There has been little discussion on raising the people’s purchasing power and restoring effective demand by way of making access to affordable food grains through a universal, and not targeted, employment guarantee scheme and a universal, not targeted, public food distribution system respectively, writes Rashed Al Mahmud Titumir

WHILE food price inflation has justifiably touched off debates and discussion at different levels, and the party in power attached topmost priority to reining in the price spiral, the thinking thus far has been within the boxes. The ruling elite have propounded ideas on the basis of ‘no control’ over an ‘open market economy’ such as Bangladesh’s, whereas the populists thrive on the idea of so-called ‘syndication’ for fixing prices. The former is fallacious while the latter needs to be understood in its nuances.
   There has been little discussion on raising the people’s purchasing power and restoring effective demand by way of making access to affordable food grains through a universal, and not targeted, employment guarantee scheme and a universal, not targeted, public food distribution system respectively.
   According to latest official statistics, Bangladesh’s monthly inflation rate in November 2009 soared to 7.24 per cent, the highest in the past 14 months, as the rate of urban food inflation went up around double-digit figures. According to the Bangladesh Bureau of Statistics, food inflation in urban areas in November, the fifth month of the current fiscal year (July 2009-June 2010), was 9.83 per cent and non-food 6.27 per cent. The BBS data showed that in rural areas food inflation was 7.0 per cent and non-food inflation 6.51 per cent in November 2009. Overall inflation in Bangladesh generally follows the trend of food inflation which has a weight of nearly 65 per cent at the national level.
   A low price regime which started with the assumption of office in January 2009 by the Awami League-led government is over and a further inflation in coming months is predicted as prices of rice went up substantially in the past two months despite the presence of aman (summer) rice.
   This piece would primarily deal with the ideas propagated by the ruling quarters – not the current one, but the previous regimes as well – that controlling prices of any commodity is not the job of a government in a market-oriented economy and Bangladesh being dependent on import for most of its food items is always vulnerable to international market volatility.
   When the country started the so-called open market economy, it was made to believe that Bangladesh would gain from trade liberalisation if she produced where the country had comparative advantage while it imported the products at lesser costs from the countries which had relative cost advantage over those. The examples were cited of the tropical and subtropical countries for agricultural commodities. In Bangladesh’s case, a lot of examples were cited about her benefit of importing from India. The idea was easily sold because there was commodity price depression at that time.
   Now let us examine as to why the assumption is fallacious. The fundamental differences between agriculture and manufacturing are not taken on board by the propagandists of comparative advantage, which refers to the ability of a party (an individual, a firm, or a country) to produce a particular good or service at a lower opportunity cost than another party and trade can create value for both parties even when one can produce all goods with fewer resources than the other.
   The crops can only be grown in a specific climate-soil settlement while manufactured goods can be produced anywhere in the world using raw materials, from the local sources, if available, or through importation from the country of their origin.
   Now, the food intakes that the people of this soil are used to, through particular norms and cultural settlements, are only available in certain non-temperate countries. The food behaviour differs even within the region. For example, the North Indians and the Pakistanis will prefer wheat over rice while the rest of south and southeast will choose the latter. On the one hand, the non-temperate lands with particular capacity to produce certain crops are in limited supply while the demands for such foods are on the rise due to demographic momentum in the global South and changes in food behaviours of the North, on the other.
   The orthodox model is, thus, only applicable to where both countries could produce both commodities. Therefore, any country embarked upon a policy framework with such wrong assumptions of comparative advantage of costs in agriculture will have to face dire consequence for its people.
   The associated policy prescription of that day was that of the inverse relation between agro-exports and domestic production. As a result of such policies, in case of Bangladesh, dependency on import, especially from India and China, increased significantly. These two countries are the main sources of Bangladesh’s import, especially for food and other essential commodities. On an average, around 28-30 per cent of Bangladesh’s total import was from these two countries in the past four years or so. Moreover, these countries suffer from their own food insecurity, which push them to raise their export price as well (e.g. India increased price of, and put export ban on, rice). At the same time, in the past few years, Indian rupee and Chinese yuan have appreciated by 15-17 per cent and 4-6 per cent respectively against dollar while between 2003 and June 2007 taka depreciated by about 19 per cent, meaning that the cost of import from these countries increased substantially, which has an impact on inflation.
   The self-sufficiency ratio determines magnitudes of production in relation to domestic utilisation. It is another way of expressing the food deficiency in the country. Based on the official and private food grain production and import data, the SSR for Bangladesh is gradually declining (see Unnayan Onneshan research, ‘Inflationary trend in Bangladesh and impact on high food commodity prices’, available at www.unnayn.org). Considering the decline of SSR to 89.7 per cent in 2007-08 from 94 per cent in 2000-01, it can be deduced that dependency on food import has been gradually increasing.
   Another item in the package was the curtailing of the role of the state, and thus in Bangladesh, shrinking government support to agriculture has made the production hardly viable over the years. Drastic reduction in public expenditure in agriculture increased the input costs and shrinking price incentives in an imperfect unregulated market structure, ultimately swept the farmers in negative profitability. Just after the liberation in 1971, the agriculture ministry’s share in the annual development programme was 30.97 per cent while it came down to only 2.59 per cent in 2001. In terms of GDP, real public investment in agriculture marked a negative growth in fiscal 2005 and remained stagnant.
   The strongest link between food availability and food access is determined through price mechanism and in recent years, the rapidly increasing food price has made it difficult for the poor, low- and middle-income group to have access to food. This could be illustrated from the relationship between food inflation and per capita food intake. In 2005 per capita food intake came down to 469.2 gram/per capita/per day from 486.7 gram/per capita/per day in 2000. Over the same period food inflation increased to 7.91 per cent from 1.38 per cent and to the recent double digit.
   A BRAC-DFID survey states (available as policy brief 1 in the BIDS website – www.bids-bd.org) overall food consumption fell. The prevalence of wasting (acute malnutrition) among two to five year olds in rural areas rose from 17 per cent to 23 per cent between 2006 and 2008 (an increase of 34 per cent). In urban areas it rose from 14 per cent to 21 per cent (an increase of 47 per cent). Extrapolating from the results of the study, the authors estimated that 650,000 additional under-five children in Bangladesh became wasted largely as a result of the higher food prices.
   One of the main reasons that aggravated the present food insecurity situation is the government’s failure to maintain a sufficient food stock, partly because of the fact that it follows the donors’ instruction to maintain a low level of food stocks. Depletion of government food stock below the threshold level of 0.8 million metric tons and limited scope of government to procure rice from the international market further intensified speculation and hoarding among traders.
   Another situation that is causing food insecurity is the gap between wholesale and retail prices. There are forces that are allowing marketing margins – at both wholesale and retail levels – to increase. This means that the direct producers, the farmers, do not get the benefit of the rising prices which consumers in both rural and urban areas are forced to pay. This has occurred also primarily due to abandoning of the universal public food distribution system. This is a direct resultant of the policy prescription which hardly understood what a rent-seeking behaviour is. This is also an implication of the misleading explanations on price fixing and predatory pricing.
   The proponents of such understanding have come up with a populist terminology, which is called targeting and use variants such as OMS, VGDF, etc. These create much more confusion, as prima facie it sound the supply should go to persons who need most and need help, particularly if supposedly there is a budget constraint and poverty is pervasive.
   This would be found misleading if we could try to explain as to why the poor use public services such as health, education, etc relatively less despite efforts of targeting. Understanding such nuanced causalities require a political economy explanation. It is difficult for the poor to rise from the ‘class in itself’ to a ‘class for itself’ without the animation from other classes. Moreover, the class consciousness of the poor in Bangladesh is a matter of scrutiny. What is evident is that the poor by themselves in Bangladesh have yet to become the standard bearer of their own class and make any inroad into power relations, despite many attempts by the development interventionists. So, it would be deceptive to go for a targeted approach as has been the case in the country, which has resulted in rent-seeking.
   Thus, any discussion on food price inflation should be of not being tied to the conventional boxes, rather policies need to be formulated and put in practice to raise purchasing power and restore effective demand through universal employment guarantee scheme and to make access to affordable food grains through a combination of a universal, and not targeted, public food distribution
   system.
   Rashed Al Mahmud Titumir is chairperson of the Unnayan Onneshan, an independent think-tank. He can be reached at rtitumir@unnayan.org