The Way Forward

Agro-processing

Missing the higher niche

Maj Gen Amjad Khan Chowdhury (Retd)

I was always curious about business, even while serving in the Army. Starting from Ayub Martial Law to Yahya Martial Law to Zia Martial Law we in the Army enjoyed immense powers to rule. We could take away jobs practically at the snap of a finger but couldn't provide one even with much greater effort. I often wondered whether or not I was living a purposeless life. Could I not do something more meaningful and rewarding? Over 60 percent of our people live below the poverty line. To me it appeared that jobs needed to be created to provide employment to ameliorate their suffering. The answer to this lay in establishing profitable enterprises -- I was convinced.

What was the business of business all about? This was the next question I addressed myself. I read voraciously economics and business management. Businesses meet people's needs for goods and services. They add value to raw materials using capital and labour thus helping people meet their wants. I read Schumpeter, Keynes and indeed Adam Smith. The last-named talks about comparative advantages of nations which form the reason de'etre for trade. Following his reasoning I asked myself what were the comparative advantages of Bangladesh as an economy. Briefly stated these are: a tropical climate, a lot of fresh water, indeed a land interspersed with numerous rivers, fertile soil, possibility to cultivate crops round the year and a lot of people, some 14 crores, most of whom take to farming as their second nature. How could these comparative advantages of our country be combined into a competitive edge for our economy. Agriculture, it seemed to me, was the answer.

Coming from a family of absentee landlords I was not much familiar with farming. So I went about it diligently like a professional leasing a six acre plot of land with ponds in Narshindi and started farming for profit as a business. We cultivated pineapple, banana, papaya, yardlong beans, white lilies and also fishes in our two leased ponds. We found to our dismay that if we had a good crop market prices fell rendering the business unprofitable. It was like a student being given poor marks for having worked hard and done well in the exams. We found that gluts and scarcities are the norms in the farming world.

Through continuing research we came to the conclusion that the key lay in processing of agricultural commodities with the aim of increasing shelf life and adding value to them. Enlightened with this wisdom we revisited the economics of comparable countries. It was apparent that not only production, but processing of agricultural commodities was the key to profitability in this business. Thailand is a classical example which climbed the ladder of economic affluence through agro-processing. They can a whole range of products starting from pineapple, tropical fruits like mango, leechee, papaya , guava, etc, all types of vegetable, mushroom and indeed tuna fish of which they are the largest exporter in the world, though not being its principal producer. Thailand's ecology is quite similar to Bangladesh and their economy thrives on agro-processing. Chile, the Philippines & Indonesia all have followed the same path. Looking at the more advanced countries one finds the same model: USA, Australia, New Zealand and even Israel add value to their agricultural crops manifold not to mention Brazil, Argentina and the others. I was amazed to learn that in the state of Mississippi of USA the largest economic contribution came from cat fish or our humble “magur mach.”

It was my very personal triumph as a businessman for having discovered the key to my prosperity in business: agro-processing.

Unfortunately, it is yet to be, but happily we are progressing in the right direction which is my greatest redemption. We soon discovered the greatest obstacle in our way to be the prevalent regulatory environment for sustaining a vibrant agro-processing sector. Successive governments professed their pious intentions of supporting this sector loud and clear but when it came to putting it into practice progress has been slow. To cite an example, cash incentive entitlement for export of processed agricultural products is still languishing in the bureaucratic web in spite of persistent persuasion by Bangladesh Agro-Processors' Association and other stakeholders to improve matters, though the same facility had been declared by the government many years ago.

The Board of Revenue collects money for the government. They are also responsible to foster and nurture economic growth. The former naturally takes precedence as without it the government will come to a halt. On the other hand, any relaxation in the revenue structure for the promotion of a particular growth sector is likely to show up in terms of job creation, increased production and balance of trade over a time lag.

Quite naturally the immediate demands of one clashe with the needs of the other and the imperatives of economic growth recede into the background -- in the realm of pious desire.

I have often wondered what is the single greatest expeditor or inhibitor of economic growth and, for that matter, creation of jobs in the short term. It seems to me these are the fiscal measures enshrined in the annual budget. This is endemic to our bureaucratic structure irrespective of the party in power. Agro-processing sector thus remains the victim of this age old environment.

Agro-processing creates jobs all the way. The demand for farm produce increases which in turn creates jobs at the farm level. Take for instance peanuts. It grows in sandy soil, commonly found in the river banks. Bangladesh being a deltaic area the banks of the rivers are very wide as the water in the rivers increases manifold between the dry and the rainy seasons. Snows in the Himalayas start to melt in summer when the Monsoon rains also add to the swelling. The answer to “ monga ” in Nilphamari and Kurigram areas lies in cultivation of peanuts in the river banks during the dry winter season. Peanut cultivation is labour intensive and thus jobs could be created for the subsistence farmers. The question now arises as to who will buy this peanut and thus create a demand for them. Surely, if processing of peanuts is profitable entrepreneurs will invest in this sector.

What is the level of inducement required for entrepreneurship to flourish in a sector, particularly when it is one that is new, unexplored and untried. Investors, both individual and institutional who include banks are inherently shy of investing in unproven areas in order to minimize their risk. Agro-processing sector being one such has shied away investors from taking added risk. This is more so when there are other more rewarding investment opportunities in the economy like garments or pharmaceutical sectors. The former was aided by Multi-fibre Agreement -- and have not fared badly into the post-MFA phase either -- and the latter is protected by Drug Policy. This support was certainly more relevant in the early take off years of investment in these sectors and without which both these sectors could not have achieved their present status.

Peanut farming in the char areas will only thrive if investment in the processing industry for peanuts is rewarding. Processors will create demand for peanuts which will create jobs at the farm level for contract growers as well as in the processing industry itself. These jobs will be created in the less developed areas if the infra-structure is more or less conducive. Thus the exodus of population from rural areas to cities with the resultant scourge of urbanisation will be prevented. Maximum number of jobs can be created in the rural areas in the agro-processing sector with the least quantum of investment and that too in the shortest possible time.

Contract growing model has been followed by PRAN. We have contract growers supplying mung dal, tomato, peanuts, spices, chinigura paddy and several other types of agricultural produce which are processed in PRAN's own facilities. Contract farming is being extended to the dairy sector to support milk processing.

Bangladesh grows a lot of potatoes. Presently most of it is consumed fresh. Happily the cold storages have enhanced their durability over time. If only they could be processed. Holland is a country which produces over 8 million MT of potatoes. Over 40 per cent of this quantity goes for industrial processing, 10 per cent is exported, some as seeds, 15 per cent is utilized as stock feed, 7 per cent as seeds for local farmers and a mere 19 per cent is consumed domestically. Bangladesh produces over 3 million MT of potato. If only 755,000 MT of this production is processed as french fries, chips and flakes over $(US) 405 million could be earned annually.

The Philippines grows a lot of pineapples. No part of the pineapple is thrown away. Even the core and the skin are used productively, not to mention the juice, concentrate, dehydrated and canned pineapples.

Switzerland is an advanced country. So are New Zealand and Ireland. All these countries have thriving dairy industries producing milk, butter, beef and a whole range of dairy products which are exported all over the world. Swiss cheese is auctioned in bulk and New Zealand exports a lot of milk powder.

Unfortunately cattle population in Bangladesh has denuded over the years. But for meat on hoof coming from India beef would have been selling at twice or three times the present market price. We are also losing out on a potent source of organic fertilizer for our soil in cow dung. Chemical fertilizer is used widely impoverishing our intensely cultivated soil. The need of the hour is a thriving dairy industry beleaguered over the years by imported powdered milk.

Our dairy industry will thrive only if processing of milk and milk products is sustainable financially which is not possible under the present scenario.

If only we could improve the breed of our cattle population in the villages through artificial insemination consider the wealth that will be generated in every rural household of Bangladesh! Jobs will be created right there generating income in every cattle owning rural homestead, not to undermine the multiplier effect of this income and through increase in the cattle population itself every year. The sustainability of this scheme rests solely on the profitability of the milk processors, demand for fresh milk sustaining its production.

Bangladesh is the most densely populated country in the world with a density of some 1000 persons per square kilometer. Because of this adverse land: man ratio there is acute pressure on land and a high demand for most agricultural commodities. No wonder we have to rely on imported rice, albeit much less today than before, wheat, spices, cattle for beef, sugar, oil seeds, even fish, fruits, often some vegetables, milk powder, in fact the whole range of food products. Will we ever see self sufficiency in these products? I am afraid not, as demands have tended to outstrip production in recent years -- and the trend continues.

Correspondingly, the surrounding Indian hinterland is not so densely populated. Most agricultural raw materials like rice, wheat, spices, vegetables, sugar, fruits, fish, cattle and the rest are available there and cheaper too. If we could import these raw materials for our processing industries we could create jobs for our teeming millions. Eventually we could export these processed food products back to India. Thus there is a strong case for free trade between India and Bangladesh, purely on the basis of processing of agricultural products.

Some argue as to the strength of our business and industry to compete with that of India. We have a large labour force: cheap and trainable, energy in terms of natural gas and electricity and a supportive physical infra-structure. In other areas, more or less, we are comparable to India. Why then can we not compete with them in the market place? As a result of WTO agreements, we may like it or not, we are having to compete with imported products from India and elsewhere in our very own market in Bangladesh.

Transportation costs from the Indian industrial centres to eastern India are much higher than what these could be from Bangladesh to surrounding Indian markets being placed on interior lines of communication, to use a military jargon. Purely geographically speaking, Bangladesh has a comparative advantage for trade with eastern India which is waiting to be exploited -- all to our advantage.

Horticulture and other value added crops like tea, spices, dairy, poultry and fisheries hold promise for Bangladesh's prosperity in the short run. This expectation will be redeemed only if there are processing industries based on them. Investments in these processing industries will only take place if they are found financially rewarding when compared to other sectors of the economy.

Bangladesh's prosperity is largely achievable through full-scale development of agro-processing. The country's resources are scarce and its mineral resources are finite. Population will continue to grow at its own pace and add to the bulk of country's human resources already hungry for employment. Only agro-processing activities can be expanded with matching growth rate to generate enough employment that is dire need of the time.

Agro-processing provides Bangladesh with a clear cut advantage for creating employment and economic prosperity if only we have the requisite policy backing and grit to take the quantum leap. PRAN has proven at the micro-level that it is possible to do so. Now we have to do so at the macro level and thus creating a future for our progeny -- of a prosperous Bangladesh.

Illustration: Sabyasachi Mistry

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The author is the Chief Executive of PRAN-RFL Group.