Bangladesh agriculture at a second turning point

Shamsul Alam | Wednesday, 28 September 2016

Empirical evidences suggest that the share of agriculture in overall economy of the countries always decreases as structural transformation and urbanisation occurs. The labour force engaged in agriculture also has a declining trend.
However, many poor countries still show high shares of agriculture in gross domestic product (GDP) and employment (an average of 34 and 64 per cent respectively in Sub-Saharan Africa). In countries in the range of $400 to $1,800 GDP per capita, many of them in Asia, agriculture is on average 20 per cent of GDP and 43 per cent of the labour force. These ratios decline to 8.0 per cent and 22 per cent respectively in countries in the range of $1,800 to $8,100 GDP per capita, many of them in Eastern Europe and Latin America. Adding the forward and backward links to agriculture (extended agriculture) typically increases the share in the economy by half or more, especially in the middle-income countries (World Development Report 2008: Agriculture for Development).
Table-4 shows that the employment share in agriculture is highest in India, Bangladesh and Vietnam which are predominantly agriculture-dependent with a high poverty incidence in rural areas. The lower and higher middle-countries like Thailand, Philippines and Indonesia have around 30 per cent labour force engaged in agriculture with low GDP share. In cases of high-income or developed countries, i.e. Netherlands, employment in agriculture is as low as 1.5 per cent and share of agriculture in GDP is only 2.0 per cent. However, Netherlands, which is only 41,000 square kilometres in size, is the primary source of agricultural products for the rest of  Europe. The amount of agricultural export from Netherlands was more than US$ 56 billion in 2014, which was US$ 17 billion in 2000. High-income countries like Netherlands has increased the factor productivity for agriculture to a large extent with advanced integrated technologies which released the excess labour in agriculture for service and industrial sectors.
CHALLENGES IN ATTAINING HIGHER AGRICULTURAL GROWTH RATE: The key challenge of agriculture sector of Bangladesh is related to the productivity of input, primarily labour. In the agricultural labour market, a dualistic type of structure is prevalent, which suggests that there is substantial surplus labour in agriculture. This surplus labour indicates that average hour of work is less than optimal and productivity of labour in non-agriculture sector is higher than that of agriculture sector. The latter phenomenon can be observed while comparing the productivity of agricultural labour with that of manufacturing and service sectors. Productivity of agricultural labour is very low in Bangladesh. Although the average productivity of labour in agriculture increased in the second half of the last decade, the gap with manufacturing and service sectors still remained substantial. The surplus labour coupled with low labour productivity points to two policy options: (a) withdrawing the surplus labour from agriculture and utilising it in non-agriculture sector, and (b) using more advanced technology to increase production in agriculture.
Another important issue is the increasing number of small farms. In the 1980s the small farms were around 70 per cent of the total farm holdings which increased up to 84 per cent in 2008 (latest Agriculture Census, Table-5) and expected to grow over 90 per cent in the second decade of this century.
Improvement in agricultural productivity is a precondition for sustainable development, as productivity gains would allow resources such as labour to be diverted to the non-agricultural sectors, including agro-food industry. Total factor productivity (TFP) indices capture the effect of improvement in technology as well as investments in rural infrastructures. Empirical evidence shows that TFP of Bangladesh crop agriculture grew at an annual rate of 0.57 per cent over a long period, from 1948 to 2008 (Rahman and Salim, 2013).
Regarding the drivers of TFP growth, Rahman and Salim (2013) found that farm size, crop specialisation, investment in research and extension positively influenced TFP growth, whereas literacy rate influenced TFP growth negatively, reflecting exodus of educated people from agriculture. Their policy implications included encouraging investment in research and extension, increasing average farm size and promoting crop diversification. So, agriculture now-a-days is peasant agriculture mostly dependent on marginal farmers with very little amount of input (land) and landless farmers who are mostly tenant.
Although agricultural policy support is still very strong, agricultural growth rate is very low and this is a significant issue. Agricultural growth is mainly determined by the nature of technology used and farm structure with associated management. The "seed-fertiliser-irrigation technology" was developed from the mid-1960s; this was the first turning point for agricultural crop sector development. The "seed-fertiliser-irrigation" technology has been developed gradually and this system was adopted by the small farms which have increased production of rice by more than three and a half folds over five decades. With recent years exhibiting falling growth rate it seems that the existing technology of high-yielding seeds, chemical fertilisers and mechanical irrigation is past the final stage of excellence. The present 'Peasant Farming' system may not be able to provide growth booster with existing technology which seemingly have come to a threshold level of its potential having been in vogue over last five decades. Without the introduction of 'integrated advanced technology' in a new farm structure in agriculture, a 'new turning point' may not be possible.
WAY FORWARD FOR AGRICULTURE IN A HIGH-ECONOMIC GROWTH ERA:  The tenet of the 7th Five Year Plan (2016-20) is: Accelerating Growth, Empowering Citizens. Utmost attention has been given to more job creation in the economy, accelerating GDP growth to 8.0 per cent while ensuring equitable income distribution to significantly improve income inequality to fast track poverty reduction and thus empowering the citizens. The agriculture sector needs to be compatible with the high-growth pattern of the overall economy in the upcoming years. This level of growth will require labour-intensive industrial and service sectors simultaneously with a jump-start of a programme of improving agricultural productivity.
The new policy for agricultural development in a country with 7.0 per cent to 8.0 per cent growth rate will require a strategy to accelerate the process of transformation from the existing semi-subsistence farming to commercialisation of agriculture taking advantage of market economy. This strategy will require achieving productivity gains, diversification and value addition commensurate with national environmental protection and climate change adaptation strategies. Fertiliser subsidy, subsidised diesel and electricity used for irrigation and other agricultural inputs will require continuous support through fiscal stimulus in the present agricultural practices.
Real rural wage has been increasing which is contributing to poverty reduction and equity but it has increased labour cost which is supposed to induce mechanisation. But that has not really happening. Hence there can be the argument for subsidised mechanisation, but subsidy has played a limited role in promoting mechanisation in the past. The limiting factor in this case may be small-scale production unit with fragmented land, partial dependence on hired labour and animal power and high unit cost of mechanical power (Hazel, 2013) in the small-scale farm structure.
Integrated agricultural market system, road networks and communication technologies and export market opportunities are available these days. But, the problem is that the 'Advanced Technologies' used in developed countries as integrated production technologies, cannot be absorbed by our small-farm size agriculture, where sharecroppers, marginal and small farmers are predominant. The capital and farm size required for this type of new transformative technology is huge. In short, we have to think to support the gradual establishment of large commercial farms and such a 'big push' is now essential as a paradigm shift in agriculture. The small farm-based 'Peasant Agriculture' system need to be replaced with large-size commercial farms which can afford huge capital investment for advanced technologies like green house agriculture, adoption of GMO seeds, hybrid seeds, tissue culture, temperature-controlled drip irrigation, large-scale mechanisation from planting to harvesting and packaging of final products in agriculture.  This commercialisation and emergence of large-scale farming is not happening because of i) dependence on weather for crop production activities because of non-adoption of high technologies and ii) large-scale subsidisation that help sustenance of subsistence agriculture. Subsidy is a must in agriculture to a certain extent but refocusing needed towards providing support to creation of large-scale farming enterprises.
In the context of shrinking average farm size and diseconomies of scale for marginal farmers, strategies will be required to provide business support to commercially-oriented farms, social protection to subsistence farms and exit support to transition farms (e.g. promoting income diversity in rural non-farm sector and leasing-in land for commercial crops). A new high-technology package is required with new large-size agricultural farms which have economies of scale to absorb the adverse climate impact and risk related to crop production. The latest integrated technologies are being used in the developed world, where average size of farms is thousands of hectares. For example, Netherlands, the major agricultural products exporter in Europe, uses one and a half per cent of its total labour force in agricultural production. New and transformative technological instruments can be used by large commercial farms in Bangladesh if they get proper policy support and incentives. Thus the 'second turning point' of agricultural development will occur.
Prof. Shamsul Alam,  Member (Senior Secretary, General Economics Division, Bangladesh Planning Commission, is President of Bangladesh Agricultural Economists Association.
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