Deep Dive into the Challenges across the Agriculture Value Chains of Bangladesh

Covid-19 Series

Farah Hamud KhanNahian Hasnin

Eqra Mohammad Resalat OheeMd. Tanjim Morshed

Deep Dive into the Challenges across the Agriculture

Value Chains of Bangladesh

Agriculture Sectors Covered: Food Crops and Vegetables

Covid-19 Series

In Bangladesh, where more than half of its population (63%) resides in the rural fringes, the agriculture sector plays another critical role beyond ensuring sustenance—it is the main source of livelihood for many.¹ Although the sector’s contribution to GDP has subsided with economic growth to its current rate of 14%, it still warranties the livelihood of 41% of the population.²

The COVID-19 pandemic has left the Bangladesh economy, which had garnered praise for dynamic growth, in perplexity. The International Monetary Fund (IMF) predicted a 40-year low GDP growth rate of only 2% this financial year due to industry-wide losses and the consequent loss of jobs due to the pandemic.³ With the entire country under lockdown along with certain social distancing regulations, the labor-intensive agriculture is teetering on the edge of a major catastrophe.

To salvage the agriculture sector from the woes of the pandemic and prevent output and employment loss, it is critical to evaluate the

structure of the sector and the effects of the pandemic on each substructure. The agriculture sector can be divided into 4 main sub-sectors: Crops, Livestock, Fisheries, and Forestry. The main crop outputs consist of 3 food crops, Rice, Wheat, and Potato, and one cash crop, Jute. The pandemic, and the resulting lockdown, is affecting both employment and output of the food crop sectors. The effect is similar for other sectors such as, vegetable farming, lentil cultivation, etc.

Although the magnitude of the adverse effects of the pandemic will vary, almost all crop sub-sectors are reeling from production and supply chain disruptions, depressed pricing, labor scarcity, and simultaneous job losses.

1. Rural population (% of total population). (2018) - The World Bank

2. Statistics at a glance. (2018) - Ministry of Agriculture

3. Bangladesh GDP growth to hit 40-yr low at 2pc this FY: IMF - New Age Business

Source: USDA Foreign Agricultural Service

Land Distribution for Cultivation of Different Crops in Bangladesh

34%

27%

6%

5%

6%

3%

3%

3%

5%8%

Aman RiceBoro RiceAus RiceJutePulsesPotatoWheatMaizeVegetablesOthers

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Coronavirus Pandemic – Rice Cultivation continues to Face Uphill ChallengesClose to a quarter, 67%, of the total cultivated land is used for cultivating rice alone. The dominant varieties of rice grown are Boro, Aman, and Aus.4 Boro, the highest produced paddy in Bangladesh and known as the summer rice, is harvested during April–May. Using 27% of the cultivable land, Boro has been consistently giving high yield due to favorable weather and proper logistical management. Kishoreganj, Tangail, Jessore, Mymensingh, Netrokona, Bogura, Naogaon, Dinajpur, Rangpur, and Sunamganj are the prominent districts in Boro cultivation and brought in about 38% of the total Boro production of 2017–18.5

Aman, which is the second-highest produced paddy in Bangladesh, occupies almost 34% of the total cultivable land in Bangladesh.5 Aman is a type of winter rice and harvested during mid-November–December. The districts of Bhola,

Chattogram, Patuakhali, Mymensingh, Bogra, Naogaon, Dinajpur, and Rangpur are the frontrunners in Aman production and together produced more than 25% of the total Aman output in FY 2017–18.5

Aus, known as an autumn rice or pre-kharif rice, is harvested during mid-July–August.5 Lower productivity causes reluctance among farmers to cultivate this breed. Bhola, Barguna, Cumilla, Naogaon, Chapai Nawabganj, Rajshahi, Hobigonj, Moulvibazar, and Sylhet contributed to more than 50% of the Aus production in 2017–18.5

The harvesting of Boro and the sale of Aman is expected to take a hit. In fact, farmers have reported dreading a significant slump in harvesting Boro due to high scarcity of farm labor.

Although the government has announced an allocation of BDT 100 crore to procure machines for harvesting paddy and reduce the dependency on labor to stop the disruption of Boro cultivation, this will only retain 20% of the target of 20.43 million tons of Boro paddy in FY 2019–20.6

Additionally, according to the Bangladesh Bureau of Statistics (BBS), farmers from around 25 districts depend on farm labor from other places for harvesting. The distribution of labor across Bangladesh is highly unequal and laborers move to the respected destinations during the harvesting time of different crops. However, due to the lockdown there are retractations on movements that have disrupted the seasonal flows of agricultural labor. Farm labor scarcity will impede production and dampen income for farmers.

The shocks to production have distorted demand-supply dynamics in the rice market. The tendency of panic buying among people has

4. Bangladesh Grain and Feed Annual 2018 - USDA

5. Statistical Year Book Bangladesh 2018 - Bangladesh Bureau of Statistics

6. Covid-19 pandemic puts paddy harvesting under threat in Bangladesh - Dhaka Tribune

The COVID-19 pandemic is expected to endanger both the production of these crops and the livelihood of the people who are involved in the production, although the effects will vary by rice variety due to differences in cultivation seasons.

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created an artificial price hike in the end-market. The spike in prices is, naturally, exacerbated by disruptions in transportation, although the government has confirmed that transport for daily necessities and agricultural products will be operating regularly.

While consumers are having to pay more for rice, the higher prices are not enough to compensate farmers for the rise in production costs due to labor scarcity. Farmers are having to incur costs that are 10 times higher than usual and are even selling off their output at cost price or less to cut their losses.7

The adverse effects on the rice industry are confirmed by the recent, nationwide study that was conducted by LightCastle Partners. The study surveyed 160 rural farmers and workers across 8 divisions to analyze the impact of the coronavirus pandemic on low-income and lower-middle-income rural population. The analysis reveals that 16% of 160 respondents, who are involved in paddy and other cereal crops farming, have observed an income loss of 39% in March–April 2020.8

Respondents who identified as daily agricultural laborers, about 13% in the survey, have experienced a drop in their income by 67% in the same time period.8 With the upcoming Aus harvesting season, there will be more output loss in the absence of strategic solution implementation.

Potato Farmers Managed to Land on their Feet

The output of one of the highest gross value-adding crops of the country, potato, might also be impeded by both labor scarcity and logistics disruptions.5 Most varieties of potatoes are harvested from February to March.

However, some farmers are worried about the possibility of imminent losses due to a prolonged disruption in the supply chain, for example, scarcity of farm labor, difficulty in transporting potatoes in cold storage, etc.7

Global Supply Chain Disruption and the Shortage in Wheat The wheat consumption of Bangladesh is heavily dependent on imports as it is the fifth largest wheat importer in the world.¹0 Nearly 75% of the total wheat consumed was imported in the Financial Year 2018–19.¹²

In May 2018–April 2019, Bangladesh imported wheat from -¹¹

Although rice farmers in LightCastle’s study have experienced a 7% rise in farmgate prices, it may not be enough to cover the higher production costs.

As of 4th April 2020, farmers enjoyed a good potato yield and enjoyed fair prices.9 LightCastle’s study also reveals a 20% increase in the farmgate price of potatoes.8

7. Coronavirus hits agriculture hard - New Age Bangladesh

8. Impact of Coronavirus on Livelihoods: Rural and Low-Income Population of Bangladesh – LightCastle Partners

9. Record output likely, fair price makes potato farmers happy – Bangladesh Post

10. Bangladesh fifth largest wheat importer – Prothom Alo

11. Bangladesh Grain and Feed Annual 2019 – USDA Foreign Agricultural Service

12. COVID-19 Changes Global Wheat Trade Dynamics - US Wheat Associates

Russia - 43%Ukraine - 25%

Canada - 15%United States - 13%

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This will result in a shortage in the global market and lead to higher prices for all the countries that are reliant on wheat imports, including Bangladesh.

Domestically produced wheat also plays a significant role in the supply chain and added BDT 25,791 million in the FY 2017-18.¹0 However, domestic production is not adequate to meet the existing demand. With the lockdown in effect, wheat farmers will suffer as well. Experts have warned that there might be a nationwide wheat shortage if local and global supply chain disruptions persist.¹¹

Bangladesh to Face a Probable Shortage in Pulses

Bangladesh produces a variety of pulses, such as Masur (Orange Lentil), Black Gram (Mashkalai), Green Gram (Mung), Kheshari, Arhar, and Pea (Motor). Masur (Orange Lentil) and Kheshari are the most produced.

The shortfall in the local output can be explained by unfavorable weather for lentil production and the shutdown of lentil processing mills due to the lockdown. LightCastle’s study reported a 29% increase in the farmgate prices of lentils. This could be due to panic buying of lentils, which like rice, can be stored for longer periods of time. As Masur (Orange Lentil) is an essential commodity, higher prices mean that low-income citizens will be struggling to ensure their daily nutrient intake.¹¹

Bangladesh has an annual demand of 1.3–1.4 million tons of pulses, of which it produces only 0.38 million tons, according to the Ministry of Commerce and BBS.¹4 The country imports from Australia, Canada, Nepal, and India. Experts have also warned about a possible pulse shortage as the exporting countries may be unable to resume normal production due to the pandemic.¹5

Dire Struggle of the Vegetable Farmers

Vegetables produced in Bangladesh can be divided into 2 broad categories: Summer (Kharif) and Winter (Rabi) vegetables. More vegetables are produced in winter (2,372,351 metric tons) compared to summer (14,87,715 metric tons).5

The major summer vegetables produced in Bangladesh are Pumpkin, Eggplant, Pointed Gourd, Ridge Gourd, Bitter Gourd, Cucumber, Green Papaya, Green Banana, etc. Green Papaya, Green Banana, Pumpkin, and Kharif Eggplant are the most produced.5 The production of summer vegetables was most concentrated in Khulna and Rajshahi divisions, followed by Dhaka and Chattogram, in 2017–18.

Eggplant, Cabbage, Cauliflower, Tomato, Radish, Carrot, etc., are the most prominent winter vegetables in Bangladesh. As in the case with summer vegetables, the northern regions are leading producers of winter vegetables, with Rajshahi having the highest tomato yield.

These countries have started to cut down on exports to stabilize their local wheat prices.¹²

LightCastle’s study reported a 29% increase in the price of pulses, which may be due to panic buying by consumers, surge in import costs, and shortfall in local output.¹³

13. Pulse, loose edible oil get pricier – The Financial Express

14. Pulses import rises amid static local output – The Financial Express

15. Experts warn of food crisis if COVID-19 is prolonged – The Independent

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Production of Summer Vegetables in Bangladesh, 2017–18 (in Metric Tons)

Source: Bangladesh Bureau of Statistics (BBS)

Unlike rice and lentils, vegetables are easily prone to spoilage. As a result, farmers cultivating onion and summer vegetables have been forced to lower the prices of their produce due to perceived low demand.8 As of April 28th, bitter gourd was selling for BDT 8 to BDT 10 per kg, which is a steep drop from its price of BDT 30 per kg at the beginning of the month.¹6 Similarly, the prices of

bottle gourd (lau), laushak, spinach, and onions dropped by 23%, 12%, 8%, and 40% respectively.8 Other fresh vegetables, such as cauliflower, cabbage, pumpkin, etc., were sold at one third of their prices compared to the beginning of the month.¹² In Rajbari, onion prices fell to almost half to the production cost. Farmers all over the country, including Jessore (a district famous for

its vegetable production), are unable to market their products because of challenges in transporting the produce. From Rajbari and Pabna, the average number of trucks entering Shyambazar dropped from 60–80 to only 8 per day.8

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16. Impact of Covid-19: Dipping vegetable prices dragging farmers down - The Daily Star

Source: Bangladesh Bureau of Statistics (BBS)

Production of Winter Vegetables in Bangladesh, 2017–18 (in Metric Tons)

The dip in prices has spread panic among vegetable farmers; some are selling off produce as fast as they can, sometimes even at breakeven prices. Many of them are, therefore, unable to even regain their investments in this scenario. Farmers

involved in vegetable farming are in an economically vulnerable situation as their income dropped by 74%, as revealed by LightCastle's study.8 With the summer vegetable harvest at hand, the supply chain disruptions are preventing

farmers from recovering their initial investments and crippling their ability to reinvest in their crops the following year.

Unlike rice and lentils, vegetables are easily prone to spoilage. As a result, farmers cultivating summer vegetables have been forced to lower the prices of their produce due to perceived low demand. Farmers involved in vegetable farming are in an economically vulnerable situation as their income dropped by 74%, as revealed by LightCastle's study.

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Impact of Coronavirus on the Agricultural Daily Labor

According to the LightCastle Partners study, 13% of the respondents were involved in daily labor of agriculture. Analyses of income data reveals that the income of this group was expected to drop by 67%. Agricultural laborers mentioned that summer is the prime time for their income generation, and the majority of their income comes from the rice harvesting.8 Many agricultural laborers solely depend on the harvesting seasons for their livelihood and move from one part of the country to earn a living.

Agriculture Sector to be Hit on All Fronts

The COVID-induced lockdown is striking all parts of the agriculture sector’s value chain, such as backward and forward linkages. Unlike other sectors, which are suffering from recessionary effects (fall in demand), the agriculture sector still needs to churn out ample output to meet the nutrition demands of the population. However, like other hard-hit sectors, production in the agriculture sector has been severely hindered by social distancing. As a result, the agriculture sector is suffering from both labor scarcity and unemployment at the same time, and this situation is perilous for sustenance and livelihood alike. On top of that, agriculture labor is unevenly distributed throughout the nation, which amplifies the negative effects.

The breakdown in logistics and storage facilities could lead to low output, severe

wastage, and food shortage—all at the same time. The gaps in transportation will prevent swift delivery of agro-inputs, such as fertilizers, seeds, pesticides, etc., to farmers. This will significantly deter production levels as well. Post-production, lack of proper transportation and storage will lead to significant spoilage of some crops. At the same time, food cannot be transported to areas of high need, pushing the impoverished population closer to economic hardship.

Compromised output and supply chain malfunctions are augmenting price distortions, increasing farmers’ woes. The LightCastle study states that crops, such as rice and lentil that can be stored for longer periods, have become more expensive. On the other hand, farmers who cultivate more perishable goods, such as vegetables, must sell at lower-than-usual prices to intermediaries in an act of desperation.

Due to the lockdown, it has become impossible for the farm laborers to move to the respected destinations. Thus, farms are in a scarcity of laborers, and simultaneously, laborers have also lost their sole mean of earning.

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Changes in Prices of Food Crops

Source: LightCastle Partners Primary Research

It should, therefore, come as no surprise that LightCastle’s income analyses of 160 farmers and rural workers revealed current and expected income drops. About 80% of respondents experienced a decrease in income from February to March, and 93% of respondents expect their

income to decrease further in April. About a quarter of respondents expect to have no income in April, and 55% have no savings to fall back on.8

The public and private sector’s response to the distress of the agriculture sector is critical. Policy

implementations will need to tackle the problems of low production, output spoilage, low labor supply, unemployment, falling incomes, price distortion, etc., simultaneously.

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Government Policies to Minimize Damage

To mitigate the impediments to the agriculture sector and attenuate output and livelihood loss, the Government of Bangladesh announced a series of policy implementations. The mitigation efforts are aimed at:

Restoring agricultural employment

Reducing output loss through technology support

Bridging supply chain breakdowns, etc.

Government Stimulus Packages

Bangladesh Bank has set some policies for the agriculture and rural sector under the ‘Agricultural and Rural Loan Policies’. According to the policies, banks are instructed to allocate at least 60% of the total loan amount to the grain and crop sector. For the current fiscal year, banks still have BDT 14,500 crore for this package.¹7 Bangladesh Bank has also declared BDT 5,000 crore stimulus packages for other agriculture

sectors that include Flower, Fruit, Fish, Poultry, Dairy, and Livestock. The central bank has given responsibility of disbursing these loans to the commercial banks. The farmers or traders of agricultural products within these sectors can avail loans at a subsidized rate of 4% through these commercial banks.¹7

Besides this, the government has announced a BDT 3,000 crore subsidy package for the low-income groups. It is divided into 2 categories: loans for income-generating activities (farming, growing crops, etc.) and loans for entrepreneurs (small businesses and farms that employ people). The parties that are allowed to seek loans under this category are:

1. Low-income Professionals

2. Low-income-generating Individuals or Enterprises

3. Farmers

4. Ultra-small Businesses

5. Poor, Ultra-poor people and women from deprived communities

The fund will be initially issued to commercial banks by Bangladesh Bank at 1% interest rate. The commercial banks will be responsible for issuing these loans to microcredit organizations at 3.5% rate.

The farmers can seek loans under both the categories, according to the size of their operations. The loans will be provided in the form of microcredit at interest rates set by the (microcredit) organizations. The time for repayment by farmers will be decided by the type of business, turnover, and the crop calendar.

Supply Chain

The government has declared all transportation carrying seeds, fertilizers, and any other agricultural products to be outside the purview of the countrywide lockdown. The farmers were provided with the Department of Agriculture (DAE) contact numbers so that they could promptly contact to avert possible challenges. The Prime Minister has also instructed keeping a weekly market system open in every area while

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17. Agricultural Credit Division (ACD) – Circular No – 01 – Bangladesh Bank

18. Financial Inclusion Department (FID) – Circular No – 01 – Bangladesh Bank

maintaining social distancing.¹9 To ensure farmers get fair prices, the government has also promised to buy paddy directly from farmers at BDT 26 per kg and rice at BDT 36 per kg during Aman season.²0

Labor MarketThe measures taken by the government are designed to reduce rice output loss and unemployment. The government has allocated BDT 100 crore to help farmers buy harvester machines at subsidized prices in the Haor area (Sylhet basin), which is one of the high Boro (rice)-producing areas of Bangladesh.6 According to the DAE, a total of 180 combined harvesters and 137 ripper machines have been allocated for districts in that area.5 6 The Ministry of Agriculture has deployed at least 60,000 workers (from all over the country) to the area, under special government measures. The government has also made special arrangements for transportation of these laborers.²¹

Room for Policy Reform

The government policy initiatives, if implemented swiftly, will diminish some of the grievances of the agricultural sector. The supply chain initiatives, for example, may lessen the burdens of price distortions. The introduction of agriculture machinery will attenuate the problems of labor scarcity. The loans may help to offset some of the main production costs that are not being recovered by prices.

However, the policies introduced should also target to assist daily agricultural laborers. One of the hardest hit groups, daily agricultural laborers will not be fully aided by the supply chain initiatives of the assistance programs. Assistance for food and medicine supplies may prove highly beneficial for this group. A nationwide, consolidated database of landless, rural, agricultural and transport sector workers should be prepared to disburse direct cash and in-kind support on an urgent basis.

A dynamic food distribution system, other than weekly markets, will reduce spoilage and accelerate the distribution of crops from areas of production to areas of consumption. The government should take steps to reduce the involvement of middlemen in different supply chains. This would diminish the risks of price hikes due to (prohibited) hoarding of food.

Private sector players, such as fertilizer and seed companies, must be heavily involved in salvaging the agricultural sector. Input producers, for example, can partner with the government to increase accessibility and affordability of agricultural inputs. Private sector players and farmers are facing similar conundrums and involving the former in efforts will benefit both groups.

The agricultural sector ensures the livelihood of many and nutrition for all. It is imperative that interventions be implemented accurately and quickly to recover from the aftershocks of the pandemic.

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19. PM unveils fresh Tk5,000 crore stimulus package for agriculture - The

Business Standard

20. Govt to subsidize farmers with Tk 9,000cr to minimize COVID-19 fallout -

The Independent BD

21. Boro crops must be harvested on time - The Daily Star

The Rural Economy Must Brace for Long-Term Upheaval The rural economy has been hit hard due to disruptions across different agricultural value chains and a sudden decline in inward remittances from domestic and international sources. The rural market has already experienced a sudden decline in purchasing power, which might persist at least for the next couple of quarters. All government support must be maintained, at least till the end of 2020, until the situation normalizes.

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Disclaimer:

All information contained herein is obtained by LightCastle from sources believed by it to be accurate and reliable. Because of the possibility of human or mechanical error as well as other factors, however, all information contained herein “As IS” without warranty of any kind.

LightCastle adopts all necessary measures so that the information it uses is of sufficient quality and from sources LightCastle considers to be reliable including, when appropriate, independent third-party sources. However, LightCastle is not an auditor and cannot in every instance independently verify or validate information received in preparing publications.

Farah Hamud Khan - Senior Business Consultant & Project Manager

Nahian Hasnin - Business Analyst

Eqra Mohammad Resalat Ohee - Trainee Consultant, Content

Md. Tanjim Morshed - Creative Design Associate

LightCastle Partners

Level 5, House 10/12, Road 1, Block B, Niketan

Gulshan 1, Dhaka 1212, Bangladesh.

Email: info@lightcastlebd.com

Mobile: +88 01711 385988, +88 01747 353438

Web: www.lightcastlebd.com

Data on Demand Platform: databd.co

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