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May 04, 2008

How Bangladesh's agriculture suffered from following World Bank/IMF policy advice

When Food and Agriculture Organisation (FAO) Chief Jacques Diouf recently blamed the World Bank and the IMF policies for dismantling systems to protect farmers, he introduced a new chapter to the ongoing debate on rice crisis.

While it is true that the donor-led policies led to the rice production revolution, it is equally true that their later policy changes left governments like that of Bangladesh vulnerable to food shocks and incapable of acting fast in such a situation.

When the Green Revolution was introduced in late 1960s, a magic thing happened. Farmers found their fields yielding as much as three times more. IRRI-8 and IRRI-20 (IRRI Shail)-- the wonder seeds for Boro and Aman -- soon IRRI became the other name for high yielding rice. Rice, that golden staple that took farmers backbreaking toil to produce soon became their darling.

But the wonder rice, also known as the high yielding variety (HYV) one, needed a lot of inputs -- water, fertiliser and pesticides.

"That needed a lot of money requiring credit and supportive investment from the government on flood control and irrigation which was poured in by the World Bank and other donors," says Dr Mahabub Hossain, an agroeconomist and executive director of Brac.

So, through out the 1970s, water management systems were set up; pumps were dug in and channels were made to bring water to the fields. Grow more food -- that was campaign then, and the government forked out subsidies for the inputs. The Bangladesh Agriculture Development Corporation (BADC) was given monopoly to import modern agricultural inputs and market them with high subsidies at more than 50 percent of the cost.

With the expansion in the use of fertilizers and power pumps , agricultural subsidies became a heavy burden on the government budget -- Bangladesh had a very small revenue base then and its exports were limited to raw jute and tea mainly.

"So the donor agencies (development partners!) led by the World Bank (WB) and the USAID, another major player in determining the country's food scenario, then suggested cuts in subsidy and privatisation of the input distribution system," Mahabub points out.

The USAID commissioned a policy review by the International Food Policy Research Institute (IFPRI) that also suggested reduction in subsidy and liberalisation of the input market.

"Social scientists at that time argued that small and marginal farmers will be adversely affected by this policy due the increase in input costs and development of a water market that would be controlled by large landowners," Mahabub recalls.

Nonetheless, during 1980s subsides came down substantially and BADC's fetilizer distribution infrastructure was dismantled. The private sector was allowed to import agricultural equipment and import duties were substantially curtailed following an Agricultural Sector Review supported by UNDP. Rapid expansion in irrigation with farmers' own investment in shallow tube wells and power pumps took place and 'Water lords' sprang up who were the new breed of private irrigation pump owners and took one-fourth share of the harvest from the farmers for supplying water. And the wheel of the power tillers whirred on.

It was expected that money saved in subsidy would be reinvested in agriculture, but that did not happen, Mahabub observed . Rather the funds saved thus was shifted to other sectors. The agriculture's share of the development budget came down drastically.

The farmers seemed to be quite happy with the privatization in the input marketing system, as inputs were freely available although the cost went up. The use of fertilizer expanded rapidly, the adoption of HYV seeds speeded up and the growth in rice production accelerated.

"In 1994 the first hiccup occurred with a severe fertiliser crisis that led to the killings of a number of farmers in police firing. But until then everyone thought the liberalised system was working fine. There was a rethinking among the policymakers and the subsequent AL government re-introduced control in the fertilizer distribution system and shovelled more subsidies into fertiliser," the agroeconomist explains.

Besides marketing of agricultural inputs, another parallel development took place in the food marketing system. Until then the government was deeply involved in the marketing of food as it believed this was needed to protect the low-income consumers in rural as well as urban areas from the negative fallouts of food price fluctuations and frequent natural calamities that the country is subjected to. After all, memories of the 1974 famine were still fresh. Urban and rural rationing systems along with the Food for Works (FFW) were operating in full force.

"The World Bank and the USAID then advised the government to phase out such programmes on the ground that these were not being properly targetted and leakage was high," Mahabub explains. "The fact that such operations were still needed as safety net was not taken into consideration. There was also a policy shift from non-monetised to monetised distribution system with the introduction of Cash for Work programme and Open Market Operations for controlling rising prices."

The government had developed facilities for food storage of about 1.9 million tons and used to maintain a large food stock of around 1 million tonnes in the 1980s with internal procurement of food grains, inflow of food aid and commercial purchases from international market for operating the public food distribution system.

"A major change took place in early 1990s when a new role for the private sector in food marketing was introduced. Another IFPRI study also funded by the USAID suggested that the government no longer needs to remain involve heavily in food marketing," Mahabub said.

The report argued that there is a glut of food production worldwide as evinced from the downward trend in the real price of rice and wheat in the world market and building of huge food stocks in neighboring India. Therefore the risk of food insecurity was no more a matter of concern. The country was “beyond the shadow of famine”.

"So, the government should consider economic efficiency in managing food distribution and should be able to mange the food programme with stocks of five to six lakh tonnes only. The thrust was then that the government can move from a policy of self-sufficiency to self-reliance with the underpinning idea that instead of producing its full requirement of food itself, it can look for import of food grain which was then cheaper on the international market," Mahabub explained the policy shift.

The tenet was also to allow the private sector to freely import food so that it can act quickly to import food from India if a crisis occurred. The government took the advice and dismantled the food stocking and marketing infrastructure.

In 1991, cheaper food import and flood of food aid depressed domestic market to the distress of the farmers. An international political economy came into play here as the rich countries wanted to support their farmers through food aid at the cost of the recipient countries' market destabilization.

"But the upside of the policy was the successful tackling of the 1998 floods that caused a loss of 2.5 tonnes of aman production, when the private sector played a major role in food imports to keep supplies in place," Mahabub observed.

But as these policy changes took place in agriculture and food, the government, almost unconsciously, lost its capability to face any food emergency. It no longer had a capacity to maintain a food stock large enough to influence market and its machinery was no longer attuned to work fast to import food that was suggested from various quarters when even six months ago rice was selling at $370 a tonne in the international market.

"The international donors also played a dicey role in the aftermath of the Green Revolution. They are the ones who funded the international research centres such as IRRI and CIMMYTfor invention of HYV seeds and supported irrigation development and supply of agricultural credit that was needed to support the diffusion of improved technologies to farmers," Mahabub continued.

The green revolution led to a rapid downward trend in real food price with rapid expansion in production in Asia. The donors then took the position that Asia had achieved food security and so there is no further need for supporting agricultural research and irrigation.

"Agriculture become a dirty word in the circle of international development agencies including the World Bank, IMF and the Asian Development Bank. Here, lobbying from farmers of US, Canada and Australia played a big role in this change of heart of their governments. The farmers' lobbies argued that the dip in international food price led to their ventures unprofitable and influenced their governments to stop funding Green Revolution," Mahabub argued.

This followed the donors' prescription to finance ministers of the third world countries to put stress on industry and service sector. The agriculture ministries lost their glories as they ran on shoestrings.

Almost a decade later, the governments and donors around the world have come full circle to the realisation that investment in agriculture is crucial if the MDG goal of poverty reduction is to be realized, and that as long as population keeps increasing, the governments should never de-emphasise agriculture. The governments of low-income food importing countries are beginning to learn a lesson from the present crisis that it is not wise to depend on the international market for food security as food exporting countries snap down their doors as soon as tightness in the food market on the global scale as seen today occurs.

The Daily Star

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