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Book Review
Food marketing and price stability
RAGHU DAYAL
FROM PARASTATALS TO PRIVATE TRADE — Lessons from Asian Agriculture: Edited by Shahidur Rashid, Ashok Gulati and Ralph Cummings Jr.; Oxford University Press, YMCA Library Building, Jai Singh Road, New Delhi-110001.
Rs. 645.
While delineating the evaluation of agricultural parastatals in six Asian countries (Bangladesh, India, Indonesia, Pakistan, the Philippines and Vietnam), the book, which is a result of a project undertaken by the International Food Policy Research Institute (IFPRI), emphasises the need for reforms to switch over from “heavy government intervention to a more market-friendly and cost-effective system.” Perhaps inherent in the structure of the book through the ni
ne chapters divided into four parts, the issues get often repeated. It addresses three main aspects: why parastatals have persisted in Asia and why they need to change; their role and efficacy in the respective countries; and how the change should come about — gradually or abruptly.
Case studies
The specific case studies across the six countries in South Asia and Southeast Asia indicate that although price policies and parastatals did promote technology adoption, boost agricultural production, and reduce poverty in the early years of the Green Revolution, they became increasingly counterproductive in course of time. Part I includes a cross-country synthesis of the six countries, revealing five significant conclusions: the familiar arguments of poorly integrated domestic markets, technology promotion, volatile world markets, and international liquidity constraints are no longer convincing; many countries continue to practise their old set of policies and extend regulatory support to the parastatals; the cost of price stabilisation have been high and are increasing vis-À-vis those of the private sector; the food marketing parastatals are increasingly influenced by special interests and rent seekers; and liberalisation of grain markets has benefited the economy.
As further reinforced in the final chapter, the synthesis holds a crucial message: times have changed and policies that may have served a useful purpose some 30 years ago are no longer optimal. Even if private trade can be relied on to ensure efficient resource allocation, the government has still an important role to play. The need for social safety nets (SSNs) and price stabilisation within a reasonable price band will remain.
Contrasting experience
The South Asian empirics in Part II suggest contrasting experiences: the Indian subcontinent’s legacy of food rationing is manifest in all the three countries under study. Free trade of food grain in India was short lived; by the middle of 1955, prices started rising and government controls on grain trade re-emerged. Struck by two consecutive droughts, India’s experience in the mid-1960s was traumatic: its entire foreign exchange reserve of $419 million could help it buy only 6.76m tonnes of wheat against the need of a minimum of 10m tonnes. After having called off food assistance under PL 480, the U.S. eventually bailed it out with some 8m tonnes of food aid. Pakistan has used the Pakistan Agricultural Storage and Services Corporation (PASSCO) and the Provincial Food Department (FPD) for procurement, stocking and distribution, whereas the Directorate General of Food controls for import of wheat. In contrast, Bangladesh has reduced public intervention, increased competition in the domestic market, reduced food subsidy bills, and allocated more resources to development and antipoverty projects with an emphasis on programmes for the poor such as Food for Education, Food for Work, and Food for Asset component of the integrated food security programme. The share of public food in poverty alleviation programmes increased from 32 per cent during the pre-reform period (1971-72 to 1991-92) to as high as 85 per cent and annual food subsidy bills declined from $122 million in the 1980s to about half that amount in the 1990s.
Dynamics
Of the three ASEAN area case studies in Part III, poor performance of the Badan Urusan Logistik- Food Logistics Agency (BULOG) in Indonesia is highlighted against the backdrop of its successful price policy in the 1970-80s. The National Food Authority (NFA) in the Philippines has had mixed achievements at best. The indirect costs of NFA’s operation have rendered it as “a non-functioning entity” that may well be dismantled. Like Bangladesh, Vietnam has demonstrated the efficacy of reduced intervention, contributing to market development and efficiency gains. With rice production growing at the rate of 5.6 per cent over the 1988-95 period, Vietnam transformed from a chronic food deficit country to a leading exporter of rice in Asia. Its Doi Moi, a new policy initiative in 1986, triggered a market-economy-like approach. Rice production boomed from less than 12m tonne to 19m tonne level, food output increasing by 1m tonne annually since 1989, and yield rates more than doubled.
Each country has its own dynamics, political sensitivities and governance structures. Changing the current paradigm does not imply a complete withdrawal of government from the market. Governments will continue to have to play an active role in protecting low-income or vulnerable communities, managing the consequences of natural disasters, and improving market infrastructure and institutions. Not all parties understand that subsidies are not necessarily beneficial for the small-holders for whom they are often intended.
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