The Financial Express

Farming in peril, warns ADB

Farmers' 'fair price' to give tailwind for BD economy

| Updated: November 11, 2019 10:24:34

A group of farmers harvesting early-cultivated Boro paddy at a field under Jagannathpur upazila of Sunamganj district on April 13, 2019 — FE Photo A group of farmers harvesting early-cultivated Boro paddy at a field under Jagannathpur upazila of Sunamganj district on April 13, 2019 — FE Photo

Blaming inefficiency in the agriculture market, a senior executive of the Asian Development Bank, or ADB, says it crumbles every three years and farmers make "very modest" profits.

"Farmers don't make fair returns," Akmal Siddiq, chief of rural development and food security with the Sustainable Development and Climate Change Department at the ADB, told the FE in an interview. "Sometimes prices are so low that farmers can't recover costs [of production]"

Some 90 per cent farmers of the Asia-Pacific region is smallholder farmers, who own less than 2.0 hectares of land.

Analysing the data of 25-30 years, Mr Siddiq concluded that the farm market, especially of perishables such as potato, onion and tomato crash-landed in every three years.

In May, paddy prices hit a three-year low in Bangladesh after bumper harvest, unleashing a wave of protests across the country and fields were set ablaze by peasants.

Last year, Bangladeshi farmers lost more than US$1.0 billion after the potato prices collapsed, the ADB senior executive said, referring to media reports.

Indeed, if the factors of production-land, own labour and capital in the forms of seeds, fertiliser, pesticides, etc-are considered, farmers make "very modest" income and that is also in the third year.

"If it is not crisis, what is it?" asked Mr Siddiq, a natural resource economist by training.

He said the deepening crisis Asia-Pacific farmers, including those of Bangladesh, face forces peasants to leave farming in droves as they are unable to live off the land.

Disenchanted with lower profitability, kids of farming families head towards urban areas seeking a future, he added.

To the ADB economist, this happens because of "inefficient markets," where the mismatch between demand and supply exists.

Price variability of any commodity is important, because "we don't want stable prices," Mr Siddiq said. 'That's not good."

If prices go down by a narrow margin-say 10 per cent-"it is normal," he said, but if those slide by 90 per cent or climbs by 80 per cent, that causes huge losses to traders and suppliers.

To address this kind of situation, the ADB economist advises the government to intervene with "simple economics."

In case of supply glut, the government can issue export licences and if the production is less than the demand, the authorities can opt for imports so that "consumers don't suffer," he said.

Is public aid for agriculture a panacea? The ADB economist is not convinced: Governments are "misallocating subsidies."

States around the world deploy as much as $600 billion in agriculture subsidies, but that cool amount ends up in wrong hands.

One case in point is Indonesia, where the government extends $2.0 billion a year to farmers as fertiliser subsidies. "Poor farmers" are not getting their pies from this sizable aid, according to Mr Siddiq.

Against this backdrop, he favoured following best practices of the United States, Europe and Japan, where subsidies are better targeted and allocated.

These developed countries use farm aid for bolstering the marketing network, developing sub-sectors, providing soft-loans and facilitating research and development, or R&D, Mr Siddiq said.

Other factor that has complicated the situation is that people perceive agriculture to be "unnecessary" and "unimportant" business, though the World Bank study shows that the return on agriculture investment is "huge."

Nevertheless, the farming community in Bangladesh is far from tapping the benefits because the bank interest rate on borrowing is 10-15 per cent, leaving farmers to scramble racking up 2.0-3.0 per cent profit while unforeseen events wipe out even that gain.

"What kind of business agriculture is!" he wondered.

That said, he argued making agriculture profitable is the best thing a country can do to spur domestic demand.

Bangladesh is a "bright spot" for textiles and clothing manufacturing and that is export-oriented, but the ADB executive said the agriculture sector has the potential to foster demand within the economy.

The apparel sector, which pulled over $34 billion in exports last fiscal, accounts for four-fifths of the country's annualised merchandise shipments and employs as many as four million workers.

Still, giving the farm sector a leg-up makes economic sense.

The ADB economist estimated if the rural people's income rises, they spend on non-farm products, which can give up to 2.0 per cent boost to the economy.

Presently, agriculture contributes less than 14 per cent to gross domestic product, or GDP, but Mr Siddiq remains bullish: "Bangladesh's economy will grow faster, should farmers get fair price." Giving the example of the US, he said, domestic demand makes up between 60 per cent and 70 per cent of the world's largest economy.

In contrast, he said, the Indian economy is witnessing a slump because of sluggish internal demand.

Even as the farm crisis worsens, the ADB, in its 2019 Development Outlook, expected Bangladesh's agriculture sector to edge up 3.8 per cent growth during fiscal year 2019-2020, aided by government policy support.

[email protected]


Share if you like