Aiub Bus Econ 2011 01

Developing Agribusiness Strategies for Bangladesh - An Analysis

Muhammad Mahboob Ali and Anisul M. Islam

Office of Research and Publications (ORP) American International University-Bangladesh (AIUB)

Working Paper No. AIUB-BUS-ECON-2011-01

Citation Muhammad Mahboob Ali and Anisul M. Islam (2011). Developing Agribusiness Strategies for

Bangladesh - An Analysis. AIUB Bus Econ Working Paper Series, No 2011-01, http://orp.aiub.edu/

April 2011

Copyright © 2011 American International University-Bangladesh (AIUB)

1

DEVELOPING AGRIBUSINESS STRATEGIES FOR BANGLADESH - AN ANALYSIS

Abstract

Agribusiness is one of the most challenging businesses today. Bangladesh depends largely on

agribusiness because agriculture still plays a dominant role in the economy. Given the high importance

of this topic, this study has been undertaken in the context of ecological imbalances and global

warming that is creating serious food insecurity. The authors’ argue that agrarian reform is required

for increasing productivity in agricultural, strengthening agribusiness, efficient utilization of natural

resources, and improved code of conduct for the organizations involved in the business processes.

Agricultural products need financing as well as proper marketing strategies and better value chain

needs to be created. Bangladesh can sustain long run macroeconomic stabilization by reducing deficit

between demand and supply and achieving economic progress, and reducing unemployment and mass

poverty through proper development and implementation of agro-business strategies. The growth of

this business may also help improve the balance of trade position of the country.

Keywords: Agribusiness, Bangladesh, Natural resources, Global warming, Economic Development

JEL Classifications: N50, 013, Q17, Q54

2

1.0 Introduction

Bangladesh is basically an agriculture based country and a large proportion of the population formally

and informally depends on this sector. Besides official unemployment, disguised unemployment

creates real problem for the country. Under the global village, food is becoming scarce and prospects of

agribusiness are increasing gradually. Agribusiness can be defined as the business activities related to

the agricultural product which will add value, create synergy in the production process, import-export

of agricultural products and redistribution of the product starting from the wholesaler to retailers and

ultimately consumers can be able to get the products. As such strategic management of agribusiness is

required so that core competencies can be created and proper supply chain management along with

vertical and horizontal coordination is being required.

Agribusiness includes seed production and product processing, drying paddy, dairy, fish farming,

poultry, vegetables, floriculture, fruits ,jute, livestock, tea, gingers, potatoes, oilseeds, pulses, sugarcane

etc. is to legally transferred to the customers. According to Beierlein and Woolverton (1991) the

term agribusiness is important to visualize following three sectors: the agricultural input sector, the

production sector and the processing-manufacturing sectors are interrelated part of a system in which

the success of each part depends heavily on the proper functioning of the other two. However, Kohls

and Uhl (2002) comment that markets join together the various component of the food industry, the

farm supply sector, the farm sector, the food marketing system, and national economies. The input

supply and farm markets are often referred to as agribusiness. Customer need based products for the

agricultural sector is being required to produce. This agribusiness can reduce deficit in balance of trade

position and can contribute in national income and in turn economic development can be occurred.

Agribusiness may have brighter future in Bangladesh if the country can avail the opportunity and

overcome the shortcomings. Natural resources especially in the agriculture sector may be properly

handled. Global warming and ecological imbalances created need for agribusiness more vital business.

Orr (1993) opined that past gains in agricultural productivity have contributed significantly to the

problem of global warming. Actually Bangladesh has also been facing global warming problem which

may cause danger in agribusiness. Salinity problems, coastal areas problems, flood problems, water –

logged, river erosion, river basin surface runoff, drought etc. are creating problems for production of

agricultural products as a whole. This has been accompanied by high growth rate of population. As

such proper techniques, innovations, adoptability, mechanization, and policy framework and

implementation of the policies are required for agribusiness management of Bangladesh.

By definition business must have three core elements: legal entity, social obligations and profit

maximizing. As such in the twenty first century business especially agribusiness has been growing in

importance. According to Yunnus (2009), industrial style agriculture is practiced in United states has

been very effective in raising crop yields. But in the long run it is not sustainable. Actually Yunnus

comments for social business is in built in the traditional system otherwise if business which doesn’t

fulfill aforesaid three core elements they can never remain in the business process from the context of

3

the social welfare of the human being. However, profit should not be super normal one rather it should

be normal profit. When the firm earns normal profit then it will create distinct competencies and long

run sustainability.

Rahman (2004) argued that poultry inputs like chick, feed and medicine markets are oligopolistic in

nature, in which prices are determined individually considering probable reaction of others.

Agribusiness requires and market entrepreneurship effort through combining different attributes of

productivity, experimentation, innovation, risk-taking, efficiency, effectiveness and synergy.

Diversification of the agribusiness process into agricultural product segmentation is required. Due to

Global warming situation, importance of agribusiness has been raised after the end of the first decade

of twenty-first century. Bangladesh is currently trying to cope with the global warming situation but it

won’t be feasible without global and regional cooperation.

2.0 Literature Review

Dinar et al. (1989) find that climate affects technology development and diffusion; conversely,

technology development and diffusion affects the impacts of climate on productivity in India.

Technology development and diffusion, as well as climate, also affect net revenue in agriculture in

India.

Khan and Hossain (1989) argue that due to high pressure of population and limited opportunities for

non-agricultural occupations, land is cultivated in very small business.

Sadhu and Singh (1989) opine that agricultural prices, unlike manufactured goods prices, fluctuate

more volatility as the agriculture sector is highly influenced by the vagaries of nature. Meeakshi and

Poleman (1994) find that only with the dramatic rates of growth in agriculture combined with excellent

infrastructural facilities have an increased in employment and was ,a decrease in seasonality and a

diversification into rural nonagricultural employment resulted.

Erickson et al. (2002) comment that the successful agribusiness manager must understand what the

firm did (or did not) that led to bottom line, and the successful manager uses this understanding to

improve the bottom line in the future.

Vylder (2002) depicts that Bangladesh faced various interdependent distortions and constraints which

originate from the economic, political and social structure and concomitant choice of policies.

Islam and Sarker (2003) find that in Bangladesh livestock sector composed of cow-buffalo and goat –

sheep registered very slow growth rate while the poultry sector made of fowl and duck grew an

appreciable rate though this is still inadequate to meet their demand.

Drummond and Goodwin (2004) depict that in the contemporary agricultural system of the United

States ,most of these functions are performed by extremely sophisticated business firms that specialize

in performing certain functions or in the marketing specific products. These specialized firms have

become known as collectively as agribusiness. The study of the management, marketing, financing, and

marketing decisions of agribusinesses is a specialized branch of agricultural economics that deals with

the economics of Galbraith’s corporate sector.

4

Rahman et al.(2004) argue that the factors which help increase production of Boro rice are extension

service, human labor, seed, fertilizer , age and experience .Area and bullock power have positive effect

on the Aus output. Similarly, extension service, area and bullock power have positive effect on the

Aman output. Dobson and Quader (2005) observe that when the value of the services provided by

middlemen is not readily apparent to others in a supply chain, the middlemen is invariably criticized,

and distributors in Bangladesh’s shrimp business receive the same criticism leveled at middlemen in

other industries around the world. Junaid (2005) opined that a proper management of different

functions of agricultural marketing will give incentive to presents to get better price during off seasons.

Ahmed (2008) proposed that for saving the cultivable land the country would have to be habituated to

community living. He also advised that at this moment, if it is not possible to construct multi-storied

building in rural areas we can opt for making two storey mud-built houses by applying indigenous

technologies, which in turn will save a good extent of lands.

According to Quasem (2008) crop productivity of land is low, as new technologies are not widely

spread specially in non-rice crops. To thrive in the competitive business environment, the plan should

be properly done so that competitive advantage and economies of scale in producing those agricultural

products should get priority. Speculative motive in the agriculture sector still works. As such farmers

sometimes deprived from getting their due share for their valuable contribution towards production.

Mellor (2008) commented that when food prices decline that tends to reduce the real price of labour

and thereby increases employment and conversely when food prices rise. Thus, the poor benefit from

lower food prices either directly in their cost of living or indirectly through increased employment and

conversely they lose from rising food prices.

Ali and Nupur (2009) suggested that create awareness among the producers and the consumers about

organic farming by improving the level and quality of information through materials ranging from

simple field training, media programs, leaflets, cell phone up to web sites and comprehensive

campaigns.

Jahangir (2009) observed that the existing poor marketing supports and lack of adequate cold storage

facilities have long been depriving the growers of perishable products like vegetables and fruits.

Lokman and Majumder (2011) argued that Bangladesh is seriously vulnerable to climate –induced

hazard although there are so many controversies about the scale of climate change impact.

3.0 Study Objectives and Methodology

The study has been undertaken with following objectives:

i) to assess current situation of agribusiness in Bangladesh;

5

ii) to evaluate what sort of strategies are required to sustain in agribusiness of the country;

ii) to provide some policy implications for proper strategic management to develop agri-business.

The study is done mainly on the basis of secondary sources. The study is explanatory nature. Exact

sources will be mentioned.

3.1 Present Situation

Bangladesh possesses deficit balance in global business in the context of the global arena. In the

twenty-first century, there is a wide scope to mitigate deficit in the global business. Although

Bangladesh is still an undeveloped country, the primitive characteristics of LDCs do not exist here. But

the country is still lagging behind to take any sort of appropriate measures for the agriculture sector,

which should be complementary with WTO. Bangladesh Economic Review-2008 described that the

overall contribution of the broad agriculture sector at constant price is projected at 20.87 percent of

GDP in 2007-08.In 2007,the government granted Tk. 2.54 crore to help the flood affected small and

marginal farmers to recover the losses due to seedless Boro rice,Tk.106.46 crore for 2 times flood and

Tk.36.28 crore to regain the sever damages of Sidr and government also granted Tk. 22.68 crore for

agricultural rehabilitation (Source: BBS, 2009).

Below we shall see Agriculture’s share of GDP in comparison to International standard in Figure 1.

Figure 1: Agriculture’s share of GDP in comparison to International standard

Source: World Development Indicators, World Bank, Washington DC, USA, www.worldbank.org

Now we shall show below in Figure 2 share of rural and urban population in Bangladesh.

6

Figure 2: Rural and urban population in Bangladesh


Green revolution was initiated during the sixties to maximize the benefit of agricultural output. After

independence, BADC (Bangladesh Agricultural Development Corporation) worked hard to develop

agricultural sector. But it became crippled to mitigate personal gain of the policy makers during

eighties in the name of privatization. Now we have emphasis on private and public partnership.

Optimum scale of plants has already been produced. Decreasing returns to scale is prevailing in the

agriculture sector of Bangladesh. Land, canal and labor is essential for production of agricultural

product. Without raising the production, supply cannot be raised and demand cannot be fulfilled. As

such in the latter part of the first decade of the twenty-first century agriculture related business will not

rise at a faster rate.

Sector wise share of GDP in Bangladesh has been shown below in Figure 3.

Figure 3: Sectoral Share of GDP: Bangladesh


7

Deb and Zaman (2007) argued that during the last 35 years, agricultural production in Bangladesh has

substantially increased. Production of crops, livestock and fisheries has increased significantly. Rice

production has increased from 9.90 million metric tonnes in 1972/73 to 26.53 million metric tonnes in

2005/06. Crop GDP has increased from Tk 19.76 billion (US$ 2714.69 million) in 1972/73 to Tk

622.324 billion (US$ 9277.34 million) in 2005/06. Production of potato, maize, fruits, vegetables and

other crops has also increased. However, production of wheat and sugarcane has decreased. Area under

jute has declined though production increased slightly due to increased yield. Poultry production has

increased from 76.88 million birds in 1972/73 to 232.99 million birds in 2005/06. Meat production is

more than five times than that in 1972/73. On the other hand, milk production is about five times while

fish production is about 2.9 times of the production in 1972/73. Shrimp production has increased to 110

million tonnes in 2004/05. Thus, agricultural production system in Bangladesh has been transformed

from a subsistence oriented system to a commercially driven production system which is very much

responsive to prices, policies and trade liberalization.

Below in Figure 4, we have shown share employment in different sectors of Bangladesh.

Figure 4:Sectoral Share of Employment: Bangladesh


Notes: AESBGD: Agricultural Employment as share (%) of total employment in Bangladesh;

MESBGD: Manufacturing Employment as share (%) of total employment in Bangladesh; Service

sector Employment as share (%) of total employment in Bangladesh;

8

Aquaculture is still a small sub sector accounting for only 5% of GDP. Much of the potential of the sub

sector remains unfulfilled. The water area under aquaculture can be increased two to three-fold with

some initiative from the government and a workable lease policy of government khas waters. The yield

rate of aquaculture, which is one of the lowest in the world, could be increased several fold through

appropriate actions and policies of both the government agencies and the private stakeholders.

Development partners can play a supporting role. With an enabling policy environment, the share of

fishery in GDP could easily rise to more than 10%. Employment could also increase two or three-fold.

Deb (2008) suggests that Bangladesh agriculture has potential for further diversifications. However, in

order to materialize this project, Bangladesh must invest in road infrastructure, strength SPS

compliance facilities, improve poor-harvest technology, expand storage facilities for vegetable and

fruits and negotiate further trade liberalization at the global level.

According to Board of Investment (accessed on 24 October, 2010) over 90 varieties of vegetables are

grown in Bangladesh, yet for such a fertile land, there are huge gaps in local resources and under-

utilization of the country’s agricultural capacity. This presents many opportunities for investors seeking

to export agricultural products, or to meet the rapidly growing local demand. Here are just some of the

investment opportunities: Cold storage facilities to serve all stages of the supply chain, and especially

for fresh produce for export.; Fresh produce production for local and export markets • Production of

fertilizers and cultivation of seeds; Eco-friendly jute production, with the support of several jute

industry technology development institutes; Shrimp farming; Halal foods; Milk and dairy products;

High value added foods for export, including herbs, spices, nuts and pulses (Sources:

http://www.boi.gov.bd/about-bangladesh/costs-of-doing-business/overview-of-costs-taxation/8).

According to Bangladesh Agribusiness Report Q3 2009, the Bangladesh agribusiness service provides

proprietary medium term price forecasts for key commodities, including corn, wheat, rice, sugar,

cocoa, coffee, soy and milk; in addition to newly-researched competitive intelligence on leading

agribusiness producers, traders and suppliers; in-depth analysis of latest industry developments; and

essential industry context on Bangladesh's agribusiness service (source:

http://www.researchandmarkets.com/reports/1080797)

Zhu and Sur (2008) argued that the demand for food in Bangladesh and around the world is changing

rapidly. Driven by economic growth, rising incomes, and urbanization, demand is shifting away from

traditional staples toward high-value food commodities. High value agricultural commodities include

fruits, vegetables, spices, fish, and livestock products, many of them processed before reaching the

market. In Bangladesh, additional demand for these commodities is projected to be worth about $8

billion by 2020 (in 2005 prices). However a gloomy report on food deficit in Bangladesh has been

published in The Daily Star on 16th October 2010.In the report, Palma (16th October, 2010) described

that a rising population amid declining agricultural land has put the country's future food security at

risk, especially when salinity in the coastal belt, and droughts and depleting underground water level in

the north have become constant realities. According to a projection of the Bangladesh Bureau of

Statistics (BBS), the country's population will be 16.69 crore by 2020, while unofficial estimates

suggest that the current population is already approaching 16 crore. The National Population Council of

9

Bangladesh says the number will reach 17 crore by 2020.Bangladesh had to import nearly 20 lakh

tonnes of food grains in the last fiscal year on top of around 3 crore tonnes of rice and wheat produced

domestically, while BBS's projected food security requirement was for 2.49 crore tonnes.

At the second Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation

(BIMSTEC) summit in New Delhi, which held during mid November 2008, the chief advisor of

Bangladesh proposed for a food bank. In the context of the recent global food crisis that has created a

sense of food insecurity among the peoples in the developing as well as low-income countries, regional

cooperation for food security has emerged out as an important issue. For this matter, the proposals for

setting up of a BIMSTEC poverty alleviation centre in Bangladesh and a food security reserve among

BIMSTEC members should merit attention. The idea behind such proposals is good. But unless the

same are endorsed by all the member-countries of this regional cooperation body with a strong

commitment to operationally the same at the earliest, no meaningful results in the desired direction are

likely to come.

Reduction of the subsidies on fertilizer and also consent to private trade in fertilizer, small irrigation

equipment and seed sectors etc were done during different phases of the economy. Structural

adjustments started with the liberalization processes and openness of the economy through diverse

agricultural input delivery systems from public sector to the private sector. Social enterprise business

system tried to develop. But it creates disparity between have and have-nots. As private disbursement

system of agricultural inputs works as a monopolistic nature so it creates small and marginal farmers

on an awkward situation.

Bangladesh is now exporting vegetables and other sorts of crops in the European markets, Middle

East, and Asian countries. This process opens new avenues to private sector investment in the areas of

agricultural production of high value of crops and production of seeds. However, according to the

Export Promotion Bureau, during the year 2005-06, the highest earnings of the export of agricultural

products come from the Jute sector, which was BDT 9965.37 million while second earnings comes

form vegetable BDT 2212.42 million and third one was tea sector which was BDT 799.28 million

during the same time period. Recently the country started exporting meat also.

Labor Forces Survey has not been conducted after 1999-2000. From the BBS: Labor Force Survey

Bangladesh 1999-2000 as of August 2002, it revealed that 62.91% of the total labor force are working

in the agricultural sector. However, labor productivity in the agricultural sector is also low. High tech

agriculture based on labor-intensive technique is required. Small and medium farmers should get inputs

at an affordable price. For developing the agriculture sector, agricultural staff and media should play

vital role. They must motivate farmers how to produce in the accurate moment and to arrange direct

selling process starting from the production to the marketing strategies, they may work as a

supplementary factor.

10

Agricultural sector takes over Bangladesh economy in terms of contribution to national income as well

as employment. According to Bangladesh Economic Review-2007, in 2006-07, the overall contribution

of the broad agriculture sector at constant prices is projected 21.11 percent of GDP. With the broad

agriculture sector, the contribution of agriculture and forestry and fisheries are estimated at 16.38

percent and 4.73 percent respectively in 2006-07. According to Bangladesh Bureau of Statistics, during

the year 2004-05, percentage of net cultivable land in terms of total land was 56.87% while cropping

intensity was 176.91%. Actually cultivable land is decreasing at an alarming rate. In this aspects

Ahmed’s proposal is more practical oriented. Below is given the agribusiness related products export

performance for the month of June-November 2010-11 are given in the Table 1:

Table 1: Agribusiness Related Products: Export performance for the Month of July-November 2010-2011: Overall

position (Million US $)

Products

Export

performan

ce for

July-June.

2009-

2010

Export

Target for

2010-

2011

Strategi

c Target

for July-

Nov.

2010 -

11

Export

Performa

nce

July-

Nov.

2010-11

% Change

of export

performan

ce over

export

target

Export

Perform

ance for

July-

Nov.

2009-

2010

%

Change

of

export

perform

ance

July-

Nov.

2010-11

Over

July-

Nov.

2009-10

1 2 3 4 5 6 7 8

All products 16204.65 18500.00 7142.85 8275.29 15.85 6093.85 35.80

(1) Frozen Food 445.18 450.00 173.75 266.21 53.21 189.74 40.30

a) Frozen Fish

(0300, 0302, 0303,

0307)

89.12 90.00 34.75 44.51 28.09 35.60 25.03

b) Shrimps (0306) 348.28 351.58 135.75 215.99 59.11 149.59 44.39

c) Others 7.78 8.42 3.25 5.71 75.69 4.55 25.49

2) Agriculture

Products

242.35 266.00 102.70 161.45 57.21 133.94 20.54

a) Tea (0902) 5.65 6.00 2.32 0.83 -64.22 2.73 -69.60

b) Vegetables (07) 46.84 49.18 18.99 23.89 25.80 18.66 28.03

c) Tobacco (24) 52.26 55.90 21.58 48.62 125.30 28.00 73.64

d) Cut Flower (06) 39.84 47.81 18.46 17.04 -7.69 15.89 7.24

11

e) Fruits (08) 17.37 19.98 7.71 15.44 100.26 6.72 129.76

f) Spices (0910) 6.94 7.98 3.08 3.14 1.95 2.63 19.39

g) Dry Food (19) 20.95 24.09 9.30 10.17 9.35 7.73 31.57

h) Others 52.50 55.12 21.28 42.32 98.87 51.58 -17.95

3) Rubber 9.69 10.27 3.97 4.63 16.62 2.13 117.37

4) Leather 226.10 293.94 113.49 109.83 -3.22 84.50 29.98

5) Leather Product 29.06 34.87 13.46 20.90 55.27 7.65 173.20

6) Wood & Wood

Products

2.18 2.35 0.91 0.52 -42.86 0.70 -25.71

7) Pulp 0.03 0.03 0.01 -100.00 0.02 -100.00

8) Paper & Paper

Products

18.88 20.77 8.02 9.60 19.70 7.29 31.69

9) Cotton & Cotton

Product (Yarn,

Waste, Fabrics etc

95.23 100.00 38.61 46.58 20.64 35.31 31.92

10)) Jute & Jute

goods

787.99 1115.38 430.65 434.64 0.93 302.06 43.89

a) Raw Jute (5303) 196.27 255.15 98.51 145.06 47.25 86.01 68.65

b) Jute Yarn &

Twine (5307)

397.69 596.54 230.32 199.79 -13.26 126.80 57.56

c) Jute Sacks &

Bags (6305)

136.79 177.83 68.66 72.45 5.52 66.19 9.46

d) Others 57.24 85.86 33.15 17.34 -47.69 23.06 -24.80

11)carpet (Jute &

Others -57)

8.06 12.09 4.67 3.62 -22.48 3.16 14.56

(Source: Export Promotion Bureau, Bangladesh.)

From aforesaid table, we observe that agribusiness related products exports overall rises for the month

of July-November 2010-2011.However, tea export performance, pulp etc. have declined during the

time period. Meanwhile, the Independent published a report on 14th December,2010 found that milk

production declines in Pabna of Bangladesh as cattle owners cannot feed their cows sufficiently due to

acute scarcity and high price of fodder.

In Figure 5, we have shown agricultural raw materials and food exports from Bangladesh.

12

Figure 5: Share of Total Exports: Bangladesh


Hossain and Bayes (2009) found that business activities in rural areas are mostly financed by own

sources, and the role of the credit institutions-be it formal or informal –is minimal. Household’s own

savings meet about three-fourths each for the required initial and investment capital. Commercial banks

supply only 10 percent of the initial capital and nine percent of investment capital. The role of NGOs in

this case has not been mentionable either –only three and four percent, respectively. This could rightly

be so as micro-credit from NGOs is mostly used for non-crop activities e.g. livestock, goat, poultry,

processing etc. On the other hand, moneylenders and friends/relatives are supplying one-tenths of the

total credit needs in business. Before the crop is ready for harvesting/cutting, the farmer may not have

any money to survive. Farmers are also heavily depended on informal sector financing. Moreover, huge

amount of disguised unemployment are prevailing in the agricultural sector Due to natural disaster,

each year farmer’s faces problem as crop may be destroyed and they do not have any crop insurance.

Bangladesh is lacking efficient and effective agribusiness managers. They do not have the

farsightedness how to develop future capacity building. Managerial skills are lacking. Women who are

involved in the agribusiness are mostly neglected in the Gross domestic product accounting procedure.

Middlemen in the process of production to sell have varieties of stages. As such producers are not

13

getting fair price and consumer has to purchase the product at much higher prices. They suck the profit.

Actually lacking of distribution channel i.e. supply chain management in the agriculture sector of

Bangladesh is very weak. The country is yet to properly utilized agriculture based natural resources.

Agribusiness can be used to develop the economy. But it needs proper financing as well as marketing

strategies. However, no strategy will be successful unless and until it can be properly implemented.

This can be feasible only when both public and private sector will give proper importance on

agribusiness. In turn it will reduce huge deficit in balance of trade which is currently BDT. 32588.8

(Source: Bangladesh bank, Economic Trends ,2010 ,May) and raise the purchasing power capability

and income level will rise and consumption and investment will rise. This will lead to raise

employment opportunity and purchasing power capability will be enhanced and ultimately economic

development of the country will occur.

4.0 Some Recent Export Successes

• According to the Board of Investment (accessed on 24 October, 2010) over 90 varieties of

vegetables are grown in Bangladesh, yet for such a fertile land, there are huge gaps in local

resources and under-utilization of the country’s agricultural capacity.

• This presents many opportunities for investors seeking to export agricultural products and/or

to meet the rapidly growing local demand.

• Bangladesh is now exporting vegetables and other agricultural products in European markets,

Middle East, and Asian countries. This process opens new avenues to private sector

investment in the areas of agricultural production of high value of crops and production of

seeds.

• Recently the country started exporting meat also.

5.0 Need for Agribusiness in Bangladesh

• Agriculture’s share of GDP and employment is still very large in the country

• As income and population rises in the country, there is a growing need for more food and

agricultural products in the country

• Further, Bangladesh possesses deficit in trade balance in the context of its global business. In

the twenty-first century, there is a wide scope to mitigate this deficit though improved and

expanded agribusiness operations.

• In response, some commercially oriented agribusiness is taking hold in the country over the

years to meet the growing home demand for agricultural products.

• Although Bangladesh is still a low-income developing country, but fortunately, the primitive

characteristics of LDCs do not exist here.

• However, agricultural productivity is still very low and there is ample room for technology

improvements that can boost productivity in this sector

14

• Besides, the country is still lagging behind to undertake appropriate measures for the

agricultural sector, which should be complementary with WTO and other international

standards and requirements.

• As Such Strategic management of agribusiness is required so that core competencies can be

created and proper supply chain management along with vertical and horizontal integration is

improved.

• Agribusiness may have brighter future in Bangladesh if the country can avail the opportunity

and overcome the shortcomings.

• Diversification of the agribusiness is required.

• Further, global warming and ecological imbalances created need for environment-friendly

management of agribusiness.

• Green revolution was initiated during the sixties to maximize the benefit of agricultural

output. The impact of that revolution has now faded and now new agribusiness revolution

needs to be ushered in.

• BADC (Bangladesh Agricultural Development Corporation) worked hard to develop the

agricultural sector. But it became crippled due to poor governance, lack of political will and

rampant corruption

• Now there is realization and more emphasis on private and public partnership to improve this

sector.

• It is critical to take steps to improve technology and increase productivity. Without raising the

productivity, supply cannot be increased and rising demand cannot be fulfilled.

• Reduction of the subsidies on fertilizer and also approval of private trade in fertilizers, small

irrigation equipments and seed sectors were done during different phases of the economy.

These may help improve efficiency in distribution of these key agricultural inputs

• But as these private initiatives develop, there is concern for creating disparity between have

and have-nots. As private disbursement system of agricultural inputs is monopolistic in nature,

so it puts small and marginal farmers in a disadvantageous situation.

• Structural adjustments started with the liberalization processes and openness of the economy

may also help improve this sector.

6.0 Concluding Remarks and Policy Implications

Definition of agribusiness should be used in a broader aspects as defined by Kohls and Uhl

(2002).Transformation of the agriculture sector from the subsistence level to commercial orientation is

required so that surplus can be generated for the industrial sector and for exports.On the other hand,

industrial sector can properly provide supports to the agricultural sector. The agriculture sector needs

mechanization following the Japanese mode of agricultural production system. Strategic leadership in

the agricultural sector should be developed. Food habit of the country should also be changed as well

as population growth rate ought to be controlled further. Moreover, disguised unemployed in the

agriculture sector will get employment in the industrial sector. Non-farm activities should get priorities.

Strategic leadership in doing agribusiness along with strategic formulation and implementation is being

15

required. Bangladesh is also in a very odd situation due to global warming condition. To overcome

these problems, there are no other alternatives but to implement proper strategies. Unfortunately still in

the country proper producer-retailer and wholesaler relationship has not yet been developed. This is

also a problem for exporting products to foreign markets.

Agribusiness should work as a social business since it will fulfill the three core elements of business

i.e. legality, social obligation and profit maximization. However, this profit should be normal one but

not super normal level. It will help to get distinct competencies and long run sustainability in the

business process. Yunnus (2009) comments that long run sustainability is important one. Dobson and

Quader (2005) observation that the role of middlemen in the agribusiness should be reduced so that

both producers and consumers can gain. Hossain and Bayes (2009) examination should be seriously

considered by the policymakers so that agribusiness can be developed and create employment

opportunities. As such financing for agribusiness must be arranged both from private and public sectors

but it ought to be from the formal sector. There is no other alternative but to utilize agribusiness

properly so that it can act to contribute to economic development of the country. Natural resources in

the agricultural sector should be properly used as cultivable land is scare and given the high growth rate

of population of the country.

Women who are involved in the production of the agricultural sector directly or indirectly should be

counted in the process of GDP accounting system. Drainage of crop especially starting from production

to the marketing stages should be avoided. Agriculture should not be ignored as it will be the

international business and within ten years it will be able to prove that trends of terms of trade of

agricultural product will be higher. Deb and Zaman (2007) has commented that agricultural production

has raised but we should be more cautious so that dependency syndrome on foreign companies for

seeds, pesticides, fertilizers etc. can be reduced. In the jute sector, we must be more enthusiastic to

export finished products.

Agribusiness needs financing. As scheduled bank's credit program are of high cost and anti rural

biased, unwillingness of the bank staffs to work in the rural areas, a new system may be taken to meet

the credit needs of small and marginal farmers, distressed woman, landless laborers etc. For proper

agricultural development, branches of rural banks may create special cells for dissemination of

knowledge and technology. This will help in developing small-scale projects with greater employment

potentialities. Priority for the development of agro-based small and medium industries should be taken.

The rural branches and their subsidiary institutions may be established in each village of the country

through creation of a syndicate of specialized banks, participatory commercial banks, cooperatives and

various NGOs. Interest rate should be charged at a lower rate and hidden costs should not be there.

More emphasis should be given on continuous research and development so that agribusiness can be

properly handled for which supply chain management i.e. starting from producers of agricultural

products to get incentive to produce not only for domestic market but for the global market but also

16

other facilities Transportation facilities within the domestic and international arena should be arranged.

Strategic alliances should be created with foreign agribusiness companies for collaborative business

environment. Agribusiness process should be interlinked with the environment, considering the actions

of competitors, long-term sustainability in the business process. But still agricultural marketing

strategies are very weak in this country which needs to be improved.

Improved public- private partnership in developing various agricultural inputs i.e. seeds, fertilizers,

agro-machineries and also improving environment of agribusiness are required. The Poverty Reduction

Strategy Paper-II (PRSP-II) also emphasizes agriculture and rural development as one of the key

sectors for poverty reduction and pro-poor economic growth. However, PRSP-I did not bring much

fruitful result for poverty reduction especially in the rural areas and reducing disguised employees'

dependence on the agricultural sector. As such it won't be wise to think that under PRSP-II agriculture

sector should be much benefited. However, Sixth five year planning of the country should give more

priority for commercialization of agricultural sector and creation of permanent income of those people

who are depending on agriculture sector for their employment opportunities with a strong

determination to implement the planning.

Agrarian reform is required for increasing productivity of the agricultural output, strengthening

agribusiness and to mitigate huge deficit in the global business of Bangladesh. Environmental

management in the agriculture sector must cope up with global warming trend. Diversified exportable

commodities should be produced and need of agricultural product as per the export market should be

produced. New exportable market should be searched by both govt. and private sectors. Non-resident

Bangladeshis may work as a connecting hub to import agricultural products from Bangladesh to their

resident county. Dinar et al. (1989) as found that climate affects technology development and diffusion

in India which is also applicable for Bangladesh. As such Bangladesh should give more emphasis on

technological development and diffusion based on climate change.

More emphasis should be given to develop managerial skills as well as to improve marketing skills in

Bangladesh. In this regard, Erickson et al. (2002) and also Junaid (2004) comment should be

considered by the policymakers. For encouraging creativity, innovativeness and readiness to face the

challenges of agribusiness, managers ought to be given effective training. Without proper strategy

formulation and implementation, the agriculture sector can not be transformed to commercialization

and peasants won’t get their due share.

Vylder (2002) comment is still applicable in Bangladesh. Holistic approach is needed backed by strong

political desire and implementation of the plans. Creation of employment opportunities for surplus

labors in the agriculture sector to non farm activities is required and which can be feasible by the Govt.

and private initiatives. Agricultural scientist should be posted in each village level and they should get

good training so that they can guide the farmers to produce what product at what time. Information

symmetry should be arranged so that agricultural producers get the right prices for their products.

Transportation system from the rural areas to urban areas and to sell products at international markets

17

should be well designed under the Ministry of Agriculture and that plan must be properly implemented.

Different stages for transportation of products may be minimized and rent seeking should be

eradicated. Distinct competencies should be created and operations management in the agriculture

sector should be improved.

BADC should be activated and public-private partnership of the agribusiness programs should be

taken. As per World Bank’s report, inefficiency of the government in public service delivery, the non-

governmental sector becoming one of the main actors in development efforts, these should be

superseded by BADC through transforming and restructuring the organization of Business Process

reengineering. Proper agribusiness model must be developed with the combination of competitive

attitude, value chain, productivity, transportation and marketing strategies. However, agribusiness

expansion should be carefully monitored so that business motive doesn't conflict with the social

obligations and conglomeration of the wealth at the hands of the few. Ali and Nupur’s (2009) comment

should be considered by the policy makers for quality assurance of agro-products in Bangladesh.

Bangladesh should follow the comment of Drummond and Goodwin (2004) that the management,

financing, and marketing decisions of agribusinesses is a specialized branch of agricultural economics

that deals with the economics of Galbraith’s corporate sector. Still the country is lagging behind. In the

agricultural sector, we need to create corporate environment and as such strategic leadership should be

developed. Business in the agriculture sector depends on diversity of demand and supply of agriculture

oriented products. As scarcity of food rises, so agriculture oriented products become more demandable.

In the business process no longer agriculture products can be viewed as a primary product. Rather in

the global market, agriculture products especially food is turning to become core competitive products.

Bangladesh bank should come forward with a special finance schemes to give poor and distress farmers

loans at critical times in the production and distribution process. Farmers can repay the loan amount

after the crop is being sold. Crop insurance may be arranged by the Govt. for small and marginal

farmers.

Benchmarking in the agribusiness should be set up to maintain international standards. Both efficiency

and effectiveness in the agribusiness is also low. The country lacks strategic planning for disbursement

of agricultural credit and marketing of agricultural products. Commercialization in the agricultural

sector is required. Brand image of the products should be raised at the domestic and global levels.

Agricultural products marketing strategy should be innovative one and commercialization in his sector

should be recognized. Agribusiness should add value in the agricultural sector and in turn helps to

contribute to the growth rate of gross domestic product. Weakness in the agricultural sector should be

removed. Code of conduct of the agribusiness firms must be improved. To meet the demand and at the

same time, to minimize impact of global warming, environment friendly products should be produced.

Supply chain management of the agricultural sector should be improved so that distributional channel

of the product within the country and outside the country can be effectively developed. Both Govt. and

18

Private sector should work side by side with long term vision, mission, goals, objectives and tactics and

develop code of conducts for the business organizations. As such in the agribusiness firms, strategic

leaders are required who will work as a mentors and their leadership strategies will be formulated and

these strategies will be implemented effectively and efficiently.

Virtually agribusiness is going to dominate all over the world as a potential business sector for which

proper strategic management is required to be developed in the country and the supply chain

management of the country ought to be improved. Agribusiness should be properly handled to raise

national income, creation of employment opportunities, raising purchasing power, and ultimately

decreeing balance of trade deficit and causing economic development of the country and to fulfillment

of basic needs of the people of the country.

Bangladesh agribusiness is beginning to take roots, and it has great potentials both at home and abroad.

This sector can contribute to increase GDP, employment creation, improve food security, increase

exports and reduce trade imbalances, poverty reduction, and overall improvement in the standard of

living of the people. But this sector faces serious challenges going forward. These challenges involve

weaknesses in:

• Institutional developments

• Policy frameworks

• Infrastructure developments

7.0 Institutional Development

• Public institutions dealing with agribusiness is still very weak with poor governance, lack of

accountability, lack of political will, and mired in corruption and graft

• Private sector is still very shy to invest in this sector. There is ample room for private sector

involvement in this sector provided government provides a clear and consistent policy

environment (discussed below)

• Need to develop benchmarking and standards consistent with WTO rules and international

health, product quality, and environmental standards. These will help improve confidence in

Bangladeshi products and thereby promote exports.

• There should be special agencies to enforce these standards and bring compliance

8.0 Policy Frameworks

• Internal Policies Dealing with Agriculture to encourage agribusiness

• External Policies to explore overseas markets for Bangladeshi agribusiness products.

• Internal Policies Dealing with Agribusiness

• Land reform and land distribution policies

• Agricultural pricing and procurement policies

• Tax and subsidy policies

19

• Water management and flood control policies

• Food security policies

• External Policies to Explore Overseas Markets

• Greater openness to foreign trade and investments

• Trade policies dealing with imports and exports of agricultural inputs and agricultural

products

• Encourage alliances and partnerships with overseas foreign investors

• Encourage alliances and partnerships with overseas expatriate Bangladeshis

• These will help inflow of funds and expedite technology transfers

• Develop and enforce Product Standards to satisfy WTO requirements and international

standards

9.0 Infrastructure Developments

• Agriculture sector still suffers from uncertainty due to vagaries of nature such as flooding,

hurricanes, etc. There is need for public support for improved weather forecasts and building

embankments and storm shelters to protect people and crops from these disasters.

• Production method and technology development need strong public support and appropriate

incentives to achieve improvement. R&D should be encouraged and funded

• Publicly funded construction of large scale irrigation and drainage facilities need to be

developed for increased production and productivity. Scarcity of water for irrigation during

dry season in the recent years created serious problems. Water management system should be

improved.

• Further, chronic electricity failures seriously disrupt irrigation facilities. Paddy agriculture of

Bangladesh relies heavily on irrigation. Major efforts need to be directed to increase electricity

production to mitigate this serious problem in agriculture

• Agricultural production and distribution chains and networks need significant improvement.

This can be facilitated by better roads and highways, improved waterways, and better

managed shipping channels, docks, and sea-ports

• Need to develop improved low-cost agricultural financing infrastructure to make loans and

credit available to farmers, particularly small and marginal farmers

• Since public funds have scarcity, private funds form home and foreign investors can be

encouraged and promoted in the area of infrastructure development

• Strategic alliances and partnerships with foreign companies and Bangladeshi expatriate

communities need to be developed and encouraged and supported

20

References

Ahmed, Moeen U. (2008). Food security of Bangladesh, The Daily Star, September 13, Dhaka, Bangladesh

Ali,Muhammad Mahboob and Nupur, Jannatul Mawa (2009). “Consumer’s

perceptions and Quality assurance of agro-products of Bangladesh :Focus on Organic foods specially Vegetables, fruits and crops”, Journal of Business and Technology (Dhaka),Vol.4, Issue:2, July-December

Battles, Ralph W., Robert C., Jr. and Thompson, Robert C., Jr. (2000).

Fundamentals of Agribusiness Finance, Blackwell Publishing BBS (2008). Bangladesh Economic Review-2007, Bangladesh Bureau of Statistics,

Dhaka, Bangladesh BBS (2009). Bangladesh Economic Review-2008, Bangladesh Bureau of Statistics,

Dhaka, Bangladesh Beierlein, James G. and Woolverton, Michael W.(1991). Agribusiness Marketing-The

Management Perspective, Prentice Hall, NJ,USA Deb, Uttam(2008). Agricultural Diversification in Bangladesh: Progress, constraints

and Policy issues, Emerging Issues in Bangladesh Economy, Rehman Sobhan (series Editor) and S.R..Osmani (Volume editor), Centre for Policy Dialogue and The University Press Limited, Dhaka, Bangladesh

Deb, Uttam and Zaman , Zaki-Uz (2007). Agribusiness in Bangladesh: Current

Situation and Challenges, Trading Up, Samar Verma (Editor), April-June Dinar, Ariel et al.(1998). Measuring the impact of climate change in Indian

Agriculture, The World Bank,World bank Technical paper No.402 Dobson, William D. and Quader, Syeda Masarrat(2005).”Doing business in an

industry with difficult economics: The experience of advanced technology hatchery in Bangladesh’s Shrimp Industry”, The AIUB Journal of Business and Economics, Vol.4, Special Issue, July

Drummond,H.Evan and Goodwin,John W.(2004).Agricultural Economics, Pearson

education,NJ,USA,2nd Edition Erickson, S. P. et al.(2002). Agribusiness Management, McGraw hill,3rd edition. Hossain, Mahabub and Bayes, Abdul (2009).Rural Economy and Livelihoods, A.H.

Development Publishing House , Dhaka, Bangladesh http://pid.adb.org/pid/LoanView.htm?projNo=33224&seqNo=01&typeCd=3 http://www.boi.gov.bd/about-bangladesh/costs-of-doing-business/overview-of-costs-

taxation/8 http://www.researchandmarkets.com/reports/1080797

21

Islam,Tariq Saiful and Sarker, Md.Abdur Rashid (2003).”A study of Livestock and poultry population and production in North-Western Bangladesh’, Bangladesh Journal of Political Economy,Vol.18,No.1,June

Jahangir, S.M.(209). An Overview of Bangladesh Agriculture, Journalist’s views

State of Agriculture in Bangladesh-Secured Food, Secured Future, Kawser Rahman and Reaz Ahmad (Editor), Palok Publishers,Dhaka, Bangladesh

Junaid, Zukhruf Binth (2005).Problems encountered by the peasants of Bangladesh in

Practicing agriculture and green marketing, The AIUB Journal of Business and Economics,Vol.4,No.2, August

Karim, Muhammad et al. (2006). Dynamic Agribusiness-focused Aquaculture for

Poverty Reduction and Economic Growth in Bangladesh, Ministry of Fisheries and Livestock Bangladesh shrimp and Fish Foundation Policy Working Paper, World Fish Center, Malaysia

Khan, Azizur Rahman and Hossain, Mahabub (1989).The Strategy of Development in

Bangladesh, Macmillan, London Kohls, R.L. and Uhl, J.N.(2002). Marketing of Agricultural products,Prentice-Hall,9th

edition Lokman,Mohammad and Mazumder,Hossain (2011). Adapting agriculture to climate

change, The Daily Star, January 1 Meeakshi,J.V. and Poleman, Thomas T.(1994). Agricultural prices, Technology, and

Rural Employment in Andhra Pradesh and Maharashtra, The Indian Economic Review,VolXXIX,No.2,July-December

Mellor , John W.(2008). Agricultural Development and Food Security, The Pakistan

Development Review, Vol.47, Issue:4, Part 1,Winter Orr,David W. (1993). Agriculture and global warming in Agriculture and the

Environment, C.A.Edwards and M.K.Wali, D.L.Horn and F.Miller (Editors), Elsevier, London

Palma , Porimol (2010): Food security faces stiff challenge-Climate change badly

affecting harvest, making it difficult to feed rising population, The Daily Star,16 October, Dhaka, Bangladesh

Quasem, Dr. Md.Abul (2008). Development Strategies and Challenges ahead of

Bangladesh, Palok Publishers, Dhaka, Bangladesh Rahman, K. Md. M. et. al.: Far, specific and farm size –specific efficiency

measurements and related policies for Bangladesh Rice Crop, Bangladesh Journal of Political Economy,Vol.21, N0.2

Sabur,S.A. and Rahman, M.H . (2004). Agribusiness of Poultry and Poultry Products

in Bangladesh, Bangladesh Journal of Political Economy,Vol.20,No.1,June

22

Sadhu,A.N. and Singh,A. (1989). .Fundamentals of Agricultural Economics, Himalaya Publishing House,3rd Edition

The Independent (2010).”Milk production declines in Pabna”, Correspondent,

December 14 Vyler, Stefen De (1982). Agriculture in Chain, Zed Press, India World Development Indicators, World Bank, Washington DC, USA,

www.worldbank.org Yunus, Muhammad (2009). Creating a World without Poverty –Social Business and

the future of Capitalism, Subarna, Dhaka, Bangladesh Zhu , Xian and Sur, Mona (2008). High-value agriculture and agri-business in

Bangladesh, The Daily Star,18 February, Dhaka, Bangladesh

Documents

Aiub Bus Econ 2011 01