Budget FY2019-20: Agriculture spending rises but farmers’ distress likely to remain

Although no sweeping changes were expected, the general anticipation was that the FY2019-20 budget would have some measures to help the small farmers, especially after the severe loss of the boro farmers this year, creating a depressed rural economy. Over the years, pro-farmer policies of the government have helped to attain record levels of agricultural produce; but, with rising costs and falling crop prices, the key challenge at present is to boost rural investment, enhance market access to farmers, improve food processing, and introduce technology-intensive processes in the rural non-farm sector. The FY2019-20 budget has allocated Tk 16,985 crore for the agriculture sector (including fisheries and livestock), 7.6 percent higher in nominal terms than Tk 15,782 crore allocated in last year's budget.

The government's attempts to strike a delicate balance between its thrust to make agriculture dynamic and treat rice as a culturally valuable and politically volatile crop are best understood in the political and economic contexts of the budget. Various forms of subsidies, ranging from price support to fertiliser subsidy, outright cash assistance, and direct intervention of the government in price stabilisation have made this situation possible.

Due to the oligopolistic market structure and in the absence of farmers' organisation, individual marketing practices expose the farmers to high transaction costs with low bargaining position.

Over the years, what the farmers have gotten or have been promised in terms of policy support falls in familiar lines such as agricultural credit, subsidies, crop insurance or electronic trading platforms. Obviously, the farmers would love to see electronic trading eliminate middlemen, but when and how would this happen? What is on offer is an expression of intent, which is already old. The farmer does, of course, need credit, but how would he/she pay it back without a decent price for his/her produce?

So far, the policy response of the government to rice farmers' plight has been to play around with loans, subsidies, rice procurement, and minimum procurement prices. The real concerns which are at the core of farmers' distress are not new, but they have long been crying out for policy attention. What the farmer wants, above all, is a fair price for his produce. There is layer upon layer of middlemen who mediate between growers and consumers, and there seldom exists any credible means of price discovery. The more the number of middlemen, the greater the arbitrage and wider the gap between the farm gate price, which is what the farmers get, and what the end-consumer pays.

Another issue is farm labour. Cost is a problem, but the bigger problem is availability. Labour shortage forces the farmer to look for alternatives. The farmer is looking for mechanisation to help him through this crisis, but this is happening at a slow pace. What stands in the way is economics—not technology. That is where the government needs to step in if it really wants to help the farmers. Without a fair price for the produce and meaningful mechanisation, agriculture will go down the chute and increasing farm incomes will remain a pipe dream.

Promoting the marketing capability of small farmers is the key challenge of raising the prices received by the farmers and increasing farm investment. Due to the oligopolistic market structure and in the absence of farmers' organisation, individual marketing practices expose the farmers to high transaction costs with low bargaining position. Small farmers are also unable to receive fair prices as they have to sell their products soon after harvest because of the immediate cash need for repayment of loans and other reasons when the prices are generally low. These factors underscore the importance of forming farmers' cooperatives, development of marketing infrastructures, and accessibility of up-to-date marketing information in order to support farmers' bargaining power to increase small farms' profit and investment.

Reliance on the market alone will not lead to more efficiency in the agricultural value chain or enhance the competitiveness of the small farmers so that they can get fair prices. The government needs to adopt effective policies in order to ensure fair prices for the growers through procurement and other means; enhance the staying power of the farmers by creating storage facilities (e.g. at the community level through cooperatives, private-public partnership and other mechanisms) for agricultural produce of farmers; and encourage farmers to enter into more collaborative vertical and horizontal partnerships to enhance capability and bargaining power. Existing agricultural value chains in Bangladesh are not competitive and the values are not distributed among the participants in an equitable manner. Obviously, any asymmetric dependence based relationship within the value chain is not congenial to promoting welfare of the small farmers.

While the private sector participants dominate the agriculture sector so that the private sector will have to play the dominant role in the value chain transformation process, the government will have to take effective measures to facilitate the entire process. The government will have to adopt measures to encourage the participants to develop both horizontal and vertical collaborations covering the entire chain. The adoption of competition policy and guidelines for the sector will contribute to more equal sharing of value. For enhancing and sustaining the benefits of an improved supply chain, productivity needs to be continuously increased through adopting improved technology and other measures.

The failure to provide fair prices to the farmers, low innovations and productivity, and market imperfections are the outcomes of unfair dependency relationships across the chain members and lack of their collective collaboration. The implementation of a value chain focus for the agriculture sector will improve the conditions of the chain participants, especially the small farmers. 

Although agricultural income is not taxed in Bangladesh, farmers are implicitly taxed through restrictive marketing and trade policies that have an in-built consumer bias through controlling agri-prices. While reducing cost is one way of increasing income, the other way would be to increase the yield by strengthening agriculture research, especially since the gap between actual and potential yield is so large.

Digitised land registration, mobile phones and "Uberised" tractor services are possibilities that can contribute to improved farm management by the small farmers. Ensuring title guarantees and increased security of land tenure to these farmers will stimulate land rentals by nonviable smallholders and land consolidation. With only a limited number of villages having banking services within five kilometres, the government needs to further encourage agent banking and rapidly expand mobile phone payment technology. For the small farmers, these will create opportunities to shift from input-intensive to knowledge-intensive agriculture.

Mustafa K Mujeri is the executive director of the Institute for Inclusive Finance and Development (InM). Email: mujeri48@gmail.com

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