Promoting Agricultural Value Chains:
In the OIC Member Countries
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While tariff measures may protect domestic markets and national production bases, such
restrictive policies may limit the possibilities for farmers to participate in global value chains.
Other countries usually respond to tariff measures with reciprocal arrangements. If not
properly regulated and applied with caution, these measures tend to be detrimental to
economic value creation.
Many of the changes in the geographical distribution of exports of OIC Member Countries can
be attributed to changes in trade costs. According to SESRIC, distance remains the largest
contributor to trade costs. Tariff measures are becoming less important than other policies,
such as investments in transport infrastructure, regional trade agreements and common
currencies.
There is a clear political drive towards increased intra-OIC trade among the 57 Member
Countries which has risen from 15 percent in 2005 to 18.6 percent in 2013 (The Islamic Centre
for Development of Trade, 2015). The official target set by the OIC’s Ten-Year Programme of
Action (TYPOA) anticipates a share of intra-OIC trade of 20 percent by 2015. This increase in
cross-border trade is largely due to improvements in export infrastructure and export
procedures which reduce costs and time of trade operations (The Islamic Centre for
Development of Trade, 2015).
The main products traded among OIC countries are miscellaneous goods (31 percent) and
mineral fields (28 percent), followed by agri-food products on 3rd place with 17 percent.
Agricultural trade among OIC countries thus constitutes 3.2 percent of their total trade
activities.
Box 4. Towards ‘best practice’ policies for value chain development
National policies, in particular economic and trade policies, have a significant influence on the performance of
value chains. The following policies or policy interventions can serve as best practices in supporting value
chains.
1) A conducive business environment strongly influences the performance of the private sector and its
ability to create employment and income opportunities for the poor. If, for example, property rights are
not guaranteed or contracts cannot be enforced due to deficiencies in the legal system, entrepreneurs will
reduce inter-firm transactions as much as possible. Traders and small business often work informally as
bureaucratic procedures and costs impede them from registration; yet, this may limit them from
connecting with formally established actors. Policy interventions that encourage transparency and reduce
bureaucracy will contribute to interaction between (potential) value chain actors.
2) Related to this is tax policy. In many developing countries only large corporations pay taxes. The majority
of enterprises, however, are small or micro enterprises that ‘escape’ tax paying. This is not only in their
advantage; being informal also means being excluded from access to legal justice, support programmes
and contracts with formal buyers. To legalize informal firms and make them eligible as supply chain
partners is important to broaden the tax base while keeping taxes for micro and small firms low.
Moreover, tax systems are often based on sales taxes which are levied on the basis of total turnover rather
than value-added taxes. Sales taxes, however, act as a disadvantage to inter-firm specialisation because
they do not allow for deduction of taxes which already been paid at the previous stage of the value chain.
Value added taxes are thus more conducive to inter-firm specialisation.
3) Trade and investment policies are of considerable importance for the linkages between domestic and
foreign markets, as they determine to what extent developing countries benefit from offshoring. When
operating costs are lower elsewhere, enterprises in industrialised countries tend to move activities
offshore. Any location interested in attracting international offshoring investment should guarantee lower
costs in terms of labour, taxes and trading.
4) Export promotion may also facilitate the integration of developing country firms in global supply chains.
Examples of concrete actions are trade fairs, welcoming trade delegations, preferential trade and tax
zones. The level of import tariffs and bureaucratic non-tariff trade barriers, the treatment of foreign