Bangladesh's agricultural policies evolved in the last four decades 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 the public sector was involved in production and marketing of everything.
Unfortunately, heavy involvement of the public sector in production, marketing and distribution did little good to the economy; rather it gave rise to inefficiency and rent-seeking practices. As a result, the door for private sector investment opened up and the agricultural sector eventually came 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 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 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 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 the unfamiliar input among farmers. It was 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 the BADC controlled marketing of fertilisers, 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. This favoured those who could afford to pay high prices in the market.
The government started deregulating the fertiliser market and phasing out of subsidies on the input since late 1970s. By late 1980s, subsidy was eliminated for urea that was produced mostly domestically and the rate of subsidy was reduced to 30 and 27 per cent respectively for phosphate and potash, which were mostly imported. The subsidy on imported fertilisers was eliminated from December 1992 with the removal on ban on private sector import of fertilisers. Since then, prices of phosphate and potash in domestic market have 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 their real cost to farmers, particularly for phosphate and potash. But because of high profitability in the cultivation of modern varieties (MVs) compared to transplanted varieties (TVs), the increase in price did not depress the demand for fertilisers significantly. Indeed, total fertiliser consumption continued to grow until the mid-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. These have been successful in protecting 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 machineries, 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 the farmers experienced earlier due to bureaucratic red tape and rent seeking in the public sector, c) increased competition in water market leading to a decline in water charges, and d) expansion in the capacity utilisation of 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 reported operation of about 800,700 shallow tube wells irrigating 2.75 million ha of land, about two-thirds of MV area cultivated in the dry season. Another 0.58 million ha was irrigated by deep tube wells. The area irrigated by modern methods reached 4.67 million ha, about 58 per cent of the cultivated area. The development of irrigation facilities is the main contributing factor behind the expansion of MVs in the dry season.
The writer is a former Professor of Economics at Jahangirnagar University. abdul.bayes@brac.net
abdulbayes@yahoo.com
Changing agricultural policies
Abdul Bayes | Published: June 06, 2017 00:00:00 | Updated: February 01, 2018 00:00:00
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