From Parastatals to Private Trade

5 Public Food Distribution System in Bangladesh: Successful Reforms and Remaining Challenges A. M. M. SHAWKAT ALI, ISHRAT JAHAN, AKHTER AHMED, AND SHAHIDUR RASHID Despite beginning its journey with a war-torn infrastructure in 1971, haunting experiences of a famine in 1974, and repeated bouts of floods and other natu• ral calamities, Bangladesh is now widely recognized for successfully trans• forming its grain market structures. Behind this success is a series of reforms, which included, among others, dismantling the food rationing system and eas• ing restrictions on both domestic and international trade of grain in the early 1990s. Available studies suggest that the policy reforms have produced all the desired outcomes—that is, increased private-sector participation, reduction in food subsidy bills, higher food availability, and increased stability of grain prices (Ahmed, Haggblade, and Chowdhury 2000). Furthermore, unlike many other developing countries, the reforms did not provoke popular protests. How did it all happen? Clearly, a host of factors contributed to the success, but the answer to the question in large part lies in the government's commitment to changing the old set of policies and redefining its role in the grain markets.1 By the late 1980s, evidence on the ineffective, or even counterproductive, nature of the old set of policies was mounting, and the government and its de• velopment partners were convinced that the country's food policies had to be changed. Both food rationing and public procurement were found ineffective; and none of the then-existing public distribution programs were reaching the poor. However, given the level of food insecurity, as well as vulnerability of the country to natural calamities, it was also clear that complete government with• drawal from the cereal markets was not a feasible reform option. This chapter is a combination of two papers, "Public Food Distribution System (PFDS) in Ban• gladesh: Successful Reforms and Remaining Challenges" by A. M. M. Shawkat Ali and Ishrat Jahan and "Grain Market Liberalization and Social Safety Nets: Lessons from Bangladesh" by Akhter Ahmed and Shahidur Rashid. In effect, elements of the latter were integrated into the for• mer. The papers were presented at a workshop titled "Agribusiness: From Parastatals to Private Trade—Why, When, and How?," jointly organized by IFPRI; the Centre for Economic and Social Studies (CESS), Hyderabad, India; and the Institute of Economic and Social Research (LPEM), University of Indonesia, which took place December 15-16, 2003, in New Delhi. 1. Other significant factors include the defusing of various stakeholders, changes in politi• cal regimes in the country, reforms in Indian agricultural trader policy, as well as declining food prices in the country. For a detailed discussion of the political economy of reforms in Bangladesh, see Chowdhury and Haggblade (2000). 103 104 A.M.M. ShawkatAli et al. Thus, the government had to strike a balance between the two objectives and find policy actions that would complement each other. While interventions were significantly reduced, increasing emphasis was placed on strengthening the country's SSN programs for the poor. The underlying idea was that lifting restrictions on grain trade would change the incentive structure (that is, estab• lish the right prices) and help markets develop through greater private-sector participation. The government would then focus on playing its legitimate pub• lic role—that is, reaching the poor, who did not have the purchasing power to buy from the markets. This realization led to a shift in policy emphasis that brought about sig• nificant changes in the dual pricing policy paradigm. Instead of using public distribution as an outlet for public procurement and price support, the empha• sis shifted toward SSN and disaster-mitigation programs; procurement and stocking were carried out only to the level necessary to meet those programs' demand. This shift in policy emphasis is unique in the region, and the country has traveled a long way, with redefined policy objectives, since it embarked on the market reforms in the early 1990s. The experiences have been rich in terms of setting goals, devising new institutional arrangements, and dealing with the evolving challenges of food security threats. This chapter analyzes these expe• riences by reviewing the trends of reform measures in the Public Food Distri• bution System (PFDS), assessing the performance of the PFDS, and identifying the future directions in the context of international trade liberalization, right-to- food issues, and SSN issues. Genesis and Evolution of the PFDS Bangladesh shares the same colonial history of public intervention in grain mar• kets with India and Pakistan. The nature and extent of interventions during the East Pakistan era and the first two and a half decades of Bangladesh are well documented in Ahmed, Haggblade, and Chowdhury (2000). This section pro• vides a brief history of pre-Bangladesh policies and focuses largely on market liberalization and the emergence of SSN programs. Accordingly, it is divided into three subsections: policies before Bangladesh's independence, market lib• eralization, and increasing emphasis on SSN programs. Policies before Bangladesh's Independence (1939-71) Bangladesh was under British rule until 1947 and was a province of Pakistan until 1971. During British rule (1939^17), the regulatory framework consisted of the Bengal Rice Mill Control Order of 1943 and Bengal Rationing Order of 1943. The first legislation required licensing of rice mills and reporting of stocks; the second elaborated the regulations for the rationing system under which the government sold grain to consumers. Two different rationing systems Public Food Distribution System in Bangladesh 105 were in operation: Statutory Rationing for urban centers and Modified Rationing for nonurban areas. The focus during the Pakistan regime was on so-called protection of the grain markets; the policy focus was on smuggling prevention, export prohibi• tion, and restrictions on grain movements and private stocks. Although there had been name changes of the public agencies, such as renaming the former Civil Supply Department as the Department of Food, the broad policy frame• work remained the same until the mid-1950s. The major instruments continued to be the Bengal Rice Mills Control Order, Bengal Rationing Order, and the Es• sential Supplies (Temporary Powers) Act of 1946. During the mid-1950s, the government dismantled the rationing system, sold off all public food stock, and retrenched all employees connected with the system. This policy reform, however, had to be reversed following a bad aman (rain-fed rice) harvest combined with political agitation in January 1956 (Ahmed, Haggblade, and Chowdhury 2000). The new regulatory framework consisted of as many as 14 legislative acts or regulations with specific purposes, which were not vastly different from those of the colonial days. It almost made grain trade a government monopoly, once again reflecting the political perception of the need for control over foodgrain markets. Major Reforms since 1971 A summary of the major food policy reforms since 1974 is presented in Table 5.1. In terms of the whole policy cycle, the events presented in this table can be divided into three main thematic lines: realization of the problems, experimen• tation with alternatives, and innovations and reforms. The realization of the problems came early on when the country witnessed an upsurge in the PFDS, as the first government of the independent Bangladesh, led by the Awami League, opted for expanding the rationing system. Furthermore, in the early 1970s, there was a large influx of food, which, in the absence of other programs, was routed through rationing channels. However, the donors soon realized the inefficiency of the rationing system and advocated a progressive shift toward a pro-poor policy of in-kind distribution programs. This push heralded a shift in policy fo• cus from rationing to conditional transfer programs, which is reflected in the in• troduction of Food-for-Work and the Vulnerable Group Development (VGD) in 1974 and 1975, respectively. However, the issue of reducing subsidies still remained, and the Planning Commission advocated phasing out rationing subsidies in 1978, which resulted in various policy experimentations. One of the first actions was to link the ra• tion price with the procurement price, which reduced rents in public distribu• tion and ultimately made them unattractive to consumers. The other initiatives during the 1980s included abolition of the Modified Rationing system, intro• duction of Rural Rationing and the Rural Maintenance Program, and with- 106 A.M.M. ShawkatAH et al. TABLE 5.1 Chronology of food policy reforms, 1974-2002 Year Policy decision 1974 Food-for-Work introduced 1975 Vulnerable Group Feeding (later renamed Vulnerable Group Development) introduced Preparatory phases 1978 Planning Commission advocated phasing out ration subsidies 1981 Subsidy reduction 1981 Subsidy reduction began with Public Law 480 agreement linking ration price to procurement price 1983 Rural Maintenance Programme introduced 1989 Modified Rationing system replaced by Rural Rationing system 1989 Restriction on in-country movement of foodgrain removed 1991 Rural Rationing suspended Food policy reforms 1992 Rural Rationing abolished 1992 Private wheat import allowed 1992 Restrictions on foodgrain lending rescinded 1992 Domestic procurement

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