PP-AA Z-2t1? 90 The P.L.-480 Title III Program in Bangladesh An Evaluation of the First 16 Months August 1978 - November 1979 USAID/Bangladesh December 13, 1979 TABLE OF CONTENTS I. Introduction II. Summary Findings and Recommendations III. Production, Prices and Public Food Distribution A. Production Trends B. Crop Yields (1) Current Situation and Trends (2) Yield Factors (a) Price Incentives (b) Fertilizer (c) Irrigation (d) Research and Extension (3) Constraints (a) Agricultural Credit (b) Land Tenure (c) Fertilizer Distribution C. Foodgrain Supply and Per Capita Consumption D. Prices and Public Food Distribution (1) Elasticity of Demand (2) Trend Analysis (3) Seasonal Analysis IV. The P.L. 480 Title III Agreement A. Background B. Terms of the Agreement C. Price Incentives (1) Objectives (2) Performance D. Price Constraints - OMS (1) Objectives (2) Performance (a) Program Operations (b) Impact on Coarse Rice Prices (3) OMS Objectives Reconsidered (a) Rice Price Constraint (b) Promotion of Private Sector Activity; The OMS Price (c) Food Security; OMS When Needed E. Local Currency Proceeds; Loan Forgiveness F. Self-Help Measures G. Recommendations (1) For the Amendment to the Current Agreement (2) For the Next P.L. 480 Agreement Annex A - The Impact of Procurement Annex B - Estimated Reserve and Storage Requirements Annex C - Food Distribution by Income Status; Urban vs. Rural Distribution Annex D - The Crop Reporting System Annex E - OMS and Flour Mill Allocations Tables (14) Charts (9) I. Introduction This is the third and most comprehensive joint U.S.-BDG evaluation of the P.L. 480 Title III Program. The basic Title III Agreement was signed on August 2, 1978, and amended on June 29, 1979. The first joint evaluation occurred in January 1979, and the second was completed the following June. Unlike the first two evaluations which were narrowly focussed, this one is broader in scope. It is intended to provide the basis both for significant changes to the current Agreement and for future Title III Agreements. Part II of this Report contains a summary of overall findings and recommendations; Part III examines the agricultural sector and the food system context in which the Program must operate; Part IV constitutes both an evaluation of the Bangladesh Government's performance with respect to Title III objectives and a reassessment of those objectives, with recommendations for change. The recommendations are confined mainly to the Amendment to cover the remaining term of the current Agreement (remainder of U.S. fiscal year 1980). A separate paper will provide detailed recommendations with respect to the next P.L. 480 Agreement. The research that provided the basis for this Report included visits to eight of the country's 62 subdivisions, undertaken during the period, Oct. 15 - 26, selected mainly on the basis of geographical diversity. The subdivisions visited were: Khulna Division Satkhira (Khulna District) Magura (Jessore District) Dacca Division Tangail (Tangail District) Goalondo (Faridpur District) Rajshahi Division Kurigram (Rangpur District) Thakurgaon fDinajpur District) Chittagong Division Brahmanbaria (Comilla District) Sunamganj (Sylhet District) Those participating in the evaluation, including the field trips, were Richmond Allen, W. T. Oliver and Jon O'Rourke from USAID; Dr. David Kunkel from USDA; and Dr. Richard Newberg, on temporary du. - with USDA. Accompanying the USAID/USDA teams on the field trips were Nizam U. Ahmed and Harun-al Rashid of the USAID Program Office; and Messrs. A. Siddiqui and A. Aziz, both Deputy Directors in the Directorate of Supply, Distribution and Rationing, Ministry of Food. II. Summary Findings and Recommendations A. Findings; ProductionFood Distribution and Prices (1) Stability and adequacy of production - Foodgrain Produc­ tion in Bangladesh is relatively stable on a year-to-year basis. From the Mid-1960's, and excluding the war years of 1971-72, production has not dropped more than a million tons (8 percent) from any one crop year to the next. The more important problem is the perennially inadequate level of production and its failure to increase significantly over time. Per capita foodgrain availability, i.e., production and imports com­ bined, is 6 to 7 percent lower than in the late 1960's. Thus, given the country's marginal subsistence level, even moderate year-to-year pro­ duction declines can assume a significance of crisis proportions. (2) Seasonality of production - Unlike the situation in most countries where the total crop is harvested in two or three months of the year, Bangladesh farmers now harvest foodgrains virtually the year-around. Instrumental in this situation has been the rapid growth of boro rice and wheat which are harvested during February-May and now account for about 20 percent of toklal foodgrain production. (Aman rice, which is harvested during November-January, accounts for about 55 percent of the total and aus rice, barvested during July-October, for the remaining 25 percent.) (3) Need for crop diversification - Given the year around pro­ duction potential, small farmers in most (but not all) areas can protect themselves from seasonal shortages and crop risks th-ough crop diversi­ fication. The need is for improved cropping systems, including new crops (potatoes, vegetables, oilseeds, etc.), and increased access to iputs, especially irrigation. (4) Price patterns - Despite the relative stability in the long term production trend, there have been extremely wide year-to-year price nwings in which crop shortfalls, low stock levels, and anticipa­ tion of reduced stock levels have all played a role. Thus, prices rose by 170 percent between 1974 and 1975, and by 70 percent between 1978 and 1979. On the other hand, as would be expected from the pattern of near year-around foodgrain production, seasonal price variations in Bangladesh have been relatively modest. The natural tendency is for prices to be highest, to about an equal extent, during the "lean seasons" of March-May and August-October. In fact, owing to the consistently higher level of offtakes under the Public Food Distribution System (PFDS) during August-October, prices have been highest during March-July. (5) Farmers' liquidity - Many farmers are in their best cash position of the year during August-October when they have just marketed their jute and mesta crops. Others have either just sold or are holding for consumption their aus rice. -2­ (6) Sto.k levels and offtakes - Decisions with regard to off­ take levels have been based mainly on stock availabilities. Thus, dis­ tribution has sometimes been high even when crops are good and prices low. As a result, strategic reserves do not accumulate; and since donors tend to base their allocations on stock levels, there is little incentive for the government to seek their accumulation. (7) Rice demand vs. wheat demand - Cross-elasticity of demand between rice and wheat has been generally strong, with wholesale wheat prices averaging about 65 percent of coarse rice prices. However, the relationship is relatively weak during March-May when both the domes­ tic wheat harvest and substantial supplies from the Food-for-Wo'k (FFW) Program arrive on the markets, and tends to be esrocially close during periods of generally reduced purchasing power. B. Title III Program (1) Incentive prices to farmers - Effective procurement programs, based on generallyadeguate incentive prices to farmers, were carried out during both the 1977/78 and 1978/79 rice harvests, and in the wheat harvest of 1979. The Government has shown itself to be more interested in procure­ ment for meeting the perceived needs of theration system than in the more appropriate objective of providing adequate incentive prices. (2) OMS Program - Evaluation of the OMS Program may be considered in terms both of program performance and of the appropriateness of program objectives. (a) Performance 1. Although coarse rice prices were well above the target price of rice in most areas during most of 1978-79, OMS sales have not approached the intended levels (total sales of 126,000 tons during Sept. 1978 - Oct. 1979 vs. the 400-600,000 tons allocated for the full 24-month period). Low stock levels were partly responsible (given the Title III provision that OMS need not take place when foodgrain stocks fell below 500,000 tons); yet stocks were adequate to support NR sales of 503,000 tons during the same period. 2. A high proportion of OMS sales was to flour iills. Such sales, while not prohibited by the terms of the Agreement, did not contribute to the main program goal of constraining coarse rice prices. 3. The objective of coarse rice price constraint was not achieved. Low stock levels and highly unusual market conditions had much to do with the program's failure in this respect, but so too did erratic program management and the evident preference of BDG officials for MR as a means of moving foodgrains to the rural areas. -3­ 4. Even under favorable conditions, it is unlikely that the rice price constraint objective could have been achieved to any significant degree. Seasonal differences in cross elasticity of demand between rice and wheat required a degree of fine tuning of the rice/wheat pricing structure that was not allowed for in the Agreement and would have been extremely difficult to effect in practice. 5. As market prices of wheat and atta rose far above the OMS price, the BDG established rigid operational controls. Dealers who purchased wheat at Tk.87/md. could resell at Tk.100/md., or in some areas, Tk.95/md. Individual allotments were restricted to from 2 to 5 seers per person, depending on the area. Licensing and selection of dealers became increasingly controlled and even politicized. In some areas, only MR card holders could purchase OMS wheat. Justified as a means of preventing "windfall profits", the effect of these measures was to turn OMS into another ration channel.