Agriculture Reference
In-Depth Information
1991/92) to as high as 85 percent during the postreform period (1992/93-
2002/03); private-sector participation in international trade has resulted in re-
ducing the government's costs by an estimated US$190 million per year; more
importantly, despite distributing a larger proportion of food to the poor, annual
food subsidy bills have declined from US$122 million in the 1980s to about
US$65.4 million in the 1990s (Ahmed, Haggblade, and Chowdhury 2000; Ali
and Jahan 2003). In Vietnam, where parastatals had absolute control over pro-
duction and distribution of agricultural products until 1981, market liberaliza-
tion has greatly contributed to increasing production, enhancing technology
adoption, and improving overall social welfare. Rice production grew at a rate
of 5.6 percent between 1988 and 1995, transforming Vietnam from being a
chronic food-deficit country to a leading exporter of rice in Asia (Goletti and
Minot 1997; Minot and Goletti 1998).
Not only did liberalization reduce subsidies and save public resources, it
contributed to strengthening private markets as well. Private marketing has
strengthened appreciably in both Bangladesh and Vietnam. In Bangladesh, the
number of traders has risen by tenfold between the 1970s and 1990s. The num-
ber of millers doubled from 6,155 in the 1960s, to 11,592 in the 1970s, and then
increased more than fourfold by the 1990s to nearly 51,000. Liberalization of
rice and wheat imports in the early 1990s, removal of the import tariff on rice,
and expedited clearance of private sector foodgrain imports in early 1998 have
provided clear signals to the private sector of government support for the mar-
keting trade. As a result, wholesale markets for both rice and wheat are spatially
integrated, with more than 80 percent of price changes transmitted between
pairs of markets within 2 weeks (Del Ninno et al. 2001).
In Vietnam, the number of private traders increased at an amazing rate af-
ter liberalization. Tens of thousands of traders handle millions of tons of rice
every year, channeling it from surplus farmers to urban consumers, rural rice-
deficit areas, and exporters. The channels are numerous and differ from one area
to another. Although the monopoly status of VINAFOOD and the establishment
of an export quota are argued to be mechanisms to ensure adequate domestic
supply and price stability, the country does not have price stabilization in the
conventional sense. In particular, SOEs (or other public agencies) neither pro-
cure any significant amount from the farmers nor respond to seasonal and re-
gional price swings (Son and Thang 2003). Vietnam's impending entry into the
World Trade Organization (WTO) is likely to motivate re-examination of some
of its policies, specifically, the rice export quota.
So What?
The evidence presented in this section suggests that the costs of public agricul-
tural price stabilization—in terms of direct costs and rent seeking—have been
high and are increasing. The price stabilization mechanisms, which were ini-
tially cost effective, have become expensive and have outlived their usefulness.
