Transition to an industrial economy

Bangladesh experienced the affect of a global food crisis a few years back (2007-08) that saw a sharp rise in food prices and a decline in the quantity of available food in the world. These are merely a symptom of an increasingly unstable and insecure food system for a developing country like Bangladesh. Reviewing this scenario, like other developing and least developed countries, global economic and research institutions, Bangladesh has emphasised on agriculture for enhancing supply of food, reducing food price and hunger along with ensuring global food security rather than for its simple growth share in the economy.
In the early years after independence, Bangladesh was an agrarian economy in terms of growth sharing and labour employment, within a milieu of low productivity. It was witnessed in Bangladesh agriculture sector that very low agricultural productivity was linked with low wage employment and high poverty rates. In the last two decades, the economy has been transformed towards industry and manufacturing sector as an influencing growth driver, especially towards export-oriented textile and apparel industries. Nevertheless, employment is still having greatest share in agriculture with 43 per cent (Labour Force Survey, 2010). Much of this labour force is employed in low-productivity jobs in smallholder farming characterised by self-employment and temporary contractual wage labour.
Enhancing the wage in agriculture and shifting the excess labour, which is mostly under-employed and unskilled to manufacturing sector, will be a challenge for the economy in the upcoming decades. Agriculture will continue to be important for the country with regard to food security and poverty reduction.


The size of agriculture in GDP (gross domestic product) is progressively shrinking, compensated by industry, though. But agriculture continues to play a critical role in providing food and livelihood for the major segment of the population. Near about 75 per cent people in Bangladesh live in rural areas depending for their livelihood on agriculture which contributes 18 per cent to GDP. At the same time, 43 per cent employment in agriculture makes a mismatch of employment and GDP output share.
Agricultural growth was always far behind the overall growth of the economy (Table-1). The share of agriculture in GDP has been continuously evaded in the last few decades. The BBS latest estimates show the share to be 16 per cent according to the new base year calculation of GDP.
The employment shifted gradually from low-productivity agriculture to formal sector jobs in manufacturing and services. Seventy-seven per cent of agriculture employment of 1974 came down to 43 per cent in 2010 a phenomenal shifting during three and a half decade. Agriculture growth always falls behind the economic growth comparing to the manufacturing which contributing downward movement of agriculture share in the economy. The employment growth in manufacturing and services was higher than employment growth in agriculture. It's a significant advancement for the economy to turn towards industrial economy from an agrarian one.
A study to relate the agriculture and industrial sectors of the Chinese economy in the early nineties reveals that traditional inputs, such as labour, are important to economic development. Capital investment has a tendency of contributing significantly to the growth of industrial sector, but not to the agricultural sector. The foreign trade also makes a significant contribution to economic development and agriculture growth to some extent depends on the industrial growth. In the last two decades after the trade liberalisation and export oriented RMG industry supported growth in Bangladesh suggests the similar condition exists in Bangladesh now as it was in China in the 90s to compare the industrial transformation of the economy. The growth pattern will be such that the growth of the agricultural sector would depend on its industrial growth, but the growth of the industrial sector may not rely largely on the agricultural growth (e.g. ICT, toys, equipment, pharmaceuticals, ship-building etc.).  
SECTORAL PERFORMANCE: Though agriculture of Bangladesh incurred a declining share of national output, but increased modernisation and research and development along with technology up-gradation, sub-sectoral growth of agriculture showed gradual increase. In terms of individual crops, it is rice which dominates the sector - occupying more than three-fourths of cropped area. Significant growth in rice production was achieved since the 1980's with the expansion of ground water irrigation and extensive use of fertiliser and HYV rice. Bangladesh agriculture showed success in terms of production of cereal crops, from 1971 to 2009; Bangladesh achieved highest per capita supply of cereal (rice, wheat and maize) in the world which was 197 kg.
Table-2 shows the agricultural growth and pattern of its contribution towards GDP for the last three decades. In a sub-sectoral segregated data it can be seen that, though the agriculture growth steadily got a boost over the decades, but the sub-sectors had gradual increase with volatility between decades. The agriculture share of GDP came down to 21 per cent in the first decade of new millennium from 31 per cent of early eighties of the last century. Crops and horticulture have been the largest contributor to agricultural GDP since long and decrease of agricultural share in total output was basically due to crop sectors downward contribution, as it was far behind the different sub-sectors and sectoral growths, especially comparing the manufacture sector.
 Transforming Bangladesh's agrarian economy into a modern manufacturing and service-based economy is the main motto of the current five year plan (6th FYP) of the government. The focus on manufacturing does not mean neglect of agriculture in growth aspect.
It is simply recognition of two important points.  First, the rapid expansion of agriculture is limited by the availability of land, which is a fixed factor, and by demand (food tends to have low income elasticity), and second, the increase in average labour productivity will require a strategy to withdraw labour from low productivity agriculture to higher productivity activities in manufacturing and modern services.
Within agriculture there is substantial scope to raise the farm produce yields per hectare and to diversify agriculture from lower valued-added production to higher value-added production.  These improvements will allow farm incomes to rise while also stabilising food prices for urban consumers. This to happen, emphasis should be given on skill-based education and quality improvement in primary and secondary education which will directly contribute to the productivity increase in agriculture sub-sectors.
In the recent years after the worldwide recession with international fuel price and food scarcity shocks from the external economy, the agrarian economy of Bangladesh exhibited a little bit sluggish growth.
Tables 3 and 4 show the growth rate of agriculture and its share in the growth for the last five years. Agricultural growth was continuously falling but there was good jump in FY10 and FY11 which was mainly because of recovering the global economy and a higher price of agricultural output, specifically higher rice price boosted up the production of rice.
But the price fall and low incentive for the farmers in crop production led a downward slide in the rural agrarian economy in previous two-three years. Share of crop in GDP has been decreased by two percentage points in last five years.
Only the fishing subsector appeared promising in the last few years among the agricultural sub-sectors. The share of fishing sub-sector was consistently around 4.0 per cent in the last five years due to a higher growth rate of more than 6.0 per cent, which was higher than the GDP growth rate in last two years. It must be kept in mind that despite the encouraging sub-sector growth rates, especially in the crop sector, agricultural growth cannot be expected to be in the 7-8 per cent range to fuel growth acceleration of the whole economy, but can ensure food and nutrition security along with input support for the main growth driver of manufacturing sector. Forestry and related services should have also grown faster than what it had been achieved.
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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