Report No. 9641 -RD Bangladesh Food Policy Review: Adjusting to the Green Revolution (In Two Volumes) Volume Il: Annexes February 28, 1992 Country Operations Industry and Finance Division South Asia Region I FOR OFFICIAL USE ONLY , .~~~~~~y ' S ~~~~~~~~~~~~~ ocument of the World Bank This document has a ,restricted distribution and may be used by recipients only ini the performanice of their official duties. Its contents may not otherwise berdisclosed without World Bank authorization. CURRENCY EQUIVALENTS The external value of the Bangladeshi Taka (Tk) is fixed in relation to a basket of reference currencies, with the US Dollar serving as the intervention currency. The official exchange rate on January 1, 1992 was Tk 38.80 per US Dollar. US$ 1 = Tk 38.80 Tk 1 = US$ 0.0258 WEIGHTS AND MEASURES 1 maund = 0.0373 metric ton (MT) 1 long ton = 1.016 metric ton (MT) FISCAL YEAR (FY) July 1 - June 30 FOR OFFICIAL USE ONLY List of AbbreviAtions and Acronyms Used ADP - Annual Development Program BADC - Bangladesh Agricultural Development Corporation BARC - Bangladesh Agricultural Research Corporation BARI - Bangladesh Agricultural Research Institute BBS - Bangladesh Bureau of Statistics BIDS - Bangladesh Institute of Development Studies BRDB - Bangladesh Rural Development Board BRRI - Bangladesh Rice Research Institute CARE - Cooperative for Anerican Relief Everywhere CIDA - Canadian International Development Agency CIF - Cost, Insurance and Freight CSD - Central Storage Depot CV - Coefficient of Variation DGF - Directorate General of Food DGMEI - Directorate General of Monitoring, Evaluation & Inspection DRC - Domestic Resource Cost DRR - Directorate of Relief and Rehabilitation DTW - Deep Tubewell EP - Essential Priorities EPC - Effective Protection Coefficient FFW - Food-for-Work FFYP - Fourth Five-Year Plan FM - Flour Mills FOB - Free on Board FS - Free Sales GDP - Gross Domestic Product GOB - Government of Bangladesh GR - Gratuitous Relief HES - Household Expenditure Survey HYV - High-Yielding Variety IFPRI - International Food Policy Research Institute IMED - Implementation, Monitoring and Evaluation Division IPP - Integrated Poultry Program KCAL - Kilocalories LE - Large Employers LGEB - Local Government Engineering Board LLP - Low-lift Pump LSD - Local Storage Depot MLG - Ministry of Local Government, Rural Development & Cooperatives MO - Marketing Operation MOF - Ministry of Food MP - Muriate of Potash MRR - Ministry of Relief and Rehabilitation NEV - Net Economic Value NPC - Nominal Protection Coefficient OMS - Open Market Sales OP - Other Priorities PFDS - Public Foodgrain Distribution System PR - Palli Rationing RMP - Rural Maintenance Program SIFAD - Strengthening the Institutions for Food Assisted Development This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. SR - Statutory Rationing STW - Shallow Tubewell TR - Test Relief TSP - Triple Super Phosphate UMR - Usual Marketing Requirement USAID - United States Agency for International Development VGD - Vulnerable Group Development WFP - World Food Program TITLE: FOOD POLICY REVIEWs ADJUSTING TO THE GREEN REVOLUTION COUNTRY: BANGLADESH REGION: SOUTH ASIA COUNTRY DEPARTMENT I SECTOR: Country Economic REPORT: TYPE CLASSIF MM/YY LANGUAGES 9641-BD ERA Restricted 03 92 English PUBDATE: 9203 ABSTRACT: Few countries approach food security with as much a sense of urgency as Bangladesh. An estimated 10 to 15 percent of the population is at severe nutritional risk, while the majority of the population faces hunger, deprivation-and seasonal food insecurity. Government food policy, through its impact on prices and trade, seeks to ensure an affordable food supply for poor consumers while simultaneously providing adequate pricing incentives for agricultural production. This is a delicate balance which must be adjusted to take into account changes brought about by social and economic development. In the past twenty years, Bangladesh has witnessed dramatic changes in its agricultural production environment. Dissemination of Green Revolution technology has substantially reduced yearly and seasonal fluctuations in domestic foodgrain production, and consequently, reduced the variability of foodgrain prices. Declining production costs have made possible a decline in the real price of rice in Bangladesh%-the ultimate goal of the Green Revolution. At the same time, the private foodgrain market--despite pockets of under- development and isolation--has become well-integrated and efficient. The need for Government to intervene directly in the market to ensure food supply has been markedly reduced. This report suggests that the time has come to allow the private sector to play a larger role in stabilizing foodgrain prices and ensuring food security. The public sector can then work more effectively and efficiently to respond to catastrophic events such as cyclones and floods, and to target assistance to those at greatest nutritional risk. A medium- term policy framework is proposed to achieve these goals, and it calls for, inter alia, i) abolition of past restrictions on private sector domestic trade, transport and storage of foodgrains; ii) liberalization of external trade in foodgrains, and use of exchange rate and/or tariff policy to provide an appropriate level of effective protection for the domestic rice market; iii) adoption of a trade-based price stabilization mechanism which relies on private sector trade and a public sector import/export stabilization fund to keep rice prices within an acceptable range; iv) phasing out of ration channels which either target relatively well-off groups or which fail to effectively target the poor; v) expansion and diversification of self-targeting distribution programs, to offer a range of activities which reach more women and children during periods of low food availability and high incidence of disease; and vi) greater government accountability for food aid and financial flows, and improved efficiency of governmert food operations. BMAGLADESH FOOD POLICY REIW ADJUSTING TO THS GRDSN REVOLUITION TABLE OF CONTENTS Pae ANNEX 1: Trends in Food Production .. . ............ . I ........ . 1 ANNEX 2: Food Consumption and ExpenCiture .......................... . 12 ANNEX 3s: 1futritional Statue ......... * ............... 18 ANNEX 4: Protection, Profitability and Comparative Advantage in Agriculture ........................ 26 ANNEX 5s Medium-Term Outlook for Foodgrain SUPPly and Demand ............ 43 ANNEX 6: Price Data and Patterns of Price Variability .............. ...... 58 ANNEX 7: Analysis of the Causes of Annual and Seasonal Price Fluctuations in Bangladesh . .. ........ . 73 ANNEX 8s Analysis of the Demand for Rice ... 75 ANNEX 9: Effects of Different Rice Prices on Farm Income ................ 79 ANNEX 10: Economic and Finencial Subsidies in the Public Foodgrain Distribution System ............................... . 89 ANNEX 11: Accounting and Budgeting for Food Operations .. ............... . 95 ANNEX 12s Efficiency of Government Food Operations ............. ......... 104 LIST OF ANNEX TABLES page ANNEX 1: Trends in Food Production ...................... 1 Table 1.1 Average Size of Land Holdings in 1967/68 and 1983/84. . . 1 Table 1.2 Cultivable Land by Inundation Level . . 1 Table 1.3 Acreage Under Various Crops by Division, 1987-88.. 2 Table 1.4 Land Use and Cropping Intensity, FY61-87.. 2 Table 1.5 Area Under Irrigation, by Method, 1969/70 to 1989/90.. . 3 Table 1.6 Fertilizer Use, FY71 to FY89. . . 3 Table 1.7 Summary of Foodgrain Production, Area and Yields, FY61-90Y 6 1 -0........ 4 Table 1.8 Foodgrain Production, FY61-90. . . 5 Table 1.9 Area Under Foodgrain Production, FY6-90 . . . 6 Table 1.10 Yields for Foodgrain Production, FY61-90 . . . 7 Table 1.11 Growth of Selected Crop Production, Area, and Yields ........ . ............. 8 Table 1.12 Production of Selected Crops, FY61-90 . . 9 Table 1.13 Area Under Selected Crop Production, FY61-90 ... 10 Table 1.14 Yields for Selected Crop Production, FY61-90 ... 11 ANNEX 2: Food Consumption and Expenditure ............................... 12 Table 2.1 Distribution of Household Food Expenditure, 1976/77 to 1988/89 ................................... 12 Table 2.2 Distribution of Household Food Expenditures ............ 13 Table 2.3 Average Monthly Expenditure on Major Food Items, By Per Capita Income Groups, 1988/89 .14 Table 2.4 Consumption of Major Food Items by Income Group, 1988/89 .15 Table 2.5 Average Per Capita Consumption of Selected Foods, 1981/82-1988/89 .16 Table 2.6 Adequacy of Food Consumption by Income Group, 1988-89 .17 ANNEX 3: Nutritional Status ..8....................... i Table 3.1 Prevalence of Severe and Moderate Wasting in Bangladesh, 1985-86 and 1988/89 ...................... 20 Table 3.2 Prevalence of Severe and Stunting, 1985/86-1988/89.. 22 ANNEX 4s Protection. Profitability and Cnmparative Advantage in Agriculture ............. ....... .... . ........... 26 Table 4.1 Inputs and Production Coefficientst Rice Crops......... 31 Table 4.2 Inputs a.ld Production Coefficients: Food Crops.......... 31 Table 4.3 Inputs and ProducUton Coefficients: Cash Crops......... 32 Table 4.4 Coefficients of Protection for Rice (Urban Wholesale Level) ........... 35 Table 4.5 Coefficients of Protection for Selected Food and Cash Crops . r.. ..... ................... 36 Table 4.6 Financial Profitability ofRice........................ .37 Table 4.7 Indicators of Economic Value and Comparative Advantage fos Import Substitution of Rice............ 38 Table 4.8 Indicators of Economic Value and Comparative Advantage for Export of Rice......................... 39 Table 4.9 Financial Profitability of Selected Food Crops......... 40 Table 4.10 Economic Profitability and Comparative Advantage of Selected Food Crops. ......... 40 Table 4.11 Financial Profitability of Selected Cash Cropss.... 41 Table 4.12 Economic Profitability and Comparative Advantage of Selected Cash Crops ..... .... 41 Table 4.13 Returns to Family Labor on Selected Crops.......... 42 ANNEX 5: Medium-Term Outlook for Foodgrain Supply and Demand............ 43 Table 5.1 Scenarios for Irrigation Expansion. 44 Table 5.2 Base Scenarios - Projected Land Use ................... 44 Table 5.3 Base Scenarios - Project Crop A r e a 45 Table 5.4 Actual and Potential Yields of Existing High-Yielding Varieties..... 46 Table 5.5 Yield Projections ...... . ......................... .. .. 47 Table 5.6 Some Estimates of Income Elasticity of Demand for Foodgrain in Bangladesh.................. 49 Table 5.7 Estimations of Income Elasticities of Demand for Bangladesh .............. 50 Table 5.8 Domestic Food Supply and Demand Projections Base Case .. ...................... 51 Table 5.9 Alternative Scenarios for Foodgrain Supply and Demand . .... 53 Table 5.10 Impact of Trade Liberalization on Cash Profitability of Rice Production ..... 55 Table 5.11 Impact of Trade Liberalization on Demand for Rice, 1990-95 ...... ... . .......... ................... 57 ANNEX 6: Price Data and Patterns of Price Variability................... 58 Table 6.1 International Rice Prices, 1960-9 1 . ....... 58 Table 6.2 International Wheat Prices (1960-91).............. 59 Table 6.3 Wholesale Coarse Rice Prices in Bangladesh, 1960-91 ............................................................ 60 Paae Table 6.4 International Variability of International and Domestic Rice Prices, 1960-69, 1970-79 and 1980-89 . ............................ * * * * * * * * * * 61 Table 6.5 Fluctuations in Annual Prices of Rice, 1960-89 ......... 63 Table 6.6 Extent of Fluctuation in Monthly Nominal Prices of Rice, 1960-84 ....................... .. ...... 65 Table 6.7 Coefficients of Variation of Monthly Rice Prices ....... 66 Table 6.8 Index if Pure Seasonality in Monthly Rice Prices, 1960-90.. ......... ............... 67 Table 6.9 Dispersion of the Index of Pure Seasonality in Rice Prices, With Low and High Months, 1960-90 ............ 68 Table 6.10 Relative Contribution of Components of Variance in Original Series, 1960-70, 1974-84, and 1985-90 ........... *...* ......... .......... 71 Table 6.11 Decomposition of Price Variability ..................... 72 ANNEX 7: Analysis of the Causes of Annual and Seasonal Price Fluctuations in Bangladesh .. 73 ANNEX 8: Analysis of the Demand for Rice ...................... 75 Table 8.1 Elasticities Results for Consumption of Rice ........... 76 Table 8.2 Elasticities Results for Consumption of Calories ....... 77 ANNEX 9: Effects f Different Rice Prices on Farm Income.......... ........ 79 Table 9.1 The Composition of Crops and Technologies by Farnm Type ........................ . 81 Table 9.2 Rice Price Scenario and Calculation of Fam Level Rice Price ................................ 82 T&ble 9.3A Small Farmer, Underdeveloped, FO Land .................. 83 Table 9.3B Small Farmer, Developed, PO Land ....................... 84 Table 9.3C Medium Farmer, Underdeveloped, FO Land ....... ... 85 Table 9.3D Medium Farmer, Developed, FO Land ...................... 86 Table 9.3E Large Farmer, Underdeveloped, FO/Fl Land ............... 87 Table 9.3F Large Developed Farm in Northwest, FO/Fl Land .......... 88 ANNEX 10: Economic and Financial Subsidies in the Public Foodgrain Distribution System ..................... 89 Table 10.1 Coverage and Quotas in the Public Foodgrain Distribution System, FY90 . . ...................... 90 Table 10.2 Economic and Financial Subsidies on Rice in the PFDS, FY90 ... . .................... 93 PaRe ANNEX 11: ACcounting and Budgeting for Food Oerations .............. .... 95 Table 11.1 The Food Budget, Government Format, FY90 and FY91 ...... 99 Table 11.2 The Food Budget, Modified Format, FY90 and FY91.... .. 101 Table 11.3 Net Cash Disbursements on the Food Account, FYSO-91 ......................................................... 103 ANNEX 12: Efficiency of Government Food Operations ...................... 104 Table 12.1 Commercial Foodgrain Imports, FY 88-90 .................. 106 Table 12.2 Estimated Foodgrain Lightering Costs to Chittagong Silo and Jetty, 1990 ...................... s09 Table 12.3 Impact of Underestimating the Daily Discharge Rate .. .................................... . 110 Table 12.4 Average Discharge Rates for Imported Wheat, FY88-89 ............................ ................................ ill Table 12.5 Central Movement of Imported Foodgrain, FY83-90 .......................... 114 Table 12.6 Comparative Freight Rates from Chittagong Port to Tejgaon CSD, FY85-89 ......................... 115 Table 12.7 A Sample of Central Road Transport Rates, FY90 ....... 116 Table 12.8 River Transport Rates ................................ . 118 Table 12.9 Lead Time for Foodgrain Imports into Bangladesh ....... 120 Table 12.10 Specifications for Foodgrains of Fair, Average Quality, FY90 ... 123 List of Figares Figure 4.1 Real Effective Exchange Rate Movements, 1980-90 ........ 33 Figure 5.1 Foodgrain Supply and Demand, 1990-2010 ................. 52 Figure 6.1 Nominal Annual Rice Prices Compared with Three-Year Moving Average, 1960-89 ........ ........... 62 Figure 6.2 Nominal Annual Rice Prices Compared with Log-Linear Annual Growth, 1960-89 ............. ....... 62 Figure 6.3 Rice Price Trend Prom X-l1 Decomposition ...............a 64 Figure 6.4 Seasonal Index, 1960-74 and 1975-89 ............ ........ 69 F'igure 6.5 Seasonal Factors in Pice Prices Based on Three-Year Averages, 1960-62, '984-86 and 1987-89 ............... 70 Backaround Pagers for the Food Policy Review Foodgrain Supply and Demand Projections, J.C. Metzel, Associates for Internatirnal Resources and Development, September 1990. An Analysis of Profitability, Protection and Comparative hs antage for Agricultural Products for Bangladesh, J.C. Metzel, Associates for International Resources and Development, September 1990. Report on the Feasibility of Rice Exports from Bangladesh, R. Heimendinger (Ir3ependent Consultant), November 1990. A Study o' Rice Processing Capability ir. Bangladesh, N.J. Bond, Jr., Philip Rahm Incorporated, November 1990. Analysis of Rice Price Stabilization, J.D. Stryker and K.E. Baird, Associates for International Resources and Development, May 1991. The Efficiency of Government Food Operations in Bangladesh, S. Nizamuddin, World Bank-Dhaka and G. Mohiuddin, Bangladesh University of Engineering and Technology, December 1990. Annex 1 Page 1 of 11 Annex 1 * Trends in Food Production Table 1.1 Avorage Size of Land Hoidings In 1967/88 and 1983/84 1967/6…--- ---- --------------198/84…------------- No. of Area Average No. of Area Average farm m so X (000 he) as X form forms as X (000 he) as X form total total Size(ha) total total Size(ha) forms ara forms orea "all (< 1.0 He.) 8,690 67 1,860 21 0.6 7,066 70 2,660 29 0.4 Medium (1.0 to < 8.0 Ha.) 2,489 Be 3,761 48 1.8 2,488 26 4,188 45 1.7 Large > 8.0 Ha.) 641 8 8,106 86 6.7 496 S 2,879 26 4.6 Total forms 8,870 100 8,726 100 1.8 10,045 100 9,177 100 0.9 SOURCE: Agricultural Consus, 1983/84. Table 1.2: Cultivablo Land by Inundation Level (Km2) Righland Medium Medium .-iand Very Total j1 Highland Lowlend Lowlard Division F0 Ft F2 Fs F4 F0-4 Chittagong (Southoest) 17,014 9,654 6,512 4,528 1,007 87,693 Dlaka (Northoast) 6,198 10,682 8,026 8,918 997 28,771 Khrlna (Southwest) 4,672 19,607 8,189 648 0 28,116 Rajsehh (Northwest) 6,885 19,30? 2,816 1,886 15S 80,474 Total 1/ B8,219 59,075 17,648 10,968 2,169 122,954 (as percentage of total land type) Chittagong (Southeast) 51.2 16.1 81.4 41.8 46.6 80.6 Dhaka (Northeoat) 16.6 18.0 84.8 86.8 48.2 21.8 Khulna (Southwest) 14.1 88.2 18.2 6.9 0.0 22.9 RaJshahi (Northwest) 19.1 82.7 16.1 17.0 7.2 24.8 Total 100.0 100.0 100.0 1')0.0 100.0 100.0 1/ Does not include 21,044 Km2 of land used for homesteads, urban areas, rivers and beels. Intermittent flooding of loss than 0.8 m. = F0. Seasonal flooding of 0.3 to 0.9. = Fl. Seasonal flooding of 0.9 to 1.8 m. = f2. Soasonal flooding of groater than 1.8 m. = fg. Perennial flooding of groater than 1.8 m. = F4. SOURCE: BBS, from the Soil Resources Development Institute. -2- Annex 1 Page 2 of 11 Table 1.8 : Acreage Under Various Crops By Division, 1967-80 Dllvlon: Dhaka Chittagong Raishahl Khulna As X of Crop Name North East South East North-We.t South-West Total Total RICE 6,922,000 6,022,000 6,729,000 6,887,000 2b,510,000 76.6 Local B. Aug 1,747,000 978,000 1,281,000 1,709,000 6,660,000 17.0 HYV Aug 810,000 $96,000 268,000 240,000 1,206,000 8.6 Pajam Aug 7,000 14,000 2,000 - 28,000 0.1 Total Au* 2,064,000 1,862,000 1,496,000 1,949,000 6,891,000 20.7 Local T. Aman 1,826,000 1,227,000 2,686,000 2,682,000 7,621,000 28.6 Broadcast Aman 1,198,000 859,000 497,000 490,000 8,089,000 9.1 HYV T. Aman 824,000 612,000 660,000 428,000 2,019,000 0.1 Pajam Aman 296,000 S20,000 100,000 28,000 989,000 2.6 Total Amon 3,189,000 8,218,000 8,698,000 8,566,000 18,818,000 41.6 Local Boro 272,000 876,000 68,000 46,000 751,000 2.8 HYV Boro 1,222,000 975,000 1,247,000 275,000 8,719,000 11.2 Pajam Boro 226,000 71,000 85,000 - 881,000 1.0 Total Boro 1,719,000 1,422,000 1,840,000 820,000 4,801,000 14.4 Wheat 864,000 204,000 689,000 249,000 1,470,000 4.4 Jute-Tossa 189,000 2,000 140,000 210,000 641,000 1.6 Jute-White 824,000 57,000 826,000 18,000 726,000 2.2 Total Jute 618,000 69,000 468,000 228,000 1,266,000 8.8 Sugarcane 105,000 16,000 210,000 97,000 428,000 1.3 Pulses 689,000 191,000 842,000 721,000 1,828,000 6.6 Oilseeds 458,612 261,849 266,944 878,022 1,849,427 4.1 Potato 1,000,000 97,000 118,000 21,000 1,284,000 8.7 Chillies/spices 89,086 61,561 84,810 40,760 165,666 0.5 Other Crops 814,000 0.9 TOTAL CROPPED AREA 9,990,647 6,902,410 6,792,264 7,566,802 88,262,118 100.0 Table 1.4: Land Use and Cropping Intensity, FY61-87 (000 Hectares) Average Average Average FY87 FY61-65 FY71-75 FY81-85 Forest 2,210 2,229 2,146 1,987 Not available for cultivation 2,416 2,660 2,815 3,206 Cultivable waste 737 279 270 264 Current fallow 376 742 509 389 Net cropped area 8,490 8,372 8,623 8,854 Total cropped area 11,283 11,662 13,257 14,117 Cropping intensity (2) 1332 1392 1542 1592 SOURCE: Bangladesh Bureau of Statistics Annex 1 Page 3 of 11 Table 1.5: Area under Irrigation, by Method, 1969170 to 1989/90 (000 Hectares) FY70 FY78 FY88 FY90 Power Pumps 300 554 527 Tubewells 33 127 1,466 Shallow .. 868 Deep .. .. 554 Hand .. ,. 44 Traditional Methods 725 770 353 Canals 291 120 115 Dhoons 392 397 Swing baskets 42 62 Other 191 238 Total 1,058 1,451 2,346 2,751 Table 1.6: Fertilizer Use, FY71 to 89 FY71 FY81 FY89 (000 Metric tons) Urea 212 570 1135 TSP 76 218 416 MP 18 46 94 (Kilograms per hectare of foodgrains) Urea 21.1 52.2 105.2 TSP 7.6 20.0 38.6 MP 1.8 4.2 8.7 Source: BADC Annex 1 Page 4 of 11 Table 1.7 : Sumnary of Foodgrain Production, Area and Yields, FY61-90 --------000 MT----------- ----Percentage annual growth IL--------------- FY61 FY70 FY80 FY90 FY61-70 FY70-80 FY8O-90 FY61-90 Rice 9,627 11,844 12,689 18,489 2.4 1.0 2.7 2.0 Aus 2,657 2,728 2,8059 2,489 2.7 1.6 -1.4 0.6 Local - - 1,979 1,886 - - -0.2 - HYV - - 880 628 - - -1.8 - Aman 6,679 6,980 7,308 9,600 0.8 2.1 1.1 0.8 Local - - 6,696 - - - -1.7 - HYV - - 1,882 - - - 4.7 - Boro 466 1,688 2,427 6,600 17.9 0.7 9.2 8.7 Local - - 646 - - - -4.5 - HYV - - 1,882 - - - 10.9 - Wheat 88 69 828 800 12.6 22.6 -0.8 16.2 ---------000 hectares--------------- ---------Percentage annual growth--- Rice 9,867 10,814 10,169 10,224 1.9 0.8 0.0 0.6 Aus 2,650 8,424 8,087 2,884 8.8 0.0 -1.6 -1.1 Aman 6,990 8,006 6,974 6,102 0.8 0.2 -1.2 0.0 Boro 408 888 1,149 2,489 0.2 1.9 7.6 6.8 Wheat 67 120 488 6S0 1.9 10.9 1.8 10.9 -----------MT/Hectares------------ Percentage annual growth Rice 1.092 1.164 1.234 1.520 0.4 1.6 2.1 1.2 Au* 0.996 0.879 0.926 1.084 -1.1 1.6 0.9 0.8 Local .. .. 0.751 0.938 .. .. 1.8 HYV .. .. 2.063 1.746 .. .. -2.5 Aman 1.132 1.169 1.228 1.844 0.0 1.9 1.8 0.8 Local .. .. 1.097 1.141 .. .. 0.8 HYV .. .. 1.969 1.907 .. .. 0.8 Boro 1.117 2.189 2.112 2.832 8.0 -1.2 1.0 2.8 Local .. .. 1.282 1.332 .. .. -0.5 HYV .. .. 2.601 2.544 .. .. -0.4 Wheat 0.674 0.874 1.899 1.826 4.8 10.6 -0.8 6.6 1/ Trend growth rates are computed using semi-logarithmic trend equations fittod to the time series data, using the least squares method. 2/ Data are for FY89. To bo updated later. Table 1.8: Foodgrain Production, FY61-90 (000 Metric Tons) FY61 FY82 FY63 FY84 FY8t FY66 FY67 FY68 FY69 FY70 FY71 FY72 FY73 FY74 FY75 Rice 9,872 9,617 8,870 10,624 10,603 10,601 9,676 11,171 11,344 11,904 11,143 9,931 10,091 11,909 11,287 Au* 2,537 2,365 2,237 2,700 2,541 2,966 2,717 3,118 2,726 3,011 2,909 2,379 2,310 2,847 2,8S9 traditional , 2,460 2,164 HYV ,387 69S Aman 6,679 6,769 6,143 7,407 7,379 6,908 6,014 6,921 6,980 6,980 6,007 S,76 5 ,677 6,699 6,000 traditional 4,742 4,929 HYV ,1,967 1,071 Boro 455 493 490 517 588 628 844 1,132 1,638 1,934 2,227 1,766 2,104 2,220 2,250 traditional . . 609 621 HYV ..1,611 1,629 Whoet 33 40 46 as 31 36 64 69 93 105 112 116 91 111 117 Other coroals 16 16 19 20 22 86 92 76 70 67 6e FY76 FY77 FY78 FY79 FY80 FY81 FY82 FY83 FY84 FY85 FY86 FY87 FY88 FY89 FY90 Rice 12,763 11,763 12,970 12,744 12,639 13,883 13,631 14,217 14,608 14,622 15,041 15,407 15,414 16,S44 18,489 ' Aus 3,230 3,010 3,104 3,288 2,809 3,289 3,270 3,067 3,222 2,783 2,828 3,130 2,993 2,866 2,489 traditional 2,372 2,185 2,217 2,344 1,979 2,214 2,248 2,129 2,216 1,921 1,908 2,163 2,102 2,127 1,I66 HYV 858 826 887 944 830 1,076 1,022 938 1,007 862 922 967 891 729 623 A-nn 7,046 6,906 7,422 7,429 7,303 7,964 7,209 7,604 7,936 7,930 8,542 8,267 7,690 6,867 9,600 traditional 6,837 6,008 6,861 6,686 6,696 5,903 6,542 6,629 5,887 6,730 6,104 6,742 6,240 4,276 HYV 1,208 898 661 844 1,708 2,061 1,667 2,076 2,049 2,200 2,438 2,62S 2,460 2,682 Boro 2,286 1,660 2,239 1,929 2,427 2,630 3,152 3,546 3,350 3,909 3,671 4,010 4,731 6,831 6,600 traditional 653 466 762 660 646 640 637 616 618 661 462 430 437 409 HYV 1,633 1,194 1,487 1,379 1,882 1,990 2,515 3,031 2,832 3,348 3,219 3,580 4,294 6,422 Wheat 218 269 349 494 823 1,092 967 1,096 1,211 1,464 1,042 1,091 1,048 1,022 800 Gther cereals I/ 64 60 60 53 52 53 61 64 146 124 107 93 86 1/ Adjustoent of data series in FY84. Earlier and later data nr- not comparable. - - Table 1:9: Area Under Foodgrain Production, FY6X-90 FYS1 FY62 FY83 FY64 FYOS FY66 FY67 FY68 FY69 FY70 FY71 FY72 FY78 FY74 FY75 Rice *,357 6,488 8,694 9,008 9,229 9,380 9,071 9,886 9,942 10,814 9,912 9,296 9,680 9,878 9,792 Aus 2,650 2,877 2,506 2,665 2,689 2,963 2,819 8,327 3,099 3,424 3,191 3,002 2,980 3,109 8,180 traditional .. .. .. . .. 2,976 2,397 HYY .. .. .. 133 26 Aman S,900 s,s99 6,755 5,910 6,114 5,988 S,689 5,938 6,026 6,D0 65,740 6,411 6,715 5,719 5,451 traditional . 4,893 4,949 HYV . . 827 501 Boro 406 406 488 438 426 460 568 621 815 838 961 634 965 1,060 1,162 traditional .. .. . .. 462 508 HYV .. 88 659 Wheat 57 59 74 57 53 65 68 78 117 120 126 127 120 123 126 Other cereals 81 97 105 117 113 121 101 73 97 97 FY78 FY77 FY78 FY79 FY80 FY91 FY82 FY83 FY84 FY85 FY86 FY87 FY88 FY89 FY90 Rice 10,830 9,852 10,027 10,113 10,159 10,309 10,460 10,686 10,648 10,224 10,399 10,609 10,323 10,224 10.478 Au* 3,420 3,218 3,162 3,235 3,037 3,112 3,146 3,169 3,139 2,938 2,846 2,904 2,789 2,684 2,263 traditional 8,068 2,853 2,777 2,820 2,636 2,626 2,674. 2,083 2,639 2,472 2,363 2,361 2,291 2,267 1,902 HYV 368 86 a86 416 402 486 472 476 600 466 482 543 498 418 361 Amen 6,761 6,609 6,771 6,806 6,974 6,037 6,011 6,994 6,008 5,711 6,020 6,063 5,591 5,102 5,706 traditional 5,204 5,386 5,542 5,448 5,102 5,076 6,06B 4,921 4,944 4,631 4,844 4,805 4,894 3,747 HYV 667 423 229 368 872 962 966 1,074 1,064 1,080 1,176 1,246 1,197 1,354 Boro 1,148 856 1,094 1,072 1,149 1,160 1,303 1,433 1,401 1,575 1,633 1,652 1,943 2,439 2,509 traditional 506 363 605 472 425 414 406 363 336 344 320 312 804 307 HYV 642 492 689 600 724 747 898 1,081 1,066 1,230 1,213 1,340 1,639 2,131 Wheat I50 1S0 189 265 433 604 546 631 658 691 540 S85 697 560 591 Other cereals I/ 93 89 89 79 76 74 72 69 185 163 166 131 115 1/ Adjustment of data series in FY84. Earlier and later data are not comparable. OQ IT,¢ -~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~,., Table 1.10: Yields for Foodgrain Production FY61-90 FY61 FY62 FY63 FY64 FY65 FY66 FY67 FY6s FY69 FY70 FY71 FY72 FY75 FY74 FY75 RIce 1.092 1.134 1.020 1.179 1.188 1.122 1.056 1.130 1.141 1.154 1.124 1.068 1.048 1.206 1.153 Aue 0.996 0.995 0.89s 1.013 0.945 1.001 0.964 0.937 0.8W0 0.879 0.912 0.792 0.78O 0.916 0.899 traditional .. 0.827 0.747 HYV 2.907 2.467 Awen 1.132 1.186 1.076 1.253 1.207 1.163 1.057 1.166 1.158 1.169 1.046 1.069 0.993 1.171 1.101 traditional .. . . . . 0.969 0.996 HYV .. .. .. .. .. .. .. .. .. .. .. .. .. 2.367 2.136 Doto 1.117 1.209 1.1i0 1.195 1.369 1.365 1.601 1.823 2.009 2.189 2.269 1.997 2.136 2.114 1.937 traditional . .. . .. . .. . . . . .. . .. 1.319 1.236 HYV .. .. .. .. .. .. .. .. .. .. .. .. .. 2.738 2.471 Wheat 0.674 0.607 0.607 0.061 0.690 0.646 0.792 0.768 0.797 0.874 0.888 0.904 0.761 0o b7 0.928 Other Cereals 0.198 0.197 0.191 0.187 0.762 0.762 0.743 0.962 0.690 0.680 FY76 FY77 FY78 FY79 FYso FY81 FY82 FY83 FY84 FYs8 FYs6 FY87 FY8s FY89 FY90 Rice 1.25a 1.189 1.293 1.260 1.234 1.347 1.303 1.343 1.376 1.430 1.446 1.452 1.498 1.520 1.765 1 -.4 Au* 0.944 0.936 0.982 1.016 0.926 1.067 1.039 0.971 1.027 0.947 0.994 1.078 1.073 1.0e4 1.100 traditional 0.773 0.766 0.798 0.831 0.761 0.843 0.841 0.793 0.839 0.777 0.806 0.916 0.918 0.938 0.9n1 HYV 2.431 2.263 2.800 2.274 2.0S3 2.214 2.188 1.973 2.016 1.851 1.913 1.781 1.789 1.746 1.728 Amen 1.223 1.189 1.286 1.280 1.223 1.319 1.199 1.269 1.321 1.389 1.419 1.366 1.375 1.344 1.665 traditional 1.122 1.115 1.238 1.209 1.097 1.163 1.096 1.124 1.191 1.237 1.260 1.195 1.n93 1.141 NWV 2.109 2.121 2.446 2.3&9 1.969 2.143 1.746 1.933 1.928 2.037 2.072 2.022 2.047 1.907 Boro 1.991 1.931 2.047 1.799 2.112 2.267 2.420 2.474 2.390 2.482 2.394 2.427 2.436 2.391 2.691 traditional 1.291 1.266 1.489 1.165 1.281 1.547 1.572 1.469 1.648 1.629 1.412 1.378 1.438 1.332 HYV 2.543 2.428 2.625 2.299 2.601 2.665 2.802 2.806 2.658 2.721 2.653 2.672 2.620 2.544 Wheat 1.456 1.621 1.844 1.8S6 1.899 1.808 1.771 2.062 2.251 2.119 1.930 1.986 1.755 1.825 1.3S4 Other Ceroals 0.88n 0.673 0.673 0.670 0.686 0.713 0.709 0.778 0.789 0.761 0.690 0.710 0.748 00 0 :3 -8- Annex I Page 8 of 11 Table 1.11 : Growth of Selected Crop Production, Area, and Yields (Annual percentage growth rate) FY66-83 FY84-88 1/ Pulses poduction -1.6 -1.3 area -0.9 -2.5 yield -1.0 1.2 Oilseeds production 3.0 -1.8 area 0.3 -2.7 yield 2.0 0.8 FY70-80 FY80-89 Tubers production 0.5 -0.4 area 1.0 -0.7 yield -0.5 -0.3 Sugarcane production -0.4 0.2 area -0.2 1.4 yield -0.1 -1.1 Jute production -1.2 0.3 area -2.2 -0.8 yield 1.1 1.2 1/ Data series were revised in FY84 on the basis of more comprehensive coverage. Earlier data are not comparable. Table 1:12: Production of Selected Crops, FYSI-90 FY61 FY62 FY63 FY64 FYes FY66 FY67 FY68 FY69 FY70 FY71 FY72 FY73 FY74 FY76 Pul-e. 238 243 278 2;6 279 298 301 273 226 208 223 OlTlsed . 126 185 154 191 206 296 278 244 232 217 241 Tubers 1/ 401 494 6o0 712 799 1,728 1,696 1,500 1,450 1,386 1,690 Sugarcane 4,017 4,495 4,826 6,449 6,831 7,671 9,199 7,711 7,648 7,537 7,720 5,777 6,403 6,444 6,741 Jute (000 baleo) .. .. 6,828 6,693 6,400 6,670 6,764 7,171 6,670 4,193 6,614 6,000 3,965 FY76 FY77 FY78 FY79 FY80 FY81 FY82 FY83 FY84 FY85 FY86 FY87 FY88 FY89 FY90 Pulse 2/ 220 230 238 226 214 211 206 213 661 668 619 S10 639 400 * 5W 0 OTIl seds 2/ 243 289 268 268 250 251 266 256 468 484 469 437 449 S 600 . * Tubers 1,694 1,492 1,645 1,704 1,709 1,703 1,776 1,893 1,909 1,872 1,714 1,617 1,834 ?,633 1,600 * Sugarcorn 5,980 6,604 6,777 6,938 6,442 6,699 7,136 7,477 7,285 6,990 6,640 6,896 7,207 6,707 7,400 - Jut, (000 bales) 4,248 4,806 6,369 6,443 5,963 4,943 4,646 4,881 6,216 6,111 8,660 6,763 4,700 4,436 4,639 1/ Potato.e only through FY69. Potato.s and Sweet Potatoes in FY70-90. 2/ Adjuetment of data series in FY84. Earlier and later dat ar. not comparablo. OQ o~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ u siae tD t-0 Table 1:13: Area Under Selected Crop Production, FY6I-90 FY61 FY62 FY63 FY64 FY65 FY66 FY67 FY68 FY69 FY70 :71 FY72 FY73 FY74 FY75 ~~~~~~~~- _- - - -- -- -- - -- - - -_- -- - -- - - -- - -- - -- - - - -- - - -- -- -- - -- - - - __ _ Pulses .. .. 338 384 360 372 368 372 360 316 263 306 allasod .. . 271 283 304 324 318 306 279 275 321 309 Tubers 1/ GI 61 69 77 8S 168 169 143 143 141 160 Sugarcane 1la 117 129 140 144 153 164 166 170 182 162 142 129 146 154 Jute , . . 890 878 947 878 996 690 680 394 817 676 Spice .. .. .. .. .. 146 158 170 166 170 162 1S5 154 142 164 Fruits and v t. t 236 236 243 266 269 266 235 235 239 247 FY76 FY77 FY76 FY79 FY8o FYs6 FY82 FY83 FY84 FY8s FY86 FY87 FY8s FY89 FY90 Pulse. 2/ 304 332 338 340 330 327 315 304 803 784 744 717 738 .. OisI ds 2/ 311 310 327 332 311 308 303 294 607 597 591 584 546 Tubers 168 148 162 170 169 174 176 180 179 177 16S 157 174 163 Sugarcane 134 146 154 1SS 145 152 165 170 170 167 160 165 173 172 Jute s5s 649 730 830 758 649 584 690 594 691 1,058 772 512 543 528e- Spices 154 1S0 154 1s5 164 127 133 133 132 131 125 122 124 126 Frults and veget. 266 255 269 262 268 '65 282 .. .. .. .. 304 316 320 1/ Potatoes only through FY69. Potatoes and sweet potatoes in FY70-90. 2/ Adjustment of data series in FY84. Earlier and later date are not comparable. oSD 0 X IJQ Table 1.14: Ylld for Selected Crop Production FYOl-go FY61 FY62 FY63 FY64 FYOS FY66 FY67 FY6e FY69 FY70 FY71 FY72 FY73 FY74 FY76 Puls .. .. .. .. .. 0.723 0.764 0.767 0.750 0.908 0.60 0.759 0.715 0.734 0.72S Oil$ed* .. .. .. .. .. 0.498 0.645 0.629 0.637 0.93a o.s90 0.73 0.842 0.676 0.779 Tubers 8.136 8.728 9.2n3 9.397 10.889 10.631 10.471 10.122 9.714 9.972 Sugprcane 36.582 38.301 37.496 88.916 43.944 50.015 53.319 46.473 44.410 46.561 47.691 40.738 41.726 44.230 48.838 Jute (000 bales) 7.518 7.288 7.044 6.562 7.203 7.492 6.167 7.283 7.340 8.9Q0 FY76 FY77 FY78 FY79 FYso FYs8 FY82 FY83 FY84 FYs5 FY86 FY87 FY68 FY69 FY90 Pulse 0.726 0.693 0.709 0.66 0.648 0.646 0.651 0.702 o.686 0.712 0.696 0.711 0.730 Ollseeds 0.761 0.772 0.819 0.808 o.S84 0.816 0.841 0.871 0.771 0.811 0.794 0.776 0.822 Tubers 10.111 10.101 10.162 10.049 10.127 9.787 10.091 10.617 10.066 10.676 10.386 10.299 10.640 10.018 Sugercan* 44.702 44.642 44.070 44.780 44.340 43.416 43.248 43.982 42.863 41.86e 41.600 41.794 41.869 38.994 .. .. Jut (000 bales) 8.201 7.409 7.836 7.769 7.863 7.618 7.965 8.278 8.781 7.397 8.186 8.747 9.180 6.169 8.661 _ ~~~~~~~~~~- --__-_- _- -- - -- -- -- -- -- -- -- -- - -- - - - -- _- -- - - - - - - - - - - - -- I- o- - - 12 - Annex 2 Page 1 of 6 Annex 2 : Food Consumption and Expenditure Table 2.1s Distribution of Household Food Expenditure, 1976/77 to 1988/89 Year Average Average Percentage of Monthly Monthly Expenditure Expenditure Expenditure 1/ On Food (Taka) (Taka) (Nominal) (Real) 1976-77 503 301 73.7 1977-78 604 341 72.4 1978-79 808 423 75.7 1981-82 1111 374 66.1 1983-84 1701 476 65.1 1985-86 2345 554 63.3 1988-89 3026 551 59.1 1/ Deflated by Consumer Price Index of Middle Income Groups at Dhaka 1973-74c100. - 13 - Annex 2 Page 2 of 6 TABLE 2.2 t DISTRIBUTION OF HOUSEHOLD FOO EXFENDITURES ____________________-_____________________-_--_---------------__----______________________________________________ Average Monthly YEAR Expenditure Mest Oil Misc. on food Total Cereals Pulses A Fish Vegetable Milk A Fat Spicoo Fruits Sugar Beverages Food Items(Taks) Bangladesh __________ 1973-74 371 100 58.8 3.6 9.4 5.5 2.7 6.8 6.2 1.2 2.4 0.2 4.7 1076-77 U86 100 63.1 2.3 8.7 6.8 2.0 a.8 4.0 1.2 2.1 0.8 1.2 1973-79 600 100 59.2 2.7 10.1 6.6 2.0 8.8 4.9 1.8 2.1 0.8 7.1 1981-82 730 100 63.1 8.0 10.6 6.1 2.2 8.6 5.1 1.9 2.5 0.8 6.6 1983-84 1198 loo 655. 8.1 13.0 7.1 2.6 4.2 6.8 1.8 0.7 0.6 5.2 196-86 1465 1oo 48.6 8.0 16.1 8.4 8.2 8.7 4.6 2.1 1.9 0.4 8.1 1988-89 1790 1oo 49.8 8.8 11.7 9.6 2.7 8.9 6.2 1.8 1.9 1.6 8.1 Urban 1973-74 487 100 49.0 8.6 12.6 6.7 4.0 6.7 4.0 1.8 4.0 1.0 8.2 1976-77 393 100 65.6 3.8 13.6 6.2 3.6 6.0 6.1 1.5 3.8 0.6 1.6 1978-79 684 100 46.1 8.2 14.6 6.9 2.9 4.1 4.9 1.9 2.9 0.8 12.7 1981-82 1018 100 43.5 8.9 15.2 6.9 8.6 4.5 5.9 2.4 8.8 0.9 9.5 1983-84 1288 100 44.8 8.1 17.9 8.0 8.9 6.2 6.2 2.3 0.9 0.8 6.9 1985-8e 1908 loo 36.3 3.2 20.9 9.0 4.2 4.2 4.4 2.7 2.4 1.0 11.7 1988-89 2241 1oo 40.8 4.0 16.7 10.6 8.7 4.2 6.1 1.6 2.1 2.9 8.0 Rural 1973-74 867 loo 69.6 8.6 9.2 6.4 2.6 6.2 6.4 1.2 2.8 0.2 4.5 1976-77 388 100 69.5 2.6 8.2 6.8 1.9 8.1 3.9 1.2 1.9 0.2 1.2 1978-79 690 100 61.0 2.7 9.4 6.6 1.9 8.8 4.9 1.2 2.0 0.2 6.4 1981-82 684 100 61.6 2.8 9.5 5.8 2.0 3.6 4.9 1.7 2.2 0.1 6.0 1988-84 1074 100 66.9 8.1 12.2 7.0 2.6 4.1 6.3 1.7 0.7 0.5 4.9 1986-88 1404 100 60.8 8.0 16.2 6.8 8.0 3.7 4.6 1.9 1.8 0.8 7.4 1088-B9 1644 100 64.3 8.7 11.0 8.8 2.2 8.7 6.2 1.2 1.7 0.8 6.4 … - … -…----------------------------------------------------- ------- -------------------------------- Sources: Bangladesh Bureou Of Statistics, Report Of The Bangladosh Household Expenditure Survey 1985-86. Published in October 1988. TA3E 2.3: AVE§WE I0Nlt.Y OM&R!IURE ON MA.l DOW rTrBS BY P CAPWITA ICE UPS. (199089) Mee Per MYn Par Ptr-e_tage monthly Expenditure Per Capita Capita Cap;ta Cereals Incoa Eapenditure Ea pnitur. Rce/Rice Whsatj&sat Othor Fi oh Meet F4e Oairy Pulee oil-/ Fruit Vegetable Spices Bree Sawer sewerae other Food Flour Flour Cereal Paul ry Fate Ibtiemal loeeet 20 Percent 1/ 232.00 167.00 90.36 13.44 0.83 10.96 1.41 1.13 1.59 5.75 6.18 0.64 15.06 11.01 0.17 1.68 0.74 6.11 Second 20 percent 334.00 234.00 121.22 14.67 1.49 18.06 3.90 2.03 3.32 8.50 8.W3 1.19 21.31 15.10 0 A 3.16 1.42 9.42 Third 20 percent 422.00 2U8.00 140.93 13.64 2.59 23.72 6.57 2.84 5.75 11.10 10.43 2.76 26.01 17.43 1.19 4.73 3.1* 13.94 Fourth 20 percent 567.00 354.00 156.28 12.30 3.99 36.32 11.11 4.16 9.45 14.02 13.88 4.60 34.44 21.72 2.04 6.92 4.94 16.52 High..t 20 Percent 1098.00 809.00 166.03 13.59 6.91 62.21 29.24 11.79 23.16 19.81 21.00 11.42 50.29 30.25 6.86 12.92 15.16 29.51 Total 529.00 310.00 134.97 13.&.k 3.16 30.66 10.45 4.39 8.66 11.84 12.08 4.12 29.43 19.11 2.14 5.6 5.09 15.50 Urban lou-st 20 Percent 1/ 297.00 202.00 J11.21 11.41 1.18 17.89 2.58 1.72 2.24 8.28 8.13 0.75 20.07 12.60 0.64 2.65 2.42 8.27 Second 20 p*rcent 421.00 284.00 128.53 12.28 2.77 28.65 7.43 2.64 5.41 11.51 11.10 1.92 28.43 17.14 2.13 4.56 6.04 14.35 Third 20 percent 548.00 342.00 1A6.9S 13.57 2.6 40.47 11.56 4.52 9.99 14.51 14.33 3.69 37.28 21.34 2.72 6.57 8.02 14.54 Fourth 20 prcmt 764.00 417.00 146.94 12.29 3.30 55.S0 17.16 7.16 15.40 17.34 17.69 6.56 47.02 26.69 4.13 9.37 11.09 19.72 Highiet 20 percent 1494.00 396.00 146.66 16.87 5.75 79.75 45.58 20.90 34.86 21.44 25.94 14.39 59.93 35.25 12.24 16.18 26.30 34.49 1 Total 706.00 368.00 132.07 13.29 3.13 44.48 16.88 7.40 13.60 14.62 15.45 5.47 38.57 22.61 4.42 7.37 10.79 18.29 Rural loweet 20 Percent 1/ 216.00 155.00 83.74 14.1J6 0.74 9.61 1.31 0.91 1.43 5.08 5.68 0.55 14.07 10.65 0.13 1.46 0.53 5.31 Second 20 porcent 305.00 219.00 118.24 1A.68 1.1 15.11 3.24 1.90 2.77 7.32 8.13 1.10 19.43 14.21 0.29 2.52 0.87 8.43 Third 20 percent 380.00 265.00 137.74 15.38 2.06 20.52 4.76 2.47 4.43 9.72 9.25 2.03 22.51 16.49 0.63 4.25 1.28 11.80 Fourth 20 pere nt 479.00 321.00 155.67 12.76 3.55 28.54 7.82 3.31 7.68 12.84 11.76 4.02 28.68 19.43 1.15 5.6S 2.25 16.15 Higheet 20 percent e23.00 448.00 188.67 11.34 8.37 44.98 19.03 5.83 14.63 *7.29 17.13 9.53 39.63 25.98 2.82 10.52 $ 2i9 28.84 Total 441.00 282.00 136.42 13.65 3.18 23.75 7.23 2.89 6.19 10.45 10.39 3.45 24.87 17.35 1.00 4.59 2.24 14.11 1/ On the besie of mnthly hueeuhold Per capita eapenditare Source: Bengledeeh *areu of Statistics. 00 CD w O Tablo 2.4 : Consumption of Major Food Ites by Income Group, 1988/39 (Kilogram per month) Per capita consumption of major food it es Quintile Cr ealn meat (X of Pop) Rte /Rice Wheat Other Fish Poultry Dairy Pulses Oils/ V egt. Condi- Broed Sugr Flour flour Cerels Fats * ets National Lowet 20X 9.278 1.774 .064 .S28 .036 .155 .385 .16S 3.601 .840 .009 .106 Second 20X 12.226 1.905 .098 .770 .096 .317 .542 .236 4.497 1.064 .046 .183 Third 201 13.799 1.774 .163 1.040 .159 .610 .671 .282 6.213 1.166 .070 .256 Fourth 20X 16.003 1.657 .279 1.436 .249 .816 .808 .378 6.200 1.399 .168 .352 Highest 20X 15.193 1.648 .413 2.101 .639 1.638 1.054 .817 7.909 2.106 .424 .561 Total (1001) 13.100 1.732 .201 1.176 .236 .687 .892 .378 5.484 1.310 .141 .291 Lowest 10X 7.093 1.746 .044 .410 .028 .109 .307 .164 3.323 .810 .006 .081 Highest 1OX 14.768 1.839 .490 2.347 .912 2.089 1.165 1.163 8.596 2.065 .626 .681 Urban Lowest 201 9.786 1.474 .079 .724 .063 .159 .471 .226 4.014 .*93 .063 .137 Second 20X 12.102 1.543 .178 1.093 .182 .390 .646 .314 4.9e3 1.110 .134 .206 Third 201 12.613 1.663 .109 1.515 .256 .696 .773 .416 6.122 1.350 .187 .291 Fourth 20X 13.000 1.451 .201 1.992 .388 1.014 .910 .526 7.189 1.627 .303 .391 Highest 20X 12.568 1.951 .360 2.414 .988 2.129 1.091 1.423 8.e69 2.096 .811. .638 Total (100X) 13.100 1.617 .197 1.648 .376 .879 .778 .581 6.197 1.416 .296 .333 Lowest 101 3.9S 1.382 .063 .620 .044 .104 .443 .204 3.738 .799 .020 .134 Highest 101 12.047 2.186 .398 2.673 1.240 2.482 1.218 2.169 9.049 2.292 1.014 .667 ;Ural Lowest 20X 8.668 1.861 .060 .495 .034 .145 .350 .157 3.497 .844 .'08 .090 Seond 201 12.181 1.921 .073 .659 .081 .285 .491 .214 4.265 1.000 .020 .162 Third 20X 13.764 2.006 .132 .897 .116 .436 .636 .246 4.994 1.126 .038 .256 Fourth 201 15.376 1.668 .265 1.166 .180 .743 .776 .304 5.689 1.287 .063 .316 Highest 201 18.233 1.488 .497 1.725 .419 1.360 .993 .450 7.194 2.028 .198 .531 Total (1001) 13.643 1.789 .203 .988 .166 .592 .649 .274 6.128 1.267 .063 .271 Lowet 101 7.29S 1.754 .041 .358 .022 .097 .288 .13S 3.224 .807 .003 .073 Hlghet 1OX 19.246 2.639 .668 1.974 .S45 1.718 1.143 .517 7.906 2.590 .184 .638 o hX O43 - 16 - Annex 2 Page 5 of 6 Table 2.5: Average Per Capita Consumption of Selected Foods, 1981/82-1988/89 (grams per day) 1981-82 1983-84 1985-86 1988-89 National Rice 398.1 411.6 443.9 436.9 Wheat 58.7 64.1 51.7 57.7 Vegetables 123.8 107.0 142.3 182.8 Pulses 13.0 25.4 18.6 23.1 Milk 17.5 24.0 25.3 22.9 Meat 5.1 7.6 8.1 7.9 Fish 28.0 27.6 36.1 39.2 Sugar 9.7 4.9 8.1 9.7 Rural Rice 403.8 420.2 453.7 454.8 Wheat 54.4 62.8 51.3 59.6 Vegetables 122.0 104.7 141.0 170.9 Pulses 12.0 25.9 18.3 21.6 Milk 16.2 22.6 24.3 19.7 Meat 3.9 6.8 7.0 5.5 Fish 26.9 28.5 34.7 32.9 Sugar 8.9 4.8 7.7 9.0 Urban Rice 362.5 350.4 376.3 400.4 Wheat 85.2 74.0 54.3 53.9 Vegetables 135.0 125.0 151.0 206.6 Pulses 18.7 21.6 20.7 25.9 Milk 25.5 34.6 32.3 29.3 Meat 13.0 14.0 15.6 12.5 Fish 35.0 20.7 46.0 56.6 Sugar 14.6 5.3 11.1 11.1 Source: Bangladesh Bureau of Statistics, Report of the Bangladesh Household Expenditure Survey, various issues. - 17 - Annex 2 Page 6 of 6 Table 2.6 5 Adequacy of Food Consumption by Income Group, 1988-89 (grams per capita per day) Minimum Requirement 1/ Income Group Lowest 20Z 2nd 20Z 3rd 20Z 4th 20Z Highest 20Z Grains 437 370 474 525 561 575 Pulses 40 13 18 22 27 35 Fish 48 18 26 35 48 70 Meat & Eggs 12 3 5 8 12 29 Vegetables 177 120 150 174 207 264 Milk 58 5 11 17 27 55 Consumption as a percentage of Requirement 85 108 120 128 132 33 45 55 68 88 38 54 73 100 146 25 41 67 100 242 68 85 98 117 149 9 19 29 47 95 1i The minimum consumption norm prescribed for the Bangladesh population from nutritional considerations (see Muqtada M (1986) "Poverty and Inequality : Trends and causes" in Islam R and Maqtada M (Eds). Bangladesh : Selected Issues in Employment and Development, ILO/ARTEP, New Delhi). - 18 - Annex 3 Page 1 of 8 Annex 3 ; Nutritional Status 1. It is perhaps most indicative of the widespread nutritional inadequacy in Bangladesh that in anthropometric surveys, more than 90 percent of Bangladeshi children fall below the international (CNHS) reference median for height-for-age and weight-for-age, and nearly 80 percent -ze below the reference median for weight-for-height. In other words, almost the entire sample distribution is in the bottom half of the international distribution. The most recent surveys indicate that two-thir:ds of the Bangladeshi children sampled suffer from chronic undernutrition, while approximately 10 to 20 percent are found to be acutely malnourished, with seasonal fluctuations linked to both food availability and patterns of disease prevalence that lead to malabsorption of nutrients. Women of childbearing years have low body weight by international standards, gain very little weight during pregnancy, and lose weight with each additional pregnancy, a phenomenon which has been termed the 'maternal depletion syndrome". Not only is this damaging to the women themselves, but also to their children. Survey data from the late-1970s indicate that the foetal death rate was approximately 20 percent of the number of live births, and more recent data indicate that 25 to 50 percent of live births have low birthweight (less than 2500 grams) which greatly increases the risks of infant and child mortality. One in every eight babies dies before his first birthday, usually as a result of the nexus between malnutrition and infectious disease. Prevalence of diarrheal disease (the number one killer of children), nightblindness, anemia and other nutrition-related diseases is extremely high. Studies point to gender-based differentials in nutritional status and mortality rates based on cultural attitudes and traditional dietary practices. Some evidence shows that unequal intrahousehold distribution of energy intake disfavors women and children. Among children, there is strong evidence that sons are favored over daughters in terms of quality of food, extent of childcare and expenditure on health care. 2. Anthropometric measurement of children has proven to be the most effective way of estimating the prevalence of protein-energy malnutrition (PEM) in developing countries. Long-term, chronic malnutrition is typically assessed on the basis of height-for-age. Children whose ht/age falls more than two or three standard deviations below the NCHS reference median are considered to be moderately or severely stunted, respectively. Alternatively, some studies use 90 percent of the reference median as the cut-off point below which children are considered stunted. Stunting is a cumulative process, and, therefore, best reflects chronic undernutrition, rather than short-term fluctuations in nutritional status. In contrast, acute malnutrition is best measured on the basis of weight-for-height, which can indicate relatively short-term losses of body tissue and fat which place a child at immediate nutritional risk. Again, children who are two or three standard deviations below the reference median are considered moderately or severely wasted, respectively. Sometimes a cut-off of 80 percent below the reference median is used. Weight-for-age measurements, which are just a linear combination of the two previous indicators, are often - 19 - Annex 3 Page 2 of 8 used as a general measure of malnutrition. The sections which follow focus on only the most recent data and/or the most significant findings on the prevalence of acute, chronic and maternal malnutrition, as well as nutrition-related diseases and gender differentials. The data are drawn largely from the Bangladesh Bureau of Statistic's Child Nutrition Status Modules (CNSM) for 1985/85 and 1988/89, as well as from the newly-developed Nutritional Surveillance Program (NSP), supplemented by data from micro-surveys. a Acute Malnutrition 3. Data on wasting among children age 6-71 months is quite similar for 1985/86 and 1988/89 (Table 2.24). Both surveys indicate that about 15 percent of the children sampled showed signs of moderate (13-14 percent) or severe (1-2 percent) wasting, and that wasting was marginally more prevalent in rural areas than in urban areas. The two surveys also highlight the high-risk age groups, with wasting peaking at 25-30 percent of the sample for children aged ;2 to 23 months, and remaining high for children aged 24-35 months. The earlier period is critical for weaning, and the high prevalence of wasting may reflect two factors. First, it may reflect exclusive breastfeeding of children who need supplemental solid foods at this age. Cross-tabulations of data on wasting and breastfeeding for the entire sample show a much higher prevalence of both severe and moderate wasting among children who were still being breastfed (data on the exclusivity of breastfeeding were not available). Second, weaning itself may expose the child for the first time to unsanitary ford and water, increasing the prevalence of diarrheal disease. The risk of severe wasting rises dramatically as incidence of diarrheal disease increases. Although the 1985/86 data appear to provide evidence of a gender-bias against female children, the 1988/89 data do not support this conclusion. v Khan, M. Mahmud, "Preliminary Report of the Child Nutrition Status Module, 1989", UNICEF and Bangladesh Bureau of Statistics, 1990, draft report. Helen Keller International, "Newsletter of the Nutritional Surveillance Program for Dicaster Preparedness and Prevention of Nutritional Blindness", Volume 1, Numbers 2 and 3, August and October, 1990. 20 - Annex 3 Page 3 of 8 Table 3.1: PREVALENCE OF SEVERE AND MODERATE WASTING IN BANGLADESH, 1985/86 AND 1988/89 1/ Percent of Children Wasted Percent of Children Wasted 1985/86 1988/89 Variable Severe Moderate Total Severe Moderate Total Age (in months) 6-11 0.7 9.0 9.7 1.3 13.2 14.5 12-23 2.9 23.1 26.0 4.7 23.3 28.0 24-35 0.9 15.0 15.9 0.7 13.9 14.6 36-47 0.3 11.5 11.8 0.4 10.1 10.5 48-59 0.0 9.5 9.5 0.2 8.1 8.3 60-71 0.3 12.6 12.9 0.5 10.2 10.7 All groups 0.8 13.7 14.5 1.3 13.2 14.5 Area of Residence Urban 0.9 12.8 13.7 1.4 12.5 13.9 Rural 0.8 13.8 14.6 1.3 13.2 14.5 Sex Male 0.7 13.0 13.7 1.8 13.1 14.9 Female 1.0 14.5 15.5 0.8 13.3 14.1 Total 0.8 13.7 14.5 1.3 13.2 14.5 Seasonality April-June 1.2 13.7 14.9 1.9 19.3 21.2 July-September 0.8 17.1 17.9 1.8 10.9 12.7 October-December 0.8 15.2 16.0 0.7 13.3 14.0 January-March 0.4 8.2 8.6 0.6 7.6 8.2 All 0.8 13.7 14.5 1.3 13.2 14.5 1/ Severe and moderate wasting are defined as being more than three and two standard deviations belowe the NCHS reference median, respectively. Note: All percentages are calculated by weighting the observations by survey specific rural and urban weights. - 21 - Annex 3 Page 4 of 8 4. The weight-for-height indicator is sensitive to short-run changes in nutritional status and, therefore, shows greater seasonal variability than other indicators. Due to flooding, the timing of the survey rounds in 1988/89 differed from that in 1985/86, particularly for the first round. However, careful attention to the timing of each round reveals a clear seasonal pattern: wasting peaked in both years during June-July (prior to the boro and aus harvests), and declined sharply in the January-March dry season, when food availability is generally high and incidence of diarrheal disease is at an annual lor. This pattern reflects changes in the production cycle resulting from the expansion of irrigated HYV cultivation. Data from the early-1970s shows more severe wasting, peaking just once a year, in the September-October lean season. A study of the seasonality of PEM, based on 1976-77 data, found that the June-October monsoon season, which was usually characterized by high rice prices, low agricultural wages, low household food stocks and high rates of hospital admission for diarrheal disease, contained two periods--one in June-July and one in September- October--in which weight gain for the children sampled faltered. U A more recent study of two villages, one dominated by traditional agricultural methods and one dominated by modern irrigation technology, found that the former village had two distinct lean seasons (June-July and September-October) in which energy intake dropped significantly. The latter village, however, had much higher rice intake, which reduced liet diversity, but also virtually eliminated the seasonality of energy intake. E 5. The most recent data from the NSP (based on a non-representative survey of four urban slum areas and ten disaster-prone rural areas) paints a similar picture of acute malnutrition in Bangladesh. Survey rounds found 5-20 percent (June, 1990) and 7-15 percent (August 1990), of the samples suffering from moderate or severe wasting (defined as less than 80 percent of the NCHS reference median). Of particular note was the high level of wasting in urban slums-- highlighting a nutritional problem which is often overlooked when data on urban areas is aggregated and averaged. Chronic Malnutrition 6. Prevalence of stunting in Bangladesh provides evidence that the vast majority of children suffer from chronic malnutrition. The CNSM data show that about two- thirds of the children sampled were moderately or severely stunted in both surveys (Table 2.25). For reasons which are unclear, there appears to have been a significant reduction in severe stunting in 1988/89 as compared to 1985/86. In both surveys, severe stunting was more prevalent in rural areas than in urban areas, as well as among female children relative to males. Ar an indicator of long-run nutritional status, stunting generally does not exhibit a see onal pattern. Nonetheless, the data do seem to consistently show a moderate inclease in prevalence of stunting in the post-harvest periods of January-March and July- September. It appears plausible that growth-faltering in the lean seasons preceding these periods could progressively raise the prevalence of stunting, with the effects being fully evident in the subsequent harvest period. Additional study would be needed to test this hypothesis, however. v Chen, Lincoln C., A.K.M. Chowdhury and Sandra Huffman, "Seasonal Dimensions of Energy Protein Malnutrition in Rural Bangladesh: The Role of Agriculture, Dietary Practices and Infection", Ecology of Food and Nutrition, 1979, Volume 8. l Mohammad-Abdullah, 'Modernization of agriculture and seasonality in food intake", Nutrition Reports International, 1988 - 22 - Annex 3 Page 5 of 8 Table 3.2: PREVALENCE OF SEVERE AND STUNTING 1985/86 AND 1988/89 iL Percent of Children Stunted Percent of Children Stunted 1985/86 1988/89 Variable Severe Moderate Total Severe Moderate Total Age (in months) 6-11 18.8 28.8 47.6 14.4 33.7 48.1 12-23 44.7 28.7 73.4 40.5 29.8 70.3 24-35 43.4 25.1 68.5 33.0 31.4 64.4 36-47 47.1 27.2 74.3 39.9 27.3 67.2 48-59 45.3 26.7 72.0 36.1 29.6 65.7 60-71 45.1 29.2 74.3 38.2 32.3 70.5 All groups 43.0 27.5 70.5 35.3 30.5 65.8 Area of Residence Urban 30.6 30.2 60.8 28.6 30.0 58.6 Rural 44.6 27.2 71.8 36.1 30.5 66.6 Sex Male 40.5 28.7 69.2 34.5 31.2 64.7 Female 45.8 26.2 72.0 36.1 29.7 65.8 Total 43.0 27.5 70.5 35.3 30.5 65.8 Seasonality April-June 42.3 23.7 66.0 29.8 30.9 60.7 July-September 43.9 28.0 71.9 36.9 31.1 68.0 October-December 42.4 27.8 70.2 33.4 29.4 62.8 January-March 43.4 30.8 74.2 42.2 30.4 72.6 All 43.0 27.5 70.5 35.3 30.5 65.8 I/ Severe and Moderate stunting are defined as being more than three and two standard deviations, below the NCHS reference median, respectively. Note: All percentages are calculated by weighting the observations by survey specific rural and urban weights. - 23 - Annex 3 Page 6 of 8 7. Children who had suffered from repeated bouts of diarrheal disease or respiratory infections in the three months preceding the survey round were more likely to be severely stunted. It is presumed that these variables reflect a longer-term variable related to overall environmental conditions, sanitation, or lack of income. This view is bolstered by evidence that children with access to a sanitary toilet facility have the lowest prevalence of both stunting and wasting. 8. With suc. widespread stunting (i.e. low height-for-age), it is not surprising that most children are underweight (i.e. low weight-for-age). In 1988/89, two- thirds of the children sampled were moderately (40 percent) or severely (26 percent) underweight. Cross-tabulations show that 20 percent were both severely stunted and severely underweight, but less than one percent were both severely stunted and severely wasted--placing them at the highest nutritional risk. The NSP data again appear to corroborate the findings of the national surveyst 45-60 percent of the children in different areas were found to be underweight, and, on average, 28 percent were severely underweight. Maternal Malnutrition 9. Women eat least and eat last in Bangladesh, with little supplementary intake during pregnancy and breastfeeding, due to limited food availability and traditional dietary practices which prohibit certain types of food during pregnancy. A 1985 study in rural Bangladesh found that the mean weight of women who had never been pregnant was only 80 percent that of the international reference, and, with average weight gain during pregnancy of only 4.7 kg. (10.3 lb.), this gap widened as gestation progressed. 4 There is a distinct seasonality to women's weight gain, whether or not they are pregnant, with weight routinely dropping in the September-November period. U For pregnant women, weight gain slows in the lean season, and those women whose third trimester falls in this season have the lowest total weight gain (only 2.8 kg. in one study) during pregnancy. They also have the highest rate of neonatal mortality, which has been shown to be inversely related to pre-conception weight of the mother and weight gain during pregnancy. " Poor weight gain during pregnancy also leads L Chowdhury, AKMA, "Changes in Maternal Nutritional Status in a Chronically Malnourished Population in Rural Bangladesh", ICDDR.B, 1985 E See: Huffman, S.,Mark Wolff, Sarah Lowell, "Nutrition and fertility in Bangladesh: nutritional status of nonpregnant women", American Journal of Clinical Nutrition, ho. 42, October, 1985. See also: Chen, LC., AKMA Chowdhury, S Huffman, "Seasonal Dimensions of Energy Protein Malnutrition in Rural Bangladesh: The Role of Agriculture, Dietary Practices and Infection", Ecology of Food and Nutrition, 1979, Vol. 8 IL See: Pebley, A., S. Huffman, AKMA Chowdhury and PW Stupp, "Intra-uterine Mortality and Maternal Nutritional Status in Rural Bangladesh" Population Studies, 1985, No. 39. - 24 - Annex 3 Page 7 of 8 to a high proportion of low birthweight babies, for whom the risk of infant mortality is elevated. 10. Nutritional status of Bangladeshi women has been shown to decrease with age and parity as the cumulative effects of repeated pregnancy and lactation deplete maternal energy reserves. This is the "maternal depletion syndrome", in which women lose weight with each additional pregnancy because the increased energy requirements are not met with increased intake. 2 Inadequate intake is coupled with a physical workload that is not substantially reduced during pregnancy or the post-partum period. Recent research has shown that during the post-partum period, maternal weight gain leads to a higher volume and higher nutrient content of milk production. E Although breastfeeding as an exclusive source of nutrients is nutritionally inadequate beyond 6-9 months, breastfeeding- -exclusive or not--appears to greatly improve the chances of child survival. E The burden of poor nutritional status clearly places great strain on women, and increases the odds that their children will die in the first five years of life. Nutrition-related Morbidity 11. The links between malnutrition and higher levels of morbidity and mortality are well documented. Diarrhea, which impedes the absorption of nutrients, is the primary cause of death among children in the developing world. In Bangladesh, the 1988/89 CNSM found that approximately one-quarter of the children sampled had had at least one diarrheal episode in the three months preceding the survey round. These children were twice as likely to suffer from acute malnutrition than those who had not suffered a diarrheal episode, and the risk of severe wasting rose with multiple episodes. Diarrheal disease--and cholera, which causes diarrhea-- have a seasonal pattern associated with the monsoon, with hospital admissions for these conditions peaking in September or October at about twice the level of the dry season. One effect of diarrheal disease is to greatly increase the risk of Vitamin A deficiency, or xerophthalmia. A recent clinical study found that more than 90 percent of children brought in with xerophthalmia had a diarrheal episode within the Also sees Chowdhury, op. cit. D Huffman, et.al., op. cit. Chowdhury, op. cit. E Brown, Akhtar, Robertson, Ahmed, "Lactatlonal capacity of marginally nourished mothers : relationships between maternal nutritional status and quantity and proximate composition of milk," Pediatrics - USA, 1986. K Briend, Bari, "Breastfeeding improves survival, but not nutritional status, of 12-35 months old children in rural Bangladesh", European Journal of Clinical Nutrition, 1989. -25 - Annex 3 Page 8 of 8 previous month. zu Xerophthalmia causes nightblindness in about 900,000 children a year in Bangladesh, leading to permanent blindness in about 30,000 children, half of whom die soon thereafter. The Nutrition Surveillance Program found prevalence of nightblindness to be as high as 4.7 percent in areas of the country with limited Vitamin A capsule (VAC) distribution. Other micronutrient deficiencies are also prevalent. Iron folate deficiency results in anemia for the majority of children and pregnant women. Zinc deficiency has been found to impede weight gain in severely malnourished children. 1 Iodine deficiency in certain areas leads to a high prevalence of goiter among women, increasing the risk of cretanism among their children. Intrahousehold Food Distribution 12. It is a widely held belief that women and children are disadvantaged by the intrahousehold distribution of food in Bangladesh. Recent evidence suggests this is so. A study by Hassan and Ahmed found that unequal distribution of household energy intake disfavored women and children. lu A study by Mahmud found evidence of gender-based nutrition and mortality differentials, which were attributed to strong cultural and economic incentives for parents to favor sons over daughters. l Yet another study found that children are indeed falling short of their energy requirement, but that the evidence of unequal food distribution was inconclusive if adjustments were made for the different intake requirements of males and females. However, this study found that there was strong favoring of sons in terms of the quality of food consumed, extent of child care and expenditures on health care. 2 The bulk of evidence supports the view that women and children disproportionately suffer the effects of malnutrition and morbidity associated with malnutrition. Poor women and children are the truly vulnerable, and should be the primary focus of food, nutrition and income-generation programs aimed at improving nutritional status in Bangladesh. u Sikder, Henry, Hussain, Rahman, "Xerophthalmia, malnutrition and diarrhea in urban Bangladesh : a Ulinic based study", Indian Pediatrics, 1988. lu Khanum, Alam, Anwar, Ali, Rahaman, "Effect of zinc supplementation on the dietary intake and weight gain of Bangladeshi children recovering from protein-energy malnutrition", European Journal of Clinical Nutrition, 1988. iu Hassan, Ahmed, "Household distribution of energy intake and its relationship to socio-economic and anthropometric variables," Food and Nutrition Bulletin, 1986. = Hahmud, S, "Gender aspects of nutrition and mortality among children in rural Bangladesh", Research Report, Bangladesh Institute of Development Studies, 1987. Xu Chaudhury, R.H, "Adequacy of child dietary intake relative to that of other family members", Food and Nutrition Bulletin, 1988. - 26 - Annex 4 Page 1 of 17 Annex 4 : Protection, Profitability and Comparative Advantage in Agriculture Assumptions of tha Analysis Crop Selection 1. In order to evaluate the issues of private profitability, impact of government policy on profitability, and the economic value of agricultural crops in Bangladesh, a selection of typical crop production activities for important segments of the agricultural sector have been chosen for analysis. Most of the effort has been devoted to modeling alternative rice production systems. In addition, a few major or potentially important crops are included to examine the potential to diversify production. 2. For rice, twenty two crop activities have been examined. These are distinguished by crop season, variety, planting technique, water control, land type and region. The three crop seasons are aman, aus, and boro. Variety refers to whether a local or high yielding variety is used. Planting technique distinguishes broadcast from transplanted production. All high yielding varieties are assumed to be transplanted, though some local varieties of Aman and Boro are transplanted too. Local Aus is assumed to be broadcast, and HYV varieties transplanted. Water control refers to whether crops are rainfed or irrigated. All HYV Boro crops are assumed to be irrigated. Several rainy season HYV crops are also assumed to use supplemental irrigation. Land type refers to the flooding characteristics of the land as described in Annex 1. Only FO to F3 levels are considered, since less than IZ of total area is F4 land. A regional designation is also assigned to each crop/technique to reflect broad differences in climate, soils, market location and condition and factor costs. For this purpose, the country has been divided into north east, north west, south east and south west quadrants. 3. For minor food crops and cash crops, only a few representative cases have been modeled. These attempt to evaluate important distinctions in crop performance based on technique, region, or variety. For potatoes and mustard, two activities have been modeled based on the principal regions of production for which yields differ substantially. In addition, a third potato crop has been modeled in the north east region to examine differences in financial returns on the basis of the assumed period of marketing of the crop. Only one example each is modeled for lentils and chillies to examine the potential for pulses and condiment crops. 4. Jute is modeled for two varieties, tossa and white, and for the three regions in which it is found (the north east, north west, and south west). The quality of the production of each modeled activity differs, as reflected in the market price obtained for the jute, which in each case is a weighted average of baled jute and jute cuttings. Cotton is modeled for the three regions in which it is grown. Each crop is distinguished primarily by yields. Production in the north west is more input intensive and obtains the highest yields. Production in the north east region is most labor intensive, uses fewer inputs, and obtains - 27 - Annex 4 Page 2 of 17 lowest yields. Sugarcane is modeled only in the north west, where half of all production is located. Three scenarios are modelled. In one, it is assumed that the entire production is sold to the government-owned sugar mill. The second and third scenarios model sugarcane production for the fabrication of gur. In one, it is assumed that traditional cultivation techniques are used. In the second, an improved production package is used which transplants the cane, follows an improved cropping calendar, and obtains higher yields. Analytic framework 5. The analysis seeks to examine the profitability, protection and comparative advantage indicators for each of the 44 crop activities selected. Detailed production, processing and marketing budgets were prepared for each crop activity. Each analysis calculates financial and economic profitability, nominal and effective protection, and comparative advantage indicators. For the financial analysis, the domestic output price is compared with domestic costs of production. Financial profitability represents tradable value-added in financial prices minus total value of nontradable inputs in financial prices minus total taxes (subsidies) on nontradables. The analysis of economic profitability mirrors that of financial profitability except that 1) all taxes and subsidies are eliminated from the cost of inputs and nontradable factors of production, 2) the reference output price is the internationally traded price and 3) conversion factors are applied to tradables to correct for distortions in the exchange rate market (shadow exchange rate multiplier) and to nontradables to correct for factor market distortions (e.g., the shadow wage rate coefficient). For the economic profitability analysis, the border price of the commodity at the shadow exchange rate is compared with economic costs of production (i.e., net of taxes and subsidies). Comparisons are made of domestic and world reference prices (nominal protection coefficient, output) and tradable inputs prices (nominal protection coefficient, inputs), as well as of financial and economic value-added (effective protection coefficient and effective subsidy coefficient). These are evaluated at both official and shadow exchange rates with 'net" designating calculations based on the shadow exchange rate. The mathematical expression of the coefficients calculated is as follows: 6. In order to understand the relationship between each of the coefficients derived, it is instructive first to define net financial value and net economic value for a given activity (j) as follows: Net Financial Value of j = Pj - Sumi (Pi x Aij) - Sumk (Pk x Fkj) (1) Net Economic Value of j = P*j - Sumi (P*i x Aij) - Sumk (P*k x Fkj) (2) Where : Pj = financial price of product j Pi = financial price of tradeable input i Pk = financial price of nontradeable factor k P*j = economic reference price of product j P*i = economic reference price of tradeable input i P*k = economic or shadow price of nontradeable factor k - 28 - Annex 4 Page 3 of 17 Aij - quantity of tradeable input i required per unit of product j Fkj - quantity of nontradeable factor k required per unit of product j Also. we can define Finazvial value added : VAf - Pj - Sumi (Pi x Aij) Economic value added s VAe - P*j - Sumi (P*i x Aij) Then: The nominal protection coefficient for outputs is simply the ratio of the first term ir equations (1) and (2): NPCo PJ P*J The nominal protection coefficient for inputs is the ratio of the second terms in equations (1) and (2): NPCi = Sumi(Pi x Aij) Sumi(P*i x Aij) The effective protection coefficient combines the effects of the NPCo and the NPCi. It is the ratio of the first minus the second terms in (1) and (2): EPC - VAf Pi - Sumi(Pi x Aii) VAe P*j - Sumi(P*i x Aij) The effective subsidy coefficient adds in the impact of taxes on non- tradeables: ESC VAf - Tnt = PJ - Sumi(Pi x Aii) - Tnt VAe P*j - Sumi(P*i x Aij) where Tnt = taxes on non tradeables. The producer subsidy equivalent uses the same information as the ESC, but in a diffetent ratio: PSE - Pi - P*j) - [Sumi(Pi x Aij) - Sumi(P*u x Aii)l - Tnt Pi Lastly, the domestic resource cost coefficient simply represents the ratio of domestic resource costs (nontradeable costs net of all taxes or subsidies) to value added in economic terms: DRC = Sumk (P*k x Fkt) P*j - Sumi (P*i x Aij) - 29 - Annex 4 Page 4 of 17 7. In the templates, for each of the protection coefficients, a net coefficient is also derived which represents the coefficient as calculated above multiplied by the ratio of the real exchange rate (ERr) to the official exchange rate (ERo). Thus, for example, EPC net - EPC x ERr/ERo. 8. Finally, with respect to the derivation of the coefficients: in order to make valid comparisons of domestic production costs with reterence prices derived from international substitutes. adjustments must be made to each to bring the two alternatives to a common point of comparison. These points of comparison must be determined by the analyst depending upon the structure of the market for the particular commodity, and relevant issues for the commodity. Currently the template is set up to compare domestic production with an importable substitute product at the farm gate, the factory gate after the product has been processed, and the urban wholesale market. It also makes a comparison at the port (FOB) to examine the potential for exporting the domestic product. 9. In making adjustments to a point of comparison, the model currently assumes that the product is an import substitute. Therefore market prices reflect the international price plus financial costs of importing the product. To make adjustments for comparison to domestic production costs, therefore, the non- tradeable component of importing to the point of comparison is subtracted from the market price and from non-tradeable costs in domestic productiolL in order to derive the price and nontradeable costs which would pertain if imports were made unnecessary by domestic production. On the export side, there is no need for adjustment of domestic production and marketing costs because the comparison is made at the port (FOB). Production coefficients 10. Input quantities and prices used in the calculations of each indicator are based on earlier research, interviews with researchers, and visits to retail and wholesale markets. An attempt was made to reflect actual rather than potential farm r - vice. A summary of the input requirements and yields for each budget is prfAsnted in Table 4.1 - 4.3. 11. General comments on the approach taken for factor costs are included below. For salaried labor the rural unskilled daily wage is used. These wage rates are based upon regional data reported by the BBS. Wage and labor requirements reflect adult person-day requirements. This rate is adjusted downwards by .71 to reflect the opportunity cost of family labor, a ratio derived from an estimate of the probability of finding agricultural work during the year. Rental values for land were obtained from BBS and BARI data and personal communications. 12. Seasonal capital, required for hired labor and purchased inputs, is charged a rate of 16.7Z reflecting the private market costs of capital, net of inflation. The public sector capital interest rate is used to reflect the opportunity cost of capital tied up in long term investments, which consist solely of irrigation equipment in the crop budgets. This rate is used because most irrigation equipment is assumed to be financed through public bank loans. - 30 - Annex 4 Page 5 of 17 The prevailing publicly financed rate, adjusted for the rate of inflation, is approximately 4Z. 13. For irrigated crops, a charge is applied to cover the annual capital recovery on shallow tubewell irrigation. This calculation assumes that tube wells last for 10 years. Operating costs for irrigation are evaluated separately and are a function of water use. 14. Lastly, a rough estimate of the costs of the public extension service is included in each crop budget. Within the AgriLultural Development Budget, Tk.272 million were allocated to extension, and Tk. 622.5 million to the recurrent budget for extension service salaries and operatitvg costs. Total cropped area is estimated at 33.5 million hectares. Therefore per-hectare extension costs for all crops is estimated to be Tk. 26.7 per hectare. It is assumed that this cost is entirely born by the state. - 31 - Anex 4 Page 6 of 17 Table 4.1 INUTS AND PRODUCTION COEFFICIENTS: RICE CROPS Rf L . Rf L T. Rf L T. Rf L T. Rf L T. Rf L T. Rf NV T. R T. Rf I V T.Rf V T. Ir NV T Ir iV T. AIAN Unite SEFS NW FO NW F1 NE FP NE FO sW Fl NE Fl NW F2 SW Fl SWPl NW FI/F2 NW F a*od: bADC kg 0 0 0 0 0 0 0 0 0 0 0 0 *mo: market ka 80 70 70 63 s0 57 0o SO 62 Be 89 60 manure kg 3012 0 0 0 0 0 0 0 0 4000 0 0 ure. kg 60 24 24 0 0 22 79 77 132 150 112 8l TSP kg 53 89 S9 0 0 0 80 83 106 110 78 24 iw unit 28 28 28 0 0 0 0 14 84 56 26 10 Pesticides kg 0 0 0 0 0 0 1 0 726 290 0 0 1 A tiW n costs unit 0 0 0 0 0 0 0 0 0 0 0 0 FACTORSOF PRODUCTION family labor pere-day 102 S 80 e0 0 so 0 182 60 69 98 64 11 aelariod labor pore-day 2S 89 S1 61 61 61 88 15 22 24 21 28 animl traction *erV. poir-day 22 82 29 27 27 27 48 18 20 18 28 28 land rent TK/ha 4058 ss30 8500 80OO 8800 8800 4800 4200 4300 4300 4200 4200 *oaaial capital TK/ha 2948 2207 2806 2881 2268 2876 l6o 1621 8432 89e4 28u 20" PUBLIC IVTMENT COSTS eaten-ion service TK/ha 27 27 27 27 27 27 27 0 0 0 0 0 BY-PRODUCT- straw 4194 2400 5000 460 8740 2470 2660 2620 80o0 8570 8910 4160 YIELD kg/ha 2083 1200 2500 2s80 1670 1690 2660 2620 3060 3180 8910 4160 --------------- ------AUS- ---------- ---------BORO------------ RHYV Rf B. Rf . Rf B. Rf . Rf B. Rf B. Ir HWYV Ir HYV Ir L Unito NE F1 SW FO Sw f1 No F0 Mf O/F1 SE P0/Fl S P0/Fl NE Fl tW F2/F NE Pi4 INPUTS "oads BADC kg 25 0 0 0 0 0 0 62 so 0 seedo; markot kg 0 127 142 90 91 loo 125 0 0 161 manure kg 0 000 2250 0 0 0 4100 8432 0 972 ursa kg 1s8 71 99 0 0 38 70 176 141 190 TSP kg 65 0 S1 0 0 7 0 a1 78 6s -C unit 4 0 16 0 0 0 0 26 12 28 Peoticidee kg 1 198 0 0 0 0 297 219 1 0 Ir ' ation coot unit 0 0 0 0 0 0 8921 4191 2924 FACTORS OF PRODUCTION fnmily labor pere-day so 74 43 Ss 31 74 60 47 47 So selaried labor pore-day 140 21 54 93 55 21 53 180 180 140 animl traction *arn, pair-day 84 20 21 20 20 20 20 84 84 84 land ront TK/ha 1400 3200 3200 8400 8100 8300 3200 4800 4800 4834 seasonal capital TK/ha 5780 8098 8949 8871 2329 2046 3990 10760 9204 6988 EXTENION SRVICE TK/ha 27 27 27 27 27 27 27 0 0 0 BY-PRODUCTS- strea kg/ho 3400 1580 2350 1300 1700 1380 1700 4050 4870 S818 YIELD kg/ha 3400 1580 1660 1300 1700 1860 1700 4080 4870 8987 Note: L a local variety MV - modern varity Rf * rainfed Ir * irrigated T.. treneplonted 8. a broadcaet Table 4.2 : INPUTS AND PROCUICTION COEFFICIENTS: FOOD CROPS ------IRRIGATED WEAT--- -----POTATOES-- --- MUSTAR----- LENTILS CHILLIES sW.P1 fl*F NW,FP1F2 NE.F1/F2 NWF1/f2 NE,F2 SW.F0 NlWF1 NW FO Unit. Irrig. Irrig. Irrig. Irrig. Irrig. Sup.trrig. seeds: 8ADC kg 0 0 0 1968 1548 0 0 0 0 seode: market kg 128 119 188 0 0 10 12 86 16 manure kg 1435 0 0 1841 11769 7195 0 SO0 19748 ures kg 74 128 119 579 220 198 43 40 861 TSP kg 51 85 117 608 229 237 37 0 100 FP kg 12 20 44 579 226 e1 20 0 43 Poeticides kg 0 0 0 800 802 280 198 0 14 Irrigation coot. unit 1543 1582 1552 962 6500 0 0 1158 Rental coot of Sprayer unit 0 0 0 0 0 1 FACTRs oiPRODUCt.ION. fami ly labor pare-day 83 82 88 119 186 77 96 71 122 salaried labor pare-day 41 19 83 128 189 50 15 0 1l1 animal traction aerv pair-day 19 22 20 0 S6 26 21 80 62 mehine-poser tiller TK/ha 2240 270 0 0 0 0 land rent TK/ha 3300 8400 8300 8869 8900 2964 2560 8100 8000 seasonal capital TK/ha 486B 4154 8170 89990 28697 8647 1269 620 10640 ................................................................................................ PUBLC lVssEST.COSTS. *xten-ion service TK/ha 27 27 27 27 27 27 27 27 27 BY-PR ---CTS 2400 930 2960 o0 0 1200 1000 1000 0 YIELD ke/he 1840 930 168 29020 20640 910 680 710 8761 - 32 - Annex 4 Page 7 of 17 Table 4.5 : INR}TS AND PRODUCTION COEFFICIEITS: CASH CRPS _ _ _ _ _ -_ JUTE ---- - -----CO -sua ---- F1APP1 PO Fl il P0 P0FO 0 P(IO~P(~ F^2 NE NoE NE SW NE SWF FO FO1 F:1 F lNITS Wh t Toc ToO" White White OUR S-TRA MA ThAD SUtAR seeds/cuttings kg 0 0 0 0 0 40 29 16 0 0 0 e*.de/cuttsnge kg 7 11 12 13 8 0 0 0 1644 6914 6914 anure kg 0 0 0 0 4200 1726 208666 392 0 0 0 urea kg 42 15 87 77 34 107 168 153 277 277 277 TSP kg 55 0 7 0 13 44 114 137 277 277 277 w kg 24 0 7 0 5 10 7 28 185 185 185 Zinc eulphate kg 85 85 85 Qypeum kg 185 186 185 Soil treatment kg 5 10 10 Seed treatment kg a 10 10 Pesticidet unit 9u8 1885 1421 65 6e 65 poly bag unit 0 0 0 20 0 0 FACTORS OF PRODUCTION faail% labor pere-day 124 94 94 119 118 144 16U 168 63 87 87 salarsed labor per--day 94 123 123 91 89 45 88 68 254 102 102 animal tract peir-day 27 27 27 27 27 26 31 35 41 38 58 land rent TK/ha 3100 3400 3400 3400 3200 3400 3100 3200 1976 6464 6464 "aonal capital TK/ha 8406 4857 4571 531I 3802 8509 9104 6074 17050 16425 16425 tLCINVETS. CT extension sorv. TK/ha 26.70 26.70 26.70 26.70 26.70 26.70 26.70 26.70 26.70 26.70 26.70 --BY-PRO-D-CTS TK/kg 4250 S600 425008000 -4200 8700 4150 t132 2772 1488 150C0 110O0 11000- Tk/tn 7000 6000 6000e YIELD kx /h 2230 1900 2200 1930 1890 676 1S86 744 78600 60700 50700 Note: e For sugar cane, byproducts are green and dry leaf. Market Prices and Margins 15. Commodity prices at each level in the commodity market were based on observation. In the case where the price at a specific location was unknown, it was derived from a known price by adding or subtracting an assumed margin. Where possible, an average of monthly prices during the principal sales period was used. 16. Transportation and processing margins were taken from statistics available from the BBS on cost of transportation and from studies of marketing margins. Where possible these costs were confirmed by interviews with truckers, millers, wholesalers, and retail merchants. 17. Port charges for Bangladesh were obtained from the Bangladesh Port Authorities for Mongla and Chittagong ports.. As a general rule, the port closest to the wholesale point was used as an entrance point for the commodity in question. For hypothetical export scenarios involving crops not currently exported, jute export margins were adjusted to reflect best guesses of export costs for these crops. 3 International Reference Prices 18. Where possible, reference prices for each crop were based upon FOB world I price quotes for the commodity at the port of an important exporting country for the commodity. Where an international price could not be obtained for a product of similar quality to the domestically produced commodity, a quality premium was - 33 - Annex 4 Page 8 of 17 applied to the int rnational price to account for the difference. In cases where a large international market does not exist for the commodity, a price was derived from the best available information. The exchange rate prevailing in mid-1990 (Tk. 35.5/US$) was used to convert all world reference prices into domestic currency prices for the financial analyses. The Government has pursued a managed exchange rate policy since 1985 which has succeeded in closing the gap between the official rate and the secondary rate (the wage earners' rate), and has led to a nominal depreciation of about 25 percent against the dollar. However, exchange rate movement has not beer as flexible as it could have been, particularly relative to the aggressive exchange rate policies of many high- growth Asian countries with whom Bangladesh competes (Figure 4.1). Since this analysis was undertaken, the Government has further devalued the taka by about 4 percent. Instead, Bangladesh has relied on import tariffs and export subsidies to stimulate domestic production. For this reason, a 20 percent premium was added to the official exchange rate for the economic analyses, bringing it to Tk 42.6/US$. Figure 4.1: Real Effective Exchange Rate Movements, 1980-90 1004 90 - .4 6 @ so 3 0 ttoo *991 t9oz 1983 t9gl MSS t986 199 s@ tole19g n Bangladesh + India oPakistan x T jailand vChina - 34 - Annex 4 Page 9 of 17 19. Rice: Quality distinctions based on degree of brokenness, grain length, humidity, color and taste create large price differentials in the international riLe market. In 1990, a high-quality, Thai, 5 percent broken rice was selling for US$ 275-300/MT (FOB), while the lowest-quality, 25+ percent brokens were selling for as little as US$ 140-160/MT. Bangladeshi rice is of variable, but generally quite low, quality, and is not color sorted. International rice traders examining Bangladeshi samples agreed that, in its present form, a price of US$ 150/MT (FOB) was an appropriate reference price. If modern mills could reduce the level of brokens to 15 percent, and if a grading system are strictly adhered to, the resulting quality improvement could raise the appropriate reference price to US$ 200/MT in coming years. Unless they are motivated by export opportunities, millers and traders are unlikely to make such improvements, however. For this reason, in the analysis that follows, two scenarios for rice are included: a base scenario with a US$ 150/MT reference price, and an optimistic scenario with a US$ 200/MT reference price. 20. Wheat: Most of Bangladesh's wheat is imported through aid programs from the USA and Canada. Domestic production is compared to a world reference price of Canadian wheat (Number 1 Western red spring wheat), FOB east coast. The current international price of $184/MT is used in the base case, while a projected price of $150/MT is assumed as a five year projection. 21. Jute: Polypropylene, a synthetic fiber, is the principal competitor with jute on the international market. It generally sells for about twice the price of Jute, and is currently at $800 per ton. White jute (bwd grade) sells for between $370 and $400 per ton (FOB Chittagong). Tossa jute which commands a slight premium, sells for $398 to $410 per ton. However, January 1990 World Bank projections expect white jute prices to drop to $300 per ton (1990 prices) by the year 1995. This is in large part because polypropylene prices are expected to fall due to expected excess capacity in the next five years. Disturbances in the international oil market may raise polypropylene prices and therefore strengthen the international market for jute. The analysis therefore examines two scenarios. In one case jute is valued at 1990 prices to examine economic comparative advantage under current world conditions. A second scenario assumes $300/MT as a conservative 1995 assumption. 22. Cotton: BTMC imports include three varieties of lean cotton: 1-1/32, 1- 1/16 and 1-1/8 inch. Bangladesh cotton is of mixed grades that are considered slightly superior to US 1-1/32 inch quality. Therefore, this quality cotton is assumed as a reference price in the base case, which according to the BTMC , was $1788/MT CIF Chittagong in 1990. This price is close to the World Bank projection of $1800/MT for 1-3/32 inch grade. A 5 year projection scenario lowers this price to $1674/MT on the basis of World Bank projections for the year 1995. U World Bank, International Commodity Markets Division, Commodity projections for January 19, 1990. - 35 - Annex 4 Page 10 of 17 23. Sugars Sugar prices reflect World Bank projections for 1990 and 1995. A reference price for gur is estimated by applying the ratio of domestic prices for sugar and gur to the international price for sugar. 24. Mustard oils Due to the limited market for mustard oil, 'nternational market prices are not available. Rapeseed oil is a close substitute for mustard oil, so much so that production, consumption, and grower prices are combined in official statistics in Bangladesh. For this reason, world reference prices for rapeseed oil are used as a proxy for the economic reference price for domestically-produced mustard oil. 1990 prices FOB Rotterdam, for rapeseed averaged $432/MT from October 1989 to July 1990. This ave-age has been used as a base case FOB price. Adding $50 for shipment to Bangladesh yields a CIF price of $482/MT. 25. Potatoes: Singapore prices for potatoes are cited at $90/MT. The potato growers' price (for all uses) in the USA was $135/MT in 1989. Given the closer proximity to Singapore. its prices have been assumed as the reference price for potatoes in the base case analysis. The USA price has been used in an alternative scenario. 26. Chillies: International standards do not exist for chillies. However, because Bangladesh imports chillies from India, retail prices from India are used to reflect the CIF price. These prices were as high as $1000/MT. To convert retail to FOB prices, the ratio of retail to wholesale prices in Bangladesh was applied to this price. Given that wholesale prices on a national basis were between 60 2 and 64 2 of retail prices in 1987/88, an FnB price of approximately $625/MT is used in the analysis. 27. Lentils: The 1990 USA wholesale price of $317/MT for lentils was adjusted by $40 to account for freight and insurance to give a CIF price Chittagong of $357/MT. By comparison, a price of $418/MT CIF Chittagong was quoted for lentil imports from Turkey in December 1988. Results of the Analysis Table 4.4 Coefficient, of Protection for Rice (Urban Wholesle level) WORLD PRICE - 150 J/TN WORLD PRICE - 200 S/TN Not Net Net Net Net Net Not CROP/TEONIQLE AREA LAND YIELD NPCo NPCo NPCi NPCi EPC EPC ESC ESC NPCo NPCo EPC EPC ESC ESC 1ILOCAL T. RAIN N.E P 2360 1.48 1.19 1.00 0.90 1.38 1.15 1.37 1.14 1.13 0.94 1.06 0.89 1.06 0.66 2 LOCAL T. RAIN N.E FO 1670 1.43 1.19 1.09 0 91 1.88 1.15 1 .7 1 14 1 18 0 94 1.06 0 89 1.06 0. a 8 LOCAL T. RAIN N.W. FO 1200 1.23 1.02 0.98 0.78 1.21 1.01 1.21 1.01 0.97 0.81 0.90 0.78 0.90 0.75 4 LOCAL T. RAIN N.W. FC 2600 1.23 1.02 0.97 0.61 1.17 0.98 1.17 0.97 0.81 0.90o .78 0.90 0.78 5 LOCAL T. RAIN 8.V. Ft 1690 1.42 1.18 1.07 0.89 1.09 1.16 1.88 1.l1 1.18 0.94 1.07 0.69 1.06 0.89 e LOCAL 8. RAIN S.E. FS 203 1.84 1.28 0.98 0.61 1.88 1.30 1.86 1.30 1.22 1.02 1.19 0.99 1.16 0.9o 7HYV T. RAIN N.E. Fl 2660 1.35 1.13 1.02 0.68 1.82 1.10 1.31 1.09 1.07 0.89 1.00 0.84 1.00 0.68 a HNW T. RAIN S.W. Fl 1810 1.38 1.15 0.96 0.6o 1.89 1.16 1.38 1.18 1.09 0.91 1.04 0.87 1.04 0.87 9 HNV T. RAIN S F. F1 80o0 1.38 1.1s 0.97 0.61 L.s9 1.16 1.38 1.18 1.09 0.91 1.08 0.87 1.04 0.68 lOHYV T. >RAN N.V. F2 2620 1.8 8 . 1. 1.03 0.86 1.34 1.12 1.83 1.11 1.09 0.91 1.09 0.88 1.02 0.68 11 HW T. ImI N.W. Ft 4160 1.38 1.18 1.06 0.88 1.38 1.10 1.32 1.10 1.09 0.91 1.02 0.86 1.01 0.65 12 HNV T. IRRI N.W.F1/F2 8910 1.88 1.15 1.00 0.83 1.34 1.12 1.38 1.11 1.09 0.91 1.02 0.88 0.98 0.82 AUS 13 LOCAL 8. RAIN S.W. FO 1680 1.88 1.13 1.08 0.88 1.34 1.11 1.83 1.11 1.07 0.89 1.01 0.84 1.00 0.83 14 LOCAL a. RAIN N.E. FO 1300 1.29 1.08 1.07 0.89 1.24 1.08 1.28 1.02 1.08 0.68 0.95 0.79 0.94 0.79 1S LOAL 8. RAIN S.E.FO/F1 1360 1.48 1.21 1.04 0.87 1.44 1.20 1.48 1.20 1.I8 0.96 1.10 0.91 1.09 0.91 16 LOCAL a. RAIN N.W.FO/F1 1700 1.88 1.l1 1.06 0.90 1.82 1.10 1.32 1.10 1.09 0.91 1.02 0.86 1.01 0.68 17 LOCAL B. RAIN S.W.FO/F1 1700 1.88 1.18 1.06 0.88 1.33 1.11 1.82 1.10 1.07 0.89 1.01 0.84 1.00 0.83 18 LOCAL B. RAIN S.W. Ft 1660 1.385 1.13 1.01 0.84 1.36 1.18 1.84 1.12 1.07 0.69 1.01 0.66 1.01 0.84 19 HYV T. RAIN N.E. Fl 8400 1.27 1.05 0.97 0.81 1.23 1.02 1.25 1.04 1.00 0.84 0.98 0.78 0.98 0.79 DM 20 LOCAL T. IRRI N.E. F4 8987 1.41 1.18 1.19 0.99 1.87 1.14 1.30 1.06 1.12 0.93 1.03 0.88 0.98 0.82 21 HYV . IRR N.E. Ft 4080 1.41 1.16 1.13 0.98 1.88 1.18 1.38 1.13 1.12 0.98 1.08 0.88 1.01 0.84 22 HNV T. IRI_ N.V.F2F8 4870 1.42 1.19 1.26 1.05 1.86 1.14 1.60 1.09 1.18 0.94 1.03 0.3 0.99 0.82 - 36 - Annex 4 Page 11 of 17 Table 4.6: Co-fftcients ot Protection for Solected Food and cash crops (urban wholoeale level) ------------- WHOLESALE LEVEL ------------------ Yield World Net Not Net Net AREA LAND kg/he Price NPCo NPCo NPCi NPCI EPC EPC ESC [ WHEAT current S.W. Fl 1840 114 1.08 0.86 1.18 0.94 0.85 0.71 0.68 0.67 N.W. F1 sao 184 1.09 0.90 1.18 0.94 0.79 0.65 0.32 0.27 N.W. F1I/F2 1830 114 1.09 0.90 1.09 0.90 0.96 0.81 0.37 0.72 1995 S.W. Fl 1340 160 1.22 1.02 1.18 0.94 1.16 0.97 0.98 0.77 N.W. Fl 980 150 1.29 1.07 1.18 0.94 1.47 1.28 0.61 0.51 N.W. F1/F2 1880 160 1.29 1.07 1.09 0.90 1.29 1.07 1.14 0.96 POTATO N.E. Base case 29020 90 1.97 1.65 1.76 1.46 2.01 1.67 1.88 1.67 N.E. Base caos 29020 90 1.U8 1.56 1.75 1.48 1.88 1.56 1.76 1.46 N.W. Base case 20640 90 1.97 1.86 1.91 1.69 1.98 1.65 1.86 1.55 N.E. High qual. 29020 180 1.64 1.28 1.75 1.46 1.52 1.26 1.42 1.19 N.E. High qual. 29020 180 1.46 1.21 1.75 1.46 1.42 1.18 1.88 1.11 N.W. High qual. 20640 130 1.64 1.28 1.91 1.59 1.51 1.26 1.41 1.18 MUSTARD S.W. Base case 680 432 2.80 1.91 1.07 0.89 8.08 2.67 8.07 2.56 N.E. Base case 907 432 2.80 1.91 0.94 0.78 6.86 5.80 6.81 5.26 S.W. 1996 price 680 648 1.69 1.82 1.07 0.89 1.75 1.46 1.74 1.45 N.E. 1995 prlce 907 648 1.69 1.82 0.94 0.78 2.28 1.86 2.21 1.84 LENTILS N.W. Base caso 710 878 1.40 1.17 1.02 0.86 1.44 1.20 1.41 1.17 N.W. Low qual. 710 317 1.64 1.37 1.02 0.86 1.71 1.48 1.68 1.40 CHILLIES N.W. Base case 3781 625 1.47 1.22 1.08 0.90 1.54 1.28 1.63 1.28 N.W. Low qual. 8781 600 1.83 1.63 1.08 0.90 2.02 1.69 2.01 1.68 COTTON I/ NE FO R tnfed 676 1788 0.65 0.64 1.07 0.89 0.61 0.42 0.68 0.67 NW FD/FI Rainfed 1386 1788 0.64 0.64 1.09 0.91 0.61 0.48 0.66 0.56 SW FO Rainfed 744 1788 0.64 0.64 1.07 0.89 0.46 0.88 0.62 0.52 SUGAR NW FO/FI White- traiditional 60700 380 2.26 1.88 1.04 0.84 2.34 1.96 -0.02 -0.02 NW FO/FI Our- space transp. 78600 268 1.73 1.46 1.08 0.90 1.8 1.63 1.84 1.68 NW FO/FI Cur- traditional 50700 258 1.78 1.45 1.06 0.88 1.92 1.60 1.92 1.60 I/ For cotton, the comparison is for import substitution at the textile miligate. I - 37 - Annex 4 Page 12 of 17 Table 4.6: Financial Profitability of Rice --------FINANCIAL NET RETURNS (Tk/Ha)--------- PADDY ----FARM LEVEL----- --WIHOLESALE LEVEL-- CROP/TECHNIQUE AREA LAND PRICE YIELD CASH PROFIT CASH PROFIT AMAN 1 LOCAL T. RAINFED N.E. FO 8.85 2860 9498 8795 8751 304a 2 LOCAL T. RAINFED N.E. FO 6.86 1870 7950 8941 7868 884S 8 LOCAL T. RAINFED N.W. FO 6.00 1200 8874 -478 2816 -1588 4 LOCAL T. RAINFED N.r. Fl 6.00 2500 11196 7879 6990 5669 6 LOCAL T. RAINFED S.W. Fl 6.80 1690 5969 1562 6451 1051 8 LOCAL S. RAINFED S.E. FS 6.02 20a8 7867 2072 848 8148 7 HYV T. RAINFED N.E. Fl 5.00 2660 6841 900 8662 2716 8 HYV T. RAINFED S.W. Fl 6.00 8180 10218 6383 12761 7894 9 HYV T. RAINFED S.W. Fl 6.00 8080 9472 4790 11980 7241 10 HYV T. RAINFED N.W. F2 5.00 2620 8863 8987 10465 6028 11 HYV T. IRRIGATED N.W. Fl S.0W 4160 15890 11768 19201 15069 12 HYV T. IRRIGATED N.W. F1/F2 5.00 3910 14261 9939 17872 18051 AUS 13 LOCAL B. RAINFED S.W. FO 6.00 1580 4011 -1886 6098 287 14 LOCAL B. RAINFED N.E. FO 6.00 1800 8302 -1415 8846 -874 16 LOCAL B. RAINFED S.E. FO/Fi 6.00 1860 2992 -2495 4530 -959 16 LOCAL B. RAINFED N.W. FO/Fl 6.00 1700 6704 1704 7061 2248 17 LOCAL B. RAINFED S.W. FO/Fl 5.00 1700 4189 -1190 5858 -80 18 LOCAL B. RAINFED S.W. Fl 6.00 16so 4614 -266 56e1 878 19 HYV T. RAINFED N.E. Fl 6.28 8400 11780 6928 11768 5948 BORO 20 LOCAL T. IRRIGATED N.E. F4 6.29 8987 10001 4305 12706 7002 21 HYV T. IRRIGATED N.E. FL 6.29 4050 10161 8308 12897 6776 22 HYV T. IRRIGATED N.W. F2/Fs 6.42 4870 18184 7713 15761 10281 Note: T. = transplanted B. = broadcast - 38 - Annex 4 Page 13 of 17 Table 4.7: Indicators of Economic Value and Comparative Advantage for Import Substitution of Rice --- FARM LEVE ------- -------WOLESALE LEVEL------- REFERENCE PRICE OF RICE: 8150/TN 8200/TN 81Co/TN *200/TN -- -- -- - - -- -- -- -- -- --- - -- -- --- - -- -- -- --- NET FIN NET ECO NET ECO NET FIN NET ECO NET ECO CROP/TECHNIQUE AREA LAND YIELD VALUE VAWE DRC VALUE DRC VALUE VALUE DRC VALUE DRC AMAN 1 LOCAL T. RAIN N.E. FO 2860 8796 3642 0.71 7008 0.65 8048 1386 0.68 4827 0.68 2 LOCAL T. RAIN N.E. FO 1670 8941 8769 0.61 6612 0.47 8846 .2046 0.78 4765 0.60 8 LOCAL T. RAIN N.W. FO 1200 -478 -468 1.09 1802 0.62 -1686 -15S6 1.80 195 0.97 4 LOCAL T. RAIN N.W. Fl 2600 7879 8809 0.84 11976 0.28 6s9 6004 0.61 9671 0.89 6 LOCAL T. RAIN S.W. Fl 1690 1562 1864 0.84 s868 0.65 1051 -205 1.02 2274 0.79 6 LOCAL B. RAIN S.E. F8 2083 2072 2216 0.77 6196 0.69 8148 341 0.96 8828 0.78 7 HYV T. RAIN N.E. Fl 2660 900 4082 0.69 7984 0.65 2716 1580 0.67 6481 0.66 8 HYV T. RAIN S.W. Fl 8180 5868 6727 0.41 18892 0.81 7894 6796 0.69 10469 0.45 9 HYV T. RAIN S.W. Fl 8080 4790 8006 0.48 10522 0.82 7241 5166 0.62 9082 0.46 10 HYV T. RiIN N.W. F2 2620 8987 7092 0.46 10985 0.86 6028 4676 0.6s 8619 0.48 11 HYV T. IRRI N.W. Fl 4160 11768 16919 0.21 28021 0.16 16069 18088 0.86 19185 0.28 12 HYV T. IRRI N.W. F1/F2 8910 9893 14586 0.26 20320 0.19 18061 10979 0.42 16716 0.82 AUS 18 LOCAL S. RAIN S.W. FO 1580 -1386 416 0.94 2782 0.72 -287 -1042 1.15 1276 0.68 14 LOCAL B. RAIN N.E. FO 1800 -1416 176 0.97 2082 0.75 -874 -1024 1.16 086 0.69 15 LOCAL B. RAIN S.E. FO/F1 1860 -2496 -948 1.14 1047 0.88 -959 -2204 1.85 -207 1.02 16 LOCAL B. RAIN N.W. FO/FI 1700 1704 8611 0.56 6804 0.44 8057 2248 0.78 4787 0.56 17 LOCAL B. RAIN S.W. FO/Fl 1700 -1190 1816 0.88 8810 0.68 -80 -251 1.08 2242 0.76 16 LOCAL B. RAIN S.W. Fl 1660 -256 1628 0.80 8968 0.61 878 -8 1.00 2482 0.76 19 HYV T. RAIN N.E. Fl 8400 6928 8420 0.49 18407 0.87 5948 5266 0.67 10272 0.60 BORO 20 LOCAL T. IRRI N.E. F4 8987 4805 9161 0.51 16009 0.86 7002 6486 0.69 11888 0.62 21 HYV T. IRRI N.E. Fl 4050 8088 7284 0.61 18194 0.48 6776 8499 0.80 9440 0.60 22 HYV T. IRRI N.W. F2/F8 4870 7718 12668 0.40 18976 0.80 10281 8687 0.68 14947 0.48 - 39 - Annex 4 Page 14 of 17 Table 4.8: Indicators of Economic Value and Comparative Advantage for Export of Rice REFERENCE PRICE: 8160/TN 8200 TN NET RETURNS (Tk/H&) NET RETURNS (Tk/H*) CROP/TECHNIQUE AREA LAND YIELD FINANCIAL ECONOMIC DRC FINANCIAL ECONOMIC ORC AMAN 1 LOCAL T. RAIN N.E. FO 2380 -4748 -2687 1.82 -1954 664 0.94 2 LOCAL T. RAIN N.E. fO 1670 -2826 -1166 1.17 -618 1489 0.64 a LOCAL T. RAIN N.W. FO 1200 -4401 -38625 2.08 -2981 -1922 1.87 4 LOCAL T. RAIN N.W. Fl 2600 294 1711 0.80 2664 6261 0.67 6 LOCAL T. RAIN S.W. Fl 1690 -4476 -8082 1.62 -2478 -682 1.08 6 LOCAL B. RAIN S.E. F8 2038 -4614 -8060 1.46 -2209 -174 1.02 7 HYV T. RAIN N.E. Fl 2660 -6186 -2988 1.84 -1988 789 0.94 8 HYV T. RAIN S.W. Fl a180 -186a 476 0.96 1910 4990 0.65 9 HYV T. RAIN S.W. Fl 3080 -2119 12 1.00 1445 4885 0.68 10 HYV T. RAIN N.W. F2 2620 -2008 177 0.98 1092 8897 0.69 11 HYV T. IRRI N.W. Fl 4160 2819 6940 0.60 7241 11847 0.48 12 HYV T. IRRI N.W.F1/F2 8910 1087 4268 0.88 5698 9817 0.48 AUS 18 LOCAL B. RAIN S.W. FO 1580 -4961 -8686 1.76 -B08- -1442 1.20 14 LOCAL B. RAIN N.E. FO 1800 -4866 -8268 1.72 -2826 -1410 1.22 15 LOCAL B. RAIN S.E.FO/F1 13860 -6681 -4477 2.00 -3971 -2646 1.40 16 LOCAL B. RAIN N.W.FO/F1 1700 -2168 -676 1.11 -142 1788 .79 17 LOCAL B. RAIN S.W.FO/F1 1700 -169 -3095 1.68 -127 -682 1.09 18 LOCAL S. RAIN S.W. Fl 1680 -4021 -2780 1.66 -2067 -428 1.06 19 HYV T. RAIN N.E. Fl 3400 -2562 -629 1.06 1471 4299 0.78 BORO 20 LOCAL T. IRRI N.E. F4 8987 -5909 -1860 1.11 -1192 -4801 .76 21 HYV T. IRRI N.E. F1 4060 -7828 -8466 1.28 -2684 -2296 .87 22 HYV T. IRRI N.W.F2/F8 4870 -4088 1033 .98 -1188 7288 .64 - 40 - Annex 4 Page 15 of 17 Table 4.9: Financial Profitability of Selected Food Crops FINANCIAL NET RETURNS (Tk/Ha)---------- ------ FARM LEVEL ----- --- WHOLESALE LEVEL --- Yield Market Net Returns Market Net Returns Technique/Area/Land (kg/ha) Price Cash Total Price Cash Total WHEAT irrigated S.W. Fl 1340 6.00 -2615 -7848 8.05 -148 -5382 irrigated N.W. Fl 930 6.00 -5414 -11189 8.50 -3284 -9060 irrigated N.W. F1/F2 1830 6.00 180 -5099 8.50 4371 -908 POTATO Irrigated N.E. F1/F2 29020 4.74 59949 20432 9.50 172184 13262 Irrigated N.E. Fl/F2 29020 4.00 40909 930 10.07 181454 141432 Irrigated N W. F1/F2 20640 3.65 22754 -10531 10.07 129216 95901 CHILLIES N.W. 3781 29.00 15428 10461 34.82 27283 15850 MUSTARD S.W. 680 12.65 5865 2610 40.00 6012 2756 MUSTARD N.E. 907 12.65 4885 16 40.00 5081 212 LENTILS N.W. 710 14.85 6186 2185 21.20 8676 4673 Table 4.10: Economic Profitability and Comparative Advantage of Selected Food Crops ....... FARM LEVEL ...... WHOLESALE LEVEL ... ..... EXPORT LEVEL. Crop/ Yield World Net return (Tk/ha) Net. return (Tk/Ha) Net return (Tk/Ha) Area Land kg/ha Price Finan. Economic DRC Finan. Economic DRC Finan. Economic DRC WHEAT base case S.W. FL 1340 184 -7848 -1626 1.21 -6382 -2118 1.28 -8997 -6089 2.33 N.W. Fl 930 184 -11189 -6640 3.16 -9060 -6882 3.31 -11987 -9699 11.19 N.W. F1/F2 1880 184 -6099 2928 0.74 -908 2268 0.80 -e668 -3288 1.46 1996 price S.W. Fl 1840 160 -7848 -6831 1.66 -6382 -4123 1.75 -10614 -8029 4.04 N.W. FL 930 160 -11189 -7932 6.76 -90e0 -8273 6.14 -13109 -11046 -26.93 N.W. F1/F2 1830 1SO -5099 190 0.98 -908 -483 1.06 -8876 -6938 2.26 POTATO Base case N.E. F1/F2 E 29020 90 20432 89S81 0.39 132623 67602 0.62 -87241 -47193 2.50 N.E. F1/F2 L 29020 90 930 96613 0.36 141432 61420 0.56 -50328 -2883 1.04 N.W. F1/F2 20640 90 -10631 64253 0.40 96901 40005 0.61 -66863 -37369 2.48 High quality N.E. F1/F2 E 29020 130 20432 184916 0.30 132623 112837 0.39 -60163 -2688 1.04 N.E. F1/F2 L 29020 130 930 140748 0.27 141432 106665 0.43 -13240 41642 0.e6 N.W. F1/F2 20640 130 -10681 96426 0.31 96901 72178 0.46 -40485 -6716 1.10 MUSTARD N.E. Base case 907 432 16 -5947 4.88 212 -6178 6.12 -7287 -7286 11.63 S.W. BSao cos 680 432 2610 -1322 1.48 2768 -1491 1.66 -2866 -2296 2.08 MUSTARD N.E. 1996 price 907 648 l -3145 1.78 212 -3371 1.79 -5027 -4663 2.84 S.W. 1995 price 680 648 2610 779 0.84 2765 61O 0.87 -1172 -262 1.06 LENTILS N.W. Base case 710 378 2186 4116 0.61 4673 3261 0.60 601 2057 0.71 N.W. Low qual. 710 317 2186 2803 0.60 4873 1938 0.72 -676 766 0.87 CHILLIES N.W. Bse case 3781 626 10461 10872 0.80 15850 8396 0.69 640 6447 0.77 N.W. Low qual. 8781 SOO 10461 4426 0.79 15850 1960 0.91 -4745 -896 1.06 Note: E = early harvest L = late harvest - 41 - Annex 4 Page 16 of 17 Table 4.11: Financial Profitability of Sel. ed Cash Crops --- FINANCIAL NET RETURNS (Tk/Ha)---------- Yield Market Net Returns Market Net Returns Technique Area Land kg/ha Price Cash Profit Price Cash Profit JUTE ..,.FARM LEVEL ..... ... BAILED FOR EXPORT.. Tossa, D N.E. F0 1900 8.22 9724 6769 Tossa, D N.E. FO 2200 8.22 13203 9544 13.14 20687 18514 White, D N.W. F1/F2 2230 6.05 8496 6301 9.93 14212 12813 White, D N.E. Fl 1930 6.52 7207 4248 9.93 11294 9420 White, A S.W. Fl 1890 8.45 12042 8214 13.90 19248 17139 COTTON ......... EX-GINNERY ...... ... MILL GATE. Rainfed N.E. FO 676 55.9 2318 -1139 56.10 5877 -1128 Rainfed N.W. FO/Fl 1386 55.9 8481 4314 56.10 13061 4337 Rainfed S.W. FO 744 55.9 -64 -3483 56.10 4093 -3470 SUGAR-gur ......... EX-REFINERY ........ ...... WHOLESALE. White-Tra N.W. FO/Fl 50700 27.0 -60717 -68210 31.00 -41610 -54366 Gur-ST. N.W. FO/F1 78600 17.0 76881 73656 20.00 116802 91669 Gur-Tra N.W. FO/Fl 50700 17.0 42410 34547 20.00 70644 46166 Table 4.12: Economic Profitability and Comparative Advantage of Selected Cash Crops EX-FACTORY LEVEL WHOLESALE LEVEL EXPORT LEVEL Yield World Not returns (Tk/Hn) Not returns tTk/Ha) Not returns (Tk/Ha) Technique Area Land kg/ha Price Finan. Economic DRC Finan. Economic DRC Finan. Economic DRC JUTE Base Case Totes, A N.E. FO 1900 498 -10461 81656 0.20 Togas, 0 N.E. FO 2200 898 -10394 28668 0.21 White, D N.W. F1/F2 2230 870 12813 27780 0.19 White, -tN.E. Fl 1930 870 9420 22450 0.24 Whlte, A S.W. Fl 1890 446 -9132 2888O 0.18 1996 price Toass, N.E. FO 1900 373 -10461 21491 0.27 Toss., D N.E. FO 2200 299 -10894 19233 0.29 White, 0 N.W. F1/F2 2280 278 12813 18992 0.26 White, 0 N.E. Fl 1930 278 9420 14844 0.32 White, A S.W. Fl 1890 884 -9132 19703 0.26 COTTON Base Case Rainfed N.E. FO 878 1788 -1139 5090 0.64 -1128 6021 0.65 194 4211 0.70 Rainfed N.W. FO/F1 1388 1788 4314 17906 0.40 4337 17786 0.41 897 16871 0.46 Rainfed S.W. FO 744 1788 -3483 8866 0.76 -3470 3491 0.76 213 2474 0.82 1996 price Rainfed N.E. FO 676 1874 -1139 8899 0.70 -1128 3831 0.71 178 3021 0.76 Rainfed N.W. FO/Fi 1388 1674 4314 16464 0.44 4387 16324 0.46 865 13430 0.60 Rainfed S.W. FO 744 1674 -8483 2258 0.88 -3470 2180 0.83 196 1163 0.91 SUOAR-whit. Tradit N.W. FO/Fl 50700 880 -68210 8918 0.92 -54888 -2168 1.06 -137 -8092 1.07 Tradit N.W. FO/F1 60700 391 -68210 7616 0.86 -64386 1437 0.97 -111 478 0.90 Tradit N.W. FO/Fl 60700 897 -68210 9336 0.82 -64388 8267 0.94 -96 2281 0.96 SUGAR-gur Space tra N.W. FO/Fl 78800 258 73B68 47489 0.60 91669 42146 0.66 -683 17860 0.76 Tradit N.W. FO/Fl 60700 258 84647 18648 0.70 46168 18201 0.76 -844 -2693 1.07 Space tra N.W. FO/Fl 78600 262 78560 48837 0.49 91689 43493 0.64 -616 18986 0.73 Tradit N.W. FO/Fl 60700 282 34647 17518 0.69 46166 14070 0.76 -332 -1737 1.04 - 42 - Annex 4 Page 17 of 17 Table 4.18 : Roturns to Family Labor on Selected Crops ------------------------------------------------------ -----------------Roturns toFeei lyLabor…-------…----- MARKET Financial Opportunity Economic Opportunity CROP/TECHNIQUE AREA LAND YIELD PRICE Cash Cost Cost …MN --------- ----------------------------- --- …- -- - - ANAN LOCAL T. RAINFE0 N.E. Fl 2860 6.86 811 146 s6 LOCAL T. RAINFED N.E. FO 1870 8.86 260 148 s8 LOCAL T. RAINFED N.W. FO 1200 6.00 196 -8 28 LOCAL T. RAINWED N.W. Fl 2500 8.00 861 276 87 LOCAL T. RAINFED S.W. Fl 1690 6.80 261 89 40 LOCAL B. RAINFED S.E. F8 2088 6.02 161 78 69 HYV T. RAINFED N.E. Fl 2660 6.00 256 67 66 HYV T. RAINFED S.W. Fl 8180 5.00 602 260 110 HYV T. RAINFED S.W. Fl 8060 6.00 467 264 102 HYV T. RAINFED N.W. F2 2620 6.00 268 145 78 HYV T. IRRIGATED N.W. Fl 4160 6.00 500 891 140 HYV T. IRRIGATED N.W. F1/F2 8910 6.00 449 884 181 AUS LOCAL S. RAINFED S.W. FO 1580 6.00 107 -18 84 LOCAL B. RAINFED N.E. FO 1800 6.00 104 -20 88 LOCAL 8. RAINFED S.E. FO/Fl 1860 5.00 66 -20 38 LOCAL B. RAINFED N.W. FO/Fl 1700 6.00 196 61 72 LOCAL 8. RAINFED S.W. FO/Fi 1700 6.00 94 -8 41 LOCAL S. RAINFED S.W. Fl 1660 6.00 118 17 46 WYV T. RAINFED N.E. Fl 8400 6.28 186 116 75 BORO LOCAL T. IRRIGATED N.E. F4 8987 6.29 821 162 80 HYV T. IRRIGATED N.E. Fl 4050 6.29 361 129 72 HYV T. IRRIGATED N.W. F2/F8 4870 6.42 480 802 99 WHEAT IRRIGATED S.W. Fl 1840 6.00 -79 -218 2 IRRIGATED N.W. Fl 980 8.00 -104 -196 -71 IRRIGATED N.W. F1/F2 1880 6.00 8 -74 s6 POTATO IRRIGATED N.E. Fl/F2 29020 4.74 504 194 898 IRRIGATED N.E. Fl/F2 29020 4.00 844 -9 420 IRRIGATED N.W. F1/F2 20640 8.66 167 -68 267 MUSTARD S.W. 680 12.865 81 47 28 MUSTARD N.E. 907 12.65 68 22 2 LENTILS N.E. 710 14.65 87 50 88 JUTE TOSSA, D N.E. FO 1900 8.22 103 94 27 TOSSA, D N.E. FO 2200 8.22 130 124 27 WHITE, D N.W. Fl/F2 2280 8.06 69 71 28 WHITE, D N.E. Fl 1980 8.62 61 58 28 WHITE, A S.W. FL 1890 8.45 98 91 26 - 43 - Annex 5 Page 1 of 15 Annex Si Medium-term Outlook for Foodgrain Supply and Demand 1. The real price of rice in the Bangladeshi market will fall if supply consistently exceeds effective demand, either through rapid expansion of domestic production or through trade liberalization that allows a flow of imports to reduce domestic price to the import parity level. In order to get an idea of Bangladesh's supply potential given existing technology and land availability, as well as the evolution of foodgrair demand due to population growth and income generation alone, alternative scenarios can be developed, all assuming that the incentive structure for rice production remains unchanged in years to come. This absumption can then be relaxed to assess the likely impact of declining rice prices on aggregate supply and demand. Supply Assumptions Expansion of Irrigated Area 2. A set of rules are used to allocate additional irrigated area to various crops, in order to assess the impact of irrigation expansion on foodgrain production. The supply projections give HYV boro rice priority in all irrigated area expansion. The adoption of HYV transplanted aman is also made a function of the expansion of irrigation and flood control although total aman area is held constant. The projections assume that 88 percent of all additional irrigation is assigned to HYV boro. This ratio represents the current proportion of irrigated boro to all dry season irrigated food crops with the exception of wheat, which is expected not to expand due to a lack of suitable soil and climate conditions. The proportion of irrigated boro in marginal incrases in irrigated are is not used as a predictor of boro expansion because irrigated boro area has increased more rapidly than total irrigated area since 1985. Howe,eL, this trend is not expected to continue. The remaining 12 percent of expnaded irrigation area is devoted to alternative food crops. The area for each crop is assigned in proportion to that crop's share in changes in demand volume for all alternative crops. Thus, the projections assign additional irrigated area to boro and aman rice as a priority, even in a surplus position. Thus, it represents only technical supply potential, and makes no judgements about the evolution of relative prices and the availability of export markets for rice. The various scenarios for expansion of irrigated area are summarized below: - 44 - Annex 5 Page 2 of 15 Table 5.1: Scenarios for Irrigatior. Expansion -------000 Hectares --------- Increased per annum Irrigation Scenario 1991-1995 1995-2010 Potential after 2005 I (low) 170 170 No II (medium) 250 250 Yes III (high) 426 250 Yes IV (high/low) 426 150 Yes Supply : Base Scenario 3. Scenario II can be considered the base scenario for irrigation expansion, which assumes that expansion continues at a rate similar to that of the past three years (250,000 MT/annum). This results in the following projection of land use and crop area: Tablo 5.2: Bs" Scenario - Projected Land Use 1990 1991 1992 1993 1994 1905 1996 1997 1998 1999 2000 2005 2010 Cultivable Area 11602 11602 11602 11502 11502 11502 11602 11602 11602 11502 11602 11602 11602 Forest 1987 1987 1987 1987 1987 1987 1987 1987 1987 1987 1987 1987 1987 Follow 267 267 267 287 287 267 267 267 267 267 267 267 267 Cultivable Waste 894 894 394 894 894 894 894 894 894 894 894 894 894 Cultivated Land 8864 8864 8864 8854 8854 8864 8864 8864 8864 0884 8854 8864 8864 Irrigated Land 2768 8018 8268 8518 8768 4018 4268 4618 4768 5018 62608 6979 6797 Net FCD Land 368 57. 756 941 1058 1268 1477 1688 1898 2108 2818 2848 2848 …--------------------------------------- --- _-________________-__----- - 45 - Annex 5 Page 3 of 15 Table 6.a: Base Scenario - Projected Crop Area 1990 1991 19 1993 1994 1996 1996 1997 1998 1999 2000 2005 2010 Crop Area (000 Hhctares) Cereals 11762 11885 11666 11776 11995 12216 12485 12665 12876 18095 13816 18721 18721 Total aug 2684 2684 2684 2684 2664 2684 2684 2684 2684 2684 2684 2684 2684 amn 57 6101 6101 6101 6101 6101 S101 5101 6101 6101 6101 6101 5101 boro 2711 2989 8209 8429 8649 8869 4089 4809 4629 4749 4969 5875 5875 wheat 607 6e0 560 560 S60 660 660 560 560 560 560 560 S60 Local eis 1902 2241 2227 2218 2199 2184 2169 2165 2187 2120 2108 2009 1900 Oman 4231 8858 8225 8119 8008 2941 2816 2689 268a 2487 2811 2164 2164 thoro 162 220 220 220 220 220 220 220 220 220 220 0 0 HYV usu 861 448 467 471 486 600 616 651 647 664 681 676 784 Aman 1629 1748 1876 1982 2098 2160 2286 2412 2588 2664 2790 2937 2987 boro 2649 2769 2969 8209 8429 3849 8869 4089 4809 4629 4749 6876 6876 wheat 728 729 729 729 730 780 780 780 780 781 781 781 781 maizo 8 4 4 4 4 6 6 5 6 6 6 7 7 Other Foods Ollsod.s 646 561 656 560 565 569 574 679 658 588 693 606 606 Potatoes 111 112 118 114 115 116 117 118 120 121 122 125 126 Sweat Potatoes 62 67 61 e6 71 76 80 85 89 94 99 122 112 Pulses 218 219 219 220 220 221 221 222 222 228 228 224 224 Winter veget. 98 108 107 112 116 121 126 180 186 140 144 167 167 Summer veget. 62 66 71 76 80 85 89 94 99 103 108 121 121 Industrial Products Jute 771 771 771 771 771 771 771 771 771 771 771 771 771 Sugar Cane 165 165 186 165 165 165 165 165 1eS 16S 165 165 16 Tobacco sa 65 58 5a 58 5a 65 65 65 58 65 58 65 Total Cropped 13542 18608 13844 14084 14326 14668 14806 16047 16287 15628 16769 16282 16282 Adoption of High-yielding Varieties 4. Increasing the area devoted to existing high-yielding varieties is expected to provide the greatest immediate increase in foodgrain yields. Although boro rice production is already largely under HYVs, there is considerable potential to expand HYV use for aman and aus rice. However, certain factors will limit the pace and extent of the transition from traditional varieties to HYVs for aus and aman. In particular, the slow HYV adoption rate can be explained by the higher risk involved in HYV production during the rainy season, when sporadic flooding or drought can lead to partial or total crop loss. The projections assume that HYV aman areas expand at a rate of 3.7 percent per annum, or approximately the same rate as in the past decade. The area under HYV aus expands at a rate of 3.0 percent per annum. The adoption of HYV aman and aus is assumed to proceed at a steady rate until a maximum level of 55 percent of aman area and 30 percent of aus area is under HYVs. Expansion of HYV area is assumed to displace traditional varieties, and not add to total cropped area. All expansion of irrigated area for boro is assumed to be for HYVs, so that the proportion of HYVs in total boro area rises from its current level of 87 percent to 98 percent by the end of the projection period. - 46 - Annex 5 Page 4 of 15 Increasing HYV Yields 5. From a technical standpoint, substantial yield improvements are possible for all HYVW currently in use, through better water management, correction of micronutrient deficiencies in the soil and optimal application of commercial inputs, particularly chemical fertilizers. Actual average yields for HYVs are less than half of those achieved in supervised farm trials carried out by the Bangladesh Rice Research Institute (BRRI) throughout Bangladesh. Productivity gains may also be possible through the introduction of new HYVs which are better adapted to the natural constraints of Bangladesh: drought, heat, fLooding and salt water intrusion. However, the possibility that new varieties will be developed in the next decade that would significantly raise yields above the potential of existing varieties seems remote, because few promising breakthroughs are on the horizon. Table 5.4: Actj;il and Potential Yields of Existing High-yielding Varieties Name of Life cycle Actual Potential Yield Z of Season SI I Variety (days) Yields potential (MT/ha) Actuals Aman 2.0 37Z BR23 Dishari 130-150 5.0-5.5 BR22 Kiron 130-150 4.5-5.0 BR10 Progati 145-150 5.5-6.5 BRll Mukta 140-145 5.5-6.5 Aus 1.8 49Z BR20 Nizami 110-115 3.0-3.5 BR21 Niamet 105-110 2.5-3.0 BR1 Chandina 115-120 4.5-5.5 Boro 2.7 47Z BR2 Mala 150-160 5.0-6.0 BR16 Shahi balam 160-165 5.0-6.0 BR3 Biplab 165-170 5.0-6.5 6. Despite considerable technical potential for productivity gains using existing HYVs, the extent to which yields can actually be raised in the short-run is far more limited. The gap between potential and actual yields for existing varieties reflects the fact that HYVs are being used by both skilled and unskilled farmers, often under conditions which are unfavorable and difficult to change (susceptibility to flooding, salt water intrusion, soil infertility). Although research and extension services clearly need to redouble their efforts - 47 - Annex 5 Page 5 of 15 to improve farm-level management of existing varieties, the projections make conservative assumptions for improvement of HYV yields. Aus and aman HYV yields are projected to increase by 1.0 percent per annum until yields reach a ceiling of 2.25 MT/ha, after which they are assumed to remain constant. Boro rice and wheat yields are projected to increase by 0.4 percent per annum until reaching a ceiling at 2.75 and 2.0 MT/ha, respectively. U No yield increases are projected for traditional varieties of rice. Table 5.5: Yield Projections 1/ (Metric Tons per hectare) 1990 1991 1992 1993 1994 1995 2000 2005 2010 Foodgrains Local Aus 0.943 0.943 0.943 0.943 0.943 0.943 0.943 0.943 0.943 Aman 1.338 1.185 1.185 1.185 1.185 1.185 1.185 1.185 1.185 Boro 1.406 1.406 1.406 1.406 1.406 1.406 1.406 1.406 1.406 HYV Aus 1.832 1.850 1.869 1.887 1.906 1.926 2.024 2.128 2.237 Aman 2.314 2.070 2.090 2.111 2.133 2.154 2.250 2.250 2.250 Boro 2.675 2.686 2.696 2.707 2.718 2.729 2.750 2.750 2.750 Wheat 1.850 1.858 1.865 1.873 1.880 1.888 1.926 1.965 2.000 Maize 2.000 2.000 2.000 2.000 2.000 2.000 2.000 2.000 2.000 OTHER FOODS oilseeds 0.883 0.884 0.884 0.885 0.886 0.887 0.891 0.896 0.900 Potatoes 10.200 10.210 10.220 10.231 10.241 10.251 10.302 10.354 10.406 Sweet Pot. 10.877 10.888 10.899 10.910 10.921 10.932 10.987 11.042 11.097 Pulses 0.798 0.799 0.800 0.801 0.802 0.802 0.806 0.810 0.815 Winter veg. 7.029 7.036 7.043 7.050 7.057 7.064 7.099 7.135 7.171 Summer veg. 5.444 5.449 5.455 5.460 5.466 5.471 5.499 5.526 5.554 Spices 2.222 2.224 2.226 2.229 2.231 2.233 2.244 2.255 2.267 INDUSTRIAL PRODUCTS Jute 1.596 1.596 1.596 1.596 1.596 1.596 1.596 1.596 1.596 Sugar cane 41.262 41.262 41.262 41.262 41.262 41.262 41.262 41.262 41.262 Tobacco 0.876 0.876 0.876 0.876 0.876 0.876 0.876 0.876 0.876 1/ Projections are based on the average yield for 1987-89, except sweet potatoes and summer and winter vegetables fcr which yield is 1986-88 average. All averages are at national level and are for all land and soil types. " Yield assumpt'ons are based on historic trends, as well as estimates by researchers at BRRI and BARC of yield growth and maximum average yields obtainable with existing HYVs. - 48 - Annex 5 Page 6 of 15 Demand Assumptions 7. Foodgrain demand over the next twenty years is projected as a function of population growth, urbanization and changes in real income. The population and income growth rates were disaggregated into rur'l and urban components, and households were stratified by income level to allow income elasticities of demand to vary by income group. Population and Urbanization 8. Structural transformation of Bangladeshi society will lead to a decline in the rate of population growth over the next twenty-five years. The projections assume a starting population of 111 million inhabitants in 1990, and a growth rate of 2.3 percent per annum which falls gradually to 1.8 percent per annum by the year 2015. a Although sensitivity analyses introducing a more dramatic drop in the population growth rate were carried out, such a decline is considered highly unlikely. It is estimated that about 19 percent of the population currently resides in urban areas, but rapid urbanization is expected to continue in coming years. For the purpose of these projections, it is assumed that 32 percent of the population will reside in urban areas by the year 2010. Real Income Growth 9. Gross domestic product (GDP) increased at a rate of 3.1 percent per annum in real terms between FY81 and FY89. The projections assume an annual growth rate of real income of three percent for the base scenario, continuing the historic trend. In an accelerated growth scenario, which assumes an increased level of public investment, continued trade liberalization and a flexible exchange rate policy, growth of real income is projected at five percent per annum. Income Elasticities of Demand 10. A recent study by Ito, Peterson and Grant found low (less than .15) or negative income elasticities of demand for rice in a number of Asian countries, including Bangladesh, indicating that rice is an inferior good in these economies. However, many other studies have found relatively strong positive income elasticities for rice, with levels falling from close to 1.0 for the lowest income groups to less than 0.4 for the highest income groups. Bouis (1989) has developed a demand system which controls for a number of variables related to structural transformation, and which explains many of the apparent 2' Population size estimates have been made by the Bangladesh Bureau of Statistics (BBS), on the basis of the 1981 census. Alternative estimates by other Government offices and donor agencies generally place the population between 111.0 and 114.0 million inhabitants in FY90. - 49 - Annex 5 Page 7 of 15 inconsistencies in previous estimations of income elasticities. l Bouis has applied his model to household expenditure data in Bangladesh to derive separate rural and urban income elasticities of demand for major food products by income quartile. For this projections exercise, five sets of elasticities (for income quintiles) have been linearly extrapolated from Bouis' estimates, and are adjusted as mean income for each group changes. A Table 5.6: Some Estimates of Income Elasticity of Demand for Foodgrains in Bangladesh Source: Rural Urban Data Observations Alamgir and Pooled cross-sectional data Berlage for foodgrains 1963-64, (a) semilog .47 .10 1966-67, 1968-69. (b) inverse .43 .11 Ito, Peterson -0.4 .. Rice only. 1973/74 and Grant Ahmed income group 1 .87 .. 1973/74 income group 2 .57 Pitt income group 1 1.19 .. 1973/74 income group 2 .94 Bouis income group 1 .63 .28 1973/74 income group 2 .51 .26 calorie income income group 3 .43 .26 elasticity. income group 4 .32 .21 BBS, Household Expenditure survey 1981-82 .53 .28 Rice only. 1983-84 .65 .33 1985-86 .43 .16 Sources:Alamgir and Berlage, (Oct. 1973)p. 396; Bouis, (November, 1989), p.78; BSS Household Expenditure survey, 1985-86, (Oct. 1988), p. 28. ~ To model these changes, Bouis develps a food demand system based upon demand for certain food characteristics, namely bulk, variety and taste. Bouis, pp. 122 / This was done by regressing Bouis' elasticities against their corresponding mean incomes using a quadratic functional eorm. - 50 - Annex 5 Page 8 of 15 Table 5.7: Eetlmtlons of Income Elaaticltiee of Dmeand for 8angladesh Monthly avg. monthly Household income/capita Rice Wheat Potato Milk Meat Pulse Othor Income Urban Rural Urban Rural Urban Rural Urban Rural Urban Rural Urban Rural Urban Rural Urban Rural _ _ ___7____________ _________ _________-_____-___ ____-__-__ _________ __________ _________ ______ -___ _________ __________ _________ 8DUi-' elatlcitle 1 quintile S29 258 0.76 0.68 -0.42 0.19 1.17 1.67 1.23 1.73 1.10 0.87 0.76 0.13 1.18 1.06 2 quintile 423 WS0 0.68 0.67 -0.56 -0.05 1.09 1.44 1.12 1.51 1.02 0.99 0.73 0.50 1.04 1.19 3 quintilo 521 851 0.57 0.65 -0.60 -0.26 1.02 1.32 1.06 1.37 0.93 0.99 0.71 0.86 0.93 1.17 4 quintile 60 422 0.42 0.34 -0.62 -0.26 0.07 1.01 0.90 1.06 0.63 0.66 0.61 0.65 0.82 1.00 S quintile 1167 781 0.30 0.17 -0.67 -0.40 0.78 0.77 0.78 0.82 0.74 0.85 O.S 0.79 0.71 0.94 DERIVED ELASTICITES < 500 226 168 0.99 1.02 -0.24 0.38 1.38 1.91 1.44 1.98 1.30 0.868 0.4 -0.03 1.S4 1.10 500-749 196 205 1.08 1.21 -0.16 0.63 1.48 2.17 1.52 2.24 1.37 0.84 0.86 -0.28 1.42 1.08 750-999 269 248 0.89 0.80 -0.84 0.12 1.28 1.63 1.34 1.69 1.21 0.92 0.81 0.24 1.25 1.12 1000-1249 290 255 0.05 0.71 -0.38 0.02 1.24 1.51 1.30 1.67 1.17 0.93 0.79 0.34 1.21 1.12 1250-1499 335 295 0.77 0.68 -0.44 -0.1 1.17 1.32 1.26 1.37 1.10 0.94 0.77 0.51 1.18 1.12 1600-1999 042 611 0.76 0.34 -0.45 -0.17 1.17 1.29 1.22 1.35 1.09 0.95 0.76 0.86 1.12 1.11 2000-2409 404 361 0.6e 0.41 -0.52 -0.31 1.10 1.11 1.14 1.16 1.02 0.95 0.73 0.67 1.04 1.10 2500-2999 451 407 0.62 0.33 -0.55 -0.67 1.05 1.01 1.09 1.06 0.98 0.94 0.71 0.74 1.00 1.08 3000-3999 522 439 0.56 0.25 -0.59 -0.42 0.99 0.90 1.03 0.98 0.93 0.92 0.69 0.79 0.94 1.04 4000-4999 614 511 0.49 0.19 -0.63 -0.48 0.94 0.62 0.97 0.86 0.87 0.89 0.66 0.81 0.86 0.99 SO0-5999 805 557 0.39 0.16 -0.66 -0.35 0.85 0.76 0.87 0.80 0.80 0.60 0.61 0.74 0.79 0.88 6000-6999 883 702 0.56 0.16 -0.67 -0.29 0.82 0.76 0.84 0.60 0.78 0.77 0.59 0.69 0.76 0.83 7000-7999 988 774 0.35 0.18 -0.67 -0.21 0.79 0.78 0.81 0.82 0.76 0.72 0.57 0.61 0.74 0.77 8000 * 1329 1540 0.25 0.30 -0.65 0.14 0.71 0.91 0.74 0.96 0.71 0.55 0.51 0.27 0.68 0.57 DERIVED EASTICITY RACTION VALUE (1) Coefficient value, bO 7.50 24.49 8.91 35.44 6.25 31.94 7.4S 32.63 7.60 -8.14 1.71 -34.90 7.98 -6.88 bi -1.79 -7.29 -2.79 -11.24 -1.31 -9.29 -1.65 -9.48 -1.86 3.06 -0.15 11.15 -1.85 2.79 b2 0.109 0.546 0.203 0.880 0.07S 0.692 0.099 0.706 0.121 -0.257 -0.00 -0.870 0.116 -0.245 ngsi statistics R34 i n *t*0.984' 0.989 0.951 0.966 0.982 0.985 0.986 0.985 0.993 0.48S 0.954 0.950 0.991 0.591 SE of Y Eat 0.033 0.039 0.030 0.061 0.031 0.062 0.030 0.062 0.017 0.073 0.027 0.078 0.023 0.099 Note: 1) El-atisity etieatee ware fitted to the follcin qudratic function: N - b() .b(1)lnY * b(2)(lnY 2, where N i the estimated elasticity for an income roup, and Y is the 'ncoe for the group. Source: HNowerth E. Bouis. "Prompects for Rice Supply/Demand alncee in Asia.' International Food Policy Reoearch Institute. November. 1989. pp. 213-214. 11. On the basis of these assumptions for population growth, urbanization, economic growth and income elasticities of demand, two demand scenarios for the 1990-2010 period are derived. Scenario I, with moderate economic growth, generates a lower demand for foodgrains, increasing at a rate of 2.0 percent per annum. Scenario II, with stronger economic growth, generates a higher demand for foodgrains, increasing at an average rate of 2.2 percent per annum. Supply and Demand Projections 12. Projected supply and demand balances for foodgrains and other major items under the base case scenario (DI and SII) are summarized in Table 5.8. The foodgrain balance compares projected demand to domestic production, excluding food aid and commercial imports. Net changes in foodgrain stocks are not considered, under the assumption that interannual stock levels are relatively constant in the long-run. It is clear that if irrigation expansion continues at the level of the past few years, Bangladesh has the technical capacity to generate a foodgrain surplus -- or to be more exact, a rice surplus. Within the limitations of existing wheat varieties, it is assumed that wheat production will increase only marginally in coming years. At the same time, population growth will increase the demand for wheat, thereby widening the gap between demand and supply. Unless better-adapted heat-resistant varieties of wheat are developed, Bangladesh will have to continue to rely on imported wheat to fulfill its growing demand. Rice production, on the other hand, could exceed domestic demand by as much as 4.5 million MT. Of course, whether such a surplus actually materializes - 51 - Annex 5 Page.9 of 15 depends on the financial incentives for rice production vis a vis other crops. If no adequate outlet exists for surplus rice, one could expect irrigation expansion to slow and/or farmers to diversify into other irrigated crops if rice prices drop substantially. Table 5.8: Do_estic Food Supply and Demand Projections Base Case e (000 MT) 1990 1991 19m 1998 1994 1995 2000 2005 2010 DOmand - ---------------------------- 'Total Cersels 19,272 19,717 20,198 20,619 21,076 21,537 28,900 26,C35 28,887 Rice 17,269 17,674 18,082 18,494 18,909 19,328 21,478 28,698 26,996 Wheat 2,002 2,048 2,084 2,126 2,167 2,209 2,427 2,655 2,891 Other Foods 12,481 12,781 18,184 13,492 18,863 14,217 16,096 16,061 20,105 Potatoes 1,793 1,847 1,901 1,966 2,012 2,068 2,366 2,658 2,972 Milk 959 987 1,016 1,045 1,074 1,108 1,254 1,412 1,576 Met 477 492 507 623 538 654 638 724 815 Pulses 1,088 1,109 1,188 1,162 1,189 1,216 1,857 1,604 1,656 Other 9o 8,119 6,846 8,674 8,806 9,040 9,276 10,492 11,764 18,084 Supply -…----------------------------------…-____________________________________ Total Cereals 19,289 19,628 20,480 21,228 22,088 22,811 27,162 29,596 80,609 Rice 18,489 18,274 19,069 19,856 20,660 21,481 25,750 2S,154 29,086 Wheat 0oo 1,864 1,382 1,867 1,878 1,412 1,880 1,444 1,473 Other Foods Potatoes 1,135 1,143 1,161 1,169 1,167 1,175 1,214 1,289 1,245 Maize 7 8 8 9 9 9 12 18 18 Pulses 174 175 176 176 176 176 178 180 181 Sweet Potatoes 568 6oo 681 668 694 725 878 966 970 Oil Seeds 482 485 488 491 494 497 512 621 524 Vegotables 1,023 1,060 1,097 1,134 1,169 1,206 1,888 1,485 1,492 Foodgrain Balance ----------------------------------------------------------------------------------------- (Supply-Demand) 17 -89 264 604 958 1,274 8,260 8,286 1,622 Percent surplus 01X -0.65 1.81 2.81 4.83 6.6x 12.0X 10.91 6.81 Rice Balanco 1,220 60o 987 1,862 1,761 2,108 4,277 4,456 3,040 (Supply-Demnd) Percent surplus 6.X 3.31a 6.21 6.91 8.51 9.8X1 16.6 15.8S 10.5X Note: s Demand assumes a gradual decline in population from 2.85 to 1.85 over the investment period, and 8X annual income growth. Supply assumes modorat (250,000 ho/yr) irrigation expansion and exportable rico conditions. so Other dmand includes fruits, vagetableo and edible oils. 13. Figure 5.1 presents alternative supply and demand scenarios for foodgrains in graphic form. The projection data are presented in Table 5.9. If the current - 52 - Annex 5 Page 10 of 15 dynamism of irrigation expansion is not maintained (scenario SI), the trend in foodgrain production may only keep pace with demand. Under these circumstances, production would most likely fluctuate between surpluses and deficits from year to year. For all other supply scenarios, which make more optimistic assumptions about irrigation expansion, the trend in foodgrain production remains well above projected demand in the 1990s and into the next century, even with accelerated growth of income. However, it is clear from the graph that the rate of increase in foodgrain production begins to drop off for all scenarios after the year 2002, as ceilings are reached in the assumptions relating to HYV adoption, HYV yields and maximum irrigable area. At that point, the period of "easy" expansion from the initial adoption of green revolution technology will begin to wind down. Indeed, if Bangladesh wishes to maintain self-sufficiency or surpluses of rice in the longer run (beyond 2010), research and extension must be oriented now toward relaxing these constraints on production. Rice surpluses could be maintained well beyond the year 2010 if any or all of the following occur: i) ways are identified to substantially increase the adoption rate for HYVs in the rainy season; ii) the gap between actual and potential yields for existing HYVs are closed through improved management; iii) better-adapted HYVs are introduced; or iv) flood control investments prove to be an appropriate means of increasing irrigable area. Figure 5.1 : Foodgrain Supply and Demand 1990 - 2010 34 - 33 -Sl 32 - 31 30- 29- 28- 27- 1 26 - 0 c 25- 24- 23- 22- 20- 1990 1992 1994 1996 1995 2000 2002 2004 2006 2008 2010 supply scenarios Irrigation expansion O SI:low + SII:medium o SXII:hl gh A SIV:high/low - 53 - Annex 5 Page 11 of 15 Tablo 6.9 Alternative Scenarios for Foodgrain Supply and Demand (000 MT) Demand Sconarios 1990 1991 19m 1993 1994 1996 2000 2006 2010 Population Incom declino growth -:=end I gradual 8X 19,272 19,717 20,166 20,619 21,076 21,587 2$,900 26,358 20,867 a:--nd II gradual 6X 19,608 20,226 20,776 21,821 21,863 22,401 26,069 27,792 80,781 Supply Scenarios* ------------------------------------------------------------------------------------ Irrigation expansion Supply I low 19,289 19,267 19,831 20,384 20,961 21,464 24,221 26,5687 27,768 Supply II medium 19,289 19,628 20,430 21,228 22,088 22,811 27,162 29,598 80,609 Supply III high 19,289 20,824 21,487 22,681 23,888 26,220 29,178 80,971 88,984 Supply IV hi/low 19,289 20,324 21,467 22,631 28,888 25,220 27,178 80,971 88,984 ---------------------------------------------------------------__------------__------------------------------ Base Scenario (DI & SII) -oodgrain Balance (Supply-Deand) 17 -89 264 804 958 1,274 8,260 3,236 1,622 worcsnt surplus 0.1X -0.65 1.3X 2.8X 4.8X 6.6X 12.0X 10.9K 5.8O Rice Balance 1,220 600 987 1,862 1,761 2,108 4,277 4,468 8,040 (Supply-D-mand) 'orcent surplus 6.6x .8K 6.2X 6.9K 8.65 9.8X 16.6K 16.8X 10.5K 14. If rice production expands faster than demand at the prevailing market price, then market prices will fall. Government could try to counter this decline through massive domestic procurement, but such a policy is financially unsustainable year after year (as was evident in the jute market in the early 1980s), and ultimately the real price of rice will decline. Indeed, in the past fifteen years, the real price of rice in the international market has declined by 50 percent, while in the domestic market, sluggish growth of production, a restricted trade regime and an official procurment price which was substantially higher than the trend in world price have limited the real decline to only 30 percent. As supply constraints are eased, there will be further downward pressure on domestic prices. Government policy -- in the form of an import monopoly on foodgrains and an official pricing structure which is well in excess of world market prices--has resisted further decline in domestic prices. The rationale for this resistance has been to promote rice self-sufficiency by providing adequate incentives to farmers to grow rice. However, the greater the deviation in official prices from the world trend, the more costly and less effective it has become for the Government to try to defend these prices in the - 54 - Annex 5 Page 12 of 15 domestic market. To assess whether these policies are justified in the present context, one has to examine the impact that lower rice prices would have on aggregate supply and demand, as well as on the welfare of producers and consumers. Foodarain Supply and Demand: The Impact of Lower Rice Prices 15. Three scenarios are evaluated here which reduce the price of rice in Bangladesh to the import parity level over a five-year period, through a coordinated policy of trade liberalization and exchange rate movement. Scenario A assumes a 20 percent decline in the real effective exchange rate during this period, in keeping with the assumptions made in the preceding analysis of economic profitability. The outcome of tlis scenario is an 8 percent decline in the domestic price of rice over five years. Scenario B assumes only a 10 percent depreciation of the real effective exchange rate, resulting in a 15 percent decline in the domestic price of rice during the five-year period. Scenario C assumes no depreciation of the exchange rate, so that the domestic price of rice falls by the full 23 percent needed to bring it to the import parity level within the current policy framework. The Impact on Supply 16. Declining domestic prices of rice will reduce the cash returns per hectare and the returns to family labor of rice production. However, analysis of scenarios A, B and C indicate that even with a 15 percent decline in the price of rice, cash returns and returns to family labor on rice production remain substantially positive, and equally or more attractive than production of the alternative crops examined, particularly for HYV rice (Table 5.10). Although one cannot say with absolute certainty that farmers would not switch into some non- farming activity (e.g. fishing), it does appear likely that most farmers would continue to invest in rice production, especially expansion of HYV production. A 23 percent decline in the domestic price of rice--equivalent to trade liberalization in the absence of exchange rate movement--results in some aus and boro crop models looking unattractive relative to alternative crops, and even some negative cash returns and returns to family labor on a few boro models. This reinforces an earlier point: complete trade liberalization in the absence of accompanying exchange rate movement could impact negatively on aus and boro production. Table 5.10: bmpact of Trade Liberalization on Cash Profitability of Rice Production ----- --Scenario A --- --- - - --Scnrio B----------- --- Sc enario C---- (8X decline in paddy price) (156 decline in paddy price) (231 declino In paddy prico) Crop/Technique Region Land Yield Paddy Cash Cash Return Paddy Cash Cash Return Paddy Cash Cash Return Price Return to Family Price Return to Family Price Return to Family TK/Kg per ha. Labor per ha. Labor per ha. Labor AVAN Local T Rainfed NE Fl 2880 S.84 10129 127 6.40 9091 114 4.89 7887 99 Local T Rainfed NE FO 1870 6.84 8375 105 5.40 7562 94 4.89 6696 82 Local T Rainfed NW F0 1200 5.52 4160 81 6.10 3660 71 4.62 3064 60 Local T Rainfed NW Fl 2600 5.52 11073 138 6.10 10023 126 4.62 8823 110 Local T Rainfed SW Fl 1690 5.80 6941 87 5.38 6197 77 4.86 5335 87 Local B Rainfed SE F3 2033 5.54 C801 83 5.12 7647 76 4.64 6671 as HYV T Rainfed NE Fl 2660 4.60 9006 68 4.26 8075 81 3.86 7011 63 1 HYV t Rainfed SW Fl 3180 4.60 10645 112 4.25 9632 100 3.86 8260 87 %A HYV T Rainfed SW Fl 3080 4.60 10135 114 4.26 9067 102 3.86 7826 88 Ln HYV T Rainfed NW F2 2620 4.60 9808 163 4.26 8891 148 3.86 7843 131 HYV T Irrigated NW Fl 4160 4.60 10318 91 4.26 8860 78 3.85 7196 64 HYV T Irrigated NW FI/F2 3910 4.60 8960 107 4.26 7591 90 3.86 6027 72 AUS Local 8 Rainfed SW FO 1580 4.60 4609 61 4.26 3966 53 3.85 3324 45 Local 8 Rainfed NE FO 1300 4.60 1906 36 4.25 1461 27 3.85 931 18 Local B Rainfed SE F0/Fl 1360 4.60 3871 62 4.25 3395 46 3.85 2861 39 Local B Rainfod NW F0/Fl 1700 4.80 6170 16 4.26 4676 146 3.86 3896 126 Local 8 Rainfod SW F0/Fl 1700 4.60 4044 87 4.26 3449 57 3.86 2769 46 Local 8 Rainfed SW F1 1866 4.80 4041 94 4.26 3460 s0 3.86 2796 65 Local B Rainfed NE F1 A400 4.88 10171 203 4.49 8913 178 4.07 7486 1S0 BORD Local T Irrigated NE F4 3987 4.87 2412 48 4.60 937 19 4.08 -777 -16 HYV T Irrigated NE Fl 4050 4.87 2531 54 4.60 1033 22 4.08 -709 -15 HYV T Irrited NW F2/FS 4370 4.99 5430 116 4.61 3770 81 4.17 1847 40 Scenario A: Trade liberalization coupled with a 20X docline in the real effective exchange rate. Scenario 8: Trade liberalization coupled with a 10X decline in the roal effective exchange rate. Sconario C: Trad liberalization without depreciation of the real effective exchange rate. °° 1_' La - 56 - Annex 5 Page 14 of 15 The Impact on Demand 17. Lower rice prices would increase aggregate demand and raise consumer welfare in Bangladesh. Demand projections which incorporate the effect of lower rice prices indicate that an 8 percent decline in the price of rice over five years (scenario A) would increase demand by 5.8 percent, reducing--but not eliminating--the country's technical potential for surplus rice production (Table 5.11). A 15 percent decline in price (scenario B) would increase demand by 11.4 percent, and would maintain the country's technical potential for rice self- sufficiency. The scope for surplus production would be limited, however. A 23 percent decline in the price of rice over five years results in a 19.4 percent increase in demand, and would necessitate rice imports to overcome the supply- demand gap. This was clear from the earlier analysis of economic profitability: trade liberalization without exchange rate movement would result in a flow of imports into Bangladesh. Perhaps most striking in this analysis is that an 8 to 15 percent decline in the domestic price of rice is fully consistent with the Government's goal of rice self-sufficiency, yet allows consumers to benef4t from a significant decline in the price of their staple commodity. Given the dominance of rice in the consumption pattern of the poor, and the country's limited capacity to implement targeted distribution programs, it is undeniable that lowering the price of rice in the domestic market is the most effective way to improve the welfare of the poor in Bangladesh. For the poorest decile of the population, a 15 percent decline in the price of rice would raise per capita foodgrain consumption by an estimated 12 percent, and provide an extra 72 Kcals. per day in the average diet. A 23 percent decline in the price of rice would have a greater impact: an estimated 19 percent increase in foodgrain consumption and 111 Kcals. per day in additional caloric intake. This kind of broad-based improvement in consumption cannot be matched through targeted programs. - 57 - Annex 5 Page 15 of 15 Table 5.11 s Impact of Trade Liberalization on Demand for Rice, 1990-95 Year 1990 1991 1992 1993 1994 1995 Domestic rice price 272 258 244 232 220 209 (US$/MT) Scenario A Exchange rate 35.5 36.8 38.2 39.6 41.4 42.6 (Tk/US$) Domestic rice 9,656 9,494 9,321 9,187 9,042 8,903 price (TklMT) Demand for 17,269 17,885 18,5'5 19,148 19,793 20,446 (000's MT' Scenario b Exchange rate 35.5 36.3 37.0 37.b 38.6 39.4 (Tk/US$) Domestic rice price 9,656 9,365 9,028 8,770 8,492 8,243 (Tk/MT) Demand for rice 17,269 18,054 18,942 19,763 20,651 21,536 (000's MT) Scenario C Exchange rate 35.5 35.5 35.5 35.5 35.5 35.5 (Tk/US$) Domestic rice price 9,656 9,159 8,662 8,236 7,810 7,420 (Tk/MT) Demand for rice 17,269 18,324 19,467 20,598 21,818 23,071 (000's MT) Table 6.1: International Rice Price, 1960-91 (US per Metric Ton) m JAN FEB MAR APR MAY JE JiUL AUG SEP OCT NOV DEC Annual Avg. 1960 121.7 120.6 121.1 116.2 119.4 120.4 119.3 127.1 183.6 132.7 131.9 130.1 124.7 1961 130.9 126.9 135.2 182.7 187.0 139.0 141.1 137.2 136.6 187.9 148.1 137.7 186.5 1962 135.3 186.7 141.4 148.6 167.3 !62.1 162.2 160.9 158.6 161.0 160.6 138.7 162.8 1963 139.4 141.0 140.9 140.0 140.8 145.9 148.4 147.6 148.1 148.5 142.6 139.1 143.3 1964 141.7 186.6 132.6 134.4 134.5 138.7 140.2 140.6 141.1 139.1 138.8 136.6 137.7 196s 132.1 133.4 183.1 130.7 129.2 128.3 129.6 134.4 144.3 144.4 147.0 149.9 136.3 1966 143.2 142.5 149.5 161.0 156.8 162.5 171.6 168.5 173.6 182.7 184.6 180.6 163.2 1967 160.3 169.6 161.9 187.0 194.4 203.3 226.4 226.4 241.1 243.6 232.9 232.9 206.2 1968 217.8 226.2 229.0 216.0 205.9 198.0 200.4 196.3 194.4 182.1 175.4 178.2 201.6 1969 160.7 178.8 185.4 183.6 189.6 197.4 199.2 190.1 186.6 185.8 186.0 179.4 186.9 1970 168.4 161.2 144.0 139.2 139.2 141.6 142.6 145.8 143.4 142.1 142.5 138.0 144.0 I-3 1971 139.0 122.4 116.1 112.8 123.3 126.6 129.9 130.8 138.2 139.Z 135.8 134.6 12IF.0 1972 131.3 130.0 130.6 129.0 131.6 135.9 136.9 152.4 162.8 166.8 174.2 183.9 147.1 1973 179.2 192.1 204.7 204.7 204.7 204.7 354.0 400.0 400.0 400.0 600.0 620.0 313.7 1974 637.0 655.0 696.0 630.0 625.0 696.3 619.0 621.0 516.3 602.6 460.0 436.3 542.0 1976 399.0 403.3 396.3 400.0 387.6 348.3 328.8 346.0 357.8 354.0 330.6 306.0 363.1 o T 1976 280.0 283.0 248.0 ?46.0 248.0 242.3 242.2 243.0 264.8 270.0 259.0 268.0 254.4 Ln 1977 259.3 264.0 262.3 252.2 257.4 284.5 271.2 275.0 276.0 277.0 294.6 323.6 272.2 0 1978 a38.6 362.7 396.0 411.0 409,r 403.6 384.3 366.0 366.8 360.0 315.0 293.8 367.4 i-I 1979 299.0 300.0 31a.8 318.3 317.6 324.3 325.0 349.8 369.8 362.0 364.0 378.8 334.2 1960 396.0 896.8 416.3 418.6 433.3 442.0 442.0 442.0 442.0 442.0 462.8 470.0 433.7 1961 470.0 460.0 604.8 616.0 518.8 536.0 623.0 498.0 487.0 456.0 428.0 378.8 482.8 1982 342.6 328.8 326.3 312.0 299.0 291.0 282.0 287.0 272.0 264.8 268.0 266.0 292.9 1963 269.8 269.6 282.0 282.0 280.0 269.0 261.3 276.0 298.8 290.0 284.4 271.0 278.9 1964 267.5 247.4 253.8 256.0 254.0 255.0 268.8 272.0 256.3 251.3 231.0 223.8 252.1 19865 226.0 220.0 219.0 222.0 222.0 222.0 210.0 210.0 210.0 210.0 210.0 210.0 215.9 1966 240.0 231.3 216.3 206.0 200.0 203.8 206.0 216.0 206.3 205.0 202.6 196.0 210.5 1967 198.8 206.8 210.8 213.0 213.0 212.3 212.0 222.5 264.6 276.8 276.6 268.8 230.3 1988 288.8 310.0 303.0 303.8 297.5 300.0 306.0 306.0 306.0 306.0 306.0 288.8 301.4 1989 278.8 275.6 264.0 297.6 317.0 342.5 $.v 363.0 360.0 333.8 316.3 316.0 320.3 1990 316.0 316.0 302.5 301.3 290.0 277.6 270.0 274.4 271.3 278.0 276.3 276.0 287.2 1991 324.0 348.0 836.8 308.0 304.6 .. .. .. .. .. .. .. 323.3 RICE: (THAI), 5X BROKEN, WHITE, MILLED, GOVERNMENT STANDARD, FOB BANCKOK, EXPORT PRICE tNIT = US DOLLARS/MT Source: World Bank, Co_odity Price Series. Mi x4 Table 6.2: International Wheat Pric (1N0-1991) (UsS per Metric Ton) JA FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC Annual Avg. 1960 64.0 64.1 63.8 63.4 63.1 62.0 62.7 62.5 62.3 62.0 62.1 61.7 62.9 1961 62.2 62.0 62.2 62.1 62.1 62.1 63.6 66.2 65.6 66.6 66.8 88.3 63.7 1962 66.8 66.9 66.9 66.9 67.0 67.3 66.6 67.0 67.6 67.3 67.0 86.3 67.0 1963 66.6 66.6 36.6 66.6 66.3 66.6 66.3 65.6 65.6 68.3 69.3 69.3 67.0 1964 70.0 70.7 70.7 70.4 70.0 70.0 70.0 69.7 69.7 69.3 69.3 69.3 69.9 1965 68.7 65.3 66.6 65.6 e6.6 66.6 65.9 65.6 66.6 66.3 66.3 66.6 66.1 1966 67.3 68.3 68.7 69.0 69.3 70.4 71.4 71.7 72.1 71.7 72.1 72.4 70.4 1967 72.1 72.1 72.4 72.4 72.4 71.7 70.4 69.3 66.6 65.9 65.6 64.9 69.6 1966 67.3 6e.3 65.9 65.9 66.6 67.0 67.6 68.0 68.3 67.0 66.6 66.6 66.6 1969 66.6 6.6 656.9 64.6 64.6 64.9 64.6 63.2 62.5 62.2 62.2 61.9 64.2 1970 61.9 61.9 61.9 61.2 61.2 61.6 61.6 62.3 63.7 64.8 e4.8 66.6 62.7 1971 66.1 66.0 66.1 66.0 63.7 64.4 65.9 64.6 62.8 61.5 61.5 61.4 64.2 1972 61.4 61.4 62.1 63.6 63.9 64.3 64.3 66.9 79.0 86.4 87.1 95.6 71.3 1973 96.4 99.0 98.9 96.6 103.2 118.6 132.6 193.6 206.6 206.3 206.0 206.4 147.2 I 1974 212.8 216.6 220.8 219.6 200.5 184.5 193.1 194.6 194.5 216.1 226.0 226.1 208.8 %0 1975 209.1 189.1 189.2 187.9 164.4 156.8 167.6 185.2 190.6 190.7 177.6 166.0 181.2 1976 164.3 169.7 167.7 159.1 158.6 167.1 164.8 142.2 131.4 125.0 120.8 118.5 149.1 1977 122.0 125.2 124.5 120.8 114.7 109.1 104.6 103.2 110.2 114.4 121.2 119.2 115.8 1978 122.2 124.7 128.2 134.3 134.3 134.4 133.4 134.3 137.0 140.6 146.6 147.5 134.8 1979 146.6 147.9 148.5 146.4 163.2 180.7 189.9 186.6 186.7 190.2 196.9 194.3 172.2 1980 192.0 186.2 165.8 164.3 173.1 171.3 192.3 191.1 193.0 218.3 220.0 220.6 190.8 1181 223.6 216.1 205.3 201.7 200.1 190.6 189.6 183.1 183.5 187.0 191.9 184.2 196.4 1982 185.0 177.6 165.4 166.2 162.7 160.5 165.3 162.0 162.3 157.7 163.9 169.5 166.6 1983 188.7 166.8 169.8 170.2 171.4 169.8 166.9 172.8 172.0 1le.$ 166.8 170.7 169.5 1984 176.9 173.9 176.4 167.5 169.0 169.4 161.2 157.6 158.3 159.1 156.7 158.6 165.4 1985 164.3 164.6 164.3 174.0 172.1 173.2 169.0 159.6 172.0 180.3 190.2 195.7 173.3 1986 187.8 183.1 189.1 189.2 188.8 167.4 159.6 132.8 132.7 130.3 132.9 134.0 160.6 1987 136.2 138.1 139.0 133.7 136.6 129.3 125.6 124.4 129.6 134.7 134.0 141.3 133.5 1968 147.8 160.7 142.1 146.4 152.8 197.7 200.2 204.9 202.2 202.5 201.0 206.8 179.6 1989 212.6 211.8 210.0 206.9 208.4 203.3 202.9 19s.3 184.0 190.4 191.4 193.9 201.2 1990 192.1 184.4 179.3 178.6 170.4 163.8 151.1 138.3 130.3 128.2 125.8 132.0 156.2 1991 132.8 133.7 135.8 136.5 138.0 WHEAT: (CANADIAN); 1960-JUNE 1970, NO. 1, NORTHERN, BASIS IN STORE FT. WILLIAM-PORT ARTMUR, EXPORT II; JULY 1970-JUNE 1972, THUNDER BAY; FROM AUGUST 1972, NO. 1 CANADiAN WESTERN RED SPRING; AS OF OCTOBER 1973, 13.5X; APRIL 15 TO PRESENT, o ST. LAWENCE EXPORT. X UNIT = US DOLLARS/MT Source: World Bank, Co_aodity Price Series. Table 6.3: Wholesale Coarse Rice Prices in banglodeh, 1980-1991 (Take/Mound) Year JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC Annual Avg 1960 22 24 24 26 28 30 30 28 26 26 22 24 26.8 1961 21 23 23 24 24 24 25 26 26 26 26 25 24.2 1962 24 24 24 26 26 27 28 27 25 27 27 27 26.9 1963 25 26 27 28 28 29 30 28 27 27 28 26 27.3 1964 22 21 21 20 20 22 23 23 24 26 24 24 22.4 1965 23 23 25 26 27 27 28 28 29 29 29 29 26.9 1966 26 28 28 30 32 34 36 89 39 42 41 38 34.2 1967 34 87 39 38 40 41 40 39 36 37 36 34 37.6 1968 31 30 31 32 34 36 38 39 38 39 40 40 36.6 1969 34 36 37 42 41 39 42 40 41 44 44 40 40.0 1970 34 35 a6 39 40 41 41 39 36 36 36 34 37.1 1971 33 34 36 37 42 44 41 40 40 43 46 43 39.8 1972 40 42 61 64 03 62 61 72 73 71 67 e3 59.9 1973 69 75 82 91 91 87 85 83 86 90 86 82 83.8 1974 8s 96 114 135 137 147 149 180 212 256 206 187 159.1 1976 212 239 261 235 202 193 197 160 153 130 106 loo 182.8 1976 113 113 107 104 105 101 105 104 106 110 107 9g 106.1 1977 101 111 118 130 129 139 150 142 146 145 129 126 130.3 0 1978 133 133 143 147 137 131 130 129 139 139 137 132 135.8 1979 139 145 169 176 183 217 233 225 220 204 194 182 189.8 1980 194 196 197 204 190 178 16O 161 162 162 160 16O 177.2 1961 161 171 179 190 181 172 176 173 181 205 206 206 183.5 1982 219 268 272 292 234 222 224 227 261 286 236 218 244.0 1963 238 239 248 248 248 234 238 233 258 260 241 247 244.2 1984 265 264 280 287 283 286 302 296 313 305 290 297 289.0 19865 300 298 303 304 271 264 261 269 276 279 283 261 279.1 1986 265 270 295 316 306 29 311 309 316 349 345 296 305.8 1987 322 340 380 396 356 865 338 368 368 369 349 324 365.1 1968 347 375 380 363 324 828 338 339 366 364 354 365 351.9 1969 361 376 383 399 377 349 361 354 368 336 324 360 360.6 1990 338 864 366 388 328 .. .. .. .. .. .. .. 150.3 Source: Bangladesh MWnistry of Agriculture, Department of Agricultural Marketing. w t o 3 Lnh 0 - 61 - Annex 6 Page 4 of 15 Table 6.4: Variability of International and Dometic Rice Prices, 1960-1969, 1970-79 and 1980-89 -----Coefficiont of Variation----- 1/ 1960-69 1970-79 1900-69 International price Current dollorn 4.9 18.6 11.0 Constant 1960 dollars 2/ 4.5 17.8 11.2 Dostic price Current take 6.8 17.9 5.1 Constant 1960 take 8/ 5.6 16.8 6.7 I/ The coefficient of variatlon Is the mean divided by the standard deviation. A three-year moving averago price series was constructed. Variability around this price series over a ton-year period was then calculated for each decade. 2/ Deflated by the Manufacturinq Unit Value for Industrialized countries. 8/ Deflated by the non-food Consumrs' Price Index for middle Income Dhaka residents. Figure 6.1: Nominal annual rice prices compared with three-year moving averages, 1960-89 400 . 350 - 250n ---Nominal Price Tk/Maund 200 - Three-year 150 moving average 1001 50 0~~~ 60 63 66 69 72 75 78 81 84 87 Year Figure 6.2: Nominal annual rice prices compared with log-linear 450 annual growth, 1960-89 400 --Nominal Price 350 300 Log-linear 250 growth of Tk/Maund200 nominal price 150 100 00 60 63 66 69 72 75 78 81 84 87 Year Table 6.5: Fluctuations in Annual Prices of Rico, 1900-89 Yoer Actual Price Change from Moving Average Deviations of Actual Log-lInea? Tred Deviations of Actual previous yer Price Price from Moving Average Price from Log-lin ar Tren (Tk/Maund) (percent) (Tk/Maund) (percent) (Tk/Maund) (percent) 1960 25.75 .. .. . 17.$ 46.6 1961 24.17 4.1 25.8 -4.4 19.6 23.2 1962 25.92 7.2 26.6 0.4 21.9 18.4 196s 27.88 5.5 25.2 8.4 24.4 11.8 1964 22.42 -18.0 25.6 -12.3 27.3 -17.9 1965 26.92 20.1 27.6 -3.8 80.6 -11.7 19o6 84.17 26.9 32.9 3.9 a4.0 0.4 1967 37.u 10.0 85.8 5.0 38.0 -1.1 198 85.68 -5.3 87.7 -5.7 42.4 -16.1 1969 40.00 12.4 37.6 6.5 47.4 -15.5 1670 87.06 -7.3 38.9 -4.8 52.9 -29.9 1971 89.76 7.2 46.6 -12.8 69.0 -32.7 1972 59.92 60.7 61.2 -2.0 65.9 -9.1 1978 83.88 89.9 100.9 -17.0 73.6 13.9 1974 169.06 89.8 141.9 12.1 32.2 98.6 1975 192.75 14.9 149.3 22.4 91.7 99.2 1976 106.06 -42.0 139.7 -24.1 102.4 3.6 1977 180.u3 22.9 124.1 5.0 114.4 14.0 1978 185.88 4.2 152.0 -10.6 127.7 6.4 1979 189.75 89.7 167.6 13.2 142.6 33.1 1960 177.17 4.6 188.5 -8.4 159.2 11.3 19#1 183.50 3.6 201.6 -9.0 t77.7 8.2 1982 244.00 83.0 223.9 9.0 198.4 28.0 1968 244.17 0.1 269.1 -6.7 221.6 10.2 1964 289.00 18.4 270.8 6.7 247.4 16.8 1996 279.06 -8.4 291.3 -4.2 276.2 1.0 1966 806.83 9.6 831.8 -2.4 o86.4 -0.8 1987 855.06 16.1 837.6 5.2 844.3 3.1 1988 351.92 -0.9 855.9 -1.1 864.4 -8.5 1999 860. 2.5 . 429.2 -16.0 ______6______ _____ __-------___ __--_- -_---------- - ----------------_ -----_----_-_ - _ --------- NOTE: Actual nominal pricee are from data provided by Bangladesh, Ministry of Agricultural Marketing, Dhaka The yers aro computGd from January to Dcceber OQ o'm M01 6- Figure 6.3: Rice Price Trend From X-11 Decomposition Tk/Maund2oo 150} 100+ OQ 0~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 60 62 64 65 68 70 72 74 76 7 80 82 84 86 8 8 0 Year . - 65 - Annex 6 Page 8 of 15 Tabl- 6.6: Extent of fluctuation In monthly noilnal prices of rice, 1980-84 Year Fluctuation CoefficientI Month of low"et Month of Highest of variation prico point price point 1960 86.4 0.107 January June 1061 28.8 0.055 anuary november 1962 16.7 0.06S January July 1968 20.0 0.056 January July 1964 22.7 0.076 april october 1965 26.1 0.083 January september 1966 61.6 0.168 January october 1987 20.6 0.062 January June 1968 32.8 0.108 february novmber 1969 29.4 0.077 January october 1970 20.8 0.078 January June 1971 38.4 0.102 January november 1972 82.6 0.18S January september 1978 31.9 0.077 anuary april 1974 190.9 0.818 January october 1976 78.6 0.284 novebr march 1976 18.8 0.042 docember January 1977 48.6 0.114 January July 1978 18.6 0.041 august :pril 1979 67.6 0.165 January July 1980 24.7 0.101 decmber april 1981 29.2 0.088 January noveber 1982 88.8 0.101 decmber april 19R8 11.8 0.086 august october 1984 18.6 0.052 february september 1986 16.7 0.06 June april 1986 81.7 0.082 January october 1987 23.0 0.062 January april 1988 16.1 0.05 ay march 1989 20.8 0.067 november april --------------------------------------..----------------------__----..-------_ Note: Prico fluctuation Is measured as the difference between the highest and lowest Index numbers. The Index number of a month is baosd on the January price as 100 and constructed separately for months In a year. Source: Computed from price date provided by Bangladesh, Ministry of Agriculture, Department of Agricultural Marketing. - 66 - Annex 6 Page 9 of 15 Table 0.7: Coefficients of variation of monthly rice prices Month 1960-70 1971-76 1976-86 1987-89 1971-80 1061-89 January 0.26 0.69 0.12 0.07 0.B8 0.12 February 0.28 0.74 0.13 0.06 0.42 0.12 March 0.24 0.72 0.11 0.11 0.48 0.12 April 0.24 0.6 0.11 0.12 0.86 0.1B May 0.24 0.47 0.09 0.12 0.28 0.18 June 0.28 0.40 0.14 0.16 0.8 0.16 July 0.24 0.46 0.16 0.11 0.82 0.16 August 0.26 0.46 0.16 0.16 0.81 0.16 September 0.24 0.61 0.14 0.14 0.84 0.16 October 0.25 0.68 0.1 0.17 0.4 0.19 November 0.27 0.64 0.08 0.18 0.88 0.19 December 0.81 0.49 0.12 0.09 0.8 0.16 Note: The coefficients of variation are computed around a simple tim trend. Source: Computed from price data In Table 4. I Table 6.8: Index of pure saonality in monthly ric prices, 1960-90 YEAR JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC 1960 90.4 96.2 94.8 98.7 101.0 103.2 107.5 104.1 101.8 101.4 102.2 99.7 1961 90.7 96.0 94.9 96.6 100.7 103.1 107.4 104.0 102.0 102.0 102.2 99.8 1962 91.1 94.8 95.2 96.4 100.3 102.8 107.0 103.8 102.6 102.9 102.6 100.2 1968 91.4 98.2 96.1 97.9 99.9 102.5 106.6 103.9 103.8 104.0 102.8 100.8 1964 91.4 92.2 96.3 97.4 99.7 102.8 106.0 104.3 103.7 106.1 103.4 100.8 196 91.2 91.8 96.0 96.8 99.7 102.3 105.8 106.0 103.9 106.9 104.0 100.1 1966 90.4 90.8 94.8 96.6 100.8 102.3 106.9 105.8 103.6 106.1 104.5 99.6 1967 89.4 90.4 94.4 96.8 101.1 102.7 106.3 106.1 102.9 106.9 104.6 99.1 198 36.6 90.6 94.1 97.4 102.6 103.4 106.9 106.0 101.9 106.4 104.3 96.2 1969 87.9 90.4 94.3 96.2 104.3 104.1 107.1 105.6 101.6 104.6 103.0 96.6 1970 37.7 90.8 96.1 99.6 106.4 104.6 106.7 104.6 101.6 103.9 101.8 94.9 1971 87.9 91.1 96.4 101.7 107.6 104.7 106.0 103.6 102.3 103.2 99.1 92.7 1972 8e.5 92. 96.0 103.8 108.1 104.3 106.4 102.3 103.0 102.6 97.2 91.1 0% 1973 89.3 93.9 99.7 105.4 107.6 103.5 105.0 101.4 103.8 102.0 96.8 89.9 1974 90.1 96.9 100.8 10.6 106.5 102.6 105.2 100.7 104.1 101.8 96.0 89.4 1975 90.8 97.3 101.4 107.0 104.9 102.0 105.4 100.5 104.2 101.8 94.8 89.3 1976 91.6 96.1 101.4 107.0 103.7 101.9 105.7 100.7 103.8 101.7 94.7 89.5 1977 92.4 98.2 101.5 106.7 103.4 102.0 104.9 100.9 103.4 101.6 96.0 89.8 1978 93.3 96.2 101.7 107.0 103.3 102.1 103.7 100.6 102.6 101.4 96.1 90.2 1979 94.3 96.7 102.7 107.8 103.4 101.4 101.6 99.3 102.0 101.4 96.6 90.6 1980 9s.6 99.7 103.8 108.1 103.5 100.3 99.8 97.7 101.7 101.6 96.8 91.5 1981 96.9 101.0 105.0 107.9 103.4 99.9 98.2 96.2 101.8 101.6 96.2 92.7 1962 96.0 101.7 105.6 107.4 102.7 97.7 97.5 96.4 102.1 102.1 96.3 93.8 1963 98.8 101.7 105.8 107.0 101.9 96.7 97.6 96.4 102.6 102.4 96.6 94.8 1964 99.0 100.9 106.6 106.8 101.0 96.3 98.1 96.3 102.6 102.4 96.6 95.2 19s6 98.8 100.0 105.5 106.9 100.1 96.5 98.8 97.4 102.4 101.8 96.8 96.6 1966 98.3 99.6 106.7 107.6 99.2 96.8 99.3 98.3 102.0 100.8 96.9 96.6 1967 97.7 99.9 106.3 108.1 98.2 97.0 99.4 96.8 101.8 100.0 97.0 96.3 198 97.4 100.6 107.0 106.8 97.4 97.1 99.1 99.0 101.7 99.3 96.9 96.1 199 97.4 101.2 107.6 108.9 96.6 97.3 99.0 99.1 101.7 96.9 96.9 96.0 1990 97.4 101.6 107.8 108.8 96.1 97.5 96.9 99.1 101.8 96.7 96.9 96.0 Note: The procedure for computing the index is tho X-11 Census Method, as implemented by SAS. OQ I. - 68 - Annex 6 Page 11 of 15 Table 6.9: Dispersion of the Index of puro seasonality in rice pricee, with low and high months, 106-90 YEAR Minimum Maximum Range Low Month High Month 1f00 90.4 107.5 17.1 January July 1061 90.7 107.4 16.7 January July 1962 91.1 107.0 15.9 January July 1968 91.4 106.5 15.1 january July 1964 91.4 106.0 14.6 January october 1965 91.2 106.9 14.7 anuary october 1966 90.4 106.1 15.7 January July 1067 89.4 106.8 16.9 January uly 1968 68.6 106.9 18.4 January 3uly 1989 67.9 107.1 19.2 January July 1970 87.7 106.7 19.0 January "my 1971 87.9 107.6 19.7 January my 1972 88.6 108.1 19.6 January may 1978 89.8 107.6 18.8 december May 1974 89.4 106.6 17.1 december april 1976 89.8 107.0 17.7 december april 1976 89.5 107.0 17.6 december april 1977 89.8 106.7 16.9 december april 1978 90.2 107.0 16.8 decomber april 1979 90.8 107.8 17.0 december april 1980 91.6 108.1 18.6 december april 1981 92.7 107.9 16.2 december april 1982 93.8 107.4 13.6 december april 1983 94.8 107.0 12.2 december april 1984 95.2 10.8 11.6 decamber aprlI 1995 95.5 106.9 11.4 deceaber april 1986 95.5 107.5 12.0 december april 1987 96.8 108.1 12.8 december april 1988 95.1 108.8 18.7 december april 1989 95.0 108.9 13.9 december april 1990 96.0 108.8 13.8 december april Note: This table Is baecd on the seasonality index of Table 6.6. Figure 6.4: Seasonal Index, 1960-74 and 1975-89 110 1960-74' iO5 100 Index 90 85 as 60 62 64 66 68 70 72 74 t10 1975-89 105 100 Index 95 90~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 85 I 75 77 79 61 83 85 87 89 Figure 6.5: Seasonal factors in rice prices based on three year averages, 1960-62 1984-86, and 1987-89 Ito. 105 * too / \ X\ 's.. .*x - ~~~~~1960-62 Value ss 1984-86 .1987-89 90- 85 80~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Month i - 71 - Annex 6 Page 14 of 15 Table 6.10: RelatIvo Contribution of components of verienc. In orllnal *.rio, 190-70, 1974-04, and 1905-90 Porlod/ Trend Span In Months Cycle S amonal Irregular (percont) 1960-70 1 0.13606 0.61019 0.35873 2 0.24027 0.50075 0.16396 3 0.30767 0.53166 0.11046 4 0.88870 0.56612 0.06818 6 0.40640 0.52686 0.06694 6 0.46277 0.49048 0.05675 7 0.53621 0.42165 0.04314 8 0.16163 0.84102 0.04886 9 0.69386 0.26217 0.04417 10 0.78847 0.1U860 0.04504 11 0.90037 0.06568 0.08395 12 0.95604 0.00162 0.04284 12 0.96604 0.00162 0.04234 1974-84 1 0.21428 0.46402 0.82170 2 0.84697 0.45686 0.19067 8 0.47160 0.89775 0.18076 4 0.69668 0.81926 0.s6511 5 0.71481 0.21981 0.06588 6 0.79848 0.15281 0.04921 7 0.81100 0.14496 0.04404 6 0.81604 0.14666 0.08829 9 0.84067 0.12426 0.08519 10 0.88481 0.08435 0.08184 11 0.94280 0.08172 0.02647 12 0.96892 0.00181 0.03176 1965-90 1 0.08284 0.44498 0.4922a 2 0.18827 0.658s9 0.82704 a 0.22867 0.65866 0.22267 4 0.82426 0.46698 0.20881 5 0.46348 0.81885 0.22822 6 0.58889 0.19965 0.21696 7 0.64846 0.25966 0.16676 8 0.52669 0.31416 0.16915 9 0.54950 0.29977 0.16078 10 0.62682 0.25794 0.11644 11 0.76297 0 12476 0.11227 12 0.6765 0.00170 0.12294 10 0.67414 0.20017 0.12669 11 0.78876 9.08874 0.12262 12 0.87658 0.00092 0.12266 Source: This tabl- Is computed from the decomposition of prices of the Censue X-11 method. Table 3.11: Decomposition of Pries Variability Porcent of price Vnri;nco Explained Ratio of net supply/demand effect Yariable 1960-70 1971-83 1984-89 160O-70 1971-83 1964-49 Elasticity supply s 0.20 (percent) (percent) Demand 164.05 105.34 66.12 5.58 9.78 1.35 D mand/supply -86.33 -14.56 1.5 D em nd/ieport -4.ao -2.97 -0.63 Supply 28.73 9.92 43.3 Supply/import -2.78 -1.88 -19.4 Import 0.68 1.15 7.11 Elasticity supply u 0.25 D emnd 139.78 92.32 58.04 5.97 8.99 1.2 D emnd/supply -56.7 1.73 11.01 D e nd/import -3.7 -2.53 -0.54 Supply 22.82 9.29 42.36 Suppsy/lport -2.78 -1.78 -16.94 Import 0.58 0.98 6.06 Elasticity supply u 0.30 D e nd 120.53 79.0 50.05 0.1 7.61 1.05 D em nd/supply -34.36 13.69 17.69 Dmand/import -3.19 -2.19 -0.47 Supply 19.27 9.75 42.26 Supply/import -2.76 -1.69 -14.96 Import 0.6 0.85 5.23 Elasticity supply 0.35 D emand 104.99 69.34 43.6 5.91 6.96 0.92 Demnd/supply -17.27 22.55 22.9 D e nd/import -2.78 -1.9 -0.41 Supply 17.32 10.89 42.7 Supply/import -2.7 -1.61 -13.34 import 0.44 0.74 4.55 Elasticity supply C C.40 Demnd 92.26 60.94 38.32 6.47 4.65 0.81 Demnnd/supplI -4.05 29.15 26.55 D umnd/import -2.45 -1.67 -0.38 m Supply 16.47 12.47 43.49 Q Supply/import -2.84 -1.54 -12 Import 0.38 0.65 4 Un ______-__----- --- ---- - - - - - - - -- - - - - - - - - -- - - - - - - - -- - - - - - - - --- - - - - - - - Note: The deand elasticity is Ed = -0.4. " x I.nO% - 73 - Annex 7 Page 1 of 2 Annex 7: Analysis of the Causes of Annual and Seasonal Price Fluctuations in Bangladesh 1. Ahmed and Bernard use a simulation analysis to examine the causes of annual and seasonal price fluctuationsY They formulate the hypothesis that there were two offsetting trends influencing annual rice price variability from 1960 to 1984. a. During the 19608, the Bangladesh economy was largely agricultural, implying that the major demand for agricultural products was related to income in the rural sector. This meant that demand and supply tended to move in the same direction, as a result of varying weather and other factors, dampening price fluctuations. From 1974 and 1984, however, demand and supply fcrces had become more independent, resulting in increased price variability. b. Countering this trend was the increased role of t'ie Government in stabilizing prices through the public distribution system. In running the simulation, the price elasticity of demand is assumed to equal 0.4, whereas that of supply is allowed to vary between 0.2 and 0.4. 2. The results of the simulation support these hypotheses. A large degree of interaction between demand and supply dampened price fluctuations during the earlier period, while imports played a relatively minor role. During the later period, on the other hand, uncorrelated demand and supoly shifts tended to dominate the market, resulting in increased price fluctuations, while imports played a greater role in helping to offset variations in both supply and demand. It is important to note, however, that the interaction ot Lijports and supply was considerablv less in the Ahmed and Bernard analysis than that between imports and demand. In addition, imports by themselves tended to increase price variability. 3. The factors influencing seasonal price fluctuations are hypothesized by Ahmed and Bernard to be the following: a. The introduction of Green Revolution technology has occurred primarily during the boro season. Since production during the aman season has historically been the largest, this implies that the seasonal pattern of prodr,:tion, and therefore of prices, has become more even. S Raisuddin Ahmed and Andrew Bernard, Rice Price Fluctuation and an Approach to Price Stabilization in Bangladesh, Research Report No. 72, International Food Policg Research Institute, Febrnary 1989. - 74 - Annex 7 Page 2 of 2 b. The seasonality of harveats has also been reduced by changes, associated with the new technology, in the timing of planting and the average period of growth, which differ from district to district. c. The storability of rice varies between seasons and this also influences seasonal price variations.Y The regression analysis of Ahmed and Bernard is rather inconclusive, based on only nine years of data from 1976 and 1984. The index of pure seasonality in rice prices that they present, however, shows a clear decline in the range between highs and lows during the period 1973-84.4 This was a period during dhich the factors listed above were becoming increasingly important. 4. In order to test these hypotheses further, the data series used by Ahmed and Bernard were extended back three years to 1973 and forward six years to 1990.A' Although the earlier years were ones of considerable instability, the trends of the later years appear to have been well underway at that time. 5. The results of the regression analysis are as follows: logS = 10.266 - 0.410 logAMN - 0.450 logBORAS R2 - .581 (0.296) (0.181) where S is the difference between peak and trough prices adjusted for trend- cycles, AMN is the aman harvest, and BORAS is the sum of boro and aus harvests. Standard errors are in parentheses. Although the coefficient for AMN is not statistically significant, its negative sign suggests that price ranges tend to be narrower in years of larger harvests. The negative sign of BORAS, which is significant, indicates that, in addition to this effect, the increasing relative importance of these secondary harvests contributed to an evening out of prices over the year. 2/ Ahmed and Bernard, Rice Price Fluctuation and an Approach to Price Stabilization in Bangladesh, pp. 43-44. l/ Ahmed and Bernard, Rice Price Fluctuation and an Approach to Price Stabilization in Bangladesh, pp. 29. I Data are from Francesco Goletti, personal communication, July 30, 1990. - 75 - Annex 8 Page 1 of 4 Annex 8: Analysis of the Demand for Rice 1. Demand parameters were estimated using cross-section data from the 1988-89 household expenditure survey (HES), undertaken by the Bangladesh Bureau of Statiptics (BBS). The BBS prepared the data for and participated in all steps of the demand analysis. A. Methodology 2. Demand functions were estimated both for rice and for total calorie consumption. The following specification was used, comprising a double- logarithmic function with a squared income term, price-income interaction terms, and dummy variables as appropriate. ln(Q1IN) = bo + bE;ln(E/N) + bE21ln(E/N)2 + b(A/N);ln(AN) + b,6lnP, + bE.,ln(E/N)ln(PI) + bijlnPj * bE,jln(E/N)ln(Pj) + b0D where Q; is the quantity consumed of product i (or total calories) N is the number of persons in the household E is total expenditure of the household, as a proxy for total income A is the number of adult equivalents in the household PI is the price of product i, equal to total expenditure on product i divided by the quantity consumed Pj is the price of product j, equal to total expenditure on product j divided by the quantity consumed D is a vector of dummy variables indicating whether the household was rural or urban and whether it produced rice or wheat. This specification permits both income and price elasticities to vary across income classes. The calculation of these elasticities and their standard errors was made for the entire sample and for individual income classes (deciles) at the mean value of income (total expenditure) and price of each product for that class. 3. The number of adult equivalenits is equal to the number of members of the household, broken down by age and sex, and aggregated using calorie requirements as weights. All cereals products were aggregated in terms of their whole grain equivalents. B. Results t . The results of the analysis are presented in Tables 8.1 and 8.2. These tables show the elasticities of rice consumption per person and of calorie consumption per person with respect to income (total expenditure) per person, adult equivalents per person, and the prices of rice and wheat, for the first, - 76 - Annex 8 Page 2 of 4 second, fifth, and tenth deciles by per capita income, as well as for the entire sample. They also show the coefficients for the dummy variables URBAN (comes from urban area), FARM RICE (produces rice on the farm), FARM WH (produces wheat on the farm). Table 8.1: Elasticities Results for Consumption of Rice Decile Indep Var 1 2 5 10 Total Exp'Per 3.670 0.877 0.726 0.535 -0.005 0.496 0.141 0.143 0.147 0.160 0.148 Adult/Per 0.426 0.426 0.426 0.426 0.426 0.426 0.066 0.067 0.067 0.067 0.067 PrRice -1.375 -0.809 -0.775 -0.729 -0.604 -0.720 0.092 0.073 0.057 0.108 0.057 PrWheat 1.799 0.137 0.037 -0.099 -0.465 -0.124 0.066 0.050 0.039 0.089 0.040 Urban -0.217 0.016 Farm Rice 0.090 0.017 Farm Wh -0.068 0.024 Note: Standard errors are given below the elasticity and regression coefficient estimates. Rice (Table 8.1) 5. With the logarithm of rice consumption per capita as the dependent variable, Table 8.1 shows relatively high, and highly significant, income elasticities, especially for the lowest deciles. This reflects the poverty that exists in Bangladesh and the fact that a large share of any zdditione to income for the poor would go to rice consumption. The elasticity of adult equivalents per person is positive and significant, as expected, but is not allowed to vary across income groups in this particular specification. - 77 - Annex 8 Page 3 of 4 6. The price elasticity of rice is also quite high, and very significant. for all income groups, though there is some tendency for it to decline with rising income. The cross-price elasticity of wheat, on the other hand, is positive but low for the lower income groups, suggesting that wheat and rice are weak substitutes. It becomes negative and significant in the upper income groups, reflecting complementarily rather than substitutability. This suggests t:lat the poor are forced to be responsive to price changes, but the better off members of society prefer to consume both rice and wheat. 7. The coefficient of each of the dummy variables has the expected sign and is significant. Other things equal, rice is consumed less in urban than in rural areas. It also is consumed more by farmers who grow rice and less by farmers who grow wheat. Table 8.2: Elasticities Results for consumption of Calories Decile Indep Var 1 2 5 10 Total Exp/Per 2.753 0.784 0.681 0.552 0.121 0.447 0.022 0.017 0.021 0.021 0.011 Adult/Per 0.364 0.364 0.364 0.364 0.364 0.364 0.052 0.052 0.052 0.052 0.052 PrRice -0.156 -0.299 -0.308 -0.319 -0.355 -0.327 0.072 0.057 0.045 0.091 0.045 PrWheat 0.321 -0.274 -0.310 -0.355 -0.506 -0.390 0.052 0.040 0.032 0.076 0.034 Urban -0.184 0.012 Farm Rice -0.038 0.013 Farm Wh 0.050 0.018 Note: Standard errors are given below the elasticity and regressiona coefficient estimates. - 78 - Annex 8 Page 4 of 4 Calories (Table 8.2) 8. Table 8.2 presents similar results with total calorie consumption per capita as the dependent variable. Once again, income elasticities are high, though not as high as for rice consumption alone, and decline steeply across income groups. This again reflects the extreme poverty in Bangladesh -- the lowest income decile would spend a substantial portion of any additional income on more calorie intake. 9. As expected, the coefficient of adult equivalents per capita is significantly positive. This suggests that, other things equal, male adults have higher calorie requirements than female adults and children. 10. The elasticities of the prices of both rice and wheat are negative and significant for the entire sample as well as for most income groups. The elasticities tend to rise across income groups. This suggests that the poor have much less possibility for substituting other goods and services for calories than do those who are better off. Nevertheless, the poor suffer a significant loss of calories when the prices of rice and wheat rise, and this is a loss that they can ill afford. 11. The coefficients of the dummy variables have the expected signs and are significant. Other things equal, more calories are consumed in rural areas, and especially on farms that produce either rice or wheat, than in the cities, where diets are likely to be more diversified. - 79 - Annex 9 Page 1 of 10 Annex 9: Effects of Different Rice Prices on farm Income 1. To assess the impact of government policies affecting rice prices on the value of farm production, models of six different farming enterprises were developed. These enterprises were selected to represent the diversity of farm characteristics in the Northwest Region of Bangladesh. 2. The two distinguishing characteristics of farms in Bangladesh are farm size and the type of technology employed. Small farmers constitute about 40 percent of all farmers (cultivating one acre or less), medium farmers 30 percent (cultivating 1 - 2.5 acres), and large farmers (with more than 2.5 acres) the remaining 30 percent. 3. For the most part, irrigated land is associated with the use of improved technclogy -- prLmarily higher yielding varieties and fertilizers. Moreover, irrigated land is more intensively cultivated. About 20 percent of farmland in Bangladesh is irrigated -- although it averages 24 percent in the Northwest Region. one recent study found that 59 percent of land in 'developed areas" of Bangladesh (primarily defined as a high degree of irrigation) was planted with HYV rice, compared with orily 6 percent in underdeveloped areas.Y This study also found that the average cropping intensity of irrigated land was 1.65, while only 1.32 for nonirrigated land. In the Northwest Region, the average cropping intensity is estimated to be 1.44. 4. Accordingly, farm production budgets were designed for developed and underdeveloped small, medium, and large farms. A cropping intensity of 1.2 was assunuti for underdeveloped farms and 1.8 was assumed for developed farms. Underdeveloped farms were assumed to rely mainly on local varieties, while the use of improved varieties (HYV) was assumed on developed farms. 5. In the models, a small farm is defined as .5 acres ( .2 hectares), a medium farm as 2 acres ( .81 hectares) , and a large farm as 5 acrr:s (2.02 hectares). The composition of crops assumed to be produced on eacb of the six farms is shown in Table 9.1 below. 6. Individual crop budgets were taken from a previous AIRD study.V These were aggregated to model total farm-level production. This permited an assessment of the net value of total farm production. Likewise, the impact of government policies affecting rice prices on this Value was evaluated by 1/ 1ahabub Hossain, Nature and Impact of the Green Revolution in Bangladesh, IFPRI Retiearch Report #67, July 1988, p. 18. V' Associates for International Resources and Development, An Analysis of Prof itability, Protection, and Comparative Advantage for Agricultural Products of Bangladesh, September 11, 1990. - 80 - Annex 9 Page 2 of 10 altering farm-level rice prices to reflect various assumptlions of the rice prices gained by farmers. Six scenarios were analyzed: that Prices reflected import parity prices (respectively $150/ton and $200/ton, FOB Bangkok), that they reflected export parity prices ($150/ton and $200/ton, FOB Dacha), that farmers were paid prices offered at government procurement centers, and that were paid market prices. Table 9.2 presents more detail on each of these scenarios, and shows the exact farm-level rice price assumed in each scenario. The assumptions used in designing each of the six farm budgets are presented in Tables 9.3.!' V/ A seventh scenario was later added to examine the effect of farmers being paid the minimum procurement prices that would be introduced using the buffer stock scheme outlined in the text. For the results of this scenario, see Table 5 in the text. - 81 - Annex 9 Page 3 of 10 Table 9.1: The Composition of Crops and Technologies, by Farm Type Technique Crop Percent 1. Small, Underdevp LT Aman 40 HYV Aman 10 B Aus 35 Jute 15 2. Small, Developed LT Aman 10 HYV Aman 7 B Aus 10 HYV Aus 16 HYV Boro 50 Potato 7 3. Medium, Underdevp LT Aman 10 HYV Aman 5 B Aus 25 HYV Boro 5 Jute 10 4. Medium, Developed HYV Aman 20 B Aus 20 HYV Boro 40 Jute 20 5. Large, Underdevp LT Aman 70 B Aus 10 Jute 20 6. Large, Developed HYV Aman 47 LB Aus 20 HYV Boro 20 HYV Aus 7 Potato 6 Note: HYV - high yielding variety B - broadcast LT - local variety, transplanted LB - local variety, broadcast - 82 - Annex 9 Page 4 of 10 Table 9.2: Rice Price Scenario and Calculation of Farm Level Rice Price SCENARIO 1. Import Parity Price-l ($/ton) FOB Bangkok 150 Transport 20 TOTAL 170 Tk/Ton (38TK/$) 6,460 Transport Port-NW 2,250 Total (Tk/ton) 8,710 Tk/kg rice 8.7 2. Import Parity Price-2 ($/ton) FOB Bangkok 200 Transport 20 TOTAL 220 Tk/Ton (38TK/$) 8,360 Transport Port-NW 2,250 Total (Tk/ton) 10,610 lk/kg rice 10.6 3. Export Parity Price - 1 FOB Dacha 150 Tk/Ton (38TK/$) 5,700 Transport Port-NW 2,250 Total (Tklton) 3,450 Tk/kg rice 3 4. Export Parity Price 2 FOB Dacha 200 Tk/Ton (38TK/$) 7,600 Transport Port-NW 2,250 Total (Tk/ton) 5,350 Tk/kg rice 5 5. Farm Level Procurement 295 Price (tk/md rice) Tk/kg rice 8 6. Farm Level Market 231 Price (Tk/kg rice) Tk/kg rice 6 Table 9.3A: Sn Il Farmer, Underdeveloped, FO Land ------ -FARM INCOME ---- FARM INCOME LT AMAN AMAN HYV B PMS JUTE POTATO TOTAL FINANCIAL PROFITABILITY, cash net revenue/kg a 10 11 4 1 net revonue/area cultivated 438 608 1033 309 0 2388 FINAMCIAL PROFITABILIMT, imputed value net revenue/unit woeght -O 7 7 3 -1 net revenue/are cultivated -17 469 697 230 0 1378 ASSUWPTIONS OF THE ANALYSIS (SCENARIO 1: Import Parity-1) AREA FARM SIZE (Hectares) 0.20 PRICES CROPPING INTENSITY 1.2 Rice FOB (Dangk;k) (8/t) 10 Porcentage LT ADan 0.10 40X Jute FOB (White) (l/t) 370 Percentage HYV Awen 0.02 10X Potato CIF (3/0) 90 Percentage B Aus 0.08 36X Rice Ex-Form, Aen TK/kg ric 8.71 Percentage Jute 0.04 Is% Price Ex-Form, HYV An TK/kg ric 8.71 Percentage Potato 0.00 ON °° Price Ex-Form, B Aue TK/kg ric 8.71 TOTAL 0.24 Price Ex-Form, IH Boro TK/kg ric 8.71 Jute Ex-Farm YIELDS -LT Aen (paddy) (kg/ha) 1200 (pri. mrket price) TK/kg 6.06 -- HYV Amn (paddy) (kg/ha) 3910 Potato Farm Gate (Feb) TK/kg Pot 3.66 -- B Aun (paddy) (kg/ha) 1700 Potato Ex-Storage (Juno) TK/kg Pot 8.60 -- HYV Boro (pady) (kg/ha) 4370 -- Potato (kg/ha) 20640 TRANSPORT COSTS, RICE -- Jute (kg/ha) 2230 Sea Freight, Insurance (8/t) 20.00 Port to Farm (TK/t) 2260 AJLITY PREFERENCE (X local/ 1 Milling Ratio, Jute 1.000 TRANSPORT COSTS, Potato Milling Ratio, Rice (X rice) 0.667 Sea Freight, Insurance (S/t) 100.00 Potato Cold Storage Weight (%) 0.900 Port to Wholseale (TK/t) 0 Factory to Wholesale (TK/t) 500 EXCHANGE RATES Official (TK/8) 38.00 NOMINAL COST OF PRODUCTION FACTORS Fm Lab - Amen, Boro, Pota (TK/day) 19 RATIO: SHADOW TO NOMINAL VALUE Family Labor - A-i, Jute (TK/day) 20 Fmily Labor 1.000 Sal Lab - Amen, Boro, Pota (TK/day) 27 Salaried Labor 1.000 Salaried Labor - Aus, Jute (TK/day) 28 Seasonal Credit 1.000 ° Land Rent (Amn/meon) (TK/ha) 3600 Long Term Capital 1.000 Land R3nt (HYV Aman/saon) (TK/ha) Land Rent 1.000 Land Ront (B Aux/ son) (1K/ha) Land Rent (HYV Boro/season) (TK/ha) Land Rent (per season) (TK/ha) Land Rent (Potato/season) (TK/ha) Soason Credit (per seson(X) Long Term Capital (public)(X) -- - ------------------------------------------------------ __------------------ __----------------------------------------- Table 9.3B- SmllI Formr, Developed, FO Land ---------------FARM INCOME----- ----------- FARM INCOME LT AMAN AMAN HYV B AUS HYV AUS JUTE POTATO TOTAL FINANCIAL PROFITABILITY, cash not revenue/kg 13 12 14 13 10 1 net revenue/area cul:'vated 374 828 6S0 1732 5481 580 9638 FINANCIAL PROFITABILITY, Imputed value net revenue/unlt weight 7 10 10 11 8 -1 net revenue/area cultivated 204 S81 416 1414 4307 -288 6753 ASSUMPTIONS OF THE ANALYSIS (SCENARIO 2: Import Parity-2) AREA FARM SIZE (Hectares) 0.20 PRICES CROPPING INTENSITY 1.8 Rice FOB (8/t) 200 Percont&a LT Aman 0.04 10% Potato CIF (3/t) 90 Perc*ntage HYV Aman 0.03 7X Rice Ex-Fare, Aman TK/kg Pad 10.61 Percentage B Aus 0.04 10X Price Ex-Form, HYV AAan TK/kg Pad 10.61 PercentagO HYV Aus 0.08 16X Price Ex-Form, B Au* TK/kg Pai 10.61 Percentage HYV Boro 0.18 BO% Price Ex-Form, HYV Boro TK/kg Pad 10.61 Percentage Potato 0.03 7% Price Ex-Farm, HYV AUS TK/kg Pad 10.61 TOTAL 0.36 1 Potato Farm Cato (Feb) TK/kg Pot 3.86 5 Potato Ex-Storage (June) TK/kg Pot 8.50 YIELDS -- LT Aman (paddy) (kg/ha) 1200 4- -- HYV Aman (paddy) (kg/ha) 3910 -- 8 Aus (paddy) (kg/ha) 1700 -- HYV Boro (paddy) (kg/ha) 4370 TRANSPORT COSTS, RICE -- Potato (kg/ha) 20640 S'ea Freight, Insurance (8/t) 20.00 -- HYV Aus (paddy) (kg/ha) 2230 Port to Farm (TK/t) 2260 QUALITY PREFERENCE (X local/ 1 TRANSPORT COSTS, Potato $a. Freight, Insuranceo (S/t) 100.00 Milling Ratio, Rice (X rice) 0.667 Port to Whole"al (TK/t) 0 Potato Cold Storage Weight (1) 0.900 Factory to Wholesale (TK/t) SOO EXCHANCE RATES NOMINAL COST OF PRODUCTION FACTORS Official (TK/3) 38.00 Fee Lob - Aman, Boro, Pota (TK/day) 19 R al (TK/I) 42.6 Fsaily Labor - P it, Jut (TK/day) 20 Family Labor, HYV Aug (TK/day) 22 RATIO: SHADOW TO NOMINAL VALWE Sal Lab - Amn, Boro, Pota (TK/day) 27 Family Labor 1.000 Salaried Labor - Au* (TK/day) 28 Salaried Labor 1.000 Salaried Labor, HYV AUS (TK/day) 31 Seasonal Credit 1.000 Land Rent (HYV AUS/ses on) (TK/ha) 4000 Long Term Capital 1.000 m Land Rent (Amn/season) (TK/ha) 3500 Land Rent 1.000 Land Rent (HYV AMAN/season) (TK/ha) 4200 Land Rent (B AUS/seanon) (TK/ha) 3100 °. Land Rent (H Y Boro/season) (TK/ha) 4500 X Land Ront (Potato/rseon) (TK/ha) 3900 Seaon Credit (per * seon(X) 18.7% Long Term Capital (public)(X) 4.0X ------------------------------------------------------------__---------------__------------------------------------------- Table 9.3C: Medium Farmer, Underdeveloped, FO Land -- ----FARM INCOME---- ----- FARM INCOME LT AMAN AMAN HYV B AUS HYV BORO JUYE TOTAL ..~~~~~ - - -__ - - _ _ -__ -_-- ---__--- ---- ---- ---- ---- --__--- -_-__-_- --_-_ -_----- -_- _- -______________ FINANCIAL PROFITABILITY, cash not r.vnue/kg 2 2 3 0 4 tet revenue/ar.. cultivated 897 217 781 -43 826 2657 FINANCIAL PROFITABILITY, imputed value net revenue/unit weight -4 -O -1 -3 3 net revenue/ore cultivated -1C06 -42 -181 -371 612 -16O0 ASSUWTIONS OF THE ANALYSIS (SCENARIO 3: Import Parity-1) AREA FARM SIZE (Hctares) 0.81 PRICES CROPPING INTENSITY 1.2 Rice FOB (8/t) 10 Percentage LT Aman 0.53 SoX Jute FOB (White) (8/0) 370 Percentage IYV Aman 0.05 SX Rica Ex-Form, Aan TIK/kg Pad 3.45 Percentage B Aus 0.24 2SX Price Ex-Farm, NYV Amn TI/kg Pad 3.45 Percentage HYV Boro 0.05 S% Price Ex-Form, B Aug TK/kg Pad 3.45 Percentage Jute 0.1 10X Price Ex-Form, HYV Boro TIC/kg Pad 3.45 TOTAL 0.97 Jute Ex-Frm co (pri.-kt.price) TK/kg 6.05 YIELDS -- LT Amon (paddy) (kg/ha) 1200 -- HYV Anan (paddy) (kg/ha) 3910 TRANPORT COSTS, RICE -- B Aus (paddy) (kg/ha) 1700 Se Freight, Iraurance (8/t) 20.00 -- HYV Boro (paddy) (kg/ha) 4370 Port to Far (TK/t) 2260 _ Jute (kg/ha) 2230 NOMINAL COST OF PROWUCTION FACTORS QUALITY PREFERENCE (% local/ 1 Fm Lab - Amsn. Boro, Pots (TK/day) 19 Fmily Labor - Aun, Jute (TI/day) 20 Milling Ratio, Rice (X rice) 0.667 Sel Lab - AMn, Boro (TK/day) 27 Milling Ratio, Jute 1.000 Salariod Labor - Aus, Jute (TK/day) 20 Land Rent (Amn/seaon) (TK/ha) 3500 EXCHANGE RArI3 Land Rent (HYV AMAN/season) (TK/ha) 4200 Official (TK/3) 38.00 Land Rent (B AUS/season) (TK/ha) 3100 Land Rent (HYV Boro/eason) (TX/ha) 4500 Land Rent (Jute/seson) (TK/ha) 3100 RATIO: SHADOW TO NOMINAL VALUE Season Credit (par ason(X) 16.7% Family Labor 1.000 Long Term Capital (public)(%) 4.0% Salaried Labor 1.000 Seasonal Credit 1.000 0 Long Tero Capital 1.000 J. Land Rent 1.000 0 | _______-- -_-------------------------------- ---------------------------------------- l l l~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~'0 Table 9.30: Mediae Parer, Dvelope, FO Land - -- - mII DCOME- _ FARM INCOIE NYV AWN S AUS iYV BORO JATE TOTAL FNNCIAL PROFITABILIn, cah nt revenu/klg 5 0 2 4 net revenue/area cultivae 8465 1878 4081 2478 11900 FXINNCAL PROPITARILM, Imputed value noe evenue/unlt weight 2 2 0 8 net revenue/area cultivated 1794 724 S8u 1688 4741 ASSUWTIUNS F THE ANALYSIS (SCENARIO 4: Import Parity-2) AREA (HA) FARM SIZE (Nectar") 0.61 PRICES CROPING INTENSITY 1.8 Rice FOB (S/t) 200 Percentage NW Amn 0.29 20% Potato CIF (/t1 90 Pereentage B Aur C.29 tO0 Jut FOB (White) /t 870 Percentag HYV Boro 0.5U 40X Rice Ex-Form, Amn 1K/kg Pad 10.61 Percentage Jut 0.29 201 Price Ex-Fare, WfV Amn f(/kig Pad 10.61 1 Price Ex-Fare, B Aux 1K/klg Pad 10.61 co Price Ex-FPre, HYV Boro TK/kg Pad 10.01 0 Petato Pare Gat (Feb) TK/kg Pot 8.05 Potato Ex-Store" (June) 1K/kg Pot 8.50 YIELDS -- Aen (pady) (kg/ha) 1200 Jute Ex-Fare (pri.mItt.price) 1t/kg 0.06 -- WAmen (paddy) (kg/ha) 8910 -- B Aus (paddy) (kg/ha) 1700 -- HYV Boro (paddy) (kg/he) 4370 TRANSPORT COSTS, RICE -- Potato (kg/ha) 20640 Sea Freight, Insurance (S/t) 20.00 Jute (kg/ha) 2280 Port to Fare (TK/t) 2260 JALTY PREFERENCE (X local) 1 TRANSPORT COSTS, Potato Milling Ratio 1.000 See Freight, Insurance (8/t) 100.00 Milling Ratio (X rico) 0.867 Port to Wholoeale (TK/t) 0 Potato Cold Storag Welght (X) 0.900 Factory to Wholiwle (TK/t) 500 EXCHANGE RATES NOMINAL COST OF PRODUCTION FACTORS Official (1K/I) 88.00 Fan Lab - Anen, Boro, Pota (1K/day) 19 Fmi ly Labor - Aun, Jute (TK/day) 20 Sal Lab - Amen, Boro, Pote (TK/day) 27 RATIO: SHADOW TO NOMINAL VALUE Salaried Labor - Au. (TK/day) 26 Family Labor 1.000 Land Rent (AMAN/season) (TK/ha) 35OO Salaried Labor 1.000 Land Rent (HYV Am_ ,'eeason) (1K/ha) 4200 Soasonal Credit 1.000 Land Rent (B AUS/eeason) (TK/ha) 3100 Long Tera Capital 1.000 Land Rent (NYV Boro/sea*on) (1K/ha) 4500 Land Rent 1.000 Land Rent (Potato/eason) (TK/ha) 3900 o S Land Rent (par soson) (TK/ha) 8100 h X Season Credit (par _eason( 18.71 Long Tore Capital (public)(M 4.01 Oo% _ _______ __ _ ____________- ___________ ___________ _________________- -_-__-_ Table 9.3E: Large Farmer, Underdeveloped, FO/Fl Land ---FARM INCOkE----- FARM INCOME B AUS LT AMAN JUTE TOTAL FINANCIAL PROFITABIUTY, cash net revenue/kg 10 9 4 net revenue/area cultivated 2819 16090 4126 23663 FINANCIAL PROFITABILITY, imputed value net revenue/unit weight 6 3 3 net revenue/area cultivated 1658 6W82 3060 10850 ASSUWTIONS OF THE ANALYSIS (SCENARIO 6: Procurement Price) FARM SIZE (Hectores) 2.02 YIELDS -- B AUS (paddy) (kg/ha) 1700 CROPPING INTENSITY 1.2 -- LT AMAN (paddy) (kg/ha) 1200 Percont LO AUS 10X -- Jute (kg/ha) 2280 Percent LT AMAN 70X Percent Jute 20X WJALITY PREFERENCE (s local) 1 milling Ratio 1.OO PRICES Milling Ratio (X rice) 0.667 oo Rico FOB (8/t) N/A Jute FOB (White) (8/t) 370 1 Rice Ex-Form, B AUS TK/kg Pad 7.90 EXCHANGE RATES Rice Ex-Farm, LT AKAN TK/kg Pad 7.90 Official (TK/S) 38.00 Jute Ex-Form (pri.mkt.price) TK/kg 6.05 Real (TK/S) 42.60 TRANSPORT COSTS, RICE Sea Froight, Insurance (3/t) 20.00 RATIO: SHADOW TO NOMINAL VALUE Port to Form (TK/t) 2260 Family Labor 1.000 Salaried Labor 1.000 NOMINAL COST OF PRODUCTION FACTORS Seasonal Credit 1.000 Long Term Capital 1.000 Family Labor - Aus, Jute (TK/day) 20 Land Ron4 1.000 Salaried Labor - Au* (TK/day) 28 Family Labor LT AMAN (TK/day) 19 Salaried Labor LT AMAN (TK/day) 27 TRANSPORT COSTS, JUTE Season Credit (per *eson(X) 16.7X Sea Freight (S/t) 40.00 Long Term Capital (public)(X) 4.0X Port to (8/t) 0 Land Ront (B AUS/snason) (TV/ha) 3100 Factory (8/t) 883 Land Rent (Aman/season) (TK/ha) 3500 Land Rent (Jute/season) (TK/ha) 3100 O0 o X Table 9.$F: Larp Developed Frm In Northwest, FO/F1 Land --------FFRM INCOME------ FARM INCOME B AUS HYV Aus HYV Amn IYV Boro Potato TOTAL FINANCIAL PROFITABILTY, cash not revenue/kg 7 5 6 4 1 not revenue/arr cultivated 5733 2957 26970 7771 4972 47405 FINANCIAL PROFITABILITY, imputed value net rovenue/unit weight 3 3 4 1 -1 net revenue/area culi0vated 2849 1S6S 165SS 3152 -2301 21421 ASSUPTIONS OF THE ANALYSIS (SCENARIO 6: Market Price) PRICES FARM SIZE (Hetres) 2.02 Rice FOB (1/t) N/A CROPPING INTENSITY 1.8 Rice Ex-Farm (B Auu, WMY) TK/kg Pad 6.19 Percent LB AUS 20% Rice Ex-Farm, HYV Boro TK/kg Pad 6.19 Percent HYV Aun 7X Potato CIF (8/t) 90 Percent HfYV Amn 47X Potato Farm Gate (Feb) TK/kg Pot 3.66 Percent HYV Boro 20X Potato Ex-Storage (June) TK/kg Pot 8.60 Percent Potato 6x YIELDS -- B AUS (paddy) (kg/ha) 1700 POTATO COLD STORAGE WEIGHT (X) 0.900 00 -- HY AMAN (paddy) (kg/ha) 8910 RICE Milling Ratio (X rice) 0.687 -- HYV Boro (kg/ha) 4370 Quality Preference 1 - Potato (kg/ha) 20640 EXCHANGE RATES NOMINAL COST OF PRODUCTION FACTORS Official (TK/S) 38.00 Family Labor - Aus, Jute (TK/day) 20 HYV Asan, Boro, Potato (TK/day) 19 Salaried Labor - B Aus (TK/day) 28 RATIO: SHADOW TO NOMINAL VALUE HYV Aan, Boro, Potato (TK/day) 27 Family Labor 1.000 Salaried Labor 1.000 LAND RENT - Aun/season (TK/ha) 3100 Seasonal Credit 1.000 Aman/soeaon (TK/ha) 4200 Long Term Capital 1.0w# Boro/season (TK/ha) 4600 Land Rent 1.000 Potato/eason (TK/ha) 3900 TRANSPORT COSTS, JUTE SEASONAL CREDIT (par season)(X) 16.7X Sea Freight Insurance (S/t) 40.00 O Long Term Credit (public)(X) 4.0% Port to Farm (8/t) 2260 0 TRANSPORT COST, POTATO Sea Freight, Insurance (S/t) 100.00 0 ° Port to Wholesale (TK/t) 0 x Factory to Wholzeale (TK/t) 500 ___ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ ___ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ - 89 - Annex 10 Page 1 of 6 Annex 10: Economic and Financial Subsidies in the Public Foodgrain Distribution System overview of the Public Food Distribution System (PFDS) 1. The PFDS has its origins in the 1940s, when it served to provide a minimum quantity of foodgrain to urban consumers at fixed prices. It also distributed foodgrain in exchange for menial labor during famine periods, a program which evolved into the test relief channel. Currently, the PFDS operates through more than a dozen ration channels, with different degrees of subsidization (Table 10.1). There are three untargeted channels: open market sales (OMS) and marketing operations (MO) which sell foodgrain at a price which is 15-20 percent higher than the Government's procurement price, and free sale (FS) which auctions foodgrain for stock disposal purposes. There are four targeted channels which serve relatively high-income segments of society: i) statutory rationing (SR) for government employees in certain districts of Bangladesh; ii) other priorities (OP) for government employees in non-SR areas and parastatal employees; iii) essential priorities (EP) for the armed forces, police force, Bangladesh Rifles and other security forces; and, iv) large employers (LE) for personnel in industries with 50 or more employees. In all but the EP channel, ration quotas have been reduced, and issue prices have been raised to the OMS level in the past few years in an attempt to reduce the financial and economic subsidies to these higher-income groups. The EP channel, however, remains heavily subsidized, with issue prices set at 80 percent below the OMS price. Finally, wheat is monetized through monthly sales to more than one hundred flour mills (FM) at the OMS price. 2. Distribution channels oriented toward the poor include a sales channel, a variety of self-targeting channels that seek to link food distribution to recipients' participation in development activities, and several relief channels. Palli rationing (PR) sells foodgrains at 25 percent below the OMS price to the rural and urban poor, as identified through tax rolls at the Union level. Many of the self-targeting channels were introduced in the 1974-76 period, following the devastating drought of 1973. The largest program is the food-for-work (FFW) channel which provides seasonal employment (with wages in kind or in cash) in the form of reconstruction of rural roads and drainage structures. These programs are implemented by the Government, the World Food Program and the non- governmental organization CARE, with much of the funding and food aid suDplied by bilateral dolors. The vulnerable group development (VGD) program begar, purely as a supplemenital feeding program for poor mothers and children, but has since tried to link fond distribution to skills training and savings schemes to lift women out of destitution. The much smaller rural maintenance program (RMP), which is implemented by CARE with funding from the Canadian Government, also focuses on destitute women, providing them with full-time employment in road maintenance for a two-year period. The objective is for these women to "graduate" from the program with skills and sufficient savings to find or create their own employment opportunities. In addition to the self-targeting channels, TABLE 10.1: Coverage end Ibotam in thu Public Foodgrain Distribution System, FY9O --------R --i----- - - - - --fAT - - Rationing channel Code Coversg Eat wunler of Rations lae pric. Quantity Share of Is1u prive Quatity Share af beneficieries (ex-godown) sold totnl dietri ( b-on) sold total ditrib (per Weak. unlo- noted) (Tk/WT) (000 MT) (t) (TkJlil) (000 MT) (U) Open mrket sale OM untergetted price stmkilization all co rs 10.2 15,000 2.2 6.680 6,000 0.4 lhrketing oprotions NO untergetted price stabilisation all coneumer 10,250 0 0.0 6,650 0 0.0 Free malt/auction FS stoc disposal at free mrket price all conem_ra market price S.00 0.7 wriet price 0 0.0 Stmtutry rationing SR grvromant employees in six district.: 3,6D,OOD 1.0 Kg rice. 0.5 Kg wheat. per 10.000 7.000 1.0 6,t00 150,000 10.1 Ohaka. aroyJ_iani. aCittagong. capita up to 6 family members Rangpmti. Khuln, Rajnhanhi 200 go magar. 200 go malt per capita up to 5 family mbrs Other priorities oP government employo in non-SR crea S5.0D.000 1.0 Kg rice, 0.5 Kg wheat. per 10,000 62.000 9.2 6S00 2U,000 14.6 capita up to 6 family members Flour mills FM privat., publie end mixed flour sills 100 sills approximately 30,000, MT/month n.m. 6.800 804,000 20.4 Large mployers LE eployee in large indutries 2.400.000 S.25 Kg rice, 6.0 Kg ohot per 10.250 2,000 0.3 6.,00 31.000 2.1 1 capita, for I *mSg earner Eoential prioritieo EP *rmd foreeo, police force, hoep;tel 1,400,000 ared foreoo/policy: unlimited 1,600 93.000 13.86 1,8 47,000 3.2 patients foodarains. solt. eugpr A oil ;ospitel patients: 2.5 Kg rice, 0.5 Kg wheat P. 11 (rural) rationing PR eight percent of the rural poor, me 6,600.000 1.5 Kg rice up to S family 7,S50 386.000 57.2 5,000 45,000 3.0 determined by tea payments members, 50 on solt up to S family mebers 2/ Fwod for wirk F.. sessone worke for rural roed 3,000.000 0.5 to 4.8 Kg wheot par day 0 28.000 4.1 0 431,000 28.9 recontruction of labor (approx. 24 Kg/week) Vulnerable group develop. V00 poor mothers snJ children 4t0,000 7.0 to 8.0 Kg wheet 0 6.000 0.9 0 92.000 6.2 Rrat maintenan progrm RI dcetitute amen 51.000 coh paymnt. Th 16/meek 6.680 90.000 I.0 quivalent to 23 Kg wheet/week Tet relief Tt temporry relief for needy, often in uninown 0.5 kg per capita per dey 0 34,000 5.0 0 59,000 4.0 exchesg for anual labor (S.8 kg per Wee) unknown 0.5 kgo per capita per day 9 Oratultow relief at t_orery relief for needy, Often in (3.S kg per week) 0 13.000 1.9 0 15,000 1.0 t 9. *echange for labor ,i unknown 0.5 kg per capita per day tD Other 1/ cluster Willages. mnl dig;ing, ete. (3.6 kg per weelk) 0 24.000 3.6 0 L.O0 0.1 0 X TOTAL 22,711,000 675.000 100.0 1,46.000 100.0 ° 0 stock build-up 437,000 (348.000) ____________________ - 91 - Annex 10 Page 3 of 6 the Government maintains relief channels, including test relief (TR) and gratuitous relief (GR), which provide free foodgrains to the needy in times of flood, famine, political unrest or other emergency situations. 3. The Ministry of Food is responsible for the logistics of procuring, transporting and storing foodgrains for the entire PFDS, and direcLly manages the various sales channels (including the PR channel targeted toward the poor). In addition to foodgrains, the Ministry of Food procures and distributes sugar, salt and edible oil through most of the sales channels. Management of the self- targeting and relief channels is the responsibility of the Ministry of Relief and Rehabilitation. Economic and Financial Subsidies 4. One means of judging the effectiveness of the PFDS in achieving food security goals, is to examine the economic benefits (economic subsidies) derived from the rationing system. Correctly calculating economic subsidies involves a comparison of the ration price for a particular commoditv with its border price (import parity price). Thus the economic benefits of rationing will vary with fluctuations in world foodgrain prices relative to the fixed pricing structure of the PFDS. Financial subsidies are calculated by comparing the ration price to the financial cost of the ration--i.e. to the average unit cost of foodgrain acquisition. v Economic subsidies are the appropriate measure of the benefits of the rationing system for recipients; financial subsidies indicate the efficiency with which the Government delivers these economic benefits. Calculations of "food subsidies" which compare ration prices to the official OMS price--or "budgetary subsidies" which mix cash subsidies and notional subsidies based on the valuation of food aid--do not measure either economic subsidies of financial subsidies. Tables 10.2 and 10.3 summarize economic and financial subsidies for rice and wheat in the various PFDS channels in FY90. In the discussion which follows, a distinction will be made between channels aimed at poverty alleviation (PR, FFW, VGD, RMP, TR, GR), and those which target relatively high-income groups (SR, OP, EP, LE). v In the past, it has often been assumed for the sake of convenience in calculating financial subsidies that the so-called 'non-monetized' channels (i.e. channels in which the recipients don't pay cash for their rations) have been financed through food aid while the 'monetized' channels are financed through cash acquisition of foodgrains by the Government. While this has never been entirely true (20 to 30 percent of food aid is not earmarked to specific "non-monetized" channels), the monetized/non-monetized distinction is becoming increasingly fuzzy with the introduction of Government-procured rice into self-targeting programs and increasing monetization of food aid for which the counterpart funds are earmarked to "non-monetized' channels. For this reason, it is important to view foodgrains from different sources (food aid, commercial icporting or domestic procurement) as a pooled resource, for which an average unit cost of acquisition can be calculated which applies to all ration channels. - 92 - Annex 10 Page 4 of 6 Subsidies on Rice Channels oriented toward the poor 5. The palli rationing channel generated small economic benefits for the poor, at a very high financial cost in FY90. The economic subsidy rate was only 3 percent, but the financial subsidy rate was 30 percent, costing the Government nearly Tk 1.3 billion. Sales remained brisk (57 perc-nt of total rice distribution) as the ration price remained well below domestic market prices in Table 10.2: Economic and Financial Subsidies on Rice in the PFDS, FY90 most areas of the country. For the other channels oriented toward the poor, rations are distributed for free, or in exchange for labor or other participation in development activities. For relief channels, the economic subsidy rate is 100 percent, whereas for the self-targeting channels, the economic subsidy is the difference between the border price for the foodgrain earned and the opportunity cost of the labor involved. Assuming that the opportunity cost of labor is low in rural Bangladesh, the economic subsidy derived from self-targeting programs is high. If, for simplicity, one assumes that the economic subsidy rate for these channels is 100 percent, then channels oriented toward the poor received 72 percent of the total economic benefits on rice from the PFDS in FY90. In terms of financial subsidies, the average unit cost of Government rice acquisitions was high due to the high volume of domestic procurement, the inflated prices paid for commercial imports and the absence of food aid rice in public stocks. As a result, financial subsidies were far higher than economic subsidies for all channels. Channels targeted to high-income groups 6. Channels which sold at or near the OMS price (SR, OP. LE) were effectively taxing ration card holders because the ration price exceeded the border price for rice. It also exceeded prices in the domestic market following several good harvests, so that ration card holders purchased in the open market instead of drawing their quota. As a result, these channels accounted for only 11 percent of all rice distributed by the PFDS in FY90. The EP channel alone, with an economic subsidy rate of 77 percent, accounted for nearly 14 percent of rice distribution. The high financial cost of Government rice stocks resulted in positive financial subsidies for all channels, ranging from rates of 5-7 percent for channels selling at the OMS price to 83 percent for the EP channel. For the OMS, SR, OP and LE channels, the Government sustained a financial loss of Tk 63 million for programs which failed to provide any economic benefit to recipients. The financial subsidy on rice sustained by the Government for all channels combined (those targeted to the poor and to higher-income groups) was Tk 3.3 billion, far outweighing the economic benefit, which was only Tk 1.3 billion. This is a direct result of the drift upward in the Government's official price structure relative to the long-run trend in world prices. It also had the effect of slowing sales in most channels, leading to a build-up in public stocks with a financial cost of Tk 4.7 billion. TASLE 10.2: Econo;ic and Financial Subsidies on Rtic in the P66S, FY90 ______----_-----Ecemic Subidy ---------- ----Fie cal Subsidy--- Rationing channel Code Quant ty Share af low" price Border Economic Percent of £can. ubsidy Aver Fin ncial Percent af Fin. subsidy sold total distrib (ex-godown) price eubsidy border price on channel unit ot Iubsidy unit coet eor dineel (000 WT) (3) (kM) CTkM) (Tk/K) () (Tk *;ll ions) (TkmIN) (TMMT) (I) (Tk millions) Open market eoale OHS 15,000 2.2 10.250 7.766 (2,484) -32.0 -37.260 10,776 525 5 7.875 lorbeting operation. N 0 0.0 10,250 7.7ff (2.464) -72.0 0.000 10.775 a2s 5 0.000 Fre solo/auction FS S,000 0.7 mrket price 7.766 10o,m7 n.e. n.m. Statutory rationing OR 7.000 1.0 10.000 7.766 (2.264) -28.8 -IS.616 10.7h 775 7 6.425 Other prioritiee OP 62,000 9.2 10.000 7.766 (2,264) -26.8 -136.6O0 10.775 775 7 48.050 Flour mills FM n.m. 7,766 Lap". mloyers LE 2,000 0.3 10.250 7,766 (2,484) -32.0 -4.U8 10.M 625 5 1.060 :eamtial priorities EP 93,000 1.8 1.800 7.766 6.966 76.8 554.638 10,776 8,975 63 634.615 Pall (rural) rationing PR 366.000 57.2 7,s00 7.766 268 3.4 102.676 10,775 3,27S 30 1.264.150 Food for goA Fk 26,000 4.1 0 7.7ff 7.766 100.0 217.448 10.775 10,775 100 301.700 Vulnerable Group develop. VD 6,000 0.9 0 7,766 7,766 100.0 48.596 10.775 10,775 100 64.6SO Test relief 6R 4,000 5.0 0 7,766 7.7b6 100.0 264.0 10,775 10.775 100 366.350 Oratuitous relief CR 13,000 1.9 0 7.766 7,766 100.0 100.956 10,775 10,775 1CO 140.075 Other 1/ 24.000 3.6 0 7,766 7,768 100.0 166.364 10.775 10.775 100 258.600 TOTAL 675,000 100.0 1.276.670 3.212.600 Stock build-up 437,000 7.766 7,766 3,39S.742 10,775 1o,775 100 4.708.675 border price US$ 160 (FOB), USC 200 (CIF) P@rt-to-gholeeml* charge are Tk 666/. dQ (D re - 94 - Annex 10 Page 6 of 6 Subsidies on Wheat Channels oriented toward the poor 7. Traditionally, the channels oriented toward the poor have been dominated by food aid wheat, although in early FY90, the Government opted to distribute only rice through the PR channel as a means of reducing excess stock. All the poverty alleviation channels had economic subsidies on wheat in FY90, with rates ranging from 30 percent on palli rationing to 100 percent for the relief channels. The immediate economic benefit of these programs for the recipients is clear and undeniable. The poverty alleviation channels together accounted for 89 percent of the total economic benefits on wheat from the PFDS in FY90. Financial subsidies were less (and even negative for the PR channel) because the high proportion of food aid in wheat stocks brought the average unit cost of acquisition down to well below the economic cost. Channels targeted to high-income groups 8. Economic subsidies on wheat in the channels that sell at or near the OMS price were small, with rates of 4-9 percent. The EP program remained heavily subsidized, at a rate of 79 percent. With the relatively low financial cost of iheat stocks, channels selling at or near the OMS price generated Tk 1.9 billion in net revenues for the Government, with only the EP channel requiring a financial subsidy. Conclusion 9. Several points are salient in the analysis of foodgrain subsidies in FY90: First, the economic benefit of the self-targeting programs was considerable, and the financial cost of these largely wheat-based programs is inversely related to the degree of Government reliance on food aid. Second, the official pricing structure for rice is too high relative to the world price trend, reducing the economic benefits of rice rationing, and raising their financial cost. The financial subsidy on rice was nearly three times the economic subsidy, and, in the case of palli rationing, the distribution program served only to partially counteract Government protection of the domestic rice market. In FY91, economic subsidies will remain low as world prices for foodgrains remain soft. Financial subsidies will also be considerably reduced, due to: i) the Government moratorium on commercial importing; ii) the reduced volume of high-priced domestic procurement; and iii) firmer domestic market prices which will facilitate destocking of rice at the highest price possible. From a longer-term perspective, however, keeping economic benefits high and financial subsidies low in the rationing system will require adjustments to the Gover.anent's official price band, to bring it into line with the trend in world prices. A continued reliance on food aid to generate revenues for the PFDS, leaving commercial importing to the private sector, will also keep financial costs under control. - 95 - Annex. 11 Page 1 ef 9 Annex 11: Accounting and Budgeting for Food Operations 1. Growing concern over the dwindling local currency contribution to Bangladesh's Annual Development Program (ADP) has focused attention on the need to increase budgetary savings through improved management of current expenditures. Although there is an expectation that the Government's food operations should be a source of budgetary savings to finance the ADP (as evidenced by the earmarking of counterpart funds for development activities), or that these operations should at least be self-financing over the medium-term, they have proven to be a drain on the general Revenue Budget for most of the past decade. The deficit on food operations (before transferring resources to the ADP) has averaged Tk 2.8 billion per annum in the FY80-90 period, with the average for the second half of the decade nearly Tk 4.0 billion per annum. The situation deteriorated rapidly in FY90, with a deficit on the food budget of more than Tk. 11 billion, equivalent to about 15 percent of Government revenues and 60 percent of the taka component of the ADP that year. v Under these circumstances, when funds are transferred from the food account to the ADP, it simply increases the deficit on the food account which must be covered by the Revenue Budget. Financial Accounting for Food OperaUJons 2. The magnitude of the deficit on the food account in FY90 was not immediately evident due to: i) a tendency to monitor physical stock levels, with insufficient attention paid to financial flows; ii) a tendency to focus on various calculations of "food subsidies" which don't reflect the aggregate cashflow situation; and iii) irregularities in the presentation of the food budget and its lack of integration with the general budget. These problems stem from long-standing weaknesses in the system and procedures for financial and inventory accounting. These weaknesses have been the subject of extensive analysis as part of the Government/FAO Reorganization Project for the Directorate General of Food (DGF) within the Food Ministry. The Reorganization Project has highlighted the lack of resources devoted to planning, monitoring and control of food operations, the symptoms of which are evident in untimely importing, inefficient shuttling of grain to alleviate short-term storage constraints in procurement areas, and a general sense of ad hoc decision-making. Recording procedures for inventory and financial transactions are fragmented, non- standardized and often unenforced. As stated in a Reorganization Project study: 'Although much of the information is required on a regular basis for monitoring v This deficit figure is based or, Revised Budget figures. Although this figure is somewhat higher than the actual budget implementation figure for FY90, it is used here in order to compare with past years, for which actual budget implementation figures are unavailable. - 96 - Annex 11 Page 2 of 9 performance and planning needs, there is no systemised approach for producing it' v Any reconciliation of inventory and financial accounte is centrali7ed at headquarters in Dhaka, but the volume of unconsolidated data at this level is unmanageable and often incomplete. As a result, no final reconciliation of accourts has been produced for the past eight years. As summarized by the Reorganization Project: Various weaknesses in the present system for recording financial transactions and producing financial statements have been identified. These include: the use of a single entry system for recording transactions which does not provide adequate checks and balances for reconciliation and audit; inadequate number of accounting heads for identifying and monitoring particular types of expenditure; non-recording of direct labour costs; an inability to account for money made available for a particular purpose, e.g. procurement; the lack of a standardised practice for attributing a cost to donated grain; a failure to record depreciation on capital assets as an operating expense with the resultant non-provision of reserves for undertaking major repairs, e.g. godown maintenance. 3. Nothing short of a completely revised financial manRgement system could address the current inadequacies in financial accounting. In principle, the Government agreed in 1987 to implement the recommendations of the Reorganization Preject, although those with vested interests in poor accountability appear to have slowed progress in this area. Implementation of the new financial management system should proceed cautiously, but as rapidly as possible. Currently, the system is being tested in several regions. Its main features will: a. separate inventory and financial accounting, with the Directorate of Finance and Accounts responsible only for financial accounting (the Directorate of Supply would handle inventory accounting); b. strengthen the internal audit function for both financial and inventory accounting; c. decentralize budgeting, monitoring and recording of transactions to local "responsibility centres" such as district headquarters, silos and ports. Each responsibility centre would then be responsible for producing monthly consolidated accounts to be passed up to the next highest level. DGF would then consolidate accounts country-wide on a monthly basis; d. decentralize authority to incur expenditures up to an approved budgeted amount, based on an assessment of the types of expenditures incurred at each level. This would permit payment of contractors at v Proposals for the Reorganization of the Directorate General of Food, Government of the People's Republic of Bangladesh and the Food and Agriculture Organization, February 1989. - 97 - Annex 11 Page 3 of 9 the local level, allowing for better verification of bills submitted and quicker settlement of claims. In pa icular, this would reduce the interest payments to commercial banks which extend credit for domestic procurement; e. establish a strengthened Finance and Accounts Unit (FAU) at all responsibility centres, with branches for: i) general accounting and reporting; ii) budget planning and implementation; and iii) payroll and disbursements; f. introduce standard double-entry bookkeeping at all levels, to facilitate reconciliation of monthly accounts and consolidation of annual accounts within 60 days of year-end; g. establish a register of fixed assets and make provisions for depreciation, to correct the overstatement of the DGF's profit position resulting from the lack of such provisions. 4. Introduction of a workable financial accounting system for food operations should be of highest priority for Government and the donor community. Interestingly, the donor community has typically shown less concern for this aspect than for physical accountability of food stocks. This, despite widespread dissatisfaction with Government's ability to monetize fuod aid and transfer counterpart funds in a reliable manner, as well as a more general frustration with the lack of taka resources for ADP financing. If one is looking for a way to free up taka resources for productive investment, one would be well advised to take a closer look at the cost of food operations. Budget'ng for Food Operations 5. From a broad, public finance perspective, it is important to accurately assess the aggregate cash deficit on the food account, which is simply the difference between cash revenues and cash expenditures. If this difference is positive, then the food account generates budgetary savings which can be used for ADP financing. If this difference is negative, 't is a deficit which must be financed by the Revenue Budget. Unfortunately, determining the aggregate cash deficit on food operations is rendered more difficult by the presentation of the food budget itself, and by the tendency to focus on calculations of 'budgetary subsidies" or "cash subsidies" that do not capture the full cashflow situation. A brief review of the current budget presentation highlights the difficulties. Table 11.1 shows the ojjd budget for FY90 and FY91, as presented by Government. It is not in a standard public finance format that would clearly indicate total revenues, total expenditures, the operating balance on a commitment basis, the operating balance on a cash basis (i.e. net of changes in arrears), and the external and domestic sources of deficit financing. Rather, on the revenue side, it adds notional subsidies for both monetized and non-monetized ration channels. By convention, the subsidies for VGD/Test Relief and FFW are valued at the OHS price rather than the economic or financial price. The "budgetary subsidy" calculated for the monetized sales channels takes the cash cost of purchased acquisitions plus the valuation of food aid and divides by the total volume of foodgrain acquired to get a unit cost. To this is added a unit freight and - 98 - Annex 11 Page 4 of 9 operating cost to get the Lnit pooled Co0t that is compared to the sales price in each channel to determina a unit subt.tdy. This unit subsidy is multiplied by the volume sold in that channel, and aggregated across channels to arrive at the 'budgetary subsidy, appearing in the food budget. However, this subsidy calculation comprises elements of both a cash subsidy and a notional subsidy which is based on the valuation of food aid (which is itself the subject of considerable debate). Furthermore, the cash subsidy component refers only to the monetized channels, and does not reflect the cost of stock build-up, which can greatly increase the cash deficit, as it did in FY90. This 'budgetary subsidy' is often mistakenly considered the "deficit" on food operations--but it does not approximate the actual cash deficit. 6. Having added the various subsidies to total revenues, the budget format then subtracts the expected transfer of earmarked funds to the ADP, which for clarity's sake should really figure as a memo item after the operating balance on the food account is calculated. The value of food aid is then subtracted, followed by the FFW subsidy, which is removed because it is assumed to come from the ADP, but the transfer is never really made (whereas the VGD/Test Relief subsidy and the "budgetary subsidy" on monetized channels are actually transferred from the Revenue Budget). All of this leads to calculation of the "Impact on Domestic Budgetary Resources" which is the additional cash shortfall on the food account which must be covered by the Revenue Budget after taking into account all the notional subsidies. These notional subsidies, however, don't represent the remainder of the actual cash shortfall. If this description is confusing, it is only because the process itself I.s confusing, and the results of little use to budget analysts. This is unfortunate because the food budget does provide most of the data needed to calculatte the aggregate cash deficit. It just needs to be presented in a logical and transparent manner. - 99 - Annex 11 Page 5 of 9 Table 11.1 i The Food Budget, Covornment Formet, FY90 ind FY91 - ---------------------- 90------------------------------9 -----------FY9l *----------------- Budget Revised budget Actual Budget Rev ied Budgeot (000 HT)(1 X II.) (00 WT) (TK all.) (000 MT) (TX mll.) A. Oroe Outlay: (axp*ndIture) (1) Import against Foreign An ltence Crent RICO 75 e2.e7 41 41.00 41 41.02 . . wheat 1525 951.40 1170 6e.79" 907 o09.48 1760 18i1.86 1725 979.59 Edlble-0il (5) 9.35 (5) 9.85 . . .. g 5.95 ______________________________________________________________________________________________ Total 1600 1043.62 1211 709.25 948 550.45 1760 1381.85 1725 96.54 -----------_---_--------_------__--------_-----_--_-__-_----_-----__-_-_-__--__-------------_- (2) Import from own resources: Curront Rice . .. 260 297.08 259 297.70 .. wheat 320 214.40 403 262.46 827 14S.31 250 .75.00 250 193.87 Edible-oil .. 37.40 (18) 82.40 (18.200) 29.78 (17) 82.60 14 87.81 Arres, *- 85.00 75.38 95.56 .. 92.49 95.SO Accrued (Deferred) Wheat .. .. (99) (65.82) (06.82) Down Payment .. .. .. .. .. Freight (External) .. 100.65 .. 79.11 85.01 .. 122.90 145.50 __ ____________________________________________________________________________________________ Tot-l 320 437.45 663 746.38 623.38 250 422.99 250 473.77 (8) Internal procurement: Rice 430 L_. 6 785 7Ti 57 918 681.80 800 725.68 800 728.00 Wheat 8o 45.00 70 41.2S 42 35.08 100 88.94 100 58.94 Sugar (6 140.15 (68) 165.24 (53.000) 132.71 (68) 168.24 4S 125.18 Salt (4 12.10 (40) 12.10 .. 9.4S (40) 12.10 40 12.10 Edible-oil .. .. (2) 6.60 .. .. (8) 9.90 6 22.08 Total SIC 569.80 88S 929.7 960 68.97 9000 971.86 900 944.24 (4) Operating Expene .. 212.9S .. 411.00 .. 382.01 .. 279.00 .. 82 o.50 Direction, eetablieheent and Flour Mill .. 48.67 .. 54.79 52.78 . 5. 4.71 . 8. 8.24 Total .. 281.00 .. 465.79 384.74 .. 827.71 .. 408.74 Oro" Outlay OAO .W. 21.81 .. 2851.16 2417.52 . . 083.91 2610.29 Adjustmwnt entrie - deferred Payment - (Not) ..(-)8S800 .. (-)76.33 (-)29.24 .. (-)92.49 (-)98.59 A- Cro" Outlay (current) A.I. 2430 2226.87 2729 277S.89 2494 2388.26 2890 2961.41 2078 2714.70 ____________________--_--______________________________________________________________________________________________o__inued__ Contl nued .. . - 100 - Annex 11 Page 6 of 9 Table 11.1 (Continued) - ___________,FY90 ---------- FY91…------------------- Budget Revised Budget Actual Budget Revised Budget (000 MT)(TH oil.) (000 MT) (TK il.) (000 MT) (T oi.) B. Recelpt. and Recoverie: (1) Sale proce.ed: Cash Rice 470 332.37 550 349.10 570 367.79 600 437.67 730 663.08 Whest 1030 523.42 900 455.82 602 455.81 1000 635.87 820 518.60 Otheor .. 164.99 .. 194.24 .. 128.48 .. 194.24 .. 150.24 Total 1500 1020.78 1450 999.16 1872 952.08 1600 1267.78 1550 1226.92 ----------------------------------------------------------------__ ----------- _--------------- (2) V lustion of food for Works (FFW) 600 299.60 560 371.68 458 293.44 550 873.95 560 868.65 (3) /.0.D. and Test Relief 3SC 195.37 410 285.18 334 232.43 250 183.75 300 247.50 (4) Subsidy Transferred froe other Had- .. 662.40 .. 648.71 595.65 .. 603.43 .. 483.15 Heed - 174 .. (545.11) . (631.42) (578.36) ,, (586.14) . 465.86 Heod - 13S .. (12.60) ., (12.60) (12.60) ,, (12.60) .. 12.60 Head - 123 .. (4.69) *- (4.69) (4.69) *- (4.69) .. 4.69 Total Receipts & Recoveri*e .I. 2300 2078.05 2420 2304.63 2164 2073.60 2400 2428.91 2400 2326.12 La.%: Transfer to Foreign aid Doposit Account: For ADP .. 300.00 ., 280.00 ,. 178.00 .. 300.00 300.00 For FFW:Bridges, Culverts, RMP . 865.00 ,, 100.00 ., 100.00 ,, 86.00 85.00 For BARC .. 20.00 .. 20.00 ., 10.00 ,, 20.00 20.00 For Craoeen Bank .. 23.00 ., ., ,, ,, ,, 250.00 Total .. *28.00 400.00 .. 288.00 405.00 405.00 Receipt and Recoveries (Net) 8 .. 1650.05 .. 1904.63 1785.60 .. 2023.91 1921.12 Not Outlay A-8 .. .. 2661.82 946.53 631.92 ,, 1030.00 793.568 Change in Stock (130) (148.82) (309) (471.20) (330) 314.68 (530) (532.51) 475 Memorandum: Not Outlay 661.82 .. 946.53 631.92 ,, 1030.00 793.68 Lose Financing through foreign aid 1043.62 ,. 709.25 550.43 .. 1331.36 985.64 Available resource 381.80 .. (-)257.28 (-)81.47 ,, 301.35 191.96 F.F.W. In kind (Expenditure) (-)299.50 .. (-)371.58 293.4 ,. (-)37S.95 (-)368.55 Impact on Domestic Budgetary R.source, 82.30 .. (-)608.86 (-)374.91 .. (-)72.60 (-)176.59 ----------------------------------------- __ ----------------_ _ -----------------___ ------------------------------------------_______ - 101 - Table 11.2 The Food Budget, Modified Format, FYO0 and FY01 Annex 11 _________________ I_------F _0 ----------------- - --------FY91---- sudget Reniaed 8 ,daet Actust Budget Ro.ioed ludget Projected (000 K) (TX oil.) (000 K) (nm *il.)(000 W) (TX ail.) (000 W) (TX mil.)(000 MT) (TKX il,) (000 MT) -TK ail.) Ri9NUES 2,300 10,206 2,420 9.991 2.165 9.520 2,400 12,675 2.400 12,269 2,333 12,604 Monetized channel. 1,500 10,208 1,450 0,001 1,372 0,820 1,oO0 12,678 1,530 12,269 1,640 12.604 Rics 470 3,324 550 3,401 570 3,677 00 4,377 730 561 73 5,699 Wheat 1l030 5,234 000 4,5WS 802 4,55S 1,000 6,50 820 51S3 667 5,408 ither 1,650 1,942 1,265 1,942 1502 1502 Non-mn.tized channels 800 0 970 0 793 0 SOO 0 850 0 723 0 Rice 105 105 194 194 Wheat 865 688 606 529 U9PE4,rn*E3 22,271 27,760 24,731 29,614 27.148 25,638 Procurement 2,430 18,654 2,729 22,311 2,495 2053S4 2,030 25,108 2,675 21,616 2,35S 19.538 Food Aid 1,600 10,437 1,211 7,093 948 5.504 1,780 13,314 1725 9.8se 1.542 10.498 Rice 75 829 412 41 410 0 0 0 0 14 100 Wheat 1.525 9,514 6,587 007 5,094 1,780 13,314 1725 9706 1,528 10,308 Other 94 04 2 60 Coamercial imports 320 2,518 663 5,020 587 4,728 250 2,076 250 2.317 57 248 Rie 260 2,071 260 2,977 0 0 0 0 0 0 Wheat 320 2.144 403 2.625 327 1,453 250 1,750 250 1930 37 24a Other 374 324 13 208 326 14 378 Gooeetic procurescnt 510 5.699 855 9,298 060 10,102 000 9.718 900 9,443 777 8.702 Rice 430 3.726 785 7,048 018 8,331 800 7,257 800 7260 714 6.703 Wheat 80 450 70 413 42 350 100 580 100 580 63 405 oil 68 00 6 221 221 Sugar 1,402 1,652 53 1,327 1.652 45 1252 1252 Salt 121 121 74 121 40 121 121 Daferred payment. (653) (663) (956) 0 Fraight 1,007 701 550 1,229 1465 1,800 Operating Coats 2,610 4,650 3,847 8,277 4067 4,500 OPERATING BaLANCE (12,063) (17,760) (15,211) (16,056) (14,870) (15,234) (coaaitment basis) Change in arrears (850) (753) 1,513 (025) -1513 (1,513) OPEiATING BALANCE (12,913) (18,522) (13,698) (17,861) (16,392) (14,747) (cesh basis) Financing 12,913 18,522 13,698 17.861 16,392 14.747 External sourceo: Valuation of food aid 10,437 7,093 5,504 13,314 0,856 10,498 Monetizad channels 5,187 1,843 254 7.314 3,650 4,408 Non-aonotizad channels 5,250 5,250 5,250 6,000 6,000 6,000 FOOD ACCOUNT BALANCE 7,663 13,272 8,448 11,661 10,92 8,747 NeT CASH DIS8iSUR dTS 2,476 11,429 8,104 4.547 6,636 4,249 Memorandum i;tea: Foreign aid d-posit account 4,280 4,000 4,050 4.050 (earmarkced to ADP) Change in stocks 130 309 330 630 475 (7) …----------------- __- _____- ____ ________-_ -_____ -__ __-_ _ - _ ____- __- _… _-_- ________- _______- _- _- ______-I - 102 - Annex 11 Page 8 of 9 7. Table 11.2 shows the food budget rearranged along the lines of a standard public finance format. Total revenues are compared to total expenditures, including the value of food aid. The resulting balance is adjusted by the change in arrears to produce an operating balance on a cash basis. This deficit is then financed in two ways: i) by external sources, i.e. food aid; and ii) by domestic sources, i.e. the Revenue Budget. The amount covered by the Revenue Budget is termed "Net Cash Disbursements", and represents the aggregate cash deficit on the food account. The World Bank and the International Monetary Fuld have adopted this format in order to easily identify the annual budgetary impact of food operations, and integrate it into consolidated public accounts. In the past, the IMF also tended to refer to an alternative calculation, the Food Account Balance, which equals the operating balance minus the value of the non-monetized channels (sometimes based on the VGD/Test Relief and FFW subsidies calculated in the Government's budget presentation). However, in discussing the budgetary impact of food operations, this report will refer solely to Tnet cash disbursements" as the cash deficit which must be covered by the Revenue Budget. 8. The cash deficit on food operations has fluctuated considerably from year to year, but the trend has been toward an increasing revenue gap. Cash revenues increased by only 4.9 percent per annum in the FY80-90 period, while cash expenditures increased by 9.8 percent per annum (Table 11.3). The proportion of cash acquisition, i.e. commercial imports and domestic procurement, has also fluctuated through the years. It was as high as 61 percent of total acquisition in FY81, but as low as 27 percent in FY82 and FY87. It has been high in recent years, reacbing 62 percent in FY90. Although the share of cash acquisition in total acquisition does influence the size of the cash deficit or surplus on the food account, the relationship is not straightforward. It depends also on the Government's price structure for procurement and ration sales relative to prices in the domestic and world markets. As the Government price structure has diverged from the declining trend in market prices, procurement has become more expensive while revenue growth has slowed. This situation was particularly evident in FY87-90, when cash expenditures doubled while revenues increased by only 12 percent over the four-year period. Consequently, the cash deficit on the food account increased from Tk 1.5 billion in FY87 to Tk 11.4 billion in FY90. Although the cost of imports hovered between Tk 6.0-8.0 billion throughout the FY87-90 period, the cost of domestic procurement rose dramatically from Tk 2.3 billion in FY87 to Tk 10.1 billion in FY90. A moratorium on commercial importing in FY91 (only 37,000 MT of wheat was imported) has reduced cash expenditures dramatically, while increases in domestic market prrices--the result of civil unrest, the Gulf Crisis and the recent cyclone--led to brisk ration sales, boosting cash revenues. This will reverse the trend toward a widening deficit on the food account, but will not make food operations financially sustainable. This would require policy reforms to eliminate the structural imbalance between revenue and expenditure on the food account. Table 11.3: Net Cash Disbursements on the Food Account, FY8O-91 (Millions of Take) FY80 FY81 FY82 FY83 FY84 FY8S FY86 FY87 FY88 FY89 FY90 FY91 Revised Revised Revised Revised Revised Revised Revised Revised Revised Revised Rcui ed Projected Budget Budget Budget Budget Budget Budget Budget Budget Budget Budget Budget Import with own resources a/ NA NA NA 3,260 4,730 5,230 3,770 6,070 6,790 6,180 7,460 3,561 Dom etic Procurement NA NA NA 2,720 2,400 2,640 3,400 2,310 3,310 4,910 9,300 8,792 Cperating Expen s b/ NA NA NA 1,620 1,760 2,510 1,900 1,990 3,600 3,480 4,660 4,500 Total: Cash Expenditures 8,420 9,260 7,600 8,680 8,590 10,390 9,070 10,370 10,600 16,570 21,420 16,853 Total: Cash Revenues 6,180 5,460 8,020 7,690 8,310 10,160 7,100 8,890 11,060 10,650 9,990 12,604 Net Cash Disbursements (2,240) (3,810) 520 (990) (580) (230) (1,970) (1,480) (2,640) (8,020) (11,430) (4,249) Take Component of ADP 16,680 16,690 17,150 18,120 19,330 19,470 19,120 21,860 20,070 19,600 18,630 cl 20,880 Net Cash Disbursement Percentage of Taks Componsnt of ADP -14 -24 3 -5 -3 -1 -10 -7 -13 -31 -62 -20 NA = Not available separately. */ Includes external freight and general arrears payments b/ Includes establishment, flour mills and operating costs. c/ Tk. 683 crore additional financing required. Source: OQ (To o X Fb'- - 104 - Annex 12 Page 1 of 23 Annex 12: Efficiency of Government Food Operations 1. Although there is an expectation that the Government's food operations should be a source of budgetary savings to finance the Annual Development Program (as evidenced by the earmarking of food aid counterpart funds for development activities), or at least that these operations should be self-financing over the medium-term, they have proven to be a financial drain on the Revenue Budget throughout the past decade. Structural imbalances in the food account have made it a seemingly permanent drain on budgetary resources, with an average annual cash deficit of Tk 2.3 billion in the FY8O-90 period. As ration subsidies were reduced, and the Government price structure diverged from the long-term trend in market prices, procurement became more expensive while revenue growth from ration sales slowed. As a result, the deficit on the food account widened as the decade progressed, reaching more than Tk 11 billion in FY90--equivalent to more than 60 percent of the local currency contribution to the ADP that year. The rapid escalation of costs in FY90 forced the Government to take stringent cost-cutting measures in FY91, as the Gulf Crisis further constrained the budget. However, it also provoked a more fundamental review of policy mechanisms, and an analysis of the efficiency with which Government implements existing food policies. 2. The financial sustainability of food operations depends most on the choice of policy mechanisms adopted. Policy options that could reduce budgetary costs without jeopardizing the food security of the poor include: (i) adopting of a trade-based rice price stabilization scheme coupled with an import/export stabilization fund to eliminate extreme price fluctuations; (ii) adjustment of the target price band for rice to bring it into line with the long-term trend in world prices; (iii) reliance on the private sector for commercial foodgrain imports, and maximum public sector use of food aid resources; (iv) elimination of ration channels targeted to relatively high-income groups; and (v) increased economic efficiency and reduced budgetary cost of targeted programs through reliance on greater monetization of food aid and use of cash transfers to beneficiaries. While these policy measures will have the greatest budgetary impact on food operations, there is also considerable scope for increasing the efficiency of food operations in the absence of more fundamental policy reform. 3. In the pages which follow, the efficiency of Government food operations will be assessed, using relevant open market prices (world prices for tradeables; domestic prices for nontradeables) as efficiency benchmarks. The analysis will focus in turn on Government foodgrain importing, shipping/handling, transport, storage, procurement and distribution. Importing 4. There is a general sense that the Government has paid too much for commercial foodgrain imports in recent years, and has imported excessively at inopportune moments relative to the production cycle and expected food aid - 105 - Annex 12 Page 2 of 23 arrivals. It is strongly recommended that Government rely on the private sector for commercial importing in the future, which would prove more responsive to market signals than public sector interventions. If Government nonetheless persists in commercial importing, the process should be as competitive and transparent as possible. In recent years. only a very small portion of commercial importing by Government--7 percent in FY88 and 8 percent in FY89--has been subject to international competitive bidding (ICB). Most of this has been for rice imports from other parts of Asia, which have been small relative to wheat imports. A larger share--31 percent in FY88 and 72 percent in FY89--has been subject to competitive bidding among U.S. suppliers only, due to special financing arrangements with the U.S. Commodity Credit Corporation. The remainder, and all FY90 imports, were on the basis of negotiated Government-to- Government deals (including barter arrangements) or spot purchases. 5. When ICB is used, the time period between floating and closing the tender is anywhere from two to four weeks. For a major wheat purchase, Government usually sells 12 to 13 tender forms and receives seven to ten bids. According to the Ministry of Food (MOF), the competition usually includes several major U.S. suppliers who generally win the bid. It has been suggested that the relative lack of participation by Canadian, Australian and European suppliers is due to unrealistic specifications for maximum moisture content, which is usually set at 13.5 percent. This low level is difficult for non-U.S. suppliers to achieve, but is considered irrelevant by many suppliers who claim. that the moisture content of any wheat will rise to the same equilibrium level upon arrival in Bangladesh. Most of the competition for wheat imports in recent years has been restricted to U.S. suppliers anyway, because of two special U.S. financing arrangements: i) the Export Enhancement Program (EEP), and ii) the GSM- 102/103. U.S. wheat is generally priced at US$ 10-20 above similar quality European wheat, but the EEP program subsidizes the U.S. price to cover the difference. The GSM programs are not subsidized, and extend credit on commercial terms (three to seven years maturity, with interest at LIBOR plus 2 percent USDA commission plus bank charges). As indicated in Table 12.1, Bangladesh has had extensive recourse to EEP and GSM financing. To the extent that the GSM is used, Government has paid a higher price than could be obtained in the international market for similar quality wheat. Clearly, buying on credit--whether from the U.S. or other sources--also raises the cost of imports above market prices. - 106 - Annex 12 Page 3 of 23 Table 12.1: Co mmercial Foodgrain Imports, FY88-90 FY88 Origin Source of quantity CIF Price Financing (000 UT) (4/UT) WGnott Australia Cash 104.0 99000 USA OSM-1OX/EEP 142.2 90.00 USA OSU-108/EEP 82.P 96.00 USA OSU-108/EEP 6038 98.00 EEC Bulgarian barter 206.4 112.00 Canada Deforred paymnt 108.6 122.00 Auatralia Deterred paymnt 24.9 110.00 Thailand Cash 81.6 198.00 Thlland Cash 19.6 1U.00 Thailand Cash 81.5 192.00 Thailand Cash 15.6 197.00 Thailand Cash 10.0 228.00 Thailand Cash 19.0 251.00 Thailand Cash 19.0 246.00 Thailand Cash 19.0 241.00 Thil7and Cash 52.0 286.00 Thailand Cash 52.4 248.00 Thailand Cash 80.1 284.00 Thailand Cash 19.: 241.00 Pakistan Cash 78.9 B16.00 Tota I 1180.6 FY69- Wheat EEC Bulgarian barter 80.6 192.00 EEC Bulgarian barter 55.2 102.00 USA OSM-103/EEP 172.5 174.00 USA OSU-108/EEP 88.8 174.00 France Hungarian barter 87.8 207.00 Turkey Cash 66.2 184.00 USA Cash/EEP 49.4 192.00 USA Cash/EEP 49.4 192.00 USA Cash/EEP 81.5 198.00 EEC Cash 60.8 198.00 USA Cash/EEP 82.6 198.00 USA Cash/EEP 88.0 198.00 USA Cash/EEP 28.9 198.98 RIco Pakistan Cash 17.4 816.00 Total 762.5 FY90 -------------------------------------______________________-_____________________________ Wheat USA Cash/EEP 80.0 197.00 USA Cash/EEP 28.9 195.98 USA OSM-108/EEP 98.4 208.00 USA Cash/EEP 1096. 197.00 USA Hungarian barter 100.0 169.00 Rice Pakisten Czech barter 61.1 889.0 Thailand Cash 108.9 889.9 Thailand Cash 104.1 889.9 Tote 1 626.0 Source: Food Ministry. - 107 - Annex 12 Page 4 of 23 6. Many of the negotiated deals and barter arrangements have an element of credit involved, and this may partially explain why they tend to cost more than internationally or U.S. tendered purchases. Barter arrangements often provide immediate foodgrain imports in exchange for jute or other exports shipped over an extended period of time. Most of the Government-to-Government negotiations involve deferred payment as well. Although it is difficult to make price comparisons with little information on quality and other specifications, Table 7.7 shows bartered and negotiated deals for wheat at CIF prices of US$ 110-123/MT in FY88, while U.S. tenders were going for US$ 98/MT. Barter arrangements in early FY89 were costing US$ 192/MT while U.S. tenders were going for US$ 174/MT. The Czech barter deal for rice its FY90 cost US$ 50 more per metric ton than the spot purchase of 200,000 MT of Thai rice--a purchase that was roundly criticized for its inflated price. In fact, the Thai purchase, coming at a time of record harvests in Bangladesh, is often held up as an example of everything that is wrong with Government importing. Not only does it raise the question of whether Government is paying too much for the rice it buys, but also whether Government is buying rice which costs too much. Much of the rice imported has been Thai 15 percent broken, a better quality than most rice produced in Bangladesh. While no one denies that Bangladeshis with purchasing power should have access to higher quality rice, it is not the role of the Government to provide for their needs. Rather, scarce budgetary resources could be better spent on larger quantities of lower-quality, but equally-nutritious, rice to be targeted toward the food insecure. These lower quality rices generally sell at US$ 60 to 100 below the price of higher quality grains. 7. It has been argued that widely-publicized, large-scale tenders may themselves drive up market prices and/or allow major suppliers to form cartels. While this is less likely in the large international wheat market, it would appear possible in the thinner, volatile rice market. The State Trading Corporation in India operates almost exclusively on the basis of spot purchases for this reason, and they receive an almost daily flow of pricing information from world markets. The MOF in Bangladesh admits that they lack such market information, as was evident in the ill-fated Thai rice deal in FY90. Thus, although spot purchases may offer the best deals for savvy customers, they can also lead to very bad deals, and are less transparent and, therefore, more prone to corruption. Rather than moving toward spot purchases, it might be profitable to divide large-scale orders into several tenders, reduce the float time to one week instead of two to four weeks and schedule purchases to coincide with seasonal lows in world market prices. Introducing a system to provide daily or at least weekly market information from the international grain exchanges to the MOF and the private sector could also help Bangladesh to make competitively- priced deals. Timing of purchases is critical for commercial importing, as well as for food aid, if it is denominated in value terms. Several major donors--the U.S., Canada, and Australia--denominate their food aid commitments in value terms, with the recipient country then tendering for whatever volume they can obtain for that value. In this way, Bangladesh gained an additional 100,000 MT of wheat in FY91 from the U.S. through careful timing of PL480-Title III purchases to coincide with the July-August, post-harvest price decline. Taking advantage of seasonality in prices requires that bureaucratic procedures for authorization to tender for food aid be carefully scheduled to permit purchase at appropriate times. -108 - Annex 12 Page 5 of 23 8. Food aid donors also have a responsibility to make Usual Marketing Requirements (UMRs) a meaningful tool for encouraging private sector trade in Bangladesh, and not just a useful means of disposal for surplus agricultural products. If Government retains its monopoly on importing, then UMRs should be abolished, for they serve only to inflate the current account and budgetary deficits through needless importing in years of abundant harvests. In years of foodgrain shortfalls, the UMRs are a non-binding constraint. However, there is no reason why the private sector could not import 200,000 MT of wheat per annum: as long as their efforts are not crippled by Government market restrictions. The public sector could even facilitate private trade, by renting bulk storage space in the Chittagong silo to private importers, and offering other incentives such as a reduced L/C margin or tax-free entry for the first 200,000 MT imported each year. Shipping and Handling 9. In recent years, the MOF has opted largely for CIF contracts, where the supplier incurs all shipping costs. This can be advantageous if suppliers have well-established working relationships with particular shipping lines. A review of CIF charges paid by Bangladesh in FY88-90 indicates that they are generally within the ranges quoted by the International Wheat Council (USS 22-30) for wheat from the U.S. or Canada, and by the London Rice Broker's Association (US$ 15-25) for rice from Thailand or other Asian countries. Only the FY90 Thai rice purchase appears to have a moderately inflated CIF charge. Ships carrying foodgrains are generally required by the Bangladeshi Government to discharge EO percent of their consignment at the port in Chittagong and 40 percent in Chalna. Length and draft limitations at both ports require that ships arrive at Chittagong's outer anchorage where they are lightered and despatched to the two ports, or unloaded into mini-bulkers for direct transport to the storage silo at Narayanganj. The Chittagong port has bulk unloading facilities, including a storage silo of 100,000 MT capacity. Chalna has no bulk facilities. Virtually all wheat is shipped in bulk, and is either bagged for unloading at Chalna or the Chittagong jetty, or mechanically unloaded in bulk into the Chittagong silo. All rice is bagged prior to shipping. Although shipping costs paid by Government appear to be in line with international standards, there appear to be serious inefficiencies in the handling of foodgrain imports once they reach port. These inefficiencies are related to: (i) lightering; (ii) discharge rates; (iii) suboptimal use of silo facilities; and (iv) weighment at the jetty. Lighterage 10. Since 1985, the MOF has contracted with a public enterprise, the Bangladesh Shipping Corporation (BSC), to act as sole agent for lightering of vessels carrying foodgrain imports. This service is performed for a fixed rate of US$ 12.60/MT, payable in foreign currency. BSC charters ships as well as using its own fleet, which is not designed for lightering, and, therefore, has a slower unloading rate at the silo (150 MT/hour) than bulk lighters (250 MT/hour). In FY90, lighterage fees cost the MOF an estimated US$ 5.0-6.3 million for 400,000 to 500,000 MT of foodgrain. It appears that this was more costly than it need - 109 - Annex 12 Page 6 of 23 be. Lighterage rates for imported fertilizers are currently US$ 4.00-5.00/HT. and foodgrain is easier to handle than fertilizer, especially in bulk. A review of costs with private shipping firms led to the following estimated open market rates for lightering of foodgrains to the Chittagong silo or jetty: Table 12.2: Estimated Foodgrain Liahtering Costs to Chittagong Silo and Jetty, 1990 Silo Jetty Lighter vessel time charter rate US$ 5,000/day 5,000/day Loading at outer anchorage 4 days (maximum) 4 days (maximum) Steaming/berthing 1 day 1 day Discharge 3 days (maximum) 7 days (maximum) Total time for one trip 8 days 12 days Charter Cost (§ US$ 5,000/day) $40,000 $60,000 Total Port charges (@US$625/day) $ 5,000 $ 7,500 Total cost $45,000 $67,500 Quantity lightered 10,000 MT 10,000 HT Unit lightering cost $ 4.50/HT $ 6.75/MT These calculations of lighterage rates are one-third to one-half the rate paid to BSC, and they may be somewhat high, having assumed the maximum discharge time. Clearly, it would be more cost-effective for MOF to establish volume-based cantracts for lightering services at competitive market rates determined through a process of unrestricted tendering. If forced to compete with the private sector for contracts, BSC may even emerge as an efficient provider of lightering services. Discharge Rates 11. The daily discharge rate (DDR) stipulated in shipping contracts determines the vessel's expected unloading time, which in turn influences the freight rate charged. The MOF contracts on Of ree out" terms which give MOF the responsibility for discharging the ship. If discharge is slower than the stipulated DDR, then MOF must pay daily demurrage to the shipping line equal to the daily charter rate. If discharge is faster than stipulated, MOF receives despatch money from the shipping line for the unused time, usually equal to one-half the demurrage rate. If MOF consistently underestimates its DDR, i.e. overestimating the time - 110 - Annex 12 Page 7 of 23 it would take to unload, then it unnecessarily raises its total freight charges. A simple example is shown below: Table 12.3: Impact of Underestimating the Daily Discharge Rate Assuming that: Ii) 40,000 tons of wheat discharged from ship. (ii) Demurrage rate - USS 8,000/day (equal to daily charter rate) (iii) Despatch rate - 50Z of demurrage rate, i.e., US$ 4,000/day (iv) Discharge rate - 1,500 MT/day (24 hrs.) stipulated in agreement (v) Actual discharge rate = 2,000 MT/day (24 hrs) achieved. Then: Actual time taken to discharge = 20 days Allowed tim' for discharge - 26.7 days Time saved = 6.7 days Despatch money earned US$ 26,800. ($ 4,000 x 6.7) But: If a discharge rate of 2,000 MT/day had been stipulated; then: the original clharter cost would be reduced by 6.7 days x US$ 8,000 = US$ 53,600. 12. Had the contract originally stipulated a DDR of 2,000 MT/day, the charter party (MOF) would have saved US$ 26,800 (i.e. US$ 53,600 - US$ 26,800). Generally, the MOF stipulates a DDR of 1500 MT per day for bulk wheat. However, the DDR stipulated by many food aid donors for bulk wheat is 2000 MT/day--which has been achieved with little difficulty. The higher DDR also lowers the daily freight rate, reportedly by about US$ 5.00/MT. Data from FY88-89 indicate that, at Chittagong port, both commercial imports and aided imports generally surpass a daily discharge rate of 2000 MT/day, and, as a result, MOF and donors raceive despatch money (Table 12.4). By stipulating a much lower DDR, the MOF receives higher sums of despatch money, but overall pays more for shipping than donors. Freight charges could be reduced if MOF would adopt a realistic DDR for Chittagong, and not require ships to discharge at both Chittagong and Chalna. At Chalna, the lack of bulk facilities slows discharge, often well below 1500 MT/day. Despite the reduced efficiency of Chalna, it is argued that foodgrains should be delivered there for ease of transport to the Wester.n part of the country. However, the higher costs of unloading outweigh the transport differentials to destinations in the North-fest such as Dinajpur and Rangpur. If Government moves towards greater monetization of food aid, and use of cash transfers for beneficiaries, then it is clearly more efficient to discharge the entire consignment at Chittagong. Annex 12 Tablo 12.4 i Average Discharge Rotes for lsported Wheat, FY-9 Page 8 of 23 Nme .-f - u-n-iOluDischarge Average Home of Quontlty Ti Discharge Rote Ship (lT) Day/Hr./Mln. (MT/doy) CHITTAGONG Commrcial YAPort Phillppine 20965 06.15.50 5707 Spring 19W40 07.00.00 200S Ell- 20842 14.01.00 1484 Hones 19Sl9 07 28 .10 2440 rolden 19601 07.10.00 2970 Oriental 22607 08.21.00 $2CJ High Poak 10319 0.01.50 2036 Sixns Sun 1061 03.04.45 8*80 Londoadi 15996 06.06.20 808U Arays 14020 06.17.00 2456 Elne-V 14114 03.25.10 $669 Elns 19735 06.06.2S 5746 Aided Imports Foderal 18600 06.03.06 2092 Zoo 16150 04.18.46 9877 Rodanthi 18019 06.02.60 2648 King 11847 06.06.30 1901 Star 18696 14.17.00 944 HAI SOO 10973 02.06.S0 4084 PLATANUS 13086 05.06.00 2612 Oroce-L 9678 08.08.80 2946 YapOpadi 28800 11.00.45 2610 Seeking 11760 11.00.00 1066 Yin Kim 9194 04.14.00 2006 Trade 16914 04.21.10 8464 Kota 18182 04.11.60 2922 FY8s CHALNA Commercial Imports Vinta 19446 11.16.06 1666 Condor 19684 09.16.16 2082 Elie 18179 17.08.15 1058 Economist 18446 15.16.00 117? Cond4r 21227 12.18.00 1664 King 18328 06.02.80 2678 Oroce-L 9878 08.o0.80 2946 Seaking 12228 10.04.00 1202 Yin Kim 15866 07.17.80 1986 Ambass. 16658 16.11.00 1012 Hatra 19299 14.05.15 1857 Aided Imports Sulker 17669 08.04.46 8877 Zoeo 18826 07.17.80 1768 Rodanthi 11460 12.15.80 906 Shing 1S580 18.ke.15 680 ESP 19808 12.08.46 1629 HAI 800 12866 08.19.16 1404 Platanus 18212 10.16.46 1702 High Peak 14844 11.06.60 1280 Sings Sun 14850 07.12.60 1970 0. Evass 16140 08.12.80 1894 Arys t9980 16.19.00 1266 Elna-V 19886 18.07.16 1494 Elns 18682 09.20.00 1699 - 112 - Annex 12 Page 9 of 23 While it may still be argued that a minimum security stock for the Khulna Division should be unloaded at Chalna, requiring ships to discharge 40 percent of their consignment at Chasna does not seem' warranted. Nor does investmesut in bulk facilities at Chalna until the Chittagong facilities are fully utilized. Maximizing Use of the Chittagong Silo 13. The volume of wheat handled by the Chittagong silo has risen in recent years from around 500,000 MT per annum to 800,000 MT per annum. Maximizing use of the silo will reduce handling costs dramatically, because: i) lightering onto the jetty is 50 percent more expensive than into the silo (if lightering were done at competitive market rates); and ii) stevedoring costs for the jetty are Tk 61-78/MT compared to only Tk 2/MT for unloading by vacuvator into the silo. Through improved stock management, turnover of the silo can be raised to 1.0 million MT per annum with existing facilities. If facilities are upgraded along the lines that were suggested by the IDA Foodgrain Storage Project (Credit 381. BD) in 1987, virtuaAly all imported wheat could flow through the silo. This would involve extending the jetty alongside the silo to allow berthing and unloading of two vessels simultaneously, and extending bagging and storing facilities. A detailed cost-benefit analysis of this proposed investment was beyond the scope of this report, but given Bangladesh's structural deficit in wheat, long-term investment in facilities for efficient import of wheat should be seriously studied. It should be noted that the private sector has expressed considerable interest in renting bins . the port silo for storage of either purchased food aid or commercial imports. Weighment at the Jetty 14. Foodgrain flowing through the silo is automatically weighed as it is unloaded, but foodgrains unloaded at the jetty are manually bagged and a 10 percent sample is weighed. There is no means of standardizing bag weight, and the system is susceptible to twc problems: i) overreporting of weight by the shipping line in the draft survey report; and ii) pilferage of stock during unloading. Maximizing use of the silo will resolve these problems definitively, but until such time as all wheat imports flow through the silo, the jetties need to be equipped with hopper bagging units and crane scales to standardize bag weight, and administrative and security procedures need to be strengthened along the lines suggested by the GOB/FAO Reorganization Project for 'he Directorate General of Food. Transport 15. Policy reforms which are oriented toward private sector trade and marketing for rice price stabilization, as well as greater reliance on monetization of food aid, would substantially reduce the need for public sector transport of foodgrains within Bangladesh. Under existing policies, foodgrains for distribution are transported throughout the country to supply three inland silos, twelve central storage depots (CSDs) and more than 600 local storage depots (LSDs). Transport services are contracted at three levels: i) central movement between divisions; ii) divisional, or inter-district, movement between districts within a division; and iii) regional, or intra-district movement within a - 113 - Annex 12 Page 10 of 23 district. Fixed transport rates are set by central, divisional and district tender committees, respectively, with little uniformity below the central level. Adequate data on divisiunal and regional transport activities were not available for this analysis, so that most of the following discussion focuses on central movement. There is, however, no reason to assume that divisional and regional transport is more efficient or more competitive than central movement. Indeed, it is a widely-shared perception that the awarding of foodgrain transport contracts at the division or district level is a source of political patronage that shows little regard for the efficiency of public resource use. 16. The Governmpnt's stated policy regarding stock levels is to keep three month's worth of PFDS offtake in storage at final consumption points. However, existing storage capacity was not determined on the basis of this critaria, so that capacity varies widely relative to offtake, and actual stock levels fluctuate more than this policy would suggest. On an aggregate level, the monthly average of total foodgrain stocks in recent years has been around 1.12 million MT, with monthly ofitake of about 230,000 MT. In other words, average stocks generally equal between four and five months of offtake. In FY90, with expanded procurement and sluggish ration sales, average stocks rose to nearly seven months of offtake. Storage planners had not anticipated a doubling of procurement in the Northwest, and the procured rice was often transported to areas wit}> excess storage capacity (e.g. Patuakhali, Barisal, Meherpur) while awaiting transport to final distribution points. In addition, the ratio of central movement (i.e. from the port to inland silos or CSDs) of imported grains to total grain imported has also risen from 1.18 in FY83 to 1.52 in FY90, meaning that half of all imports are now moved twice in their journey to their "final" CSD, before being transported to local distribution points (Table 12.5). The distribution policies of some food aid donors have contributed to the inefficiency of internal transport. Requirements that food aid -vtheat be distributed in the FFW and VGD programs, even in zones of heavy rice procurement, led to simultaneous movement of domestic rice from north to south and food aid wheat from south to north (the dubious logic of such distribution at times of heavy procurement has been addressed elsewhere). More than 200,000 MT of food aid wheat per annum is distributed under FFW and VGD in the northwestern Rajshahi division, which is the area where the majority of domestic procurement takes place. All in all, there appears to be considerable scope for rationalization of foodgrain transport to eliminate multiple stock movements. It will require more extensive forward planning of foodgrain movement than is currently undertaken, as well as rationalization of storage capacity. Agreement between GOB and donors on commodity swaps or other arrangements which increase the flexibility to distribute locally-held stocks under FFW and VGD should also be pursued. - 114 - Annex 12 Page 11 of 23 Table 12.5 : Central Movement of Imported Foodgrain, FY83-90 1/ (000's MT) Mode of Transportation Central Central As Z As Z As Z Year Imports Movement Movement/ ''oad Total Rail Total River Total Imports FY83 1843 2178 1.18 713 33Z 839 382 626 292 FY84 2028 247Z 1.22 1056 432 667 272 749 302 FY85 2590 33J6 1.28 1329 402 728 242 1205 36Z FY86 1202 1317 1.10 518 39Z 277 212 522 40Z FY87 176' 2341 1.32 1179 50Z 359 16Z 804 34Z FY88 2920 3680 1.26 1741 47Z 703 192 1236 342 FY89 2138 3197 1.50 1424 45Z 634 202 1136 372 FY90 1543 2333 1.52 1190 512 409 18Z 727 31Z Seurce : Directorate General of Food 17. In addition to minimizing the total distance covered, much can be done to :educe the current per kilometer cost of Government foodgrain transport. Three motes of transport are available: road, railways and river. Cost and speed of trrnsport are inversely related, with road transport being the fastest and most er,bnsive, followed by railway and then river transport. Road transport rose as a sr.are of central movement in recent years, with rail transport losing ground and t 'ver transport increasing modestly. While some increase in high-cost road tran ,ort could be expected in years with high levels of emergency intervention (such as during the FY88 and FY89 floods), it is difficult to justify continued use of road transport in years of abundant harvests, such as FY90. Least-cost modes of transport should have been selected for delivery of stocks for routine distribution. A policy of optimal, least-cost routing needs to be adopted, on the basis of a logistics plan for central movement. Such a policy would maximize direct deliveries from the main sources of supply to final distribution points, choosing least-coot modes of transport. For example, Table 12.6 shows freight rates for the various modes of transport between Chittagong port and Dhaka (the Tejgaon CSD) for the period FY83-90. The least-cost route is initially by river from Chittagong to Narayangonj silo, and then by road from the silo to Tejgaon CSD, at a cost which is only about one-third the cost of road transport (Tk 332/MT vs. Tk 921/MT). However, the river/road routing generally accounts for only 40-50 percent of the volume transported between these two points. In fact, with adequate planning, considerable savings on internal transport would be possible through routing of as much as 500,000 MT of imported foodgrains directly from Chittagong outer anchorage to inland silos by river. - 115 - Annex 12 Page 12 of 23 Table 12.6 : Comparative Freight Rates from Chittagong Port to Teigaon CSD, FY85-89 Year Road Rail River/road 1/ (via Narayangonj) silo (Tk/MT) (Tk/MT' (Tk/MT) FY85 775 347 160 FY86 852 357 238 FY87 760 347 238 FY88 858 347 238 FY89 855 347 238 FY90 920 450 2/ 238 1/ The cost of transport and handling from Narayangonj silo to Tejgaon C.S.D. by road is to be added. This cost was about Tk.93/HT in FY90. 2/ In FY90, an additional 35Z needs to be added for handling contractor and 8? surcharge to Bangladesh Railway. Source: Directorate General of Food. Road Transport 18. Virtually all road transport of foodgrains is carried out by Central Road Transport Contractors (CRTCs), private sector intermediaries who usually hire trucks in the open market. The Directorate General of Food also has a fleet of 152 trucks (mostly 5-7 MT capacity), only 50 of which are in working condition, and which are used mostly for carrying non-food supplies such as gunny bags and pesticides. For foodgrain transport, the DGF awards contracts among the more than 5600 CRTCs. However, the current system for awarding contracts is neither competitive nor cost efficient. The "tendering process' allows eligible CRTCs to bid either at the official transport rate or five percent below. No price competition is involved, and the criteria for awarding the contracts are unclear. Entry of new contractors into the ranks of the CRTCs is highly restricted. Transport rates are point-to-point rates which generally are adjusted every one to two years. There are currently nearly 970 fixed-rate routes, with widely varying implicit per mile rates which cannot be fully explained by road quality differentials (road surface, number of ferry crossings, etc.) A sampling of routes in Table 12.7 gives an indication of the variation in per mile rates, but also reveals something far more disturbing: on the basis of extensive interviews with the Truck Owners' Association and a number of independent truckers, it appears that the official CRTC rates are approximately double the competitive market rates for the same routes. Small wonder that entry on the list of CRTCs is so restrictive. Clearly, cost savings would be substantial if the MOF moved to a system of unrestricted tendering and competitive bidding. Fear of awarding contracts to unqualified contractors is unfounded, and could easily be put to rest by establishing simple and objective prequalification criteria when floating tenders. Introducing open tendering and competitive bidding for road transport should be of highest priority if Government wishes to improve the efficiency of Pnverr ont fnod onerntions in the short-tprm. - 116 - Tablo 12.7 : A Sample of Central Road Transport Rato.1 FY90 Annex 12 Page 13 of 23 ---------------------------------------------------___--________________________________-- Loading Station Doetination Distance Ofticial Rate Impli d Per Market Rate Mile Rate (Miles) (Tk/MT) (TK/MT/Mlil) (Tk/M1) Thakurgaon/Sotabgong Mymsningh 240 775 8.2 400 - 425 Manikooni 280 8N4 8. 850 - 400 Sylh-t 490 1060 2.2 600 - 650 KishorgonJ 366 796 2.2 600 - 660 Sinznni 265 776 8.1 600 - 525 Shorpur 288 687 2.4 500 - 626 Dinajpur Dhaka 0.D. 262 914 8.5 400 - 450 TeJ aon C.S.D. 267 914 8.6 400 - 450 Man kgonj 215 872 4.1 860 - 400 Chalkbaezr 820 1088 8.4 460 - 600 Sylhet 472 1005 2.1 500 - 600 Singair 285 760 8.2 460 - S00 Shorpur 265 681 2.6 460 - 500 Galbanda Tejgaon C.S.D. 168 806 4.8 300 - 860 Dhaka C.S.D. 17S 805 4.7 S00 - 850 Joydovpur 18O 828 6.8 800 - 860 Nosagon TeJgaon C.S.D. 177 628 4.6 300 - 860 Dhaka C.S.D. 182 828 4.6 800 - 850 Santahar Manikgonj 127 782 6.8 800 - 850 Shorpur 180 647 8.6 400 - 450 Netrokona 210 647 3.1 400 - 450 Narslngdl 208 848 4.2 400 - 460 RaJshahl Khulna C.S.D. 188 696 8.6 800 - 8a0 Chittagong Dinajpur 417 1289 8.1 600 - 650 Rangpur 889 1284 8.5 575 - 625 ToJgson 16o 920 6.8 860 - 400 AdamJee Juto 150 484 2.9 860 - 400 Latit Sawani 161 454 8.0 860 - 400 Nnogaon 887 1219 8.6 500 - 650 Santahar 882 1208 8.6 500 - 560 Mongla Port Barisal . 169 ... 80 - 100 Khulnn 26 125 4.8 80 - 40 Patuakhali 182 ... 90 - 11o Chittagong Port Hnallahar 8 67 29.0 80 - 40 Nnrayangonj Silo Govt. Flour Mill 6 66 10.8 86 - 45 Narsyangonj Silo Tejgaon C.S.D. 9 98 10.8 s0 - 60 Khulna Ohat Khulna C.S.D. 8 82 27.8 20 - 25 M. Page Khulna C.S.D. 8 22 7.8 16 - 20 Sourc--------Direct----rate-----ene----l--o-----o-d----Truck---Ow----r--_Association.----- Sourco : Directorate C n-r l of Food, Truck O nore Association. - 117 - Annex 12 Page 14 of 23 Rail transport 19. All rail transport is handled be Bangladesh Railways, a state-owned enterprise. Freight rates are distance-based, and were revised for the first time in five years in June 1990. Prior to FY90, DGF paid a 20 percent surcharge on top of the standard freight rates in order to transport foodgrains. Losses of grain on the railways has reportedly been 1.5 to 2.5 percent of tonnage hauled, significantly higher than the 0.5 percent "allowable loss". For this reason, in FY90, the DGF introduced a system of private railway handling contractors (RHCs) who are responsible for reducing pilferage of foodgrains during transport. The RHCs receive a 35 percent commission above the standard freight rates for their services. The earlier 20 percent surcharge has been reduced to eight percent, so that foodgrain transport rates are now 43 percent above rates for other goods. Not surprisingly, there has been somewhat of an upturn in use of the railways for foodgrain transport this year. Railway handling contractors still have the right to claim 0.5 percent allowable losses, which they routinely do. No data exists on the actual level of losses, however. Strengthening inventory accounting in the DGF as suggested '.n the GOB/FAQ Reorganization Project should be a high priority because t would allow reconciliation of stock flows and identification of actual losses in transport, storage and distribution. In recent years, the DGF has reported total losses ranging from 3.2 to 5.5 percent of total foodgrain acquisition, but actual losses are impossible to estimate. From time to time, the DGF writes off large volumes of unaccounted for grains. Recently, an accumulation of nearly 150,000 MT of untraced grains which had been listed as "in transit" were finally written off. 20. The 35 percent RHC commission is an exceedingly high inducement to keep losses at the allowable level, which is itself considered too generous by many. Indeed, the commission may motivate contractors from other modes of transportation to increase the level of recorded losses in the hope of being offered similar inducements. Of course, the question which remains unanswered is why Bangladesh Railways, itself a public agency, cannot ensure the safe passage of public sector commodities such as foodgrains. It would seem far more logical to dispense with the system of railway handlers altogether, and introduce a system of reasonable rate bonuses for Bangladesh Railways based on its performance in reducing grain losses. River Transport 21. River transport is carried out by the state-owned Bangladesh Inland Water Transport Corporation (BIWTC) and private sector contractors. Fixed freight rates for divisional boat carrying contractors are established by each division, and--unlike the rates for road transport--they are distance-based, with declining per kilometer rates as distance increases. However, the rate structures exhibit certain anomalies which should be reviewed. For example, the rates for Dhaka division drop off precipitously beyond 80 kilometers, jumping from Tk 1.55/MT/Km to only Tk 0.36/MT/Km (Table 12.8). As a result, the total cost of carrying one ton for 80 Km is Tk 124, but for 81 Km is Tk 29. A journey of 344 Km is the same cost as an 80 Km route. The magnitude of the rate decline undoubtedly discourages use of river transport for longer routes. This is a significanL - 118 - Annex 12 Page 15 of 23 inefficiency in Government food operations given that freight rates by river are a fraction of the cost of road transport, and all inland silos and CSDs are situated on navigable waterways. With adequate forward planning, the bulk of imported foodgrains could be moved directly from the port to primary storage locations by river. Table 12.8 s River Transport Rates Dhaka Division Distance Rate (km) (Taka/MT/Km) 0-8 6.78 8-16 5.10 16-32 2.43 32-80 1.55 over 80 0.36 Khulna Division Distance Rate Rate Mechanized Vessel Non-mechanized Vessel (km) (Tk/MT/Km) (Tk/MT/Rm) 0-30 2.14 2.14 30-80 1.76 1.65 over 80 0.79 0.69 Source : DGF Storage 22. Any judgment about the adequacy or inadequacy of existing storage capacity is highly dependent on the assumptions made about the nature of Government food operations in the future. The first step in "rationalizing, existing storage capacity is, therefore, to develop a vision of where food policy in Bangladesh is heading in the course of the next ten years. No reconfiguring of existing space, nor expansion of total capacity, can be justified in the absence of such a vision. The need for geographically dispersed public sector storage space would be dramatically altered if any or all of these policy recommendations were implementeod i) an import/export stabilization fund would replace the current buffer stock arrangement for rice price stabilization; ii) the target price band for stabilization would be kept in line with world price trends; iii) ration channels targeted to relatively well-off groups would be eliminated; iv) more - 119 - Annex 12 Page 16 of 23 food aid would be monetized to provide cash transfers to beneficiaries; and/or v) rolling stock levels would be reduced to a level which would be more efficient, yet consistent with food security concerns. In the absence of these policy changes, one can nonetheless identify inefficiencies in existing storage facilities and procedures that should be eliminated. 23. The DGF currently has an estimated 1.828 million MT in total foodgrain storage capacity, consisting of four silos (at Chittagong, Narayangonj, Ashugonj and Bogra) with a capacity of 225,000 MT, twelve CSDs with a capacity of 455,300 MT and 621 LSDs with a capacity of 1.148 million MT. An estimated 300,000 to 350,000 MT is not available at any given time (disrepair, storage of other commodities), leaving a net foodgrain storage capacity of around 1.5 million MT. With a rolling stock of 1.1 to 1.2 million MT, a lack of forward planning may result in temporary regional stock imbalances that usually lead to calls to construct substantially more storage capacity. There are two issues which need to be addressed: i) the rolling stock level relative to storage capacity; and ii) the geographic distribution of existing storage capacity. A third issue, the adequacy of storage facilities and procedures, impacts on efficiency by affecting the level of foodgrain losses due to spoilage, pest damage, or pilferage of stocks. Rolling Stock Level Relative to Storage Capacity 24. This report has argued that the rolling stock level for foodgrains is currently kept too high, equal to anywhere from four to seven months of foodgrain offtake. Given the time it takes to import foodgrains on an emergpncy basis, a security stock of two to three months of maximum (i.e. post-flood) offtake is all that can be justified on the grounds of food security (Tableb 12.9). Indeed, there is even precedent for importing rice from Pakistan in aa little as three weeks' time. This suggests that the rolling stock level could be reduced to between 700,000 and 800,000 MT, with commensurate reductions in storage costs. On this basis, expansion of total storage capacity above the existing 1.5 million MT is not warranted, and the Government's expansion target of 500,000 MT under the Fourth Five-Year Plan should be reconsidered. Future structural reforms of food policy will have a strong impact on public sector storage needs, and this should be reflected in annual programming of current and capital expenditures. - 120 - Annex 12 Page 17 of 23 Table 12.9 : Lead Time for Foodgrain Imports into Bangladesh Wheat (from USA/Canada) Tendering and bidding 15 days Decision 4-5 days Signing of Agreement 3-4 days Contracting ship 15 days Sailing time - from West Coast 30 days from Gulf Coast 40 days Total time 67 - 79 days approximately 2.5 months Rice (from Thailand) Negotiated purchase 30 days Sailing time 10 days Total time 40 days approximately 1.5 months Geographic Distribution of Storage Capacity 25. The unanticipated rise in domestic procurement in FY90 focused attention on the geographic distribution of Government storage facilities--or, more precisely, on the inadequacy of storage capacity in the northwest (Rajshahi division) relative to the volume of procurement. The existing configuration of storage capacity in Bangladesh evolved within the context of persistent foodgrain deficits, and was designed to faeilitate the arrival of imported foodgrains and their distribution along a south-to-north axis throughout the country. Domestic procurement was an occasional source of foodgrains for distribution programs, but large-scale procurement as a form of price support for producers was not envisioned. As a result, two-thirds of all silo and CSD capacity is found at or near the ports in Chittagong, Khulna and Narayangonj. Existing storage capacity in the Rajshahi division is around 370,000 MT, although procurement in the area exceeded 800,000 MT in FY90. Some additional storage space, totaling around 70,000 MT, was rented from BADC in former fertilizer go-downs. Procured grains were also moved to areas with excess storage capacity, including Barisal, Patuakhali, Bhola, Barguna, Pirojpur and Jhalakathi, where go-downs for procurement had been constructed under a donor-financed project, but where procurement rarely occurs. 26. The imbalance between procurement levels and storage capacity in the Northwest was the root cause of the excessive foodgrain movement in FY90, which raised transport and handling costs. It also led to renewed calls for additional - 121 - Annex 12 Page 18 of 23 construction of storage facilities in procurement zones. This makes sense only if procurement on this scale is anticipated regularly in the future. This report recommends that Government opt instead for a stabilization policy based on private sector trade and a public sector stabilization fund, and that the target price band of stabilization of domestic prices be brought into line with trends in world market prices. Within this policy environment, Government procurement on the scale of FY90 would not occur, and the present configuration of storage space--with substantial bulk storage at the ports--would be appropriate for continued large-scale imports of wheat, whether through the public sector or private sector. If, hnwever, Government continues to engage in open-ended procurement, then expanded storage capacity in the Northwest may be advisable. Storage Facilities and Procedures 27. With the exception of bulk storage in silos, most of the storage facilities consist of flat go-downs where grains are stored in stacked gunny bags. This type of storage is not optimal for maintaining the quality of the stock. Storage experts consider it adequate for storing foodgrains with a 14 percent moisture content for relatively short periods of around three to five months. However, much of the food grain, especially the domestically-procured rice, enters the go- down at a higher moisture content, and subsequently deteriorates even faster. Restructuring the financial incentives offered by the Government to private rice millers will ameliorate this problem. However, it must be recognized that rice procured in the wet season (mostly boro) and stored in stacked gunny bags can only be stored for three to four months before sustaining large losses due to deterioration. In other words, Government must turnover these stocks on a seasonal basis, even if seasonal price swings no longer warrant the release of these stocks in the domestic market. Steps can be taken to slow the deterioration of rice stocks. In particular, milling incentives should be restructured to encourage milling at a lower moisture content, and Government should follow a last-in-first-out principle (rather than a first-in-first-out principle) of inventory management for rice stocks procured in the wet season only. If the high-cost policy of open-ended domestic procurement continues, there are equally high-cost storage options that would permit longer-term storage of local rice. One option that has been proposed is to convert flat go-downs into bulk storage facilities. Another option is to develop public dry"ig facilities. However, an investment in either of these two options is t warranted unless the policies prompting the investment can be shown to be financially sustainable and effective in achieving food security or agricultural goals. Open-ended procurement has not met either of these conditions. Vq. The actual level of foodgrain losses in storage cannot be determined. High priority should be attached to the introduction of an accounting system for stock management and inventory control at all levels of the distribution network so that losses would be clearly identified. Currently, the "allowable losses" in storage are 0.5 percent up to six months and 0.75 percent up to twelve months for wheat and rice, and 0.75 percent and 1.0 percent, respectively, for paddy. Officials claim actual losses tend to be higher, and result from: i) inadequate weighment systems for stocks; ii) insufficient fumigation; ii) rapid deterioration due to excess moisture content; and iv) pilfering of stocks and abuse of the allowable loss policy. Introduction of an inventory accounting - 122 - Annex 12 Page 19 of 23 system, improvement of weighment equipment and procedures, use of proper stacking methods, increased fumigation and use of proper fumigation techniques, and tighter administrative procedures for stock management would all serve to reduce the current level of losses in storage. Procurement 29. This report argues against domestic procurement as a form of price support for producers, preferring a more efficient, trade-based system. It promotes the use of cash transfers in distribution programs on efficiency grounds, as well. However, it is likely that Government will move gradually toward this latter goal, continuing to distribute foodgrain in targeted programs for some time to come. In these circumstances, the source of distributed grain should always be the least-cost alternative: food aid (which is always least expensive from the Government's standpoint), commercial imports or domestic procurement. If domestic procurement is undertaken, much can be done to enhance the efficiency of the process. First, domestic procurement of wheat can be discontinued altogether. The rationale for wheat procurement is unclear: marketed production is small relative to domestic demand, and wheat production is largely unsuitable for the Bangladeshi climate and soil conditions. It would be ill-advised to promote additional production through price supports, and the Government routinely counteracts the intended effect of procurement by distributing large volumes of food aid wheat in wheat-producing areas during the procurement period. Second, Government can procure milled rice instead of paddy. Approximately 90 percent of rice procurement is in the form of paddy which is bought at the mill- gate, usually from the millers themselves or from traders. Very little is bought directly from farmers. MOF then pays a fee to private millers to convert the paddy into rice. Alternatively, MOF could simply purchase milled rice from millers and traders. Given the prevailing procurement prices and milling fees, this wouli be the more cost-effective option, reducing the cost of rice procurement by nearly 8.0 percent. The total cost of procuring paddy and paying a milling fee (based on the average paddy-rice conversion ratio) is currently Tk 9838/MT of milled rice, compared to a procurement price of Tk907O/MT for purchasing milled rice directly. Both options have the same impact on farmers-- they continue to receive the going market rate for their paddy from millers and traders--but the millers and traders benefit more from the paddy option than from the rice option. In addition to the pricing differential, the paddy option allows millers to increase the return on Government milling by any one of the following methods: i) exceeding the stipulated conversion ratio and selling the excess rice on the open market; ii) milling heavy (high moisture) rice to fill weight-based contracts for Government; iii) using Government paddy for sale on the open market and returning lower-quality rice to the MOF; and iv)keeping new gunny bags provided by MOF and returning rice in worn bags. 30. A third way to reduce the cost and enhance the efficiency of procurement would be to procure at the going market price rather than at an official procurement price, regardless of whether procurement is being used as an explicit price support, or simply to fulfill the needs of distribution programs. It is clear that under the present system, farmers receive the going market rate, and procurement is justified by its impact on aggregate demand, which places upward pressure on market prices. Government purchases of milled rice at market prices - 123 - Annex 12 Page 20 of 23 will have the same impact on aggregate demand, but at a reduced budgetary cost. Buying at the official procurement price merely serves to raise the return to millers and traders. There is a precedent for this policy; public sector jute purchases evolved during the early 1980s toward a system based on market prices which is in effect today. A fourth means of reducing procurement costs is to reduce losses due to spoilage. This is largely a question of moisture content and storage methods. 31. Procured foodgrains are supposed to be of 'fair, average quality (FAQ)", meeting the specifications summarized in Table 12.10. Officials admit, however, that most of these specifications are unenforceable at the local level because they cannot easily be verified. The only specification which can be verified is moisture content, through use of a moisture meter. Table 12.10 : Specifications for Foodgrains of Fair, Average Quality, FY90 (in percent) Paddy Rice Wheat Moisture content 14.0 14.0 14.0 Foreign matter 2.0 0.5 3.0 Immature and discolored 2.0 2.0 10.0 Admixture of coarse grains 10.0 10.0 n.a. Dead and damaged grains n.a. 1.0 n.a. Broken n.a. 15.0 n.a. Small broken n.a. 5.0 n.a. Chalky grains n.a. 6.0 n.a. Red and undermilled n.a. 6.0 n.a. The Government specifies a 14 percent moisture content for its procurement, but this is often unenforced, and is probably irrelevant because once purchased, the moisture content will rise to the equilibrium level, which is likely to be 15.0- 15.5 percent in the wet season. A possible solution--in contrast to the recommendation to procure only milled rice--would be to store gra'ns procured in the wet season (mostly boro) as paddy, which can be stored up to six months with little loss of quality. The negative aspects of this solution are that: i) paddy requires significantly more storage space than milled rice, and ii) storing paddy for later milling would increase transport costs to and from the mill. The pros and cons of storing paddy would have to be carefully weighed. If, as recommended, Government procures only enough to supply its distribution programs, and is not providing an open-ended price support, then liquidation of stocks within three of four months would not be a problem, and storage of paddy would be unnecessary. - 124 - Annex 12 Page 21 of 23 Sales and Distribution 32. Many of the major sources of inefficiency in the foodgrain distribution system are discussed elsewhere in this report. The policy recommendations arising from that discussion would serve not only to make targeted programs a r.mre effective tool for reaching the food insecure, but also to reduce their budgetary cost and increase the efficiency of Government operations. Cost savings would be generated with no sacrifice of food security bys i) eliminating ration channels targeted toward relatively well-off groups; ii) increasing the flexibility of foodstock use so that locally-procured grains can be distributed under the VGD and FFW programs; iii) increasing the monetization of food aid to provide cash transfers to beneficiaries and cash inputs for development initiatives; and iv) reducing the rolling stock level for foodgrains to between 600,000 and 900,000 MT. 33. Many of the inefficiencies inherent in a subsidized rationing system represent costs for the intended beneficiaries rather than for the Government. This includes widespread abuse in the distribution of ration cards, pricing of rations and the weighing of foodstuffs. It has been argued that the margin allowed to private retailers to cover the cost of transport and handling from the LSD to the retail shop (Tk 160/MT since 1983) is insufficient, and that this spurs retailers to enhance their returns from ration sales in any way possible. While review of the margin may be in order, the best way to eliminate tbuses in ration sales is to gradually phase out subsidized sales programs in favor of: i) open market sales to moderate extreme price increase; and ii) self-targeting programs which require some kind of active participation by the beneficiaries. As for the first, if a trade-based system of price stabilization is coupled with an import/export stabilization fund, the need for open market salt} should be rare. However. if they do become necessary, they should be undertaken at market prices instead of at the official OMS price. This would generate additional revenues for the food budget while having the same impact on aggregate supply and eliminating an inefficient, two-tiered pricing structure. As for targeted programs, as long as subsidized ration sales continue, some abuse is inevitable, particularly when beneficiaries are poor, illiterate anC lacking the power to oppose local patrons. Abuse can be minimized through strengthening of financial and inventory accounting systems at the local level, education campaigns to make beneficiaries aware of their entitlement, random spot checks of ration shops to check weighing equipment and bag weight, and random surveys of beneficiaries. 34. Even at a 14 percent moisture content, rice milled and stored in the wet season will deteriorate fairly rapidly, ard should be turned over within three to four months. Deterioration is even faster at higher moisture contents, as evidenced by the rapid decline in the quality of public rice stocks in FY90. One : solution would be to store grains procured in the wet season in paddy form, instead of as milled rice. At 14 percent moisture content paddy can be stored for up to six months with little loss of quality. This would mean that MoF would have to procure paddy in the wet season instead of rice. The negative aspects of this solution, which would have to be carefully weighed against the advantages, are: i) paddy requires significantly more storage space than milled rice, and ii) storing paddy for milling in the dry season would result in higher transport costs going to the go-down, and then to and from the mill, as opposed - 125 - Annex 12 Page 22 of 23 to the single journey from the mill to the go-down which is now undertaken for rice. 35. Another possibility for wet season procurement is to dry the paddy at public go-downs. The go-downs are equipped with drying yards and tarpaulins for drying, but the formalities involved in taking responsibility for drying and rebagging grain--and writing-off weight losses of grain during the process--are complicated, and drying is rarely undertaken. Until FY90, it didn't appear necessary. Finally, if wet season procurement is stored in the form of milled rice, it is recommended that it be stored separately from other stocks, and released at the earliest opportunity, in contrast to the FIFO policy applied to other stocks. If, as suggested, Government is procuring only enough to supply foodgrain distribution programs, and not explicitly proviling an open-ended price support, then liquidation of stocks within three to four months of procurement would presumably not be a problem. Sales and Distribution 36. Many of the major sources of inefficiency in the foodgrain distribution system were discussed in Chapter VI, and some of the policy recommendations from that chapter serve not only to make targetted programs a more effective tool for reaching the food insecure, but also to reduce their budgetary cost and increase the efficiency of Government operations. Considerable cost savings could be generated with no sacrifice of food security goals by: a. eliminating ration channels targetted toward relatively well-off groups in society; b. increasing the flexibility of ration composition so that locally- available stocks can be distributed under FFW and VGD programs. Donors and Government should reach agreement on commodity swaps or other arrangements that permit locally-procured rice to be distributed under the FFW and VGD programs in procurement areas, thereby avoiding counterbalancing movements of food aid and locally-procured stocks; c. increasing monetization of food aid to provide cash transfers to beneficiaries and cash resources for development activities. Replacing routine distribution of foodgrains with cash income transfers would reduce the need to transport and locally store food stocks to the level required for emergency interventions. Additional savings on transport and handling would be possible if Government monetized its food aid by selling to wholesalers and flour millers directly out of the silo at the port, and even rented storage space in the silo to the private sector; d. reducing the rolling stock level for foodgrains to between 700,000 and 800,000 MT--a sufficient volume for an effective security stock. - 126 - Annex 12 Page 23 of 23 37. Many of the inefficiencies inherent in a subsidized rationing system represent costs for the intended beneficiaries rather than for Government. This includes widespread abuse in the distribution of ration cards, the prices charged to beneficiaries and the weighing of foodstuffs. Some argue that the margin allowed to private retailers to cover the cost of transport and handling frm the LSD to the retail shop is insufficient, and that this spurs retailers to enhance their returns on ration sales in any way possible. The margin, which is Tk 160/MT, is the same regardless of location, and has remained unchanged since 1983. While review of the margin may be in order, the best way to eliminate abuises in ration sales is to gradually phase out subsidized sales programs in favor of: i) open market sales at market price to moderate extreme price increases, and ii) self-targetting programs which require some kind of active participation of the beneficiaries. As lor.g as subsidized ration sales continue, some abuse is inevitable, particularly when beneficiaries are poor, illiterate and lacking the power to oppose local patrons, but abuse can be minimized through strengthening of financial and inventory accounting systems at the local level, education campaigns to make beneficiaries aware of their entitlement, random spot checks of ration shops to check weighing equipment and bag weight, and random surveys of beneficiaries. 38. Some have suggested that to increase the efficiency of the distribution program for Government, ration prices should be regionally differentiated to reflect public sector transport costs. It is argued that such a system would promote a higher degree of cost recovery for the budget, although cross- subsidization through appropriate pan-territorial pricing can do this as well. It is also felt that regional differentiation of prices would be less distortionary for local markets. However, leaving aside the welfare implications of such a scheme (why should the poor of Dinajpur eat less than the poor of Dhaka?), price differentials would complicate administration and financial monitoring of the distribution program, broaden the scope for abuse of the pricing system and potentially encourage rural-urban migration among those for whom the opportunity cost of migrating is very low. The disadvantages--in terms of both welfare implications for beneficiaries and administrative complexity-- appear to outweigh any potential efficiency gains. The larger efficiency gain will come from phasing out costly ration channels that provide little economic benefit to cardholders and relying on untargetted open market sales at market prices to moderate local price increases if necessary. With a trade-based system of price stabilization coupled with a public sector importlexport stabilization fund, such direct public interventions in the market should be rare. However, if it does become necessary to intervene in the open market, doing so at market prices instead of at an official OMS price would generate additional revenues for the food budget, while having the same impact on aggregate supply. An inefficient two-tiered pricing structure would be eliminated, while price peaks would be effectively moderated.