Changing structure of farm economy

Bangladesh agriculture is dominated by crop production that presently accounts for some 60 per cent of the sectoral value-added. Within crop production, rice is dominant (around 60 per cent of crop sector value-added). In many ways, Bangladesh can still be regarded as a rice economy and its production and prices play a major role in domestic policy making. Despite the dominance of rice, the structure of agriculture has changed slowly with some gains mainly for fisheries. Livestock has remained virtually stagnant, while forestry products have registered a small gain.
The intense policy focus on rice has paid off well in terms of a rapid growth in rice production since independence. Absence of natural disasters and other weather-related mishaps, Bangladesh today is self-sufficient in rice production. This is indeed a remarkable achievement and has made a major contribution towards achieving food security. Many policies, including adoption of the seed-fertiliser technology, provision of irrigation, farm extension, research and development and public subsidies on fertiliser and water, contributed to this progress.
TOWARDS AN INDUSTRIAL ECONOMY: Both historical and cross-country evidences show that the prospects of rapid growth with extensive job creation require a high-performing and diversified manufacturing sector which will remain, for some time to come, the main driver of growth in Bangladesh. But there is an ever-changing global landscape in which development of manufacturing sector takes place.
Four distinct phenomena characterise the global setting: (a) globalisation and greater trade openness, which have resulted in greater integration of the Bangladesh economy with the global economy, an integration that has yielded many benefits but also poses many challenges; (b) to be globally competitive, a high-performing manufacturing sector must reach a high level of industrial sophistication meeting internationally recognised standards of product quality within a compliant production environment; (c) technology has emerged as the key resource and input for industrial growth and development; and (d) fragmentation of production and vertical integration across countries through trade in intermediate goods are fast becoming the dominant trading patterns. It is in this backdrop that Bangladesh would need to transform its manufacturing sector into a more vibrant, diversified, dynamic, and competitive industry ready to seize opportunities in the global marketplace and cope with emerging challenges.
In the earlier stages, the performance of the industry sector was constrained by the dominance of poor-performing nationalised enterprises, inward-looking trade policies and inadequate private investment due to poor incentive structure. But in the last few years, as the Table 5 suggests, the scenario has changed. Agriculture is losing its share to industry continuously in last ten years and volatility in agricultural growth also appeared as a disturbing concern.

The average growth rate of industry is still in single digit but hovering around 9.0 per cent in the last decade while there is also surprising growth in services sector. To achieve the Sixth Plan's targets of transforming the economy with higher growth rate, industrial growth rate needs to be boosted to double-digit levels. The promotion of small enterprises in rural areas needs to be a major strategic element for creating higher income and employment in the rural economy, which is critical for sustained poverty reduction.
Bangladesh can concentrate its development efforts on promoting labour-intensive manufacturing exports based on the rationale that it has a relatively abundant labour endowment that gives it a cost advantage in labour-intensive products.  The experience with the ready-made garments (RMG) sector seems to support both the points.  
On the other hand, the services sector has been the most important contributor to growth acceleration in the last few decades in Bangladesh. In the recent years, services' growth hovered between 5-6 per cent which was lower than the GDP growth and the share was also unchanged around 55 per cent of the economy.
The strategic review of policies for transforming the Bangladesh economy, especially the manufacturing sector, raises a number of cross-cutting sectoral linkages that need reform.  These include trade policy reforms to reduce the anti-export bias in trade, reforms of the financial sector to improve access and reduce cost of finance, improvement in infrastructure, and development of skills. Infrastructure includes power and energy sector, which requires special attention for transforming the economy.
Adequate provision of power and energy only can ensure continued expansion of small, medium and micro enterprises throughout the country and that in turn will exert a pull effect of labour demand from agricultural sector and help raise agricultural wages required for improvement in livelihoods.
CHANGING FARM ECONOMY: Bangladesh has been experiencing a changing farm economy due to rapid emergence of tenant farming, share cropping and small/marginal farmers in the farm sector rather than an emergence of large farming which has been thought very usual for capitalist expansion of an economy.
It is apparent that a small holder/peasant agriculture (particularly crop sub-sector) will persist for a long time to come. As a result, middlemen trading class and itinerant trading class with agricultural inputs and outputs trading will also exist. As the land distribution is very uneven and most of the farmers are functionally landless and a very small percentage of the large farmers possess big portion of the land who are mostly absentee land owners, small/marginal farmers often lack cash capital, inputs, machineries and low bargaining power to market produces with fair prices. Forming farmers' cooperative can empower the farmers accessing vital inputs and capital in time if they can plan ahead.
Regarding the utilisation of labour in farming, it is important to use unemployed and under-employed family labour very efficiently either through forming cooperative/large farming groups or being employed in large agricultural or processing farms operating in the area. Half of the labour utilised by landless farmers is female. The percentage of female labour decreases as the size of the farm increases. In respect to the household economy, the income of cooperative households can be increased substantially than that of the non-cooperative households.
On the other hand, the excess labourers who are involved in tenancy need to be mobilised toward industry for better livelihood. This improvement in income is possible if the latent potential of the labour can be utilised both by the large farms/cooperatives and the government with its policy and financial support. We can expect that the expansion of large farms operating in rural areas and cooperatives of small farms in agriculture may play a catalectic role for industrial transformation of rural agrarian economy. State agricultural services should be made available as much as possible to the vicinity of the small marginal farmers' doorsteps centring on union complexes.  

SME A TOOL FOR TRANSFORMATION: SMEs (small and medium enterprises) in Bangladesh have not yet played their potential role in boosting manufacturing growth. A UNIDO (2005) study revealed that SMEs are important for economies in transition from an agriculture-led to an industrial economic system. The rationale is that such SMEs may provide opportunities for value-added agro processing activities and in the process generate sustainable livelihood for many. UNCTAD (2001) highlights the role SMEs played in the development of the leading Asian economies. The report suggests that the growth-oriented medium-sized enterprises had a penchant to adopt modern technology and training and to serve very specialised niche markets in small holder agriculture.  
Cross-country experiences reveal the potential of SMEs for the development of the manufacturing sector. The potential of SMEs in economic development is best demonstrated by the examples of Japan, Korea, Taiwan, Malaysia and China. SMEs have contributed admirably to employment, investment, value-added and exports in these countries. Importantly, they have played a major role in helping the emergence of a modern manufacturing sector in the concerned countries. The production sharing partnership agreements between large and small enterprises in Japan, Korea and Malaysia suggest a pattern of manufacturing development that merits serious attention of policy makers in developing countries including Bangladesh.
Dr. Shamsul Alam is Member, the General Economics Division, Bangladesh Planning Commission. In preparing this article, research support was provided by Syed
Al Bin Hassan, Assistant Chief, GED, Planning Commission, now on study leave to the CDE,
Williams College, Massachusetts, USA.
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