Agricultural policies

Abdul Bayes | Published: November 02, 2018 21:13:22

Agricultural policies need to respond to changing time. After a long period of dominance by state parastatals in the supply of agricultural inputs and outputs, time was ripe to turn the tide. It is in fact a surprise to see that Bangladesh's agricultural policies have, for the last four decades, evolved in response to changing needs of time. Immediately after independence, as we may recall, policies were formulated keeping in view the strategic role of the public sector. It was a time when public sector was involved with production and marketing of pin to plane. Unfortunately, the heavy engagement of public sector in production, marketing, and distribution did little good to the economy; rather it gave rise to inefficiency and rent-seeking practices. The agricultural-sector policies have opened the door for private sector investments and as we shall see later, the sector could successfully come out of the grip of the public sector. 

The green revolution in rice cultivation was initiated in the late 1960s with heavy public sector investment in the procurement and distribution of modern agricultural inputs, and investment for flood control, drainage and irrigation. The Bangladesh Agriculture Development Corporation (BADC), a parastatal organisation, established complete monopoly over the procurement and marketing of fertilisers, small-scale agricultural equipment, and production and marketing of improved varieties of seeds.  Another parastatal, the Bangladesh Water Development Board was established to implement large-scale water resource development projects.  During the 1960s and 1970s nearly a half of the public sector agricultural development budget was allocated for operation of these two parastatal organisations.

 Chemical fertilisers were marketed with heavy subsidies in order to promote an unfamiliar input among farmers. It is estimated that for urea the rate of subsidy was 58 per cent in 1968/69 and 52 per cent in 1976. With the increase in sales of fertilisers, the subsidy began to put a heavy burden on the government exchequer. By mid-1970s fertiliser subsidy accounted for a third of the public sector agriculture development budget. Since BADC controlled the marketing of fertilizers, its supply became dependent on the amount of subsidy the government could afford. The period was characterised by frequent scarcity in the fertiliser market that gave impetus to political interference in the distribution process leading to rent seeking and higher cost to farmers. The market distributed the scarce supply to those who could afford to pay high prices.

The government started deregulating the fertiliser market and phasing out fertiliser subsidies since the late 1970s. By late 1980s, the rate of subsidy was eliminated for urea that is mostly domestically produced, and was reduced to 30 and 27 per cent respectively for phosphate and potash, which are mostly imported.  The subsidy on imported fertilisers was eliminated from December 1992 with the removal on the ban on private sector import of fertilisers. Since then the prices of phosphate and potash in the domestic market has been moving in line with the prices in the world market. The government however still controls the price of urea, which is produced in factories operated under the public sector.

The withdrawal of subsidies from chemical fertilisers has increased its real cost at farmers' levels particularly for phosphate and potash. But because of high profitability in the cultivation of MVs compared to TVs, the increase in price did not depress the demand significantly. Indeed total fertiliser consumption continued to grow till the mid 1990s, although at the variety level of consumption has declined somewhat in the 1990s. A positive effect of the withdrawal of subsidy is that fertiliser is now freely available. A free and highly competitive market for fertiliser ensures that farmers do not face scarcity during periods of rapid expansion of area under fertiliser-intensive MVs.

The government's earliest approach to the expansion of irrigation facilities was through construction of multi-purpose flood-control, drainage and irrigation projects.  They have been successful in protecting the coastal and river belt areas from floods and saline water intrusion but have played a minor role in irrigation development. The rapid expansion of irrigation began in the early 1980s with the promotion under the private sector of small capacity shallow tube-wells for ground water irrigation.  Beginning in 1986, the government removed ban on private sector imports of agricultural equipment, abolished the standardisation requirement imposed for quality control and easy availability of spare parts, and reduced import duties on agricultural machinery, which led to a substantial reduction in the cost of tube-wells, and development of a market for irrigation services.

The liberalisation of the market for small-scale irrigation equipment contributed to a) mobilisation of private savings for investment in irrigation, b) elimination of delays in installing equipment and for repair and maintenance that farmer experienced earlier due to bureaucratic procedures and rent seeking in the public sector, c) increased competition in the water market leading to a decline in water charges, and d) expansion in the capacity utilization of the machines in years of favourable rice prices. With unrestricted private sector import, farmers realised lower prices for minor irrigation equipment by identifying the low-cost market and using plastic pipes in place of metal pipes for installation.  By early 1989, the cost of installation of shallow tube-wells fell by nearly 40 per cent. With the reduction in prices, medium and small farmers could afford investment for irrigation that was financed mostly with own savings.

The change in policies contributed to rapid expansion of irrigation in the 1990s.  A census of minor irrigation equipment conducted reported operation of about 0.80-0.90 million shallow tube wells irrigating 2.75 m ha of land; about two-thirds of MV area cultivated in the dry season .  Another 0.58 m ha was irrigated by deep tube-wells. The area irrigated by modern methods reached 4.67 m ha , about 58 per cent of the cultivated area. The expansion of irrigation facilities was the main factor behind the expansion of MVs in the dry season.

However, ground water has been getting depleted causing environmental hazard and raising cost of production. The way forward for sustainable agriculture is to look for rain-dependent or less water-prone crops. Agricultural policies should emphasise the growth of crops that require more of surface water. Research and development (R&D) should be directed towards that end, and if necessary, with subsidies.

Abdul Bayes is a former Professor of Economics at Jahangirnagar University.

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