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Wednesday, November 26, 2014

Sunday, July 6, 2008
Editorial

Beneath The Surface

Answer to the arithmetic of an adviser

THERE is a gulf of difference between the two sciences, physics and economics. The former is called pure science and deemed to be deterministic, while the latter is considered as probabilistic to be true under an umbrella of assumptions.

It is not, therefore, surprising that a physicist might see a rise in rice prices at retail level reflected in a concomitant rise in returns for producers operating in remote rural areas. Adviser C.S. Karim's point that the benefits of the hike in rice prices have gone to farmers, hence, they have positively affected rural livelihoods through multiplier effects, could hold true under the strict assumption that nothing stands between the farm and the fork. Unfortunately, that may not be the case.

The missing margin
We fully agree with the hon'ble adviser's point that high prices of farm products, especially of rice, are a boon for boosting agricultural output. In fact, unless producers get a remunerative return from the hard work, output shortage could cause a crisis in the market. And that's why we welcomed the recent rise in the procurement price of paddy with a view to extracting more output from growers. But we also should keep in mind that high prices of rice may not always benefit farmers, certainly not all categories of farmers. The outcome depends on the demand and supply response to price, besides other factors.

Apparently, there are two flaws in the argument that higher price translates into higher income for farmers. First, the difference between farm-gate price and retail price -- called marketing margin -- may be pocketed by the market intermediaries -- traders and hoarders, transport operators, etc. So, high prices may be due to high marketing margin but not due to increased margins for farmers. Second, only those farmers benefit from high prices that have positive net marketable surplus, as opposed to those who sell in distress but buy back more later to meet family needs. We, therefore, need to look at the behaviour of marketable surplus and not of marketed surplus.

Rural rice matrix
In our recently published book, Gramer Manush Grameen Arthonity -- Jibon Jibiker Porjalochona (Abdul Bayes and Mahabub Hossain, 2007), we have presented information about marketable surplus of rice in rural areas. Although related to 2003-04, we reckon that the results would be very close today.

First, let us talk about household level consumption of rice. For all households, simple arithmetic average shows consumption of 1.5 tons of paddy per household per year. For 25 million rural households, total consumption of rice comes to 37.5 million tons of paddy or 25 million tones of milled rice. Second, about one-fourth of rural households have only homestead land, but some of them cultivate paddy by renting in land from others. Their net average production (after paying rent of one-third) is 0.42 tons per household per year (7% of total rice output) against a consumption of 1.33 tons. The deficit of 68% implies that these households buy about two-thirds of their rice requirements from the market.

Another poor group (owning up to 1.5 bigha) constitutes about 28% of rural households and has a deficit of 57%. The households that own 1.5 to three bighas of land have a deficit of 20%. By and large, we can see that about two-thirds of rural households are deficit households, that have to rely on market for meeting, on average, roughly half of their rice requirement.

As compared to these three deficit groups, the top group (owning 15 bighas and above) constitutes only about 5% of rural households, with a surplus of 66%. This means that this group produces 66% more than its consumption needs. The next group, owning 7 to 15 bighas and comprising only about one-tenth of rural households, has surplus of 42%, and those that have between 3 to 7 bighas (constituting one-fifth of rural households) have 18% surplus. Thus, one-thirds of rural households are net surplus farmers with an average surplus of 40% and above.

The distribution of households as per farm size (as against land ownership group) provides no major deviation from the picture depicted above. Households with cultivated holding (owned plus rented in) of up to 3 bighas constitute about 70% of all farm households (farm households are 60 percent of all rural households) and face a deficit of 65%. The rest are surplus farmers.

From the poor to the rich
Thus, there is no denying the fact that high rice prices hurt the poor and deficit households (about 70%) but reward 30% of households fortunate to have net marketable surplus of paddy. If Tk.10, 000 crores have been "robbed" due to high rice prices, and were siphoned to the rural areas, needless to say, the transfer had been from the rural and urban poor to the better-off sections in rural areas. The best way to maintain a balance between the interests of both producers and consumers would be to subsidise the surplus growers in terms of input pricing as well as participating in the output markets by procuring rice at high prices and selling it at subsidised prices to the rural and urban poor.

The more the price rises, the larger would be the gain to the rich and the pain to the poor. However, one should not be oblivious of the fact that increase in agricultural and non-agricultural wages could compensate for the rise in rice prices. Indeed, that is what has happened in rural areas over the last year. But wages are mostly seasonal in nature while buying rice from the market is a year-round reality.

Policy prescriptions
What should be our short- and medium-term policies? More often than not, we have tried to argue that scientific (but cost-effective) seed management practice and use of good quality seeds would raise farm output by at least 7 percent. It implies that Bangladesh could produce an additional 20 lakh tons of rice, which would ensure a demand-supply balance in the domestic market without the need to knock at international doors. Unfortunately, however, we are not still aware of any efforts on the part of the government to propagate the promising note on a large scale.

The government should support training of women on good seed management practices and rigorously campaign on the use of healthy, good quality seeds. Second, the yield gap between research stations and farms is still high. Narrowing the gap could fetch another 10%, or about 30 lakh tons of rice. Third, the ongoing drive towards research and extension in the crop sector should bring some dividends in the near future. Use of hybrid seeds, cost effective irrigation system, and indigenous fertiliser may go a long way in raising rice output by a respectable margin. With all these measure we can buy another 15 years time to meet our future food needs.

Available empirical evidence shows that a substantial amount of the costs could be reduced through judicious uses of fertilisers with leaf colour charts, change in crop establishment practices with drum seeders, etc. By and large, improvement in management should allow us to have 10-15 lakh tons more rice per year. But that would require commitment from the government. And the last (but not the least), a campaign to consume less rice and substitute it with other crops is an important aspect in facing the fire.

Last word: Price and poverty trap
Admittedly, the nutrition of the poor is at risk when they are not shielded from the price rises. Higher food prices force poor people to limit their food consumption and to shift to even less balanced diets, with harmful effects in the short and long run. To repeat the director general of IFPRI Joachim von Braun's remarks: "At the household level, the poor spend about 50 to 60% of their overall budget on food. For a five-person household living on $1 per person per day, a 50% increase in food prices removes up to $1.50 from their budget, and growing energy costs also add to their adjustment burden."

On my JU campus, it means taking away Tk. 1,350 from rickshaw puller Ahammad Ali's monthly budget of Tk. 4,500. His deteriorating health condition due to deteriorating nutrition may not allow him to earn Tk. 4,500 next month, thus, making him poorer. This can be termed as price-led poverty trap. That's why food prices matter most for the poor.

Abdul Bayes is a Professor of Economics at Jahangirnagar University. He can be reached for comment at: abdulbayes@yahoo.com.

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