Agriculture Reference
In-Depth Information
the good rice harvest, the public stock in India was large enough (8.7 million
tons) to allow exports. If it were otherwise, there would have not been imports
from this source. However, this observation is not to undermine the role of the
private sector in a situation of food scarcity, but to highlight that it is important
to pay due attention to the respective roles of public and private sectors.
On the Benefits of Reforms
This section provides some analyses on the benefits of reforms that the country
undertook during the early 1990s. It focuses on three aspects, namely cost sav-
ings, price stability, and pro-poor orientation of the PFDS, and compares each
of these items with respect to pre- (1971-92) and postreform periods (1993-
2003). A summary is presented in Table 5.5, which is the point of departure for
the discussions that follow. The issue of efficiency gains from private-sector
participation is further elaborated in one of the subsections.
Savings on Costs
The reforms have clearly resulted in significant reductions in the costs of im-
plementing the food policy in Bangladesh. On the average, annual food subsidy
bills have declined from about US$106 million during the pre-reform period to
US$65 million during the postreform period (Table 5.6).
4
Importantly, this de-
cline occurred despite increased allocation of food to SSN programs at much
more subsidized prices.
There are at least two other areas where liberalization resulted in large sav-
ings. The first of these relates to the removal of restrictions on private-sector
imports. The expanded role of the private sector has reduced the government
cost for importing rice and wheat to US$190 million per year on average. It is
also significant that since 1999, the government has not commercially imported
rice or wheat. Second, with liberalization, the annual public distribution of rice
and wheat has declined from 1.54-2.94 million tons (pre-reform) to just 1.07-
1.79 million tons during 1992/93-2001/02 (Table 5.7).
The associated savings between 1992/93 and 2001/02 from the reduced in-
volvement of the PFDS can be determined based on the actual procurement price
4. The method of calculation of subsidies adopted by the Ministry of Finance is based on
the ministry's concept of economic price, which is total expenditure divided by total quantity of
foodgrain. The elements of total expenditure include food aid, imports, internal procurement, ad-
ministrative expenditure of the Department of Food, operating costs (all costs related to foodgrain
handling), and freight. The elements of quantity include food aid, imports, and internal procure-
ment. The definitions of expenditure and quantity were changed in 1997/98. Under the new system
the following additional elements were added to the total expenditure: opening stock, handling loss
at the rate of 1.5 percent, and opportunity cost (interest on stock). The additional element in quan-
tity is the opening stock. Since 2002/03, however, the element of handling loss has been excluded
from the total expenditure.
