Liberalization of agricultural input markets in Bangladesh: process, impact, and lessons

The study takes a historical perspective to trace the path of evolutionary reforms in agricultural input markets of Bangladesh. It estimates the magnitude of the impact of these reforms on rice production, the most important crop in Bangladesh agriculture. It is estimated that the production of rice could have been 20-32% lower than the level of 1992/1993, depending on the rice price that would have prevailed under alternative scenarios. The 20% credit to market reform relates to a real rice price level 19% higher than the actual 1992/1993 prices. The 32% credit to reform relates to the actual 1992/1993 price levels. The lower contribution of reform (20%) to increased production implies a loss to consumers not accounted for in the production benefit of reform, while the higher contribution (32%) of reform entails no loss to consumers. The bottom-line conclusion is that Bangladesh, without the market reforms described in the paper, would have reverted back to the situation of regular food crisis and high rice prices, as was the case historically. The analysis of the process of reform provides interesting lessons for developing countries. A gradual process based on a well-designed sequencing of various steps of market reform, particularly in the case of fertilizer, was a crucial factor for success. Careful monitoring during the period of transition is another crucial factor that has to be institutionalized in the system. Second generation problems of market reforms, particularly the emergence of an oligopolistic market structure, are possible and warrant a cautionary watch