News and Update: Trade liberalisation induces food price hike, WB admits

Khawaza Main Uddin, NewAge, October 22, 2007. Dhaka, Bangladesh

Trade liberalisation that eventually has resulted in skyrocketing of food prices afflicts the rural population of Bangladesh, admits the World Bank in its World Development Report 2008: Agriculture for Development.

The report released by the bank on Friday also says that the trend of shrinking the sizes of farms in economies, such as Bangladesh, which still heavily rely on agriculture, is another major cause of rural poverty, and such a reality can generate further social tensions, leading to civil conflicts.

‘Trade liberalisation that raises the price of food hurts net buyers (the largest group of rural poor in countries like Bolivia and Bangladesh) and benefits net sellers (the largest group of rural poor in Cambodia and Vietnam),’ reads the report.

The report of the multilateral lending agency, which prescribed the process of trade liberalisation in the 1990s, also claims that a liberal trade policy, inducing massive imports of rice by hundreds of small traders during the 1998 floods, helped the government stabilise prices without building up any large stock.

Quoting a Bangladesh study, the WB report asserts that although the ‘average landless poor household loses from an increase in rice prices in the short run’ but it ‘gains in the long run as wages rise over time’.

The report, forecasting a further increase in food prices on the international market, expressed ‘particular concern’ for the food-importing developing countries, ‘Because many of the poorest countries spend a large part of their incomes on cereal imports’.

More than 50 per cent of the poor in Bangladesh, according to the report, comprise the rural landless households and they spend 27 per cent of their total budget for buying rice, the nation’s staple food. And so, it says, ‘Poor Bangladeshis are the most vulnerable to increases in rice prices.’

Only 8 per cent of the country’s poor are found to be net sellers of food. ‘So the aggregate welfare effect of a change in rice prices is dominated by its effect on net buyers.’

Also, the number of farms in Bangladesh has doubled over the past 20 years, increasing the number of farms smaller than 0.2 hectares in size proportionately. ‘Continuing demographic pressures imply rapidly declining farm sizes, becoming so minute that they can compromise survival if off-farm income opportunities are not available,’ the report cautions.

It also points out that ‘a large share of rural households… does not have any access to land’. The Washington-based lending agency, however, attributed what it termed the substantial reductions in rural poverty in Bangladesh to earnings form rising farm and non-farm activities and lower rice prices thanks to use of new technologies, besides manpower export which has also benefited the rural as well as the national economy.

The report has triggered the question whether a densely populated Asian country like Bangladesh, with its labour-intensive small-scale farming, would be able to produce cereals and other staple foods efficiently in its farms that generally tiny in size, especially if rural wages rise.

In South Asia, the report predicts, the decline in farm size will continue because the rural population has been growing by 1.5 per cent a year. As an indicator of poverty, the report mentions that Bangladesh, India, and Nepal occupy three of the top four positions in the global ranking of underweight children.

The World Development Report also expresses concern for the developing countries due to proliferation and stringency of food safety and health measures being adopted in export markets. ‘Many fear that the emerging standards will be discriminatory and protectionist,’ it observes.

The document underlines the need for increasing the productivity of agricultural labour through consolidation and mechanisation of farms to bypass the widening gap between rural and urban wages in many Asian countries.

Millions of workers employed in rural areas are said to be trapped in low-earning jobs in Bangladesh, where around one million people join the rural workforce every year. The WB report mentions that non-farm rural employment increased at the rate of 0.7 per cent and farm employment at 0.1 per cent a year during the 1990s.

Delineating a strong record of agriculture in development, the report posts an estimate that the contribution of agriculture to the growth in gross domestic product was at least twice as effective in reducing poverty as the GDP growth in non-agricultural sectors.

The report calls upon the policymakers of countries facing severe resource constrains to attach a balanced priority to various sectors and give due attention to agriculture, especially to increasing investment in the sector.

The report correlates agricultural development with achievement of the UN Millennium Development Goals of halving extreme poverty and hunger by 2015. It acknowledges that, despite convincing successes, agriculture has not been used to its full potential in many countries because of anti-agriculture policy biases and underinvestment, often compounded by mis-investment and donors’ neglect, at the cost of severe human sufferings.

‘A dynamic “agriculture for development” agenda can benefit the estimated 900 million rural people in the developing world most of whom are engaged in agriculture and who live on less than $1 a day,’ the World Bank Group president, Robert B Zoellick, told the launching ceremony of the report in Washington on Friday.

‘We need to give agriculture more prominence across the board. At the global level, countries must deliver on vital reforms, such as cutting distorting subsidies and opening up markets, while the civil society groups, especially the farmers’ organisations, need more say in setting the agricultural agenda,’ Zoelink maintained.

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