The Financial Express

Determinants of market orientation

Abdul Bayes | Published: February 23, 2016 22:15:04 | Updated: October 25, 2017 02:48:18

Determinants of market orientation
Which factors determine how much of output will go to the market? This is an important question in view of a presumption that generally large farms sell more in the market. And since the poor having small farms are at a subsistence level, they are engaged mostly in production for own consumption and, thus, their participation in the market remains limited. To test the hypotheses, a Multivariate Linear Regression (MLR) for tracing the causal factors was run. 
It has been assumed in the model that marketed output is dependent on a host of factors but important among them are: (a) modern variety (MV) paddy price, (b) Total paddy production, (c) household size, (d) education of household head, (e) proportion of MV paddy area, (f) total land owned by household, (g) good infrastructure, (h) tenancy and (g) ecological conditions. 
The value of the adjusted two years shows that the equation is a good fit. The coefficients in both years have expected signs which show both years' total production emerged as an explanatory factor in marketed supply and the coefficients are highly significant. It means the obvious: marketed supply increases with increase in production. Household size has a negative sign and is highly significant implying that the larger the household size is the higher the consumption need, and hence, lower the marketed output. Marketed output also depends on own land - more land means more sales. Education of household head also influences marketed output and the coefficient is positive and significant. 
Let us now turn to the socio-economic variables that affect market participation. It appears that households with more educated heads sell more paddies in the market. It may so happen that, generally, education of heads is positively related to the size of land and so, both education and land size determine the degree of marketed output. Tenancy has the expected negative sign and the coefficient is significant. It means, tenants sell relatively less as they have to shed a part of the output to the owners of land, with less left for market after meeting home consumption. 
The discussions we have made so far centred around marketed surplus. This kind of analysis does not take into cognisance the estimates on the consumption needs of households. This means, selling more in the market does not imply that market orientation enhances overall welfare of the household. It may so happen that at a certain point of time, they sell paddy in the market whereas they buy back the commodity another time for consumption purposes. It is, therefore, imperative to look at the situation from the point of view of marketable surplus to reveal households' net food situation. 
First, available evidences tend to show that about 14 per cent of sample households - owning 1.01 ha and above land - account for about half of total paddy produced in the villages whereas, 53 per cent of sample households (owning up to 0.2 ha and who are functionally landless households) appear to supply only one-fifth. In between, the small and the marginal households (owning 0.21 ha to 1.0 ha) supply about 37 per cent. By and large, roughly 56-57 per cent of paddy output comes from small, marginal and landless households, while the rest is contributed by the medium and large farms. From this statistics, the importance of the 'poor' farm households in the production of paddy can be realised.  
Second, when production is pitted against consumption needs of respective households, the emerging scenario becomes a bit different. Households owning above 0.41 ha (one acre) comprise 34 per cent of total households and supply 70 per cent of total output. Basically, they are the 'surplus' farms. On the other hand, deficit farm households are those which own less than 0.4 ha or 100 decimals of land. In other words, only one-thirds of households in rural Bangladesh are net sellers and two-thirds are net buyers. A rise in the price of rice, thus, goes to adversely affect a large chunk of the rural population. 
Third, large land owning group, which controls roughly one-fourths of total output, tends to produce 60 per cent more than its consumption needs and medium farms produce 32 per cent more.   
Again, households belonging to 0.41 ha or less farm size groups are net buyers. They account for 31 per cent of households and about 37 per cent of total output. The non-farm households - mostly urban dwellers of middle and lower income groups - appear to buy almost their entire consumption requirement from the market. Those coming from up to 0.41 farm size group depend on market for purchasing 51 per cent of their consumption requirement.
In terms of poverty groups, we notice that only the solvent group lives with a sigh of relief. It is because they appear to produce about 50 per cent more than their consumption requirements. The vulnerable group seems to be marginally managing with almost a 'break-even' point.  The most disastrous and unfortunate conditions wait for the moderate and the extreme poor, who pervasively depend on the market for 61 and 90 per cent, respectively, for consumption requirement. And finally, for all households, there is a marginal surplus of 4.0 per cent of net output coming to the market, and possibly for feeding the urban population. 
In rural Bangladesh, only 14 per cent of households supply 92 per cent of the surplus to activate markets. This indicates the importance of a remunerative price for rice growers. In other words, rice pricing policy in Bangladesh, as elsewhere, is facing a precarious choice. On the one hand, there is need for low rice prices for the large segment of the population while in the same breath remunerative prices to encourage producers are essential. And finally, the threshold level for household level self-sufficiency seems to be 0.41 ha or one acre of owned land.
The writer is Professor of Economics at Jahangirnagar University. abdulbayes@yahoo.com

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