Need For Combined Policy

Agriculture policy should include biofuel, Creating ecosystem and make changes real.

The central bank is planning to provide Tk 390 billion worth of agricredit for the next fiscal year. The decision came amid rising inflation and good harvest of rice last year. Agriculture has growing leverage in employment, value addition and boosting consumption in other sectors. For instance, motorbike industry attributes increase in sales to rising remittances and boost in agricultural production,which augments income of rural households.

Since value addition to agriculture is higher than any other sector, its growth has lasting impact on the economy and provides extra capital for other businesses. In particular, good rice production could reduce the pressure on inflation and thereby may lead to a stable macroeconomic [situation]. Last year, Bangladesh produced $2 billion worth of extra rice. We have a better potato yield last year. The extra harvest ,however, contributed to drop in prices, causing woes to many potato farmers. Perhaps rice yield is not good enough to bring down the prices. So we have to import more rices from abroad.

Last year's extra earnings also include around $4.7 billion worth of remittances, which our workers earned working abroad, and around $2.59 billion worth of RMG export. The extra earnings set the ground for monetary intervention provided that extra earnings surpass extra losses of last year (see"Last Year's Extra Money", published here on January 10,2025).

But there are some questions on extra RMG earnings and remittances. As value addition to some items in the RMG is low, a large part of earnings go to pay off the input cost. In addition, some of the laundered money of past years return home in disguise of remittances and RMG earnings, producing nothing or adding no value to economy rather creating inflationary pressure. Not only that most of the RMG export money do not come to the country in the same fiscal year. So in the end true extra earnings from RMG export and remittances are much lower than the reported value. In that light, extra agricultural production retains most of the earnings at home and is crucial for the economy.

I think Bangladesh should blend its agriculture policy with a national biofuel/ethanol policy. If there is no biofuel policy,then we should introduce one. India has an active biofuel policy where it meets a certain percentage of its energy needs through biofuel. The byproduct of the biofuel industry is used as animal feed, which we also import from India. So having a functional biofuel policy means good use of extra yields of potato,tomato etc and creating an ecosystem for livestock and fisheries industry. Peasants are protected from any drop in prices and transportation cost will come down as petrol filling stations in rural areas will sell petrol-biofuel mix.

So combined agriculture and biofuel policy will help peasants from price shock,developing new industry, reducing transportation cost in rural areas and curbing inflation. Another special advantage is it will help providing a steady supply of grain, potato( even lower quality from abroad) for the biofuel industry and thereby helping grain market stable. Agricredit in that case will have more meaningful use,upholding peasant's interest, and monetary intervention, even amid tight monetary policy,will be justified.

Agriculture Holds The Key

Flood,cyclone press for importing more food.
It still looms large though Boro harvest was good.
Govt can’t influence foreign consumer demand,
Focus on agriculture to bring back the economy on command.

It is, indeed, a good news that Bangladesh has become the third largest rice producing country of the world. This achievement has come at a moment when the country is facing asphyxiating situation in the transport sector, caused by Coronavirus, crippling the agricultural supply chain. Despite being a food importing country, sustained effort made it possible to increase the production of foodgrain and other vital crops. The success story is writ large on the graph of yield per acre(Kg) of some key crops.

Yield per acre(kg) Source: BBS Pocket Book 2018

Between 2011 and 2018, yield per acre of key crops like rice , wheat, pulses and oilseed rose steadily. Wheat production per acre made a significant mark in the given period. In 2011 an acre of paddy field yielded 1177 kg of rice. In 2018, an acre of rice field produced 1292 kg. For Wheat, it was 1053 kg in 2011 and 1267 kg in 2018. If we stretch the comparison for the last three decades , then the achievement will appear remarkable. Not just the yield per acre , but agricultural wage rose significantly in the given period. At least the BBS statistics claim so.

Nominal wage indices in 2018 were 150.59(Base 2011=100). For agriculture, industry and service, the wage indices were 150.27, 149.45 and 154.44 respectively. If this is really the case then this Rural labor market is really a promising sector, whose prospect is only hindered by seasonality.

Nevertheless, the success story of our crop production does not cease import of foodgrain. Domestic demand-supply mismatch often met by imported food grain. But the quantity of import is higher during the disaster years. Severe flood or cyclone years stalled or damaged grain production at home, pressing for more foodgrain import. I did a little analysis in this regard. I gathered data for import of foodgrain and rice production at home delving Bangladesh Economic Review 2018. The period under consideration was between 1996 and 2017. As usual serial correlation check for 22 observations and 1 explanatory variable reported no autocorrelation (d = 1.88). I constructed the following regression function:

lnFoodgrain_t = a + b RiceProd_t + c D_t

where lnFood_t = log natural of foodgrain import at t,
RiceProd_t = domestic rice production at t,
D= 1 for disaster years(any kind),
= 0 for calm years.

Resulting regression function looked like this:

lnFoodgrain_t = 6.825 + 0.0000396 RiceProd_t + 0.0639 D_t

(t=14.78, p=0.00, se= 0.46) (t= 2.52, p=0.021, se= 0.00) (t=0.36,p=0.72, se=0.18)
(F=2.15, p=0.066)

The model did not turn out to be significant at 5% level of significance. But it was significant at 10% level. Intercept and the dummy coefficient did not appear to be significant at 5% level of significance. If the dummy coefficient had been significant , foodgrain import during disaster years would have been higher by 6.597% than that of during calm years.

Despite the data at hand did not lend evidence, there is no gainsaying that foodgrain import was higher during disaster years. For instance, in the flood year of 1999 we imported 5491 thousand metric ton of foodgrain. In 1998 we also witnessed a severe flood.In 2000, a calm year, we imported 2104 thousand metric ton of grain. In 2008, post Sidr year, we suffered from cyclone Reshmi and imported 3471 thousand metric ton of foodgrain. The poin is if natural calamity damages our crop production, we rely heavily on foodgrain import. Some years remain as exception.

This year as the country embraces for another super cyclone, harvest of Boro crop has already been completed. Prior to this cyclone Amphan, our foodgrain stock is quite satisfactory that ensures our food security for at least a year. Depending on the damages of Amphan, we could say how much resources we have to mobilize to deal with the obstacles of next cultivation.

Till then, agriculture stands out to be the most promising sector that vies for more government allocation in the post covid-19 period. Since our external sector depends on the regeneration of consumer demand of foreign countries, government at home can stimulate economic activities by investing more in agriculture sector. Rare is the sector in our economy where 100% value adding economic activities take place.

Cyclone Amphan amplifies the possibility of import of food. There has already been a wheat ban, put up by major wheat producing countries, as this year’s yield did not live upto anticipated level. In the wake of cyclone Amphan, government should double its effort on agricultural activities to mitigate the losses of disaster.

Grow Crops,Secure Future

Flood causes damage to crops,
Yet leaves a healing message.
Pandemic inflicts more shocks,
But does not leave a recovery passage.
Credit is a must for crop production,
Stop its misuse due to corruption.
Enough food ensures the strength grow more,
And helps winning friends in distant shore.

Coronavirus poses serious obstacle in production and harvest of staple food grain. It already cripples agricultural supply chain. A famine like situation looms large. Though authorities ruled out such an extreme possibility, their reassuring remarks did not find a convinced audience. In urban areas, hoarding fever continues unabated. Desperate people defied confinement measures and stood behind the long queue of fair-price-program, operated by Trade Corporation of Bangladesh.

In the face of soaring rice price, I did a little analysis on production of rice and its dependence on agricultural credit and chemical fertilizers. However, I included the credit and fertilizer on separate equations. And I included both only when I wanted to see their contribution in total production of rice. Data gleaned from Bangladesh Economic Review 2018.

Domestic production of rice means growing of three crops--- Aus, Aman, Boro--- round the year. Data from 1996 to 2017 were considered for current analysis. Following panel model was considered:

Prod_it = b_1i + b₂ Cred_it + e_it

Where Prod_it = production of ith kind of rice at t,
Cred_it= credit disbursement for the production of ith rice at t,
b_1i captures individual heterogeneity.

The issue of whether data would be pooled together with a common intercept or a regression function with dummy variable for individual intercept would be constructed was settled with the aid of F-test. F-test statistic for 2 and 62 degrees of freedom , 263.69, appeared to exceed the critical value, insinuating that different intercepts for different rice varieties.

However in estimating the fixed effect I relied on deviation from individual means. So my model looked like:

῀Prod _it = b῀Cred_it + ῀e_it

Where ῀Prod_it = Prod_it - ‾Prod_i
῀Cred_it = Cred_it - ‾Cred_i
‾Prod_i= mean production of variety i,
‾Cred_i = mean credit for variety i,
‾e_i = mean error for i.

Prior to deviation-from-mean panel model, I checked for autocorrelation for Aus, Aman, and Boro individually. For 20 observations and 1 explanatory variable, none of the crops exhibited any autocorrelation. (For Aus d= 1.411, for Aman d=1.54, for Boro d = 0.801) Having run individual regression, the resulting transformed regressions looked like:

῀Prod _Aust = 0.0345῀Cred_Aust + ῀e_Ausit
(t=4.649,p=0.00017) (F=21.62, p=0.00019)

῀Prod _Amant = 0.2267῀Cred_Amant + ῀e_Amant
(t=4.57, p= 0.00021) (F=20.88, p=0.00023)

῀Prod _Borot = 0.527῀Cred_Amant + ῀e_Amant
(t=8.267, p= 0.000) (F=68.35, p=0.000)

During the given period a Tk 1 crore increase in disbursement of agricultural credit led to increase in Boro production by 0.527 thousand metric ton. Meanwhile, a Tk 1 crore increase in disbursement of agricultural credit translated into increase in Aman production by 0.2267 thousand metric ton.

Later I turned to see what kind of impact disasters leaves for production of rice. Here I took into account natural calamities like flood and cyclone as they inflict severe damage to crop production during the time of their occurrences. A semilogarithmic dummy regression function was constructed and the result looked like this:

lnProd_t = 9.962 + 0.000034Cred_t - 0.0625D_t (t=242.47,p=0) (t=8.23,p=0.00) (t=-1.059, p=0.302) (F=36.11, p=0.00)

Where lnProd_t= natural log of total production of rice at t,

Cred_t = Credit disbursement at t,
D= 1 for flood/cyclone years,
=0 for calm years.

It appeared that dummy coefficient was not significant. If it were significant, we would say that rice production during flood years was 6.06% lower than that of calm years.

Then I probed on joint role of credit and fertilizer on rice production. The resulting function looked like this:

lnProd_t= 8.459 + 0.2445lnred_t- 0.0454 lnChem_t (t=9.771, p=0.00) (t=8.04,p=0.00) (t=-0.346, p=0.732) (F= 94.23, p=0.00)

Where lnProd_t= log natural of total rice production at t,
lnCred_t = log natural of credit disbursement at t,
lnChem_t= log natural of chemical fertilizer at t.
Here coefficient of natural log of chemical fertilizer did not turn out to be significant. Model fit well. We could say a 1% increase in credit disbursement led to 0.244% rise in rice production in the given period.

Crux of the matter is disbursement of credit is vital for crop production. Disaster year presses for renewed effort and commitment in this regard. Disaster like flood often leaves some healing messages for agriculture. For instance, silt deposited along with other agricultural inputs could boost rice production in post flood years. This time we could be deprived of that as damages spring from both pandemic and lockdowns. Silver lining is that oil price is all time low and it means that irrigation cost and fertilizer production cost will be much lower than anyone can anticipate. We have to devise policies to grow more food grain to cater to the demand of people. There is evidence that past pandemic left active population severely weak. And weak population cannot fully contribute to post disaster period.

The post-pandemic world will be hungrier than ever before. Food will play a decisive role in shaping bilateral and strategic relations. We have to grow enough food so that we can win friend and allies in Africa and Asia and secure our economic interests. So we have to grow more food not just for us but for friends in near and far away continents. For that, agricultural credit should be easier to access and hassle-free. And we have to make sure that it falls into the right hands.

Key takeaway of this analysis is that this pandemic may inflict damages to crop production that may not be seen in other disaster years. Agricultural credit is quintessential to grow more crops and requires govt’s policy support. Growing enough food has also strategic benefits. While assessing policies in the time of pandemic, our policy makers should contemplate this uncharted course of food security.