December 04, 2007

Miscellaneous Notes on UV Fertilizer Post

On my Unheard Voices post on the fertilizer issue, I focussed only on the fallacy of abandoning a "card system" in favour of a "slip system" and expecting this to have any real effect on the ease with which farmers can access fertilizer. In other words, the transaction costs associated with getting fertilizer have increased, even if the monetary price has remained the same (tk. 4800/MT).

There are many other points of interest in this issue. This is a hasty blog post, so corrections welcome. Briefly and in no particular order:

  • Scheduled banks asked by BB to provide "all out support" for .... wait for it.... FERTILIZER DEALERS! Source: New Age, fourth story down. While in principle this is a wonderful initiative to increase the SUPPLY of fertilizer, the empirical evidence suggests that it does not translate into higher DEMAND for fertilizer since the farmers also need credit in order to consume the fertilizer BEFORE the harvest that brings them money. Source: Amader Shomoy.
    Question: Why is the government so bad at loaning out small amounts to poorer constituencies and NGOs so good? Donor backing, stronger collection policy, better screening methods, political pressure to forgive loans, what?

  • Importers' woes and readers' confusions: While the AMM Shawkat Ali op-ed talks about how the present absence of subsidies - that were granted to private importers in 2005 and then withdrawn by the current government - has led to a decrease in imports (indeed, he alleges that importers have refused to import any more unless their "unpaid" subsidies were paid to them); the New Age Xtra article tells us that the decrease in import is due to the amount of red-tape involved in handling such imports. But here's the excerpt:

    Red tape is also a problem as it hinders the swift import of fertiliser into the country. According to officials of BCIC, the paperwork often necessary for import of fertiliser is unduly long. ‘The requests for fertiliser import are submitted via the Prime Minister’s Office. After the requests are filed and processed, the Prime Minister’s Office starts looking for funds to finance the imports. The entire process takes about three months,’ says a BCIC official.

    Clearly, either the New Age is reporting old news or the PA editorial is wrong and subsidies for importers are very much alive. So have subsidies for importers been withdrawn or not? Who knows? Not two leading national dailies within days of each other.

  • This segment caught my eye too from the New Age Xtra report:
    The farmers in turn blame the dealers for creating an artificial crisis to raise the prices, suggesting that there is hoarding and price tampering going on in the market. Field visits revealed that dealers and traders made the situation complicated in some areas. ‘If you ask a dealer for fertiliser, he will readily tell you that there is no supply. But if you offer additional prices, say Tk 300 to Tk 500 for each sack, the same dealer will manage it for you ,’ said a farmer in Natore town as he was rushing from one shop to another for urea

    As a firm believer in the laws of the market, this says one of two things to me: 1) there is no competition in the marketplace, which might be a result of institutional/geographical/seasonal factors and/or 2) the dealers are not making enough. Given that the entire operation is a government-run deal where the dealers' profit margins might have been estimated as constant despite inflation, both might just be true. Additionally, if readers leave other suggestions as to what is going on in this particular segment, I'll be oblidged.

  • 600 suspected. 25,000 suspended. 14,400 appointed? Last year when a similar crisis was taking place, a lot of blame was put on the BNP and its alleged appointment of party men to dealerships.

    When the CTG came to power this year, they identified 600 dealers in the Northern areas for "creating artificial crisis".

    Apparently their response was to suspend 25,000 small traders (same as "dealers"?). To replace them, the government "is determined to create 14,400 sales centres across the country" (New Age Xtra piece).

    And who shall get the responsibility of maintaining these sales centres and how shall they be chosen? The Independent back page report (July 18th) which was the only source I could find where the initial decisions were reported says this:

    The committee will prepare work plan through examining various options like recruiting dealers who fulfil some criteria, like age being over 18 years and capability to run the business having fertiliser-stocking arrangement.

    No scope for "political" influence there, right? I mean, "politics" begins and ends with Awami League and BNP.

  • Random reports of smuggling as a bad indicator of crises. Purely speculative. As Leela mentions in her latest post on the fertilizer issue, she has recently seen reports of smuggling into Burma and India. And as Saif pointed out, as long as there is a price differential between Bangladesh and its neighbours thanks to subsidies, there is always an incentive to smuggle. However, the report I saw in Naya Diganta indicated that there was at least ONE instance of smuggling INTO the country. Which means that - in some areas - there is a higher price to be had by SMUGGLING more expensive fertilizer from India than by selling subsidised fertilizer within Bangladesh. Which basically means that the shortage is real, and not as some people would have you believe a media creation or the fault of farmers failing to queue up.

Thanks to Saif and Leela for posting on this issue and forcing me to think. Saif's clarity on these matters of simple economics is something I envy. And I'd like to echo Leela's caveat that we are all basing our concerns and analysis on the newspaper reports that are woefully inadequate. I will however try and read through the CPD report when I have time and do a blog post if its interesting.

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