Liberalisation and food security

Changing regimes, chiming challenges
As far as Bangladesh's experiences with reforms are concerned, Dr Nuimuddin Chowdhury, Nasir Farid and Devesh Roy came up with some conclusions which could, possibly, contribute to our food for thought. Mainly three messages emerge from their deliberations drawn upon field level data:(a) advent of new technology (HYV), development of infrastructure and market liberalisation worked in tandem to deliver favourable food security outcomes for Bangladesh; (b) a liberalised trade regime and downsising of government (role in procurement and distribution of inputs and outputs) had favourable impacts on poverty and nutrition and (c) there had been a perceptible increase in the cost-effectiveness of the public foodgrain distribution system (PFDS).

The favourable impacts of TL ( and of HYV and infrastructure) are transmitted through growth of outputs, market size, the size of private stocks, the emergence of two peak harvest seasonality, and finally the declining real rice prices. For example, in 1950/51, Bangladesh's rice production per capita was only 60 per cent of 2000 and the seasonal spread in rice price was greater than 40 per cent. The authors also pointed out the positive role of the private sector in relieving the nation of the reeling rice sector. The favourable supply performance has been due to a fairly rapid expansion in the size of market. “Between 1980 and 2003, the size of the markets has grown by 10 million tons. During the same period, the nominal price per ton has risen by Tk.

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6110. As a rough approximation, in value terms, the market has grown by Tk.61.1 billion. In 2003, the total number of farms in Bangladesh was estimated to be 13 million. This translates to a per farm expansion in value terms equal to Tk.6000 at average price prevailing during the last 20 years. This was bound to provide a powerful stimulus towards rice's commercialisation”.

Growing farm surpluses created a new breed of traders to channel surpluses to the market. In 1990, for example, farmers sold two-thirds of their marketed output at the farm gate through marketing agents -- operating with little personal capital but helped by informal credit channels, at times most labour intensive and require no government initiatives. There is no evidence of distress selling of surplus rice as there is no evidence of rent seeking in loan markets.

Nuimuddin Chowdhury and co-authors also discuss market integration which I personally would like to dub as a siren sign of food security. Various empirical studies point to a perfect market integration where a price increase in one market leads to an equivalent effect in another. The authors notice a “marketing revolution” in the volume of private stocks, narrowed period of temporal arbitrage among rice traders and a widening of marketing outreach for average arbitrager. Per capita private rice stocks roughly doubled between 1960s and early 1990s. In absolute terms, private rice stocks have grown faster, particularly since the late 1980s. During the early 1990s, in the post-harvest months of January and June, private rice stocks alone exceeded total government food grain stock by a factor of five. On farm stocks account for about 75 per cent of all holdings, while trade stocks account for the remainder.

Two important observations need to be highlighted here. First, by 1990, the marketing of rice had turned out to be fairly even across classes of farms and across months in the market year. Second, there is no evidence of distress selling by the farmers reflected by the fact that the percentage sold in months away from main harvest months have not fallen sharply. “The clear implication is that growing rice in Bangladesh had become a profitable business and that marginal and small farmers have been included in this propitious development”.

That leaving the food imports to private sector is not always a curse, but may be blessing sometimes, is forestalled by the rice imports by private sector over the years. Interestingly, large proportion of the Letter of Credit (L/C) opened by private importers is small in amount of less than 500 MT. The largest 10 traders imported 16 percent of the total imports during 1994 and 1998. "The structure of the rice import trade was atomistic, with very little real possibility favouring existence of price collusion among so many importers”. With this kind of experience one can, perhaps, wonder why the government till now sits on sugar or other food item imports.

Food security
The results of the policies outlined above have been an increase in per capita availability of food grain in the post-liberalisation phase averaging 165.2 kgs, compared to pre-liberalisation mark of 158 kgs. Further, variability in consumption went down between these comparable periods. The distribution of rice intake increased for the bottom 40 per cent while it decreased for the top 20 per cent. The private sector has been relatively more cost effective in delivery of food grains compared to the public sector over the years. The real prices of rice over the years depicted a downward trend in the study periods implying enhancement of entitlements for the poor. The authors, however, note that a full blown liberalisation might hurt the poor segment for the society but the rich might benefit.

Comments and questions
The authors' period of bench mark for liberalisation seems to shift from time to time. Sometimes it is 1993/94, sometimes before 1990s thus creating confusion in assessing the impact of TL on FS. Second, as the authors themselves argued, advent of HYV and development in infrastructure along with liberalization resulted in the positive outcomes outlined. And finally, it is the economic growth from trade liberalisation -- mostly in manufacturing, services and construction that affected real wages positively -- that went to improve FS.

That is, however, not to deny the facts that those successive policies of de-regulation and privatisation of agricultural input and output markets paved ways for a prosperous agriculture in Bangladesh. The growth of production and exports of horticultural products and agro-processing -- as a result of liberalisation -- could be an eye opener in any discourse on TL and FS. Bangladesh's experience could also be a lesson for neighbouring countries where food distribution till now is mostly a game of the government.

Abdul Bayes is a Professor of Economics at Jahangirnagar University.