Issues and Concerns in Formulating Policies for Agricultural Sector: Bangladesh Perspective

Thoughts on Economics 1

Thoughts on Economics

Vol. 23, No. 01

Issues and Concerns in Formulating Policies for Agricultural Sector: Bangladesh Perspective

Tahmina Rahman

Abstract

In agriculture with the passage of time, a number of policies have been developed. But policymakers are still confronted with some very recent and previously unsolved problems like growing population, declining food supply, dwindling of agricultural resources and climate change. For sustainable solutions of these problems there is no way but to go for suitable and targeted agricultural policies. This paper highlights the existing policies, identifies agriculture-related problems, and makes some recommendations to solve these problems. Some of the recommendations are to reduce rice monoculture and diversify production, increase the coverage of inclusive business and meet the farmers’ seasonal financing need.

Key words: Food Security, Agricultural Policies, Commodity Market, Market Imperfections, Climate Change.

1. Background and Objective of the Study

According to Bangladesh Bureau of Statistics (BBS), the contribution of agriculture sector was 20.01% in GDP for the FY 2010-11[1]. This share was19.29% in 2011-12.[2] Considering the sector’s importance in the national economy, policymakers and planners constantly need to review all prevailing policies pertaining to this sector and, when necessary, revise them for its sustained development.

In agriculture, a number of polices have been developed overtime, but policymakers are still confronted with for some very recent and previously unsolved problems. These include growing population, decline in the capacity to supply food to keep up with population growth, ecological stress of dwindling agricultural resources, such as conversion of agricultural land to roads and industry, scarcity of water resources, environmental stress due to climate change etc. To handle these problems with sustainable solution there is no way but to go for suitable and targeted agricultural policies.Relevant policies in this regard include the provision of different types of subsidies to producers and/or consumers; the promotion of industries like commercial livestock farms; manufacture of corn flour, corn flakes, corn oil, starch; etc. These are key areas where it is necessary to develop and implement agricultural policies for ensuring efficient utilization of national resources to their fullest extent. Fundamentally, the justification for agricultural policy arises from two sets of circumstances. Firstly, it is necessary to correct the imperfections and distortions in the existing system of marketing. Secondly, there is the need to provide necessary infrastructure, both physical and institutional, for improvements in marketing in particular, and agricultural development in general. Government intervention sometimes becomes necessary to remove the prevailing distortions, so that marketing and price policy objectives can be achieved in better ways. In developing countries like Bangladesh, the prime objective of agricultural marketing policy is to stimulate production, create new demand dimensions, avoid unnecessary price fluctuations, and put in place cost effective mechanisms of marketing and distribution. In theory and practice these objectives cannot be kept completely distinct as they have both complementary and competing relationships with each other (Hossain M. 1991). Thus, as documented in the Sixth Five Year Plan, FY 2011-FY 2015, agricultural growth in Bangladesh accelerated from less than2.0% per year during the first two decades after independence to around 3.0% during the last decade, but the country had been facing persistent challenges in achieving food security. This is mainly due to natural disasters and fluctuations in food prices in the volatile international market for basic food items.

These challenges are observed more intensely in developing countries. So, any strategy for agricultural development, however carefully formulated, cannot go very far without the precondition of an well-organized marketing system, which includes adequate physical facilities for the economical handling of the produces and the institutional and legal support for orderly transactions through some policy initiatives, and, if necessary, through reformation of existing policies. Positive reform agenda should be primarily on the issues relating to market failures, and only after that the reforms should tackle the remaining issues. Policies that address market failures also have an impact on farm incomes. So the optimal level of intervention of each policy instrument should consider both market failure and farm incomes.

In this backdrop, the objective of this paper is to highlight the existing policies in agriculture along with their shortcomings, and put forth some recommendations for improved policy making in the sector. The success of agricultural policies to a large extent depends upon the timely undertaking of required policies and their successful implementation. With that in mind, this paper seeks to identify the existing and recent agricultural policy initiatives in Bangladesh, detect the problems after evaluating these policy initiatives and formulate some recommendations to address these problems.

In Section 2, the paper discusses some conceptual issues like major policy instruments and their use in influencing agricultural sector growth, problems emanating from market imperfection, role of technology etc. At a theoretical level, the procedure for making policy ina developing country in light of experience of a number of countries is elaborated in that section. Section 3 outlines the major goals of agriculture-related policies developed over the past two decades and budgetary initiatives taken in recent years for the growth of the sector. Section 4 discusses the problems in the agricultural sector and makes some tentative recommendations for their solution. Section 5 concludes.

2. Ingredients of a Desirable Agricultural Policy:

Traditionally the objectives of agricultural policies have evolved with society’s attitude towards agriculture. These objectives might be related to farmers like: achieve an acceptable level of farm income, shrink income variability, and improve competitiveness of the agricultural sector. The opposite side of the objective coin is consumers’ interest. This includes the assurance provision of safe and high quality food at fair prices. The last and major objective of agricultural policies relates to society, which covers the protection of natural environment and biodiversity, preserves cultural landscapes and finally contributes to the social and economic development of rural areas.

Policy Instruments

Agricultural policy instruments are routinely linked with money transfers, such as taxes (a negative transfer), regulation, and a variety of facilitating measures. Which one of these instruments is crucially important to meet objectives depends on the society’s ability to adjust the jumble of inputs and outputs. According to Van Tongeren, F. (2008), taxes and subsidies address prices (of factors of production or of output) and regulation addresses quantities (of factors of production or of output). As a general rule, an optimally chosen instrument would equate the marginal social benefits and marginal social costs.

Policy Ground

Policy can take place at three different levels, e. g., local, national and international. In the USA, different food-security coalitions lead to the creation of Food Policy Councils. These are public entities with strong stakeholder participation dedicated to analyzing food security issues and co-ordinating the actions of diverse public agencies within a given jurisdiction (Pothukuchi & Kaufman 1999, Biehler et al. 1999).

Policy Developing Procedure

Commonly, policy is made through the creation of political will in both the decision-making body and the implementing agencies for a particular jurisdiction. According to Bourque (2005),in an ideal policy environment, the policy-making process would look something like this:

Source: Bourque, M. (2005)

In a perfect world, policy would include all stakeholders at each stage of the process and not just during the implementation stage. In the real world, policy-making is usually exclusive, linear and static (or transitory). Keeping policy-makers engaged throughout the implementation and evaluation stages is also important. The result at the macro level has been the creation of a very centralized international policy-makers’ club like WTO (World Trade Organization), IMF (International Monetary Fund), WB (World Bank), etc. and decentralized and underfunded national and regional implementation agencies (Bello 1998). Because local,city, regional, national and international policy arenas are often intertwined and overlapping, understanding the relationships between distinct policy arenas will help refine advocacy efforts (UNDP 1996).

Market Structure

Optimum market structure (as per Chamberlin (1933), Clodius and Mueller (1961) and Mueller (1959)), at any point of time is conditioned by a host of institutional policies and practices such as relevant laws and regulations and their administration, taxation policies, methods and practices of financing, import and export policies, trading customs and practices, and governmental marketing operation. Market structure is made absolute by changes in such economic factors as production patterns, demand patterns, methods, costs, patterns of transportation, and technological changes in industry. Market structure, according to Schultz (1945), includes all the strategic variables, which control or influence the behavior of different agencies involved in the market. The assumption is that the structure or the organization of the market will determine the conduct of trading firms and ultimately the market performance. As Bain (1944) has aptly pointed out, market structure means all those characteristics of the organization of a market which seem to influencestrategically the nature of competition and pricing within the market.

Market Imperfections and Agricultural Commodity Market Structure

In policy, there should be unrestrained flow of agricultural commodities from surplus to deficit areas and from peak season to lean season of the year. It is in this context that policies, which influence the structure and organization of economic activities in the marketing system, assume critical importance. Mellor (1969) observed that despite competitive conditions facilitated by easy entry and large number of participants and a high degree of market integration there aresubstantial market imperfections in the low income countries.

Objectives of Agricultural Policy

In meeting objectives related to the level and variability of farm income, reducing market imperfections has long been a central concern of agricultural policies. The conventional policy instrument is market price support. Market price support policies typically create a false sense of competitiveness by raising domestic prices to such levels that even inefficient producers are able to earn sufficient market receipts to survive. Policy makers may be concerned about competitiveness from structural adjustments and policy reforms point of view.

Technology in Agriculture:

In reaching out the agricultural objectives successfully it is inevitable to incorporate the technological attachment in all phases of agricultural activities. Technology[3]can maximize returns from factors of production if used correctly. Agricultural technology is the tools and machinery that are used primarily or entirely in order to support agricultural enterprises. Examples include plows, threshers, and irrigation systems. These forms of technology, which are all regularly used in modern agricultural settings, have a long history in farming and have been reinvented and redesigned many times over. In the route of agricultural history, there have been improvements in technology, which have greatly changed the ways in which certain types of crops are grown. There are different types of agricultural technology for different kinds of farms. The machinery required to successfully run a large-scale farm is much different than that required to run a small one. There are regular innovations, alterations, and improvements to the technology, which need to be available to farmers through required level of policy support. As advancement marches on, there are more and more changes to agricultural, both in product and process, technology. So the current and available technology is regularly being changed so that it can be more precise in its functions and can perform more complex functions.

Different Country Experiences

During 2006-08, a number of policy measures and major changes to existing policies were introduced in each of the seven economies as follows:

Table 1: Policy measures taken by governments to reduce the impact of higher food prices:

Source: OECD Secretariat, 2008. The table structure is based on that developed by the FAO Global Information and Early Warning System (GIEWS) on food and agriculture.

3. Agricultural Sector in Bangladesh

The economy of Bangladesh is predominantly agricultural[4]. Since the birth of Bangladesh, the country has achieved an incredible growth in food production and reached near self-sufficiency by the year 1990. About 80 percent of the total population live in rural areas, and 62 percent of them are directly, and others are indirectly engaged in a wide range of agricultural activities (

Agricultural Marketing Policy of the Government

The basic agricultural marketing policy of the Government of Bangladesh in recent years has been to promote free play of market forces indetermining the prices, remove controls and regulations, and encourage larger participation of the private sector and provide reasonable facilities for its proper performance.

Objectives of GoB Policies

According to ‘A Synthesis of Agricultural Policies in Bangladesh’ (2006), side by side with the private sector, the government operates public sector agencies and policies with the following objectives:

1)Operating price support measures in respect of selected crops to ensure fair returns to the farmers to sustain the tempo of increased production;

2)Maintaining security food reserve and buffer stock of food- grains/fertilizers to stabilize the price;

Operating Public sector Food Distribution Systemto maintain thefood grain

price within the reach of the common man;

Matrix of Agricultural Expenditures

Different policy/ strategy relevant to broad agriculture and rural development in Bangladesh can be classified in three sub-categories- crops, noncrops and cross cutting policies (Table 2).

Table 2: Non-development and Development Expenditure (in Crore Taka)

Source: Ministry of Finance (MoF).

Different Major Agricultural Policies:

1) The National Food Policy (NFP, 2006) : The National Food Policyapproved by the Cabinet in August 2006was formulated by the Ministry of Food and Disaster Management in coordination with partner ministries, development partners and NGOs. It represents an unprecedented effort to consolidate and harmonize existing policy frameworks and actions for addressing food security challenges in all their dimensions (food availability, access to food and nutrition/utilization of food), whilst addressing emerging issues. The objectives of NFP, 2006 were later incorporated in theNational Food Policy Plan of Action (2008-2015).The Plan of Action of the National Food Policy (2006) has been developed by four Thematic Research Teams under the leadership of the Food Policy Working Group with the concurrence and leadership of the Ministry of Food and Disaster Management, Food Planning and Monitoring Unit, and the technical support of the FAO National Food Policy Capacity Strengthening Programme.