M. A. Taslim
One of the redeeming features of our economic development during the last four decades has been the steady increase in food grain production despite all odds, both natural and man-made. The country barely produced enough food grains to feed the population when it emerged as an independent nation. The total production of food grains (mainly rice) was less than 10 million tons in 1972-73. Scarcity of food, maldistribution and incorrect polices contributed to a devastating famine in 1974 in which tens of thousands of people perished. The famine left an indelible mark on the psyche of the government since then. The attainment of self-sufficiency in food production became a major objective of economic policy notwithstanding the fact that serious doubts were raised if the famine was due mainly to a food shortage (A K Sen). Efforts of successive governments and the hard work of the farmers paid rich dividends; rice production increased by three and half times by 2011-12.
What is remarkable is that this large increase in rice production was achieved with a dwindling supply of cropped land. Bangladesh had a very adverse land-man ratio, which progressively worsened as the population size increased over time. The rising demand for land for new housing, infrastructure and other economic activities gradually encroached on agricultural land. Net cropped area declined at an average annual rate of 0.2 per cent during the post-independence period (Table 1). This could accelerate in future.
In the face of a dwindling supply of cropped land, farmers took to multiple cropping to increase the effective supply of arable land. Gross cropped area increased by 0.6 per cent per annum during this long period.
However, the increase in gross area explains only a small part of the increase in rice production. The greater part was achieved through an increase in the productivity of land. The yield rate of rice increased from 0.34 tons to 0.91 tons per gross cropped acre between 1972-73 and 2010-11. The higher yield was brought about by a rapid diffusion of cultivation of high yield varieties (HYV) of rice and a reduction in the area devoted to low yield local varieties of rice.
The cultivation of HYV crops required controlled water and chemical fertiliser. The privatization of agricultural input marketing at the beginning of 1980s greatly facilitated the spread of mechanised irrigation. Area irrigated increased from paltry 3.0 million acres to 17 million acres. The spread of irrigation permitted widespread dry-season cropping. Since dry season crops were less likely to be damaged by weather conditions or floods, farmers increasingly leaned toward dry season cropping. Over time the importance of dry-season crops outstripped that of rain fed crops in total production.
There was little use of chemical fertiliser in the early years. But the switch to HYV cultivation increased the demand for chemical fertiliser. The use of such fertiliser increased nearly nine-fold. Indeed as early as 2001-02, Bangladesh was the leading chemical fertilizer user in South Asia (Table 2).
The rapid increase in the use of irrigation and chemical fertiliser (together with improved seeds) led to the fairly high rate of increase in rice production of 3.26 per cent per annum. This was much in excess of the average annual increase in population of 1.9 per cent. Thus the per capita availability of rice nearly doubled during this period.
The success of crop agriculture encouraged the government to claim attainment of self-sufficiency in food grain production. However, it is not very clear what really is meant by self-sufficiency. The general tone of discourse would suggest that it implies enough food grain is produced domestically to meet the existing demand for cereals, i.e. there is no need for net import of food grains.
However, a look at agricultural statistics suggests that the country was never really self-sufficient in cereal production; it had to import a substantial fraction of its production to meet the domestic demand. Indeed, the shortage in production (to meet the domestic demand) was the highest last year since the turn of the millennium. The data also show that Bangladesh imported more food grains than what it imported in 2010-11 in only one year (1998-99) during the last four decades. In other words, the demand for food grains more than matched the rising production necessitating greater import.
The demand for food increases due to both an increase in population and an increase in income. In fact the latter is quantitatively more important determinant of the incremental demand than the former. The amount by which demand increases depends on the elasticity of demand with respect to income. In an indigent country such as Bangladesh food elasticity tends to be quite high, perhaps one-half or higher. What it means is that if the income of a household increases by 2.0 per cent the demand for food will increase by at least 1.0 per cent.
The per capita income of Bangladesh has increased by about 5.0 per cent per annum during the first decade of the new millennium. This alone must have raised food demand by about 2.5 per cent per annum. Add to it the rate of population growth of 1.4 per cent and the total food demand would have increased by 3.9 per cent. Disregarding substitution, the demand for the principal food item, cereals, could be expected to have increased at about this rate. However, the average growth in cereal output during this period was only 2.6 per cent, implying that production did not keep pace with the rising demand necessitating greater import of cereals. The cereal output growth was higher during the 1990s (3.6 per cent). Hence, import requirements were lower. The decadal average of cereal import was 2.75 million tons per year during the first decade of the new millennium. It was lower at 2.08 million tons during the 1990s. The import requirement was even lower during the 1980s -- only 1.84 million tons per year. As Chart 1 shows there is a trend increase in the import of cereals during the last three decades. As long as cereal demand rises at least as fast as the growth in production, the absolute food gap will keep on increasing necessitating greater amounts of cereal import. This has been the situation during the past three decades, and it will persist unless the productivity of crop agriculture increases substantially.
Another entrenched belief is that self-sufficiency (or surplus) in food production helps to keep a lid on the food prices, and hence on the general price level. Good harvest may bring down the harvest prices due to market imperfections; but it does not have much impact on the retail prices where the market is more competitive. The gradual integration of the domestic economy with that of the rest of the world through more liberal trade in goods and services has meant that domestic prices are determined less by domestic supply-demand balance and increasingly more by global supply-demand balance. When the domestic balance is fortuitously similar to the global balance (as happened in 2008), the domestic prices spuriously appear to respond to the domestic balance.
In the current environment international prices are passed through to the domestic prices fairly quickly. This is reflected in Chart 2 below. There is very little difference between the domestic and the international price of rice from 2004 onward. It may be recalled that Bangladesh adopted a flexible exchange rate regime in May 2003. Till then there was a gap between the fixed rate and market equilibrium rate resulting in a divergence between the two prices. As the exchange rate moved closer to the equilibrium rate after the adoption of flexible exchange rate, the two prices converged.
The dominance of the international market can be viewed both as a tyranny and an opportunity. Domestic prices can deviate from the international trend over substantial time only at the expense of introducing various market and trade distortions. These may be neither desirable nor feasible as the costs could be very high. However, it is possible to devise policies to profit from the international price movements or to minimise the pains. The government should expend its efforts in this direction rather than in costly experiments to control the market or trade.
Prof M.A. Taslim is Chairman, Department of Economics, Dhaka University.