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Agricultural Trade Liberalisation and Welfare of Rural Households in Bangladesh: a Complementary Policy Framework

Dayal Talukder
ICL Business School, Auckland, NZ

Love Chile
Auckland University of Technology

Abstract/ Executive Summary:

The purpose of this paper was to analyze the impact of agricultural trade liberalization on the welfare of rural households in Bangladesh with a view to providing a complementary policy framework. The study used data from both primary and secondary sources and applied multiple mathematical, statistical and commercial models to achieve its objective. The study found that agricultural trade liberalization had positive impacts on the welfare of rural households. However, the liberalization policy was not effective in bringing about its full potential due to shortcomings associated with socio-economic factors and weak economic institutions. It argues that the impacts of agricultural trade liberalization on the welfare of rural households depend not only on liberalization itself but also on other complementary reforms in non-trade areas. It recommends a complementary policy framework along with trade reform policies needed in the rice markets focusing on institutional changes.

Keywords: Agricultural trade Liberalisation, Rice market, Complementary policies, Bangladesh

Location: Shrimotapur village of Comilla Sadar Upazila in the Comilla District of Bangladesh.

Start Date:

End Date:

Program Area: Socio-economic and Policy

Non-commodity: Market analysis

Objectives:

Methodology:

Research Methods and Models: This study applied mixed method research – a combination of the elements of both quantitative and qualitative methods for the broad purposes of breadth and depth of understanding and corroboration with a view to providing a better understanding of the research problem and better addressing the research questions than either method alone. It employed the ex-post analysis using data from both pre-liberalisation (between 1971-72 and 1985-86) and post-liberalisation (between 1986-87 and 2005-06) periods with a view to presenting a comparative analysis between pre-liberalised and post-liberalised scenarios of household welfare. It attempted to investigate multidimensional aspects of the impact of agricultural trade liberalisation on the welfare of rural households in Bangladesh in the following two broad contexts: changes in productivity and prices of rice. It also examined the effects of changes in productivity and the prices of rice on household income and consumption; and income distribution, inequality and poverty in the rural economy. These changes are multidimensional in nature. Therefore, this study used multiple mathematical, statistical and econometrical models to achieve its objectives. Data: The study used data from both primary and secondary sources to achieve its objectives. It used time series data (annual) on input and output of rice from the Handbook of Agricultural Statistics 2007 (Ministry of Agriculture, 2007), and Bangladesh Economic Review 2008, 2009 and 2010 (Ministry of Finance, 2008, 2009, 2010). It also used data from various statistical yearbooks of the BBS. These data were in both aggregated and disaggregated forms, such as total rice production (aggregated) and distribution of total rice production by three main rice crops – Aus, Amon, and Boro (disaggregated). Similarly, it used data on household income and consumption from various household surveys of the BBS including Household Income and Expenditure Survey 2005 (BBS, 2007), Household Income and Expenditure Survey 2000 (BBS, 2003), Household Expenditure Survey 1995-96 (BBS, 1998), Household Expenditure Surveys 1985- 86 (BBS, 1988), and various statistical yearbooks of Bangladesh. It also used data from the World Bank, the UNDP, the WTO, and the IMF. The above data from secondary sources could not provide all information necessary for this study. The missing information included: characteristics of different groups of rural households such as farmers and non-farmers; their involvement with rice markets such as household rice selling and buying behaviours; their involvement in non-farm activities; characteristics of rice cultivation and input usages; costs of rice production; impacts of rice cultivation on natural resources and the environment; transportation and rural infrastructure; and changes in other socio-economic conditions in the rural economy as a result of agricultural trade liberalisation. In order to overcome the above data constraints, fieldwork was undertaken for collecting primary data from the Shrimotapur village of Comilla Sadar Upazila in the Comilla District of Bangladesh. Questionnaire and face-to-face interview techniques were used for collecting primary data. A structured survey questionnaire was designed with both closed ended and open-ended questions. Therefore, the datasets included both quantitative (closed-ended) information through using a closed-ended checklist and qualitative (open-ended) information through interviews with participants. The household head or a senior person of the household who had access to information of all household members answered this structured interview questionnaire. The researchers conducted the structured interview through asking participants the questions and recording their answers. The study used both probability and non-probability sampling methods for the field survey to collect primary data. Using convenience and judgment sampling, non-probability sampling methods, Comilla District, Comilla District, Comilla Sadar Upazila, Chouara Union from that Upazila and Shrimontapur village from that Union were selected as the field survey sites. Based on cluster sampling, the households of the selected village were divided into three clusters (A, B and C) and then, using the random sampling technique, the cluster C was selected for the field survey. The study surveyed all 60 households from this cluster. Therefore, the sample size of this survey was 60 households of that village.

Source of Information: Journal of Economic and Social Policy: Vol. 16: Iss. 2, Article 5.

Article Link (Online Journal): http://epubs.scu.edu.au/cgi/viewcontent.cgi?article=1253&context=jesp

Funding Source:

Budget:

Total Budget (Tk.) :

Achievement/Findings:

The findings of this study suggest that agricultural trade liberalization had positive impacts on the welfare of rural households in Bangladesh. However, the liberalization policy was not effective in bringing about its full potential due to shortcomings associated with socio-economic factors and weak economic institutions. These shortcomings include market failure (market imperfection), weak macroeconomic policy, institutional weakness, and inadequate rural infrastructure. The study argues that the agricultural trade liberalization policy fell short in improving income distribution amongst rural households and reducing inequality to bring about a larger reduction in poverty than that experienced by rural communities. The study pointed out that the agricultural trade liberalization policy was not adequate to confer a benefit upon the poor households. It suggests that other complementary polices are required to increase the effectiveness of the agricultural trade liberalization policy for conferring benefits to the poor. Similarly, farm households experienced a smaller gain than non-farm households from this liberalization process, suggesting that additional policies are required to transfer benefit to farm households because they are the driving force of the rural economy in Bangladesh. Furthermore, the agricultural trade liberalization policy caused damage to the environment because of an increase in the inappropriate use of chemical fertilizers and pesticides in the postliberalisation era. Therefore, the government should consider the recommended policies to improve the welfare of rural households. Therefore, the authors argue that the impacts of agricultural trade liberalization on the welfare of rural households depend not only on liberalization itself but also require other complementary reforms in non-trade areas.

Knowledge Management: Journal