Mix and match

Paddy shold not monopolise. Photo: Bayazid Akter/ drik news

IN his budget speech for 2010/11, the finance minister duly drove home his government's thoughts on agricultural development, especially food security. The last fiscal year saw some sea-changes in incentives for raising crop production (especially paddy). Special mention may be made of subsidy assistance cards for about 20 million farmers and distribution of Tk.720 crores as subsidy on diesel channeled through these cards.
We can also record serious efforts at boosting agricultural growth in the southern region, opening of an account with Tk.10 by framers, uninterrupted supply of inputs, and expansion of agricultural loans -- all being milestones for our agricultural sector.
Lifeline - livestock
I shall submit my personal views about the role of non-crop agriculture, particularly of agro-processing activities, in our national economy and the role that budgetary tools could play in that direction. It may be noted here that non-crop agricultural activities -- livestock, forestry and fish -- together account for roughly 9% of our GDP (livestock alone claming one-third of that) and 15% of household income in rural areas.
More importantly, while the income from paddy farming was almost three times the non-crop agricultural income in 1988, the difference has almost been leveled off in rural areas. The livestock sector, particularly, grew an average rate of 6% during 2003/04 to 2006/07.
The growth rate disconcertingly dipped to 2% in 2007/08, but seemingly staged a comeback to roughly 4% in 2008/09. Besides, mostly rural women are engaged in this sector and it is a pet project of government and NGOs as far as asset transfer to the poor is concerned. Nutritional deficiency dictates that this sector should get special treatment.
There is another moot point. It is now widely claimed that the income elasticity of cereals is relatively low at around 0.6, and is going to be lower with increase in income in the years to come. Given such elasticity, cereal production will have to grow at 1.2% per annum between 2010 and 2020. The income elasticity of demand for milk is 1.61, and milk production will have to grow at 4.2 percent during the same period.
Agro processing
The most important aspect of non-crop agriculture in Bangladesh is agro-processing activities. Of late, some private initiatives (steered by Pran Group) have turned to agro-processing, thus contributing to domestic employment generation, value addition and saving of foreign exchange. Researchers reckon that Bangladesh has huge potential for turning raw agricultural produce into refined ones through both forward and backward linkages.
If we want our agriculture to flourish and provide decent livelihoods to rural people, we shall have to take into cognisance agro-processing activities in right earnest. To use a simple example, the economy will benefit many-fold if tomato sauce can be produced domestically from tomatoes in farmers' fields. Thus, when we talk of employment generation in manufacturing industries we really indicate this type of industries.
And finally, allow me to use the metaphor of an American president epitomised as the classic argument for import substitution: if we buy a coat from England, we get the coat and England gets the money; if we buy the same coat from America, we get both the coat and the money.
Fruit juices
The budget has proposed new supplementary duty on juices, including mango juice. There was already a 10% VAT on the juice industry and now another 10% has been imposed as supplementary duty. Cumulatively, it will increase the price of juices by around 27%.
The price increase will cut in two ways; the income effect will reduce the demand as real purchasing power to cause demand to fall; and a substitution effect would result in substitution towards carbonated drinks that has witnessed no such increase in duty over the years, and which are considered to be detrimental to health.
Mango and other juices are in fact health foods fortified by Vitamin A and C supplements. They help to increase the nutrition intake of people of all ages. National nutrition intake has decreased over the past few years due to decline in purchasing capacity and non-availability of vitamin processed food. This is now available through fruit drinks, which are available even at the thana and union levels in rural Bangladesh.
As far as my knowledge goes, western countries do not add taxes on, or keep them at very nominal rate, all fruit consumables to keep them within the reach of the ordinary buyer. The fruit processing industry provides a huge stimulus to our agriculture and fruit horticulture by proving employment to millions of people at the fruit growth stage, supply distribution system and in the processing plants.
By and large, the fruit and juice industry is part of our agriculture-based economy, providing livelihood and employment to thousand of our farmers. Imposing disincentives might actually negate the government's commitment towards poverty reduction.
Milk and milk products
The duty on imported powdered milk has been reduced. The progressive decrease in the value of taxes (during the past three years) on imported dairy products is alleged to be directly hitting our milk industry, which is still far from meeting the domestic nutritional requirement. Customs duty on cheese and curd -- which are basically non-essential items -- is reported to be have been reduced.
Again, withdrawal of tariff on yogurt drink, chocolate drink, mango milk/ banana milk might impact upon organic drinks, thereby affecting nutrition and increasing unemployment. The proposed measures may make milk powder cheaper and thus harm the local milk growers and the milk supply chain -- all involving millions of small earners -- thereby affecting national milk production.
Milk production has already come down from a peak of 2.7 million tons in 2007/08 to 2.2 million tons in 2008/09, when there is a national demand of about 6 million tons. It may be mentioned here that FAO recommends per capita availability of milk at 150 mL, against Bangladesh's 50 mL only, which is one-thirds of the internationally recognised nutrition requirement.
In the outline of Vision 2021 huge emphasis has been laid on increasing livestock and milk production. That is the way that our farmers can move from subsistence to commercial agriculture. If that vision has to be realised, we have to see that our internal and external tax polices are in tune with the vision. Milk is the most essential nutrition supplement for the health of children, young, lactating mothers and even older people.
While every country tries to provide incentives to the milk industry, our proposed tax reduction on imported milk may militate against our own mission of providing milk to our children and generating employment in the economy. In this case, we can only recollect the famous statement of the American president that has been mentioned before.
With proper measures taken there is immense potential for further growth of the livestock sector beyond that of agricultural sectors, and particularly involving the smallholder village farmers. Encouraging national milk production and discouraging imported milk powder is the only way to make our agriculture-based economy more vibrant and cater to the growing requirement of national nutrition and health.
Abdul Bayes is a Professor of Economics at Jahangirnagar University. Email: [email protected]