Beneath The Surface
Food security and domestic market reforms
Abdul Bayes
The International Food Policy Research Institute (IFPRI) recently organised a workshop on "Trade Liberalization and Food Security." Held in New Delhi under the aegis of its Asia Office, the workshop on food security (FS) went through a number of case studies relating to FS in South Asian countries, and suggested some important ramifications resulting from the nexus between FS and liberalisation. In this column today, we shall try to present an analytical framework on FS as revealed by the discourse.Basically, FS is a developmental problem. A household can be termed food insecure if its consumption is low or inadequate compared to the dietary needs for an active and healthy life. Of course, the inadequate supply is caused by the inadequacy of the purchasing power or lack of entitlement to exchange food. Both low income/asset base and high retail food prices could cripple such entitlements of food deficit households. The eminent economists at that workshop identified four specific sets of issues in this context: (a) distributional issues; (b) domestic supply side issues -- covering both agriculture and infrastructure amongst the non-agricultural sectors; (c) international trade issues; and (d) domestic trade issues. The presentations attempted to outline the channels through which these four sets of issues affect household income and retail price of food, and hence their purchasing power and ultimately their degree of food (in) security. Poverty is at the root of food insecurity. Households with little or no assets (including land) would suffer the most from food deficit. Their entitlement is limited by the limited purchasing power or their meager income that might not enable them to buy food priced high at retail level. Even those owning some land are not better off due to very tiny size of land holdings that severely limits access to home-grown food. This is especially true among many of the countries in South Asia, including Bangladesh. They are the net buyers of food and food intake remains pitifully low due to insufficient purchasing power. The rich farmers are generally net sellers of food where a high food price adds to their kitty to keep them food secured. Thus the extent of inequality in the distribution of income/assets partly explains the variations in FS across households. The solution is then to generate income earning opportunities for poor people. And the durable solution is sustained economic growth. No matter what the distributional consequences might appear apriori, a robust and sustained economic growth is the main means to end food insecurity across households. In the absence of sustained durable economic growth, well designed and well implemented income transfer programs can, in principle, be an effective alternative for increasing the income of the poor. But unfortunately, such programs are, in many cases riddled with numerous problems pertaining to coverage, targeting, inefficiencies, corruption and leakages. The safety net programs, allegedly, have turned into safe havens for the healthy and wealthy ones, pushing the needy on to the back burner. Inadequate income aside, high food price is another dominant deterrent to FS. The shortage in domestic production, if not met by timely imports, might witness price hike. Even with internal trade, the situation gets aggravated due to abrupt swings in the international market. Thus, national level food insecurity translates into household level food insecurity and at the same time national level food security does not entail household level food security. Food prices can be high even when sufficient food is available in the country. Two important factors could fan the fire: (a) the high transport and storage costs; and (b) high domestic trade margins. High storage and transport costs are caused by lack of roads, ports, railways, warehouses, etc and are uneven across regions, causing regional disparities in FS. High domestic margins are the result of oligopolistic markets rather than competitive markets where a large number of buyers and sellers act with easy entry and exit. High trade margins imply that farmers receive a low price for their produce while consumers pay a high price for their purchases. That is, the farm gate price of food and other products are disproportionately low while it is high at retail levels. With high storage and transport costs and high trade margins, food prices may rise even with increased national supply of commodities. That is, household level food insecurity can co-exist with national level food security. The critical roles of infrastructure and domestic market reforms are keys to addressing the issue of food insecurity. Empirical evidence elsewhere tends to reveal that a region with better infrastructural facilities tends to face fewer risks with food insecurity while the most insecure regions are those with backward infrastructure. Rural infrastructure building thus emerges as the most important intervention in facing the problem of food insecurity. Such infrastructure works in two ways: first, by engaging the poor in construction and maintenance of infrastructure and thus enhancing their entitlements in the markets, and second, by allowing free movements of food from fire-pan to the fork resulting in low marketing margin, low prices. Domestic market reforms -- updating the laws and regulations -- are very much needed. Recent allegations about business syndicates in Bangladesh and their ramifications, as admitted by the Commerce Minister himself, point to the observation that unless reforms are afoot, food insecurity might exist despite sufficient food supply. Bangladesh has progressed reasonably well in terms of rural infrastructure (although many miles yet to go) but domestic markets, allegedly, are captives of some unscrupulous traders. The IFPRI workshop tried to remind policy makers that perhaps all that glitters in the name of food self-sufficiency is not gold in terms of food security of the poor people. The sooner we realize this, the better it is for us. Abdul Bayes is Professor of Economics at Jahangirnagar University.
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