have much control over the local dynamics of the diamond economy.

One of the dynamics leading to the diamond economy crisis is the sharp fall of artisanal production. Taking into account the official exports and the estimated level of smuggling before 2013, the total average production from 2000 to 2012 was 490,000 carats per year. Most recent studies estimated real production between 330,000 and 360,000 carats in 2018.[1] The number of active artisanal diamond miners (currently estimated at around 35,000 site managers and 270,000 mine diggers throughout the country) fell by one third. One of the direct reasons for this downward production spiral is the issue of pre-financing: only 20% of diamond producers and 50% of gold producers now receive financial support for production, compared with much higher percentages receiving pre-financing prior to 2013. In a local economy that is highly dependent on mining income, this trend presents a serious challenge to the survival and resilience of local communities.[2]

Another dynamic leading to the diamond economy crisis is the unprecedented level of smuggling. While the contraband of diamonds is estimated to have been about 20-40% of production between 1961 and 2012,[3] the illicit chain’s estimated proportion reached 82% of real production in 2017 and 96% in 2018. Good governance alone cannot address such a dramatic situation. Economically, it means that illegal smugglers are more powerful than legal exporters in the competition between the two supply chains. Politically, it creates a conundrum where every attempt to boost local production or to support mining communities in an economic context dominated by smuggling runs the risk of feeding the illegal chain even further.

Therefore, a successful model of decentralized governance of alluvial mining resources should not only seek to promote community development through community-led infrastructure and other local development projects, but also to boost local mineral production and to strengthen the legal chain of custody. The model should seek to support food security and community development, but also inadvertently contribute to smuggling. This perspective led to the following goals for the research:

• Design a system that promotes self-financing. At present, self-financing of artisanal miners seems like the only option given the decline of the traditional pre-financing and commercialization model.
• Design a system that ensures geographic traceability. While strengthening the legal chain clearly needs more than a governance system, an enabling environment based on geographic traceability would make it more difficult for mineral products registered at production to enter the illegal supply chain.

[1]    Dewitt Chirico (2018) for USGS, Pennes (2018) for UNDP/UNICEF.
[2]     The Southwestern mining communities are structurally more dependent on mining income than in other areas of the country: around 75% of the aggregate income of mining households comes from the mine.
[3]     Doko Mazido Yélé (2011), World Bank (2008)

The intent and purpose of the CRL appears to be to recognize the inherent rights of communities over their forest resources, so that they make autonomous decisions about how forest resources are used, in accordance with management and technical standards established by the FDA. In this manner, the collective rights of communities over their forest resources are both recognized and regulated – a delicate balancing act.

The Regulations, in many respects, reflect this. However, there are various provisions within the Regulations that disrupt this equilibrium by awarding the FDA more authority than is envisaged in the CRL. On other occasions, the Regulations establish requirements or prohibitions, which, on their face, contradict what is written in the CRL. These inconsistencies can partly be explained as an attempt to remedy faults in the CRL, belatedly identified, following its passage.

Despite the apparent well-intentioned rationale, these actions are more than likely in contravention of the law. The deficiencies of the CRL cannot, in the majority of cases, be addressed through the promulgation of regulations. Regulations must conform to both the letter and the spirit of the law from which they are developed. The following analysis and recommendations aim to ensure that the Regulations are harmonized with the CRL, and that, where possible, the apparent concerns of the FDA are addressed.

Structure of Report

The report separates the harmonization of the Regulations and CRL into two parts: (1) conceptual inconsistencies between the CRL and the implementing regulations; and (2) operational inconsistencies between the CRL and the implementing regulations. Each inconsistency is identified and explained, followed by recommendations as to how the Regulations could be harmonized with the CRL. Once this has been completed, the report will address (3) inconsistencies between the CRL, Regulations and other laws; (4) inconsistencies within the CRL itself; and (5) provisions within the Regulations that are unclear or ambiguous.

Progress has been made in recent years to develop the legal and policy framework for community-based natural resource management in Liberia. However, as communities assert their rights to mobilize and manage local resources, there will be a large need for foresters, agriculture extension officers, and administrators to help communities realize these goals. In order to assist Liberia in meeting the need for well-trained foresters, USAID Liberia – through the PROSPER program – has provided support since 2012 to Liberia’s Forestry Training Institute (FTI) in Tubmanburg, Bomi County to upgrade its 34-year old curriculum to include community forestry content. As noted in the enclosed Course Description, “The shift in focus from a traditional to a community forestry system in which Liberians play a more active role in managing forests and their associated natural resources demands a different set of skills, knowledge, and attitudes than those currently imparted by FTI.”

The curriculum presented here comprising two courses and ten modules is the culmination of an iterative process of consultation and collaboration between staff and consultants of PROSPER and the management, faculty, and students of the Forestry Training Institute that began with a participatory assessment in December 2012. The process included focus groups with FTI faculty to identify gaps in lecturers’ knowledge related to community forestry curriculum and to assess teaching methods; focus groups with FTI students to determine capacity levels and learning objectives and to solicit input into content; a comprehensive review of available literature on community forestry curricula; development of an FTI website containing more than 200 documents to enhance access to teaching and learning materials for both instructors and students, and training for faculty in participatory teaching methods (see Guide in Annex). The process concluded in November 2013 with FTI’s validation of the draft curriculum. Implementation of the community forestry curriculum will provide FTI students with the theoretical and practical knowledge and skills needed to be effective in the rapidly-evolving forestry and natural resource management sector in Liberia. In particular, it will prepare them to support and implement the processes involved in developing Community Rights Law-compliant community forestry management bodies, management plans, and related activities.

FOR WHOM IS THIS CURRICULUM INTENDED?

This curriculum has been developed for the use by Liberia’s Forestry Training Institute, located in Tubmanburg City west of Monrovia. Established in 1976 as one of two Mano River Union institutes based in Monrovia, Liberia, the FTI has produced mid-level forestry technicians for Liberia as well as its neighboring countries for over 35 years. USAID-PROSPER undertook the preparation of the community forestry curriculum in support of FTI’s five-year Master Plan (2012-2017). The curriculum contributes directly to the attainment of FTI’s Vision which is to be “the leading provider of middle-level personnel trained to promote the sustainable use and management of renewable natural resources to strengthen and improve the Liberian economy and society.”

A “Participatory Teaching Techniques Guide” developed for the FTI faculty is annexed to this document. The guide is provided as a complement to the training organized by PROSPER for the FTI faculty in August 2013.

The development of this curriculum and accompanying teaching techniques guide was led by PROSPER Community Forestry Consultant, Dr. Kenneth Bauer, with the assistance of PROSPER Senior Community Forestry Officer, Dr. Samuel Koffa and Education Advisor, T. Doe Johnson. Technical supervision was provided by Eugene Cole, Leader for Educational Development and Outreach, and Vaneska Litz, Deputy Chief of Party, PROSPER.

The current Ukrainian system of agrarian production is the result of the agriculture sector’s adjustment to actual conditions of quasi-market economy operations in the process of non-systemic reforms. A quasi market is a market form with a latent distribution essence which is characteristic of a command-and-administrative system. Privately owned companies develop strategies which are not oriented toward the market. In fact, they fight with each other for various state resources and use connections within the government to control the competition. In recent years, the control over land resources has been playing a particularly important role in this system of quasi-market relations.

The policy of reviving large scale agriculture production based on former kolkhoz (collective farm) and sovkhoz (soviet farm) models (however, without the social and natural conservation responsibilities) led to development of distorted land lease relationships in the sphere of land use. In Ukraine, land lease relationships are being built in such a way that interests of lessees prevail against those of lessors. For land relation purposes, a formal land owner is subordinate to a lessee acting as the actual land owner. In the process of splitting formerly collectively-owned land into units, the lessees merely usurp land owner’s rights. The actual land owner – the lessee, confronts the formal owner – the peasant, through a recently created system of formal and informal institutions.

This survey, which was conducted in various regions of Ukraine, is devoted to existing opportunities for creating basic conditions for developing the institutional environment which would be favorable for engaging land unit owners in the processes of formulating and implementing agriculture land use policies.

The favorable institutional environment should include the legislative and regulatory frameworks for setting up associations of small land owners / lessors; a network of authorities and organizations that secure their operations and implement legislative initiatives, government policies in this area and stimulate consolidation of efforts to solve land problems of the local level. These activities should also aim at development of a positive attitude of the rural population toward government initiatives in establishing local groups of interaction in exercising land ownership rights.

At the initial phase of the activities covered by this report, the Consultant studied the actual situation with agriculture land use; the degree to which rural residents from various regions of Ukraine are engaged in local land lease market operations; their participation and willingness to participate in the regulation of agriculture land lease relations; landowners’ awareness of land lease agreements and terms and conditions of leases; and landowners’ attitude toward the ability to protect their rights and sale of land plots once the moratorium on the sale/purchase of agriculture land is lifted.

Based on the summarized survey data, the Consultant prepared specific recommendations on further actions.

The Cabinet of Ministers of Ukraine approved a Strategy for agricultural sector development until 2020 in October 2013. This Strategy was prepared by the Ministry of Agrarian Policy and Food (MAPF) as a concept for a new detailed Sector Program to be developed by the Ministry during the next months. The approved strategy often refers to self-regulatory actions by industry associations, such as “delegating some powers with regard to monitoring compliance of agriculture produce with national standards to self-regulatory associations” and “delegating some regulatory powers to self-regulatory associations of agriculture producers and engaging them in development and implementation of government agrarian policies”.

AgroInvest provides assistance to MAPF in sharing international experiences with such self-regulatory mechanisms in other countries. In this report, three objectives are accomplished:

1. A conceptual framework is provided for the analysis of self-regulatory organizations based on the New Institutional Economics, which highlights the role of institutional and organizational design to explain the performance of economies, industries and organizations.
2. Examples of self-regulatory activities of associations/organizations/cooperatives from five countries where self-regulation has been practiced.
3. Lessons learned and policy implications from these examples focusing on the conditions or factors that would make such actions workable or not workable in differing situations.

Based on the conceptual framework provided by the New Institutional Economics and the analysis of the five case studies of self-regulatory organizations described below, we offer the following policy recommendations at three levels of analysis – embeddedness, institutional environment and governance.

Embeddedness

• Individuals will try to get the best outcome from the resources they own. This decision, however, is not free from constraints or incentives. The set of constraints and incentives faced by individuals will determine how they use the available resources and the final outcome of their efforts. These constraints and incentives are found at the levels of embeddedness (i.e., social norms, customs and personal relationships) and the formal “rules of the game” found in the institutional environment.
• Informal rules – such as traditions, customs, and social norms – create a set of constraints to human action that is not necessarily identical to the constraints derived from formal rules. In this sense, creating a new structure of formal incentives – in the form of public policies – demands a full understanding of the informal rules embedded in a given society.
• Successful self-regulatory organizations are seldom created by diktat. Self-regulatory organizations often emerge from voluntary collective action of independent producers and private entities. Whenever individuals or firms decide to interact and coordinate their activities in some form of voluntary collective action, excessive hierarchy precludes the establishment of self-regulatory organizations or weakens their actions.
• Avoiding the risk of “free rider behavior” motivates most – if not all – forms of collective action, including self-regulatory organizations. Informal and formal rules are shaped by participants in order to avoid the appropriation of collective benefits by agents who did not contribute to its creation.
• Most successful self-regulatory organizations are formed and evolve embedded in a dense network of social relations between producer-members. Such social networks provide the social cohesion and trust for these organizations to emerge and design more formal governance rules to mitigate free-riding behavior and other forms of opportunism.

Institutional Environment

• The existence of private property rights enforced by a fair and efficient judicial system fosters the establishment of self-regulatory initiatives.
• Protecting private property rights is necessary. This entails guaranteeing those rights which are established by the State rules and respecting private decisions for the allocation of rights whenever a specific public rule does not exist for an economic sector.
• The State should attempt to eliminate any specific barrier to the right of internal organization by members of self-regulatory organizations. Recognizing the right of producers to organize collectively and providing flexibility in laws and regulations dealing with self-regulatory organizations are important pre-conditions for successful collective action in agriculture.
• The institutional rules may foster the participation of the leaders of self-regulatory initiatives in the political process, by proposing changes in the legislation or suggesting new rules. This initiative, however, has to take into account the diversity of different interest groups in society, creating a competitive system for political ideas. The absence of such competition may open room to inefficient practices and rent-seeking behavior that distort markets and divert economic agents from productive activities.

Governance

• As suggested in the five case studies presented below, there is no unique governance structure for a successful self-regulatory organization.
• These self-regulatory organizations can represent an industry, a regional cluster, a certain form of producer organization or a subset of industry participants. The different types of self-regulatory organizations are described in the examples below.
• The existence of clear boundaries is necessary for the success of self-regulatory organizations. The rules for membership or exclusion of members have to be clear and enforced accordingly.
• Each self-regulatory initiative must create its own rules for the provision and the appropriation of collective goods, which should respect the specificities of its participants and the market where it acts.
• Monitoring costs should be shared among all members of the self-regulatory initiative. The creation of sanction rules that could be efficiently enforced by the participants of the organization reduces organization costs, since it avoids prolonged conflicts. The judicial system should be seen as a credible last resort, used only in extreme cases when the private rules fail to achieve an efficient outcome.

Preparation of this report was preconditioned by the expectation of signing the European Union Association Agreement, including the Deep and Comprehensive Free Trade Area Agreement (DCFTA) between the EU and Ukraine. It was widely believed that the signing of this agreement would prompt the imposing of restrictions on the export of Ukrainian dairy products by the Russian Federation specifically and other Customs Union member countries in general. Despite the current uncertainty with signing of the Association Agreement, numerous aspects of the dairy industry’s development are, and will continue to be, of paramount importance for Ukraine. The most systemic problems must be solved immediately regardless of whatever further steps Ukraine may take toward international economic integration.

The milk market in Ukraine plays a significant role in developing agricultural production, providing employment in rural areas, and generating income for agricultural enterprises and rural citizens as well as enabling the rural population to sustain itself with food products. According to official statistics, milk production in Ukraine is valued at UAH 33 billion per year. As a significant level of this production takes place in households, the milk industry is critically important for securing production performance and the stability of socio-economic conditions in rural areas.

Milk production and processing in Ukraine are characterized by the following trends:

• During the last two years the milk production volumes have stabilized at approximately 11.5 million tons due to two key factors: (1) the state provided subsidies to preserve heifers; (2) productivity of milk production has steadily increased and is expected to approach 5,000 tons per cow per year in 2013.
• Up to 5.7 million tons is consumed in households or sold by households through available marketing channels (i.e. directly from households or through open markets, etc.). As a higher selling price can be obtained through these marketing channels, self-consumption is encouraged over selling the milk to industrial processors who offer a lower price.
• Dairy exports have reached 1 million tons but have demonstrated a downward trend that has been particularly visible after the introduction of trade restrictions by key trade partners of Ukraine.

The percentage of exported produce in the total milk production output is significant and ranges between 7% and 9%. At the same time, the exported produce accounts for 16% to 21% of the total volume of industrial processing. Therefore, it is the processing industry that is highly dependent on the trade regime of export markets. This influence poses a large challenge due to the following:

• In the event of a decrease in export demand, processing enterprises prefer to reduce the volume of milk purchased from households rather than agricultural enterprises. Price reductions for milk from households results in both economic and social consequences.
• Processing enterprises export their products with value added and any potential restriction have significant negative effect on foreign trade balance.
• As a result of the special regime of taxation for milk processing enterprises, VAT from the sales of products by such enterprises is not paid to the budget. It is instead used for subsidies to milk suppliers (50% of VAT amount in 2014) and forming a special fund of the State budget (the remaining 50% of VAT amount). A potential decrease in the volume of milk exported and its industrial processing therefore carries the risk of reducing the volume of cash earnings of the special fund of the State budget, and as a result, contracting the possibilities of the government to finance the development of milk cattle breeding.

In terms of value, the largest share of dairy products exported is cheese. In 2009, the total value of dairy product exports was equal to $285.6 million USD, of which 76% was cheese. Milk and condensed cream accounted for 18% of the export revenues and other types of dairy products accounted for one to three percent in the export structure. Over the five years analyzed, while the volumes of exports of dairy products and their prices have changed, the export cost structure has changed as well. For the first eight months of 2013, $308.1 million USD worth of dairy products was exported. The amount of cheese accounted for in this period has already decreased to 73%. In the last five years, the share of the cost of whey increased from 2% to 9%, and the share of milk and condensed cream decreased to 14%.

Cheese is the most important export product for Ukrainian dairy sector, and the largest share of Ukrainian cheese is delivered to Russia. In 2009, Ukraine exported cheese of all types in the amount of $301 million USD. UAH 250 million of cheese was sold to Russia and accounted for 83% of the cost of all exported cheeses. For the first eight months of 2013, the cost of exported cheese amounted to $195 million USD, which was lower than the indicators of the previous year by 12%, and shows the income obtained from foreign trade in cheese has been declining steadily. In 2013, the share of export of cheese to Russia was equal to 86%; yet dependence on the Russian sales market has increased. This testifies to the limited opportunities for diversification of sales markets.

Russia imposed restrictions on Ukrainian dairy products many times during the recent years. Russia substantiates its restrictions based on its perceived use of palm oil by Ukrainian milk processors (which allegedly export milk containing products under the guise of dairy products), accusations of poor quality Ukrainian cheeses, and criticisms of the Ukrainian food quality and safety system. It should be noted in this connection that Ukraine seeks to harmonize its food safety and quality assurance system with that of the EU whereas Russia insists on harmonization of this system with the Customs Union rules.

The effect of partial restrictions on the export to the Russian Federation can be estimated based on historical experience. The comparison used in this report was based on the assumption that Ukrainian produce competes with Polish produce at the Russian market. During the last 4 years, prices for milk on the Ukrainian market were higher compared to milk prices on the Polish market. Therefore, when imposing trade restrictions on the export of Ukrainian dairy products to Russia, the difference between the prices for Ukrainian milk in comparison to Polish milk should narrow.

The calculation of this effect allows us to make the following conclusions:

1. The discount in procurement prices for milk during the period when Russia applied trade restrictions (from January 2009 through October 2012) is 27 kopecks per kg. This discount has a form of a reduced difference in the price for Ukrainian milk as compared to the price for Polish milk.
2. The effect from reduced premium is less tangible in the period of January 2009 through September 2013. In this case, the premium discount is as small as 11 kopecks per kg. The reduction of cheese exports to levels below the monthly average between October 2012 and September 2013 was due to lower competitiveness of Ukrainian products in the Russian market compared to other countries’ products rather than due to export restrictions under high procurement prices for milk in Ukraine.

Lower competitiveness of Ukrainian products at the Russian markets (inter alia, because prices for milk in Ukraine are higher compared to milk prices in Poland) means that one should not expect milk prices to increase. Another risk factor is a potential increase in dairy product imports to Ukraine. Under such conditions, it is particularly important to improve the performance of milk producers and ensure that they can and do utilize government support measures properly.

Introduction of import duties envisaged by Russia’s commitments to WTO in case of signing the DCFTA remains the main scenario for the Russian Federation. Therefore, if Russian imposes import duties on the entire Ukrainian dairy industry at the level of WTO obligations rather than restrictions on selected enterprises, Ukrainian cheese exporters will have to pay the 20% import duty in Russia in 2014 which will be gradually reduced to 15% in 2016. As Ukrainian milk processors have no other ways to optimize production costs they will have to reduce procurement prices for milk by 20%, thus reducing the average profitability of milk production to zero. In this situation, the milk production sector will no longer be attractive for those who invest or wish to invest in the Ukrainian agricultural sector.

Steps towards neutralizing the negative impact of Russia’s imposition of restrictive measures on Ukrainian dairy products should be subdivided into several key areas.

1. Negotiations with Russia (the Customs Union) on rationalizing restrictive steps. Possible areas for compromise are (a) using tariff barriers only in the case of actual growth in the volume of product exports to the Customs Union market (e.g., in the form of special duties) and (b) improved collaboration in adopting product certificates of origin in order to block the export of products with Ukrainian origin.
2. Prerequisites for possible compensation to economic agents for their losses from the drop in milk prices. One of the key elements of such a policy could involve continuation of the existing (through January 01, 2015) special taxation regime for dairy plants, which would allow dairy companies to (a) set the level of procurement milk prices incorporating a 50% payment of VAT amount to milk suppliers, and (b) receive the remaining 50% of VAT amount for implementing the activities of direct budget support to milk producers at the expense of a special fund in the State budget.
3. Preconditions for self-organization of small players on the milk market, mainly, tool of association of small producers into cooperatives. In Ukraine, unfortunately, the process of setting proper economic preconditions for this, primarily, at the level of taxation, have not been finalized.
4. Diversification of export destinations for dairy produce. Attempts of dairy plants to diversify their markets by entering the promising markets of Asia are met with some specific requirements of this region, in particular, different tastes and consumer traditions. Therefore, expanding the markets is primarily possible through Ukraine’s gaining opportunities of exporting dairy produce to the European Union market. This opportunity is extremely important in the context of the DCFTA with the EU, which would give the Ukrainian producers opportunities for unlimited export of some types of produce to the EU market (e.g., export of cheeses without quotas and import duty).
5. Attracting foreign investors in dairy production who are interested in exporting Ukrainian dairy products to countries of the investors’ origins is a potential means of expanding the existing trade market. A number of investors from Arab countries are ready to develop commercial dairy farms in Ukraine. In so doing, they are also willing to lease agriculture land for fodder production purposes. They, however, face uncertainty with land lease agreements in Ukraine and expect the government to create more favorable conditions by, e.g., signing long-team lease agreements for state- and communally-owned agricultural land. Existing enterprises in Ukraine face similar problems with investment attraction and the execution of long-term state-owned land leases under investment obligations and/or long-term communal-owned land leases under obligations to preserve jobs could be solutions to these problems.
6. Developing a proper enabling regulatory environment. In a situation where the Government has limited capacities for providing financial support to milk producers, development of a proper enabling regulatory environment becomes particularly important. For instance, producers complain on an inappropriate procedure for setting waste disposal standards leading to imposition of financial sanctions by Ukraine’s environmental inspection authorities, delays with issuance of water intake permits, etc. Resolution of these and other similar issues does not require any funding and could improve the business environment in the industry significantly.
7. Developing qualified personnel. Dairy producers face a shortage of qualified staff and, consequently, find it difficult to implement modern production technologies and improve their economic performance. The Government should promote internship programs for faculties from educational and training institutions. There needs to be support of private professional training initiatives at existing enterprises, likely with the engagement of donors and international organizations. Attention should be paid to OECD recommendations on implementing student internship programs similar to those existing in other countries whereby students are enabled to work in enterprises during several months (initially – on a voluntary basis).
8. Focus on public/private development of the dairy sector. The available experience shows that projects in cooperative development and/or development of small holdings up to the medium-sized business level are most successful when they are funded by private investors and/or donors. The synergy from combining funding and consulting will ensure successful implementation of such projects. From the government policy perspective, it is a matter of priority to finance projects where alternative sources of funding exist (processing enterprise, cooperative’s or producer’s own funds, donor’s funds, etc.)

Although most of the above are difficult to implement and take time, they are absolutely essential, even outside the context of possible trade barriers to Ukrainian dairy products on the part of the Russian Federation and the Customs Union. The said risks must become a catalyst for positive changes in both the legislation and dairy business practices in order to bring the industry’s  performance to a new level.

The purpose of this Report is threefold:

1. To assess the ability of Small and Medium Producers (SMP’s) in Ukraine to access financial services from suppliers of credit.
2. To identify constraints that limit SMP’s access to credit, , including constraints that exist within SMP’s themselves, public policy constraints including but not limited to regulations and legislation, primarily Federal (Government of Ukraine) regulations and legislation, and institutional constraints, defined as constraints that exist within and among suppliers of credit.
3. To offer conclusions, as well as make specific recommendations that will serve to improve SMP access to credit in the future.

SMP’s in Ukraine, defined for purposes of this report as farming operations of a size of less than 3,000 Hectares (Has.), currently have very limited access to financial services from Ukrainian suppliers of credit, including but not limited to banks.

As charged by the Scope of Work covering this report, included in Appendix A, this report will cover the following:

• Overall conclusions
• Specific conclusions and discussion of conclusions
• Specific recommendations and discussion of recommendations
• Demand for financial services by SMP’s, including:
  • Estimated unmet demand for financial services for SMP’s broken down by short-term borrowings (less than 12 months); medium-term borrowings (13 months to 5 years); long-term finance (5 years and greater).
  • Credit issues at the SMP level that constrain the ability of SMP’s to obtain access to credit.
• Supply of financial services for SMP’s, including:
  • Institutional barriers that may constrain the ability of suppliers of credit to meet the unmet demand of SMP’s, including but not limited to current financial conditions of banks and other suppliers of credit, and the ability to effectively assess SMP credit
  • Policy and regulatory constraints, mostly but not exclusively, policies and regulations currently promulgated and enforced by the Govt. of Ukraine (GOU) that, singly or collectively, constrain the ability of suppliers of credit to address the unmet demand.