Agriculture Reference
In-Depth Information
price stability and food security are far less expensive and distortionary. In the
Asian countries that continue to have significant parastatal presence, recent
studies on the operation of parastatals appear to echo some of the problems that
their opponents had predicted in the early years. The unit marketing costs of
parastatals are higher than those of the private sector, the margin of costs be-
tween parastatals and the private sector are widening, and their operations are
being increasingly dictated by special interests. These trends are obvious in In-
dia, Indonesia, the Philippines, and Pakistan. For instance, in India subsidy bills
for buffer stocking have increased from US$160 million in 1992 to US$1.6 bil-
lion in 2002; in Indonesia, total costs of inefficiency in BULOG are estimated
at US$2.0 billion over a 5-year period, starting in 1993; in the Philippines, av-
erage annual losses to the society are estimated at more than US$414 million
from 1996 to 1998; and total food subsidy bills in Pakistan exceeded the entire
Public Sector Development budget for the Health Division.
By contrast, the early reformers, Bangladesh and Vietnam, have demon-
strated that reductions in public intervention can promote competition in the
domestic markets, reduce subsidies, and release funds for development and
poverty alleviation—all without jeopardizing price stability and food security.
In Vietnam, where parastatals had absolute control over production and distri-
bution of agricultural products until 1981, market liberalization has contributed
to increasing production, enhancing technology adoption and competition in
domestic rice markets. Rice production grew at a rate of more than 5 percent
between 1988 and 1995, transforming Vietnam from being a chronic food-
deficit country to a leading exporter of rice in Asia. In Bangladesh, the share of
public food in poverty-alleviation programs has increased from as low as 32
percent during the pre-reform period (1971/72 to 1991/92) to as high as 85 per-
cent during the postreform period (1992/93 to 2002/03); the total number of
traders increased significantly following liberalization, and annual food subsidy
bills have declined from US$122 million in the 1980s to about half that amount
in the 1990s.
Finally, the forces for agricultural growth are changing because of changes
in the parameters of supply and demand. Rice and wheat, the main focus of the
parastatals, are not likely to drive agricultural growth in the future, as they have
in the past. On the demand side, with improvements in the level of develop-
ment, consumer preferences are changing away from cereals. Expenditure on
cereals is declining over time. On the supply side, farm sizes are shrinking and
at the same time rates of growth of cereal productivity are slowing. Thus, small
farmers cannot expect to make a satisfactory living from growing wheat and
rice on their progressively smaller landholdings. Therefore, a rational farmer
should be expected to look for options—in addition to or in place of wheat and
rice—for increasing income. While farmers can no longer make a satisfactory
living by cultivating wheat and rice on half a hectare of land, they may be able
to do so by growing high-value food crops, such as fruits, vegetables, oilseeds,
