The agricultural policy regime went through major changes over the last four decades. Such positive policy changes produced dramatic results in terms of food grain output, nutritional status etc. A recent paper by Dr Mahabub Hossain has summarised those that hold immense historical value as well as importance for setting a stage for future policy actions.
In the early 1960s, the erstwhile Pakistan government launched a 'grow-more-food campaign' with a package of policies and institutional development. The then East Pakistan Agricultural Development Corporation (EPADC, now BADC) was established in 1961 and was entrusted with the monopoly of procurement and distribution of seeds, fertilisers and small-scale irrigation equipment. A Master Plan was prepared for water resource development and the Bangladesh Water Development Board (BWDB) was established for implementing it.
Modern agricultural technology was introduced in the 1960s with heavy public sector involvement in the procurement and distribution of modern agricultural inputs and investment for water resource development. The BADC established complete monopoly over the procurement and marketing of chemical fertilisers. Sales centres were established at the local level for distribution of fertilisers to farmers at highly subsidised prices. The BWDB was established to implement large-scale flood control, irrigation and drainage projects. During 1960s and 1970s, nearly a half of the agricultural development budget in the public sector was allocated for water resource development.
Many of the policies were reversed, beginning in late 1970s. In a move to privatise marketing of chemical fertilisers, the BADC closed its Thana Sales Centres and wholesale traders were allowed to lift fertilisers directly from factories under the public sector. At the beginning in July, 1989, the government allowed private traders to lift imported fertilisers directly from vessels in the port. The deregulation in fertiliser marketing was completed in December, 1992 when the ban on private sector import of fertiliser was removed.
The government started phasing out subsidies on fertiliser from the beginning of mid-1970s. Successive reduction of subsidy brought about a 15-fold increase in fertiliser prices during the 1972-1984 period. The rate of subsidy was eliminated for urea, and was reduced to 30 per cent and 27 per cent respectively for phosphate and potash. The share of fertiliser subsidy in the agricultural development budget came down from 28 per cent to 14 per cent within this period. The subsidies on the non-urea fertilisers were completely eliminated in 1992 when the private sector was allowed to import them.
At the inception of modern irrigation in the late 1950s, the government placed exclusive emphasis on large-scale surface water development projects. The projects, however, had long gestation periods, suffered from difficult management problems regarding operation and maintenance, and were unpopular with farmers because of the use of scarce land (acquired from households with inadequate compensation) in the distribution canals. Over time, the government shifted emphasis on small-scale projects, fielding power pumps to lift surface water and deep tube-wells for extraction of ground water.
During the1960s, the EPADC had the monopoly to procure and maintain irrigation pumps and installation of tube-wells. It used to rent the pumps on a seasonal basis to irrigation cooperatives by charging a flat fee. In the 1970s, farmers' cooperatives were given responsibility for the operation and maintenance of the equipment. The system continued till 1979, when the government decided to go for privatisation of the BADC-owned equipment in stages. By 1983, some 43 per cent of the BADC-owned low-lift pumps and deep tube-wells were transferred to the private sector.
In the early 1980s, the private sector was allowed to import and trade in shallow tube-wells, as the government realised that it was an appropriate irrigation technology for the small and scattered holdings in the country. But importers had to follow requirements of standardisation (specific construction and models) stipulated by the government and their placement was subjected to regulations regarding the minimum distance between two tube-wells, and the geographical area that were suitable for shallow tube-well irrigation. Following implementation of trade liberalisation reforms under the structural adjustment policies, the government allowed in 1986 private sector import of diesel engines with 50 per cent import duty. In late 1988, the government eliminated duties on diesel engines, withdrew standardisation requirements and allowed imports of agricultural machinery without government permits. The import duties were re-imposed in the early 1990s but the rates were much lower than that of the mid-1980s.
The privatisation in irrigation equipment contributed to a) mobilisation of private savings for investment in irrigation, b) elimination of delays in installation of equipment and repair and maintenance, 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 capacity utilisation of the machines. With unrestricted private sector import, farmers realised lower prices for minor irrigation equipment by choosing low-cost source for pumps and motors, and using plastic pipes in place of metallic ones for installation. After privatisation, the cost of installation of a shallow tube-well fell by nearly 40 per cent. With the reduction in prices, medium and small farmers could afford investment that was financed mostly with own savings. A market for repair and maintenance facilities for irrigation and other agricultural machinery developed.
During the period of large-scale expansion of the private water market, irrigation charge paid by farmers increased at a slower rate than inflation. The water charge is now more dependent on the diesel prices set by the government than on the monopoly rent charged by owners of irrigation machine.
The withdrawal of subsidies from chemical fertilisers has increased the real cost of the input to farmers. But, because of high profitability in the cultivation of modern varieties compared to the traditional varieties, the increase in price did not depress the demand for fertilisers. Indeed, the demand continued to grow at almost 10 per cent a year in the 1980s, the period of withdrawal of subsidies.
A positive effect of the withdrawal of subsidy is that fertiliser is now freely available. Subsidy makes the supply of input dependent on the amount of funds allocated from the government budget. If the size of the fertiliser market depends on government subsidy, the supply of the input would be rationed, and the scarcity in the market would give impetus to political interference in the distribution process, leading to rent seeking and higher cost to farmers.
Scarcity of urea fertiliser, however, occurred in 1994 due to shortage of supply as the government could not assess the excess demand from rapid increase in Boro area caused by highly favourable rice prices. It resulted in farmers' discontent and revolts. When the Awami League government took over power in 1996, it reintroduced subsidy in fertilisers and set up a committee to oversee the market situation and plan fertiliser supply. The subsidies on fertiliser continued to increase since then, irrespective of political party in power. The subsidy now accounts for three-fourths of the public expenditure for the crop sector.
Prior to 1993, there was a ban on private sector import of rice. The government used to import rice and wheat directly to build up stocks for operation of a Public Foodgrain Distribution System (PFDS). As India emerged as a food exporting country, the government decided to reduce the stock holding and eliminated ban on private sector import of rice for elimination of delays in government procurement and to address the negative public perception of alleged rent seeking in public sector imports.
The positive effect of privatisation in international trade in food grain was demonstrated in efficiently managing the price stability after the disastrous flood of 1998. Later, it was decided to run the remaining public sector import of food grains and fertilisers through the private sector. The policy, however, failed to work during the 2007-08 food crisis.
When the prices in the international market are on a rising trend, the delay in the tendering process provides disincentives to the private sector to participate in import of food. The government had to step in to directly import food through government-to-government contracts.
The writer is a Professor of Economics at Jahangirnagar University. [email protected]
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