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Budget 2012-13: Need for agriculture sensitivity

Mahfuz Kabir
THE budget for fiscal year 2012-13 will increase by 17%, making it gigantic at nearly Tk.2 trillion. The government has expressed firm commitment to achieve food security by 2013. Therefore, the next budget will have to play a vital role in attaining this goal. Even though agriculture contributes tremendously to the economy by feeding the nation, engaging the highest proportion of labour force, providing raw materials for industry and driving the service sector, it has long been ill-fated. Farmers who work hard from dawn to dusk to feed the nation remain unfed. The present government has taken many positive initiatives, but much still remains for development and transformation of this sector, some of which can be covered in the next budget.
The budget is the most significant fiscal document that bears profound implications in economic life. However, preparation of the national budget lacks direct involvement of the people and active participation of lawmakers. Even though the finance minister organises pre-budget meetings and stocktaking with business chambers and the National Board of Revenue, the people's voice remains unheard by the budget makers. Since agriculture lacks farmers' association (not the political wing) and related professional group, their demand cannot be transmitted directly to those who make the budget.
We have the five-year Medium Term Budgetary Framework (MTBF) prepared mainly to implement the Sixth Five-Year Plan (2011-2015). It contains elaborative structure of the sectoral objectives, projects by different departments under the ministry of agriculture, impact on women and poverty, and outcome indicators. The projection of expenditure, no matter whether scientifically made and aligned with possible revenue, has very little scope for addressing emerging and new realities in agriculture sector. The solution is, therefore, trading off, i.e., cutting the ongoing expenditure to accommodate new projects. There is a need for revisiting this ad hoc mechanism for adjustment and re-adjustment.
Finance Division data reveal that 52% of ADP of the ministry of agriculture had been implemented up to February, which is a clear improvement over the last fiscal year. Significant variation of project implementation round the year is a regular phenomenon, which happens due to seasonal effect, project-specific constraints, and constraints of the implementing agencies due to bureaucratic hurdles. There are hurdles in tendering process, initial procurement, delayed submission of bills, rigid Public Procurement Rules, high transfer costs, etc. These hinder efficiency of project implementation and need to be properly addressed.
Agricultural performance hinges crucially on adequate and timely supply of inputs at reasonable price. In the last few years, the fertiliser crisis was mitigated but the problem of quality seeds and irrigation still remains. Bangladesh Agricultural Development Corporation (BADC) and its affiliates can supply only up to 26% of the demand for seeds, the rest comes from domestic private sector and imported hybrid varieties. Even though the Seed Certification Agency is responsible for certifying and controlling the quality of all agricultural seeds of the recommended varieties, its capacity is quite feeble. Compensation mechanism is needed when farmers are affected due to bad seeds.
It is important to ensure that agricultural credit is reaching in time and adequately to the small and marginal farmers, who are critical in increasing food production. In the first seven months the overall agricultural credit disbursement shows a negative pattern (-0.56%), while disbursement was reduced significantly in the rural non-farm sector (-30.66%) compared to the last fiscal year. This could lead to underinvestment in agriculture and hamper the sectoral growth. However, credit from banks usually takes time due to paperwork and bureaucratic hurdles, which leads farmers to borrow money from informal money lenders and input suppliers. Policymakers must look into this matter carefully.
Agriculture has been receiving significant amount of subsidy for more than a decade. Whether subsidy is adequate, designed properly, and is reaching its intended beneficiaries, economic theory indicates that it gives rise to economic inefficiency by increasing the size of "Harberger's Triangle" and causing loss. Adverse selection of the beneficiaries is also an important outcome of subsidy. The government has introduced input assistance card for farmers, which is indeed commendable. But need assessment of the farmers has not yet been conducted, which leads to inefficient distribution of subsidy. Since the overall social outcome of agricultural subsidy is positive, it should be sustained for "Pareto Improvement" through proper targeting and transparency. The government has to formulate a subsidy plan on where, why and how to spend money, keeping in mind the alternative use of resources.
Fair price is a long-standing demand from the farmers but government intervention in price will distort the market and disrupt the supply chain. Agricultural performance is commonly influenced by "cobweb" effect when high price in the current period leads to overproduction in the next year, resulting in low price. It discourages farmers from producing a crop, which again trigger price-hike. This year, speculation about food shortage encouraged rice millers to stock rice, but was proved incorrect due to government's timely import and bumper harvest. Now it will be difficult for farmers to recover production cost because of low price of rice caused by the millers releasing their stock. In order to partly avoid this adverse outcome, there is a strong need for developing adequate storage facilities along with credit during the harvesting period so that farmers can wait until prices go up and then sell their rice. Reviving Crop Storage Credit Programme can protect farmers from adverse price effects.
In addition to the above issues, the upcoming budget should consider the following aspects for improvement and transformation of agriculture in line with the Sixth Five-Year Plan and Perspective Plan:
Increase allocation for agricultural research for improved saline and drought tolerant varieties. Currently, the northwest is costly for rice production due to high irrigation need. Rice production should be shifted to the south through improved saline-tolerant varieties. Northwest should concentrate on high-value agriculture;
Government should encourage people to build general and multi-purpose cold storages through soft loans with tax exemption for five years;
Farmers are the investors in agriculture sector but they have no insurance. It should be introduced at least in poultry, fishery and high-value crops;
Railway can be used for marketing of crops and vegetables. It will help avoid rampant extortion in road transportation and reduce the price paid by the consumers;
Upazila agricultural office should get a covered van/vehicle to distribute inputs swiftly and to remote places including char, haor and hilly areas;
Solar power panels should be used for using surface water in agriculture. Public and private commercial banks should provide loans for this purpose;
Allocation in poultry sector, especially for avian influenza, has not been disbursed yet in the current fiscal year. Compensation must be provided immediately to the affected farmers to save the poultry industry. Biodiversity management is also essential to protect this sub-sector;
Proper flow of information on price, input and marketing can also help farmers in taking correct decisions. The Departments of Agricultural Extension and Marketing can play a strong role here.
Finally, effective parliamentary oversight of public budget is central to democratisation and improved management of agricultural budget. The Standing Committee on Ministry of Agriculture needs to be involved in the stocktaking with the relevant departments and agencies to assess the failures and successes. The potential role of Standing Committee has to be realised effectively in order to enhance the scope of parliamentary oversight of budget.
The writer is an economist and Senior Research Fellow at Bangladesh Institute of International and Strategic Studies (BUSS), Dhaka.
E-mail: mahfuzkabir@yahoo.com.
****Agricultural performance hinges crucially on adequate and timely supply of inputs at resonable price. In the last few years, the fertiliser crisis was mitigated but the problem of quality seeds and irrigation still remains.*****