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close this bookDeveloping the non-farm Sector in Bangladesh: Lessons from other Asian Countries (WB, 1996, 116 p.)
close this folderPattern of development
View the document(introduction...)
View the documentHow does Bangladesh compare?
View the documentDevising a strategy for agricultural intensification

(introduction...)

Embedded within the macroeconomic story is a story about the performance of agriculture. With the exception of Singapore and Hong Kong, the rapidly growing Asian economies have relied on agricultural prosperity as a stepping stone to industrial 12 modernization. In Japan, Taiwan (China), China, the Republic of Korea and even some of the Southeast Asian countries, such as Malaysia and Thailand, thriving agricultural sector contributed in four ways: It was a source of capital and surplus rural workers, which provided nascent industries with cheap labor.

Rising rural incomes created markets for manufactured goods and services, which in turn contributed to the early spread of small and medium-size enterprises (Park and Johnston 1995).

· Agricultural intensification and diversification into cash crops established forward linkages to processing industries, which became the nucleus of a diversified rural industrial system closely tied to the urban economy.

· An efficient, outward-oriented agricultural sector became, in some cases, a significant exporter of cash crops that brought in much needed foreign exchange. Or, after a period of gestation rural industry began to produce for overseas markets, capitalizing on their lower overheads and more competitive labor markets.

In all countries in which agriculture has played a handmaiden's role, exports and rural industry entered at a later stage of development. First agriculture had to be put on sound footing by raising land and labor productivity. Labor productivity can be increased by enlarging the cultivated area or by augmenting land quality. But because good land quickly becomes scarce in most countries, gains in land productivity are mainly derived from planting high-yielding hybrids, using more fertilizers and pesticides, and practicing better water management, especially by using pumps and mechanization that facilitates multiple cropping or helps shave seasonal labor constraints.

How does Bangladesh compare?

Land productivity and the related use of biochemical and mechanical inputs are indicators of a country's medium-run growth and industrial prospects. With this in mind, we have compared Bangladesh with a number of Asian and African countries at different stages of development. Between 1950 and 1980 agricultural output grew steadily in several South and East Asian countries at close to 3 percent. Growth in Japan and India fell slightly below this level, and economies such as Thailand and Taiwan (China) registered higher rates (tables 15,16,17, and 18). A modest share of this increase, mostly in the earlier years, resulted from gains in the land-labor ratio. But most of the change is traceable to improved methods of farming, greater application of fertilizers, widening use of agricultural chemicals, and some mechanization. During 1950-80 land and labor productivity in Taiwan (China), for instance, grew by 4.0 percent and 5.1 percent, respectively; by 2.6 percent and 4.6 percent in Japan; and by 2.5 percent and 3.7 percent in Thailand.

By the early 1990s the average yield per hectare of cereals in Bangladesh was 2,572 kilogram, a 30 percent increase over 1980 (table 19). This yield is close to the average for Asia, greater than that of India and within the range of Sri Lanka and Malaysia. But it was only two-thirds of the output per hectare in Indonesia, 60 percent of that in China, and less than half of the average in the Republic of Korea. Evidence indicates that Bangladesh could expand its yield, but the performance thus far has been respectable.

Three factors stimulated higher yields in Bangladesh. First, fertilizer consumption more than doubled between 1979-80 and 1991-92 and is now on par with that in Indonesia (table 19). In the sample of countries only Malaysia, China, and the Republic of Korea use more fertilizer. Second, the ratio of irrigated land has risen from 17 percent to 31 percentjust a shade below the average for Asia. Third, the area devoted to high yielding varieties (HYVs) has climbed from 24 percent to 47 percent (table 20).

Each of these represents a substantial achievement. And together they suggest that good policies are being implemented and that farmers are responding to market incentives and technological possibilities. But the sheer density of the population has muted the effect on labor earnings, and labor abundance continues to promote "involution" in 13 husbandry practices. The threshold beyond which rural industry and nonfarm activities begin to multiply may be higher for Bangladesh than for some of the other East Asian countries because exceedingly high labor-land ratios together (until recently) with rapid population growth have diluted the spread effects of agricultural modernization. Population density has depressed the growth of household incomes, which, coupled with high dependency ratios, may be responsible for curtailing the accumulation of savings.

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Rural investment and the incentive to save might also be hampered by perception of risk. Bangladesh is unusually vulnerable to natural disasters, a risk that is compounded by political instability. Regular floods and hurricanes destroy rural capital and increase the variance in returns from investment. Land shortage, rapid population growth, low savings, and environmental risks force Bangladesh to run much harder to enter a virtuous spiral. A slowing of population growth has opened a narrow window of opportunity. But if the window is to be opened wider, agricultural incomes must increase faster.

Raising crop yields and diversifying the product mix is the appropriate strategy for catalyzing rural development on at least three counts. Firs´, raising output ensures greater food security and opens the door to exports. Second, diversification can serve as a foundation for a range of off-farm activities. For instance, in Japan, Taiwan (China), Malaysia, the Philippines, and Thailand crop diversification, which increased the ratio of vegetables, fruit, and tree crops, triggered the emergence of processing industries, as well as service activities to handle collection, distribution, and marketing (see Oshima 1994). Third, the surge in incomes would promote local demand for goods and services and provide funds for building industry.

Devising a strategy for agricultural intensification

To the extent that local tastes, availability of different varieties, and ecological conditions permit, Bangladesh could expand the area planted with high yielding varieties. Other Asian countries fall in the 75 to 90 percent range-twice the level of Bangladesh. Closing this gap within the next five years and raising yield per hectare to 3,500 kilogram are objectives that deserve close attention.

Increasing yields by planting high yielding varieties and applying more fertilizer should be met with an expansion of irrigated area. Some of this expansion would be accomplished with the installation of more tubewells. It may also be possible to enlarge the canal networks or improve the efficiency of water management facilities in certain areas. Tubewells can generate backward linkages to local machinery and metal working industries, as has happened in both East and West Punjab. Forward linkages to repair services can also be significant if a large number of tubewells is installed. Upgrading irrigation networks is a source of jobs for initial construction and future maintenance. In addition, it gives rise to demand for construction materials, allowing existing production establishments to expand and encouraging new entrants.

Intensifying agriculture and promoting crop diversification will require a bigger dose of extension services. Bangladesh already spends more on extension per hectare of arable land than India or Indonesia (table 21). But its outlay is far below that of Thailand, China, the Philippines, Sri Lanka, and Malaysia. Bangladesh should be able to approach the level of Sri Lanka over a five-year period, and doing so would promote other elements of the strategy. But increased spending alone will not help. Changes must be made in the nature of research and the organization of extension. Currently, the National Agricultural Research System conducts applied research mainly on rice, wheat, and potatoes.

Diversification to higher-value cash crops calls for research on hybrid varieties of vegetables, fruit, oilseeds, and pulses that can be grown under irrigated conditions. In addition, post-harvest and processing research should be made a priority, guided by the needs of farmers. Extension activities are conducted largely by block supervisors and employees of the Department of Agricultural Extension in the Ministry of Agriculture. More involvement by NGOs and the community are needed to raise payoffs.

Support from credit and marketing facilities would make it easier to shift to a more productive farming regime. Bangladesh is a pioneer of innovative credit schemes for poor households. Thus there is already an institutional base for extending more credit to farm households to purchase fertilizer and other inputs.

Although disbursing credit is an important activity of NGOs, it accounts for only about 10- 15 percent of their programs, except for a few NGOs, like Grameen Bank, Bangladesh Rural Advancement Committee (BRAC), Proshika, ASHA, for which credit constitutes a large part of their activities. There are now about 100 NGOs that have well established credit programs. Most of these, Grameen Bank and BRAC excepted, have obtained financing through the Poverty Foundation (PKSF). In the last decade these institutions disbursed about US $ 1 billion to about 3.5 million borrowers-80 percent of whom are women. In fiscal 1994 annual disbursements of micro-credit are estimated to be about US $450-500 million. Between 75 and 80 percent of the funding for these programs has come from grants or highly concessional loans provided by donors, foreign NGOs, and the Government of Bangladesh. Although precise figures are unavailable, rough estimates put cumulative funding from these sources at about US $350-400 million. Borrowers cumulative savings fund the programs. Four institutions account for about 99 percent of lending and serve about 96 percent of the borrowers: Grameen Bank (85 percent of loans and 46 percent of borrowers), BRAC (10 percent of loans and 44 percent of borrowers), Proshika, and ASHA.

Because of the enormity of unserved need-only about 6 to 8 percent of the poor people have been served-most institutions attach high priority to rapidly increasing outreach. Large and older institutions are approaching break-even status, because of rapid growth, gains arising from scale economies and a larger number of profit-making borrowers. However, most of the institutions still cover their high group and social mobilization costs with grants (from donors), income from commercial activities directly operated by the NGOs (such as fish ponds); and voluntary services provided by many of the organizers of small and medium-size NGOs. Thus many NGOs operate as "quasi commercial" and "quasi-formal" organizations.

National commercial banks (NCBs) have been providing group-based micro-credit loans though some of their rural branches on a very limited basis. These loans carry an interest rate of 16 percent. Although NCBs claim to be breaking even at this rate, it is highly unlikely that they would be doing so given their staff-intensive nature. One successful initiative supported by the NCBs is provision of micro-credit to members of a national NGO-Swanivar-which organizes groups and links them with NCBs. The increasing availability of credit through traditional and newer nontraditional channels (NGOs) even if it is in small doses is influencing the spread of nonfarm activities. It is also having an effect on farming.