Whether crop diversification is a desired strategy for agricultural growth in Bangladesh?

Transcription

1 Unversty of Plymouth PEARL Faculty of Scence and Engneerng School of Geography, Earth and Envronmental Scences Whether crop dversfcaton s a desred strategy for agrcultural growth n Bangladesh? Rahman, S /j.foodpol Food Polcy All content n PEARL s protected by copyrght law. Author manuscrpts are made avalable n accordance wth publsher polces. Please cte only the publshed verson usng the detals provded on the tem record or document. In the absence of an open lcence (e.g. Creatve Commons), permssons for further reuse of content should be sought from the publsher or author.

2 Whether crop dversfcaton s a desred strategy for agrcultural growth n Bangladesh? Sanzdur Rahman ABSTRACT Ths study amed at examnng the mert of crop dversfcaton as a strategy for agrcultural growth n Bangladesh. Specfcally, the exstence of economes of dversfcaton, scale economes and dversfcaton effcences at the farm level were examned usng a stochastc nput-dstance functon approach. The results reveal strong evdence of dversfcaton economes amongst most crop enterprses except the combnaton of modern rce and modern wheat enterprses. Ray economes of scale exst n Bangladesh croppng system. Also, sgnfcant are effcency gans made from dversfcaton among croppng enterprses. The key polcy mplcaton s that crop dversfcaton should be a desred strategy for agrcultural growth n Bangladesh. Development of the rural nfrastructure s also essental as ths wll not only mprove techncal effcency but may also synergstcally promote crop dversfcaton by openng up opportuntes for technology dffuson, marketng, storage and resource supples. JEL classfcaton: O33; Q8; C Keywords: Dversfcaton economes, Dversfcaton effcences, Stochastc nput dstance functon, Crop dversfcaton, Bangladesh.. Introducton The economy of Bangladesh s largely dependent on agrculture. Although, rce producton domnates the farmng system of Bangladesh, accountng for 70% of the gross cropped area (BBS, 00), several other crops are also grown n conjuncton wth rce n order to fulfl a dual role of meetng subsstence as well as cash needs. Snce the begnnng of the 960s, Bangladesh has pursued a polcy of rapd technologcal progress n agrculture,

3 leadng to dffuson of a rce-based Green-Revoluton technology package. As a result, farmers concentrated on producng modern varetes of rce all year round coverng three producton seasons (Aus - pre-monsoon, Aman - monsoon and Boro - dry wnter), partcularly n areas that are endowed wth supplemental rrgaton facltes. Ths rased concern regardng the loss of crop dversty, consequently leadng to an unsustanable agrcultural system. For example, Husan et al., (00) noted that the ntensve monoculture of rce led to a dsplacement of land under less productve non-rce crops such as pulses, olseeds, spces and vegetables, leadng to an eroson of crop dversty, thereby, endangerng the sustanablty of crop-based agrcultural producton system. Mahmud et al., (99: 0) also noted that the area under non-cereal crops has contnuously fallen snce the late 970s, manly due to the expanson of rrgaton facltes, whch has led to ferce competton for land between modern Boro season (dry wnter) rce and non-cereals. However, an analyss of the level of crop dversfcaton between the two Agrcultural Censuses of 960 and 996 reveals that the level of crop dversty has actually ncreased by.5 percent over the 36 year perod (Table ). The Herfndahl ndex of crop dversfcaton s computed at 0.59 n 960 and 0.5 n 996. To summarse the man changes between the two census perods were: () an ncreased share of small farms, () a shrnkng of average farm sze per household, () a declne n total net cropped area, (v) an ncrease n croppng ntensty, (v) an ncreased dffuson of modern rce varetes whch replaced tradtonal rce area to a large extent, (v) a dramatc ncrease n modern wheat area, and (v) only a two percent declne n the share of area under non-cereal crops. Although many non-cereal crops (e.g., potatoes, vegetables, onons and cotton) are more proftable (both n economc and fnancal terms) than modern rce cultvaton, expanson of these crops remans lmted because of the assocated hgh rsk as well as ncompatblty of the exstng rrgaton system to produce non-cereals n conjuncton wth

4 rce (Mahmud et al., 99). However, t has been ncreasngly recognzed that, under nonrrgated or sem-rrgated condtons, better farmng practces and varetal mprovements n non-cereal crops wll be more proftable and could lead to crop dversfcaton as a successful strategy for the future growth and sustanablty of Bangladesh agrculture (MoA, 989; Mahmud et al., 99; PC, 998). The Ffth Fve Year Plan (997 00) set specfc objectves to attan self-suffcency n foodgran producton along wth ncreased producton of other nutrtonal crops, as well as to encourage the export of vegetables and fruts, keepng n vew domestc consumpton demand and nutrtonal requrements (PC, 998). The Plan also earmarked Tk,900 mllon (US$.8 mllon) accountng for 8.9 percent of the total agrcultural allocaton to promote crop dversfcaton. Such an emphass at the polcy level ponts towards the mportance of determnng the merts of crop dversfcaton at the farm level. We examne ths mert n terms of gans n economes of dversfcaton and techncal effcency, so that an nformed judgment can be made about the sutablty of crop dversfcaton as a desred strategy for promotng agrcultural growth n Bangladesh. Studes on crop dversfcaton n the lterature are dverse and focus on ts mpact ether on ncome or overall producton. For example, Guvele (00) concluded that crop dversfcaton reduces varablty n ncome n Sudan. Van den Berg et al., (007) concluded that dversfcaton nto hgh-value vegetable crops and away from rce wll enable Chnese farms to sustan a reasonable ncome level gven present farm-sze dstrbutons. Kar et al., (00) concluded that crop dversfcaton n upland areas serves as a good measure to mtgate drought, as well as ncreasng water use effcency, whlst also ncreasng the overall yeld of the system n Inda. However, studes examnng the explct relatonshp between crop dversfcaton and producton effcency at farm level are few, wth mxed conclusons. For example, Coell and Flemng (00) concluded that crop dversfcaton sgnfcantly mproves techncal effcency on farms n Papua New Gunea, whereas Llewelyn and 3

5 Wllams (996) and Haj (007) concluded that crop dversfcaton sgnfcantly reduces techncal effcency n Indonesan farms and allocatve and economc effcency n Ethopan farms, respectvely. It s expected that ndvdual economes wthn the developng world are unlkely to demonstrate a unform relatonshp between crop dversfcaton and producton effcency. The contrastng evdence provded by the aforementoned studes proves the pont. Therefore, t s mportant to determne the merts of crop dversfcaton case by case, partcularly when the government of Bangladesh s keen to adopt crop dversfcaton as a strategy for agrcultural growth as well as to promote sustanablty (MoA, 998; Mahmud et al., 99). Gven ths backdrop, the study s am to examne: (a) the exstence of economes of dversfcaton among crop enterprses; and (b) the mpact of dversfcaton on techncal effcency n farmng n Bangladesh. The present study wll, therefore, be a valuable addton to the source of knowledge on the performance of the agrcultural sector, whch s largely dversfed n nature, such as Bangladesh.. Methodology. Data and the study area The study s based on farm-level cross secton data for the crop year 996 collected from three agro-ecologcal regons of Bangladesh. The survey was conducted from February to Aprl 997. Samples were collected from eght vllages of the Jamalpur Sadar sub-dstrct of Jamalpur, representng wet agro-ecology, sx vllages of the Manrampur sub-dstrct of Jessore, representng dry agro-ecology, and seven vllages of the Matlab sub-dstrct of Chandpur, representng wet agro-ecology n an agrculturally advanced area. A multstage random samplng technque was employed to locate the dstrcts, the Thana (sub-dstrcts), and then the vllages n each of the three sub-dstrcts, and fnally the sample households. A

6 total of 06 households from these vllages were selected. Detaled crop nput-output data at the plot level for ndvdual farm households were collected for ten crop groups. The dataset also ncludes nformaton on the level of nfrastructural development 3 and sol fertlty determned from sol samples collected from representatve locatons n the study vllages.. Analytcal framework The sample households were selected based on the nformaton on the total number of households ncludng ther land ownershp categores, whch were obtaned from BRAC (a natonal non-governmental organzaton). Then a stratfed random samplng procedure was appled usng a formula from Arkn and Colton (963) that maxmzes the sample sze wth a 5% error lmt. Farm sze categores (large, medum, and small farmers) were used as the strata (for detals, see Rahman, 998). The crop groups are: tradtonal rce varetes (Aus pre-monsoon, Aman monsoon, and Boro dry seasons), modern/hgh yeldng rce varetes (Aus, Aman, and Boro seasons), modern/hgh yeldng wheat varetes, jute, potato, pulses, spces, olseeds, vegetables, and cotton. Pulses n turn nclude lentl, mungbean, and gram. Spces nclude onon, garlc, chll, gnger, and turmerc. Olseeds nclude sesame, mustard, and groundnut. Vegetables nclude eggplant, caulflower, cabbage, arum, beans, gourds, radsh, and leafy vegetables. 3 A composte ndex of underdevelopment of nfrastructure was constructed usng the cost of access approach. A total of 3 elements are consdered for ts constructon. These are prmary market, secondary market, storage faclty, rce mll, paved road, bus stop, bank, unon offce, agrcultural extenson offce, hgh school, college, thana (sub-dstrct) headquarters, and post offce. A total cost (TC) of access was computed by summng up ndvdual costs (IC ) of access (.e., dstance x cost per km). Then, TC was correlated wth costs for each element (IC ) whch provded ndvdual correlaton coeffcents (W ). The fnal ndex (INF) was then calculated by summng up all the ICs (each weghted by ts correlaton coeffcent) and dvded by sum of all correlaton coeffcents (see Ahmed and Hossan, 990 for further detals). The sol fertlty ndex was constructed from test results of sol samples collected from the study vllages durng the feld survey. Ten sol fertlty parameters were tested. These are sol ph, avalable ntrogen, avalable potassum, avalable phosphorus, avalable sulphur, avalable znc, sol texture, sol organc matter content, caton exchange capacty of sol, and electrcal conductvty of sol (for detals of samplng and tests, see Rahman and Parknson, 007 and Rahman, 998). 5

7 Sources of productvty growth can be decomposed nto two prncpal components: techncal effcency (TE) and techncal change (TC). TE can be nterpreted as a relatve measure of manageral ablty for a gven level of technology, whereas TC evaluates the effect on productvty arsng from the adopton of new or mproved producton processes (Bravo-Ureta et al., 007). The gans n TE are derved from mprovements n decson makng, whch n turn are assumed to be lnked to a host of soco-economc condtons, e.g., knowledge, educaton, and experence. On the other hand, TC relates to nvestment n research and technology (Nshmazu and Page, 98 cted n Bravo-Ureta et al., 007). In ths study, we are nterested n examnng whether crop dversfcaton leads to gans n TE (.e., dversfcaton effcences), as well as whether dversfcaton nto varous crop enterprses lead to gans n economes of scale (.e., dversfcaton economes). To examne the exstence of dversfcaton economes and dversfcaton effcences, a mult-output, mult-nput producton technology specfcaton s requred as opposed to the commonly used sngle-output, mult-nput producton technology. The use of a dstance functon approach (ether output-orentated or nput-orentated) crcumvents ths problem and can be analyzed usng ether parametrc or non-parametrc methods. Also, the man advantage of a dstance functon approach s that the producton fronter can be estmated wthout assumng separablty of nputs and outputs (Kumbhakar, et al., 007). An output orented approach to measure techncal effcency s approprate when output s endogenous (e.g., revenue maxmzaton case) but nputs are exogenous, whereas an nput orented approach s approprate when nputs are endogenous (e.g., cost mnmzaton case) but output s exogenous (Kumbhakar et al., 007). We have selected the use of an nputorentated stochastc dstance functon to address these research questons. Ths s because, n an economy lke Bangladesh, on the one hand, nputs are hghly scarce, partcularly the 6

8 land nput, and on the other hand, farmers are often constraned by cash/credt (Rahman, 998). Therefore, t s logcal to assume that cost mnmzaton s the prme concern. We begn by defnng the producton technology of the farm usng the nput set, L(y), whch represents the set of all nput vectors, K x R+, whch can produce the output vector M y R+. That s, K L( y) = { x R : x can produce y} + () The nput-dstance functon s then defned on the nput set, L(y), as D I ( x, y) = max{ ρ : ( x / ρ) L( y)} () D I (x,y) s non-decreasng, postvely lnearly homogenous and concave n x, and ncreasng n y. The dstance functon, D I (x,y), wll take a value whch s greater than or equal to one f the nput vector, x, s an element of the feasble nput set, L(y). That s, D I (x,y) f x L(y). Furthermore, the dstance functon wll take a value of unty f x s located on the nner boundary of the nput set..3 Economes of dversfcaton Coell and Flemng (00) presented a measure of economes of dversfcaton for Papua New Gunea farmers relatve to an nput dstance functon whch, n prncple, can be conceved of as the lower-bound estmate of the tradtonal cost functon measure of scope economes. The partal dervatve of the nput dstance functon (defned n the prevous secton) wth respect to the th output s generally negatve, mplyng that the addton of an extra unt of output, wth all other varables held constant, reduces the amount by whch we need to deflate the nput vector to put the observaton onto the effcent fronter. Thus, the second cross partal dervatve of the nput dstance functon, wth respect to output, needs to be postve, to provde evdence of economes of dversfcaton. Economes of dversfcaton exst between outputs and j f (Coell and Flemng, 00): 7

9 D Y Y j > 0, j,, j =,... m. (3). Dversfcaton effcences In addton to the examnaton of dversfcaton economes, another key queston of nterest s to nvestgate whether farmng neffcences are related to the degree of dversfcaton (or specalzaton), snce the lterature on ths ssue s mxed. Specalzaton of farmng actvty may lead to lower neffcency or vce versa. The expectaton s that specalzaton n producton leads to effcency gans n the dvson of labour and management of resources (Coell and Flemng, 00). Dversfcaton effcency, whch works n the opposte drecton to specalzaton effcences, may be derved from ntmate knowledge of farmers yet uncertan producton envronment and the ablty to adjust ther labour and other resources to varous farmng actvtes. A Herfndahl ndex s used to represent the specalzaton varable. Although, ths ndex s manly used n the marketng ndustry to analyze market concentraton, t has also been used to represent crop dversfcaton and/or concentraton 5 (e.g., Llewelyn and Wllams, 996; Bradshaw, 00). The Herfndahl ndex (D H ) s represented as D = α, 0 D, where α represents the area share occuped by the th crop n total H H area A. A zero value denotes perfect dversfcaton and a value of denotes perfect specalzaton. Land s the scarcest nput n Bangladesh compared wth any other resource requrements. In fact, the land-person rato n Bangladesh s one of the lowest n the world, 5 The Ogve ndex, whch s defned as a concentraton of output shares of varous enterprses, can also be used to represent the specalzaton varable (e.g., Coell and Flemng, 00). 8

10 estmated at only 0. ha (FAO, 00). Therefore, the selecton of Herfndahl ndex to represent crop dversfcaton s correctly justfed 6..5 Other factors explanng effcences In addton to varables representng crop dversfcaton (or specalzaton), a number of other explanatory factors representng farmers soco-economc crcumstances may affect effcency. These are: amount of land owned by the farmer, farmers educaton and farmng experence, famly sze, extenson contact, ndex of nfrastructure development (defned n footnote 3), ndex of sol fertlty (defned n footnote ), and the proporton of nonagrcultural ncome of the household. Choce of these varables s based on the exstng lterature and the justfcaton for ther ncluson s brefly dscussed as follows. In Bangladesh, land ownershp serves as a surrogate for a number of factors as t s a major source of wealth and nfluences crop producton (Hossan, 989; Ahmed and Hossan, 990). The sze-productvty relatonshp n Bangladesh vares across regons dependng on the level of technologcal development and envronmental opportuntes. The relatonshp s postve n technologcally advanced regons, whereas the classc nverse relatonshp stll exsts n backward areas (Toufque, 00). We ncluded the amount of land owned varable to test whether farm sze nfluences techncal effcency (e.g., Al et al., 99; Al and Flnn, 989; Wang et al., 996). Use of the educaton level of farmer as a techncal effcency shfter s farly common (e.g., Asadullah and Rahman, 008; Wang et al., 996; Wadud and Whte, 000). The educaton varable s also used as a surrogate for a number of factors. At the techncal level, access to nformaton as well as capacty to understand the techncal aspects related to crop producton s expected to mprove wth educaton, thereby, nfluencng techncal effcency. 6 We have also analysed the data usng the Ogve ndex of output concentraton, whch provded almost dentcal results. 9

11 The justfcaton for ncludng farmng experence s straghtforward. Experenced farmers are more lkely to be wser n decsons regardng the use and allocaton of scarce nputs (e.g., Al et al., 99; Llewelyn and Wllams, 996; Coell and Flemng, 00). Accordng to the Chayanovan theory of the peasant economy, hgher subsstence pressure ncreases the tendency to adopt new technology and ths has been found to be the case n Bangladesh (Hossan, et al., 990). The subsstence pressure varable (defned as famly sze per household) was ncorporated to test whether t nfluences techncal effcency as well (e.g., Wang et al., 996; Al et al., 99). Agrcultural extenson can be sngled out as one of the most mportant sources of nformaton dssemnaton drectly relevant to agrcultural producton practces, partcularly n natons lke Bangladesh where farmers have very lmted access to nformaton. Ths s renforced by the fact that many studes found a sgnfcant nfluence of extenson educaton on adopton of modern technologes (e.g., Badu-Forson, 999; and Adesna and Znnah, 993). Therefore, ths varable was ncorporated to account for ts nfluence on techncal effcency n order to make a case for strengthenng extenson servces and networks, f ts coeffcent shows postve sgn (e.g., Rahman, 003; Al et al., 99; Al and Flnn, 989). The level of rural nfrastructure s a key lmtng factor n the development of Bangladesh agrculture (Ahmed and Hossan, 990). Areas wth better nfrastructure can realze hgher productvty levels than underdeveloped areas for several reasons. For example, extenson nformaton reaches them more easly, and/or delvery of modern nputs such as fertlzers and pestcdes s tmeler. Sol fertlty s also a key factor that exerts a postve nfluence on productvty (e.g., Rahman, 005; Rahman and Parknson, 007). The ndces of underdevelopment of rural nfrastructure and sol fertlty were ncorporated to test ther ndependent nfluence on techncal effcency. 0

12 The percentage of ncome earned off-farm was ncluded to reflect the relatve mportance of non-agrcultural work n these farm households. Household wth a hgher share of non-agrcultural ncome are reported to operate at lower level of techncal effcency (e.g., Al and Flnn, 989; Wang et al., 996). 3. The emprcal model A mult-output, mult-nput stochastc dstance functon was used to compute the farm specfc techncal effcency ndex. The emprcal model s specfed usng a translog stochastc nput dstance functon allowng for all possble nteractons. All the varables were mean-corrected pror to estmaton, so that the coeffcents of the frst-order terms can be drectly nterpreted as elastctes or margnal effects. The translog stochastc nput dstance functon, droppng the j th subscrpt for ndvdual farms, s specfed as: ln d = α = α ln X + = j= 7 β k lnyk + β lnyk lnyl + k= k= l= = k= 7 α ln X j ln X 7 j + τ ln X k lny k () where Xs are nputs and Ys are outputs. The seven nputs used n the analyses are: X = land under all crops (ha), X = amount of fertlzers (kg), X 3 = amount of total (famly suppled + hred) labour (person-days), X = anmal power servces (anmal-par days), X 5 = rrgaton (taka), X 6 = pestcdes (taka) and X 7 = seeds (taka). The four outputs are: Y = tradtonal rce (kg), Y = modern rce (kg), Y 3 = modern wheat (kg), and Y = cash crops 7 (ncludes jute, cotton, olseeds, spces, pulses, potatoes, and vegetables) (taka). Followng Coell and Perelman (999), we set ln d= v u, and mpose the restrcton requred for homogenety of degree + n nputs ( 7 = α = ) to obtan the 7 The gross value of each output s used to construct ths compound (aggregate) varable, and s expressed as Taka per farm.

13 estmatng form of the stochastc nput dstance functon (.e., normalzng the nput vectors by any one of the nputs, specfcally the land nput X ): ln X = α k= l= X 7 α ln = X β lny k + lny l + X 7 7 j α j ln ln = j= X X X 7 τ k ln = k= X lny X k + k= + v u β lny k (5) where the vs are assumed to be ndependently and dentcally dstrbuted wth mean zero and varance, σ u ; and the us are techncal effcency effects that are assumed to be dentcally dstrbuted such that u s defned by the truncaton at zero of the normal dstrbuton wth unknown varance, σ u, and unknown mean, µ, defned by: µ = δ δ m Z m (6) m= where Z = amount of land owned (ha), Z = educaton of farmer (years of completed schoolng), Z 3 = experence of farmer (years), Z = famly sze (persons), Z 5 = ndex of underdevelopment of nfrastructure (number), Z 6 = ndex of sol fertlty (number), Z 7 = extenson contact dummy ( f had any contact (ncludng tranng) n past one year, 0 otherwse), and Z 8 = share of non-agrcultural ncome (percent) and Z 9 = Herfndahl ndex of crop dversfcaton (number). We follow Battese and Corra (977) n replacng the varance parameters, σ v and σ u σ u, wth γ = and ( σ + σ ) v u σ = σ + σ n the estmatng model. The nput dstances are s v u predcted as (Coell and Perelman, 999): d= E[exp( u) e], where e= v u. The nverse of these nput dstances (d) are the techncal effcency scores of each ndvdual farm, whch have a feasble range from zero to unty, wth unty beng fully effcent (Coell and Flemng, 00). Estmates of the parameters of the model were obtaned usng maxmum lkelhood

14 procedures, detaled by Coell and Perelman (999). STATA Software Verson 8 was used for the analyses (Stata Corp, 003).. Results Pror to the presentaton of results, we provde a summary of the key characterstcs of the sampled farmers (Table ). The average farm sze s 0.98 ha; the amount of land owned per farm s 0.65 ha; the average level of educaton s less than four years; experence n farmng s 6 years; average famly sze s sx persons; percent of ncome s derved offfarm; and only 3 percent of farmers have had contact wth extenson offcers durng the past year. The computed Herfndahl ndex of crop dversfcaton ranges from 0.8 to.00 wth mean score of 0.60 ndcatng strong presence of dversfcaton among enterprses. The results of the maxmum lkelhood estmaton (MLE) of the stochastc nput dstance functon model are presented n Table 3. Two sets of hypotheses were tested usng the Lkelhood Rato tests. Frst, we tested for the presence of neffcences n the model. The parameter γ s the rato of error varances from Eq. (5). Thus, γ s defned between zero and one, where f γ = 0, techncal neffcency s not present, and where γ =, there s no random nose. The test of sgnfcance of the neffcences n the model (H 0 : γ = µ = 0) was rejected at the percent level of sgnfcance, ndcatng that the MLE s a sgnfcant mprovement over an Ordnary Least Squares (OLS) specfcaton and neffcences are present n the model. The calculated value of the test statstc s 7.67, whch s greater than the crtcal value obtaned from Table of Kodde and Palm (986) wth three restrctons. Second, we tested the jont sgnfcance of all the varables ncludng crop dversfcaton ndex and the null hypothess (H 0 : δ m = 0 for all m) was rejected at the per cent level of sgnfcance. The calculated value of the test statstc s 33.8, whch s greater than the crtcal value of χ wth 9 restrctons, mplyng that the ncluson of these varables to explan neffcency s justfed. 3

15 One-thrd of the estmated coeffcents are sgnfcantly dfferent from zero at the 0 percent level at least. The sgns of the coeffcents on the frst order terms of the nput and output varables are consstent wth theory. For example, a postve coeffcent on any nput varable mples substtutablty of that nput wth land. On the other hand, a negatve coeffcent on any output varable mples that a reducton n land area s postvely assocated wth a reducton n that output. The coeffcents on a number of nteracton varables (second order terms) are also sgnfcantly dfferent from zero, thereby, confrmng non-lneartes n the producton process, and hence, justfyng the use of the flexble translog specfcaton. It should be noted that n a flexble translog functon model wth large number of nputs and outputs, volaton of the regularty condton n some nputs and outputs are unavodable. Table 3 shows that the labour nput and modern wheat output volates the expected regularty condtons (.e., postve sgn on the nput coeffcents and negatve sgn on the output coeffcents). However, snce the value of the coeffcents on these two varables s not sgnfcantly dfferent from zero, t may not be the true relatonshp. Another pont to note s that the results presented n Table 3 are true at the pont of approxmaton of the translog functon. The sum of the coeffcents on four output varables (tradtonal rce, modern rce, modern wheat and cash crops) s 0.78 (Table 3). The nverse of ths fgure (.8) provdes a measure of ray scale economes (at the sample means), suggestng ncreasng returns to scale. The mplcaton s that the farmers are lkely to beneft from sgnfcant economes of scale (Coell and Flemng, 00).. Economes of dversfcaton Followng Coell and Flemng (00), we calculated the measure of dversfcaton economes (defned n Eq. 3) usng the coeffcent estmates reported n Table 3 for each par

16 of crop enterprses (outputs) at the mean values of the sample data 8. The result of ths exercse s presented n Table. Unlke Coell and Flemng (00), we found strong evdence of economes of dversfcaton across most crop combnatons except modern rce and modern wheat crops. The possble explanaton s that, modern rce (partcularly, the Boro season rce) and modern wheat are grown n the same wnter season and, therefore, there are potentally clashes wth resource allocaton requrements, partcularly the land and labour nputs. Snce, double log specfcaton s used to compute these dversfcaton economes, the coeffcents can be read as dversfcaton elastctes. For example, the dversfcaton economes between tradtonal and modern rce s estmated at 0.0. The mplcaton s that a one percent ncrease n tradtonal rce output wll reduce the margnal use of nputs for producng modern rce by 0.0 percent. Gven the estmated coeffcents, t seems that the economc gan of dversfcaton s hghest wth the combnaton of modern rce and cash crops, as expected. Table 5 presents nput use rates classfed by the level of farm dversfcaton. We desgnated farms wth the Herfndahl ndex as specalzed farms (who were largely modern rce producers) and the remanng as dversfed farms. It s clear from Table 5 that the operatonal sze of dversfed farms s sgnfcantly hgher and the use rates of nputs per hectare, except seeds and rrgaton, are sgnfcantly lower. The use rates of labour, anmal power servces, and fertlzers are 5, 3 and 9 percent lower among dversfed farms compared wth those of specalzed farms. Also, pestcde use rates are 3 percent hgher for the specalzed farms. Although, gross value of output s sgnfcantly hgher for specalzed farms, the profts are smlar between specalzed and dversfed farms, due to sgnfcantly lower use of nputs by the latter. It s also clear from Table 5 that techncal effcency s sgnfcantly hgher for dversfed farms. The mean techncal effcency score for specalzed 8 Detals of the dervaton of these estmates and ther respectve standard errors are presented n Appendx A. 5

17 farms s computed at 0.5 compared wth 0.95 for the dversfed farms. Ths fndng also mples that the dversfed farms are already operatng at a very hgh level of effcency, wth very lttle to mprove through resource reallocaton.. Dversfcaton effcences A plot of the dstrbuton of techncal effcency scores s presented n Fgure. The effcency scores range from 33 to 98 percent, wth a mean score of 8 percent 9. Ths estmated mean level of techncal effcency s hgher than the estmates of techncal effcency for producng only rce crops n Bangladesh. For example, techncal effcency of rce producton s estmated at 69. percent (Coell et al., 00) and 78.9 percent (Wadud and Whte, 000) n Bangladesh. The mplcaton s that, although there s substantal opportunty to expand crop output wthout addtonal resources, the results of earler studes on Bangladesh somewhat overstated the scope to expand overall output by concentratng on rce crops only, whch corroborates the fndngs of Bravo-Ureta et al., (007). Bravo-Ureta et al., (007), usng a meta-analyss of 67 effcency studes conducted worldwde, concluded that fronter models wth gran crops present, on average, lower mean techncal effcency scores than those for other crops, dary and cattle, or whole farm categores. The average mean techncal effcency n rce farmng was estmated at 7. percent compared wth other crops farmng at 7. percent, dary and cattle enterprses at 80.6 percent and for the whole farm at 76.8 percent (Bravo-Ureta et al., 007). The dstrbuton of the effcency score has a long tal at the lower end of the effcency spectrum (Fgure ). About 5 percent of the farmers are producng at an effcency level of less than 60 percent. However, two- 9 The correlaton between the computed techncal effcency scores from model wth the Herfndahl ndex and the model wth the Ogve ndex s estmated at 0.98 (p<0.0). Therefore, we have decded to report only the results of the model usng the Herfndahl ndex. 6

18 thrds of the farmers are producng at the top decle range (90 percent and above), whch s encouragng. The results of the neffcency effects model are presented n the lower panel of Table 3. It s clear from Table 3 that sgnfcant dversfcaton effcency exsts n Bangladesh crop producton. The postve coeffcent on the Herfndahl ndex ndcates that techncal neffcency s postvely assocated wth specalzaton, whch mples that crop dversfcaton, therefore, sgnfcantly mproves techncal effcency. Ths result s consstent wth Coell and Flemng (00) but not wth Llewelyn and Wllams (996) and Haj (007). Farmers located n regons endowed wth better nfrastructure are more techncally effcent, as expected 0 (Table 3). The mplcaton s that techncal effcency would be adversely affected by not havng nputs to use at the correct tme, or not at all. Ths fndng s consstent wth the exstng lterature (e.g., Al and Flnn, 989; Wang et al., 996; Rahman, 003). 5. Dscusson and polcy mplcatons The am of ths study s to examne whether crop dversfcaton s a desred strategy for agrcultural growth n Bangladesh. Specfcally, we nvestgated the exstence of economes of dversfcaton and dversfcaton effcences n farmng systems that produce a mx of crops to cover subsstence as well as cash needs. We fnd strong evdence of dversfcaton economes n most of the crop enterprses, except the modern rce and modern wheat combnaton. In other words, specalzaton (.e., ntensve modern rce monoculture n our case) has two effects on overall productvty. The frst s a negatve mpact on productvty va loss of dversfcaton economes. The second effect s to reduce overall productvty va loss of dversfcaton effcences (Coell and Flemng, 00). The economy 0 Ths ndex s constructed as the underdevelopment of nfrastructure. Therefore, a postve sgn on the coeffcent of ths varable mples a postve mpact on techncal effcency. 7

19 of dversfcaton perhaps s realzed n two ways: (a) by effectve use of household labour n lean seasons and avodng bottlenecks n labour usage; and (b) by usng less purchased nputs, partcularly pestcdes and fertlzers. When a farm dversfes nto a combnaton of subsstence and cash crop producton, the farmer uses the opportunty to select enterprses that complement each other, gven the nature of seasonalty n demand for labour n partcular. For nstance, modern rce producton exerts sgnfcant pressure on labour requrements durng transplantng and harvestng seasons, whereas tradtonal rce s largely broadcasted and uses large amounts of labour durng the harvestng perod only. Evdence of dversfcaton economy observed between tradtonal and modern rce enterprses s largely due to the practce of producng tradtonal and modern rce n the man growng season, the Aman season (monsoon season), where the rrgaton requrement for the latter s substtuted to a large extent by ranfall. Also, labour requrements for both can be economsed. Ths phenomenon perhaps partly explans stagnancy n the overall coverage of modern rce at 69 percent of the total rce area, and the fgure s even lower at only 3 percent durng the Aman season (BBS, 00). The croppng system n Bangladesh s largely nfluenced by access to water. The croppng pattern can be broadly classfed nto croppng under ranfed and rrgated condtons, whch agan vary accordng to the degree of seasonal floodng. As mentoned earler, an apparent paradox exsts n that, although many non-cereals are more proftable than producng modern rce, ther expanson has stagnated due to the ncompatblty of the exstng modern rrgaton systems (Mahmud et al., 99). In fact, areas where modern rrgaton s non-exstent or unrelable, modern wheat s the desred crop and ths provdes hgher proftablty (Morrs et al., 996). In general, the proporton of non-cereal crops s lower under rrgated condtons as compared wth ranfed condtons (Mahmud et al., 99). The sample households of ths study also demonstrated that the croppng system s hghly 8

20 dverse n areas wth poor rrgaton facltes. For example, croppng dversty s sgnfcantly lower n the Comlla regon n comparson wth the Jamalpur and Jessore regons. Ths s because some of the vllages n the Comlla regon fell wthn the Meghna-Dhonagoda Flood Control, Dranage and Irrgaton (FCD/I) project, whch resulted n the domnance of modern rce monoculture throughout the crop year because of the assured avalablty of water for rrgaton at a cheap rate (Rahman, 998). An mportant ssue that lmts the scope to expand non-cereals s the exstence of the prce rsk assocated wth uncertantes n marketng, partcularly for pershable crops such as vegetables. In fact, annual varablty n harvest prces s as hgh as 5 5 percent for most fruts and vegetables (ncludng potatoes) and 0 0 percent for spces, as compared wth only 5 6 percent for cereals (Mahmud et al., 99). Ths perhaps explans the declne n the area under spces between the census years (Table ). Mahmud et al., (99) further noted that the prce shock s most severe at the level of prmary markets durng harvest seasons. Delgado (995) stressed the need for addressng marketng ssues and constrants as a prorty opton to promote agrcultural dversfcaton n sub-saharan Afrcan regons. Ths s because n the absence of mproved markets, the agrcultural sector s lkely to suffer from demand constrants as well as a weak supply response, thereby, affectng growth. One way to lower the prce rsk s through mprovements n marketng, whch n turn depends on the development of the rural nfrastructure. The results of ths study clearly reveal that nfrastructure sgnfcantly mproves techncal effcency, whch s consstent wth the exstng lterature (e.g., Al and Flnn, 989; Wang et al., 996; Coell et al., 00; Rahman, 003; Wadud and Whte, 000). Infrastructure development n turn may also open up opportuntes for marketng, storage and resource supples, whch would complement crop dversfcaton. For example, Ahmed and Hossan (990) concluded that farms n vllages n Bangladesh wth relatvely well developed nfrastructure use relatvely greater amounts of 9

21 fertlzer and market a hgher percentage of ther agrcultural products. Evenson (986) noted a strong relatonshp between roads and ncreased agrcultural producton n the Phlppnes. He clamed that a 0 percent ncrease n roads would lead to a 3 percent ncrease n producton n the Phlppnes. Ahmed and Donovan (99: 3) concluded that the degree of nfrastructural development s n realty the crtcal factor determnng the success of marketorented sectoral and macroeconomc polces n the developng world. It should also be noted that non-cereals produced by most farmers comprsed largely tradtonal varetes, whch are low yeldng. Strateges to mprove varetes of non-cereals, therefore, provdes further potental to mprove productvty gans from dversfcaton. Conventonally, the R&D actvtes n Bangladesh are largely concentrated on developng modern rce varetes to the neglect of most other crops. Among the non-cereals, modern technology s only well establshed n potato cultvaton (Mahmud et al., 99). The Bangladesh Agrcultural Research Insttute (BARI) s entrusted wth the responsblty of developng modern varetes of all cereal and non-cereal crops except rce and jute. To date, a total of 3 mproved varetes of varous cereal and non-cereal crops have been developed and released by BARI, although only two-thrds of these have only beng released snce 006 (Hossan, et al., 006). However, there s a need to examne the mpact of these new releases on farmers portfolos of crop choces at the farm level, because the techncal and socoeconomc constrants on the dffuson of these technologes reman unexplored and less understood (Mahmud et al., 99). The results of ths study also reveal that ncreasng returns to scale are evdent n Bangladesh crop producton. The mplcaton s that Bangladesh farmers could gan by ncreasng ther farm szes. Conventonally, ether constant or decreasng returns to scale n Bangladesh are usually reported n the lterature, although ths remans lmted to examnng 0

22 rce producton only (e.g., Wadud and Whte, 000; Coell et al., 00; Rahman, 003; Asadullah and Rahman, 008). A clear polcy mplcaton that emerges from the results of ths study s that crop dversfcaton should be a desred strategy to promote agrcultural growth n Bangladesh, as t has a postve mpact on resource economy as well as techncal effcency. The challenge, however, remans how to succeed wth ths strategy. The recent thrust at the plannng level to promote dversfcaton and allocatng 8.9 percent of total agrcultural budget to ths durng the Ffth Fve Year Plan (997 00) s a step n the rght drecton. Another key polcy mplcaton s nvestment n the development of rural nfrastructure, whch wll not only ncrease the techncal effcency of the farmers but wll also complement crop dversfcaton by mprovng opportuntes for technology dffuson, marketng, storage and resource supples. Acknowledgement: An earler verson of ths paper was presented at the 8 nd Annual Meetng of the Agrcultural Economcs Socety held at the Royal Agrcultural College, Crencester, UK durng 3 st Mach nd Aprl, 008. The author gratefully acknowledges the valuable contrbutons made by two anonymous referees whch have mproved the paper substantally. However, all caveats reman wth the author.

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26 Mahmud, W., Rahman, S.H., Zohr, S., 99. Agrcultural growth through crop dversfcaton n Bangladesh. Food Polcy n Bangladesh Workng Paper No. 7. Internatonal Food Polcy Research Insttute, Washngton, D.C. MoA., 989. Crop dversfcaton program for the Fourth Fve-Year Plan of Bangladesh. Agrculture Dvson, Mnstry of Agrculture, Dhaka. MoFA, 96. Pakstan Census of Agrculture 960. Fnal Report: East Pakstan. Volume. Agrcultural Census Organzaton, Mnstry of Food and Agrculture, Government of Pakstan. Karach. Morrs, M., Chowdhury, N., Mesner, C Economcs of wheat producton n Bangladesh. Food Polcy, : Pawtan, Y. 00. In all Lkelhood: Statstcal Modellng and Inference Usng Lkelhood. Clarendon Press, Oxford. PC, 998. The Ffth Fve Year Plan (997-00). Mnstry of Plannng, Government of Bangladesh, Dhaka. Rahman, S Soco-economc and envronmental mpacts of technologcal change n Bangladesh agrculture. Unpublshed PhD dssertaton. Asan Insttute of Technology, Bangkok, Thaland. Rahman, S Envronmental mpacts of technologcal change n Bangladesh agrculture: farmers perceptons, determnants and effect on resource allocaton decsons. Agrcultural Economcs. 33: Rahman, S. and Parknson, R.J Sol fertlty and productvty relatonshps n rce producton system, Bangladesh. Agrcultural Systems. 9: Rahman, S., 003. Proft effcency among Bangladesh rce farmers. Food Polcy, 8:

27 STATA Corp, 003. Stata Statstcal Software: Release 8.0. Stata Corporaton. College Staton, Texas. Toufque, K.A. 00. Structural constrant to agrcultural growth: an explanaton of the farm sze productvty relatonshp n Bangladesh. Workng Paper. Bangladesh Insttute of Development Studes, Dhaka. Van den Berg, M.M., Hengsdjk, H., Wolf, J., Ittersum, M.K.V., Guanghuo, W., Roetter, R.P The mpact of ncreasng farm sze and mechanzaton on rural ncome and rce producton n Zhejang provnce, Chna. Agrcultural Systems, 9: Wadud, M.A., Whte, B Farm household effcency n Bangladesh: a comparson of stochastc fronter and DEA methods. Appled Economcs, 3: Wang, J., Cramer, G.L., Wales, E.J Producton effcency of Chnese agrculture: evdence from Rural Household Survey data. Agrcultural Economcs, 5,

28 Table. Changes n cropped area, croppng ntensty and dversfcaton (960 and 996). Indcators Census 960 Census 996 Inter-census change (%) Number of farms 6,39,80,798, 9.7 % of small farms (0.0.0 ha) % of medum farms ( ha) % of large farms (above 3.03 ha) Operated area (ha) 7,7,99 8,076,369.8 Net temporary cropped area (ha) 7,67,37 6,655, Gross cropped area (ha),83,69,580,666.6 Operated area per farm (ha) Net temporary cropped area per farm (ha) Gross cropped area per farm (ha) Proporton of cropped area under (%) Rce Wheat and other mnor cereals Pulses Olseeds Cash crops Vegetables Spces and other mscellaneous crops All non-cereals Croppng ntensty (all farms) Small farms Medum farms Large farms Herfndahl ndex of crop dversfcaton (all farms) Small farms Medum farms Large farms Source: Computed from BBS (999) and MoFA (96). 7

29 Table. Summary statstcs of the varables per farm Varable Measure Mean Standard devaton Inputs Land area cultvated (X ) Hectare Labour (X ) Person days Anmal power servces (X 3 ) Anmal par-days Fertlzer (X ) Kg Irrgaton (X 5 ) Taka Pestcdes (X 6 ) Taka Seed (X 7 ) Taka Outputs Tradtonal rce (Y ) Kg Modern rce (Y ) Kg Modern wheat (Y 3 ) Kg Cash crops a (Y ) Taka Farm-specfc varables Amount of owned land (Z ) Hectare Educaton of farmer (Z ) Completed years of schoolng Experence (Z 3 ) Years 5.5. Famly sze (Z ) Persons Infrastructure ndex (Z 5 ) Number Sol fertlty ndex (Z 6 ) Number Extenson contact (Z 7 ) f had contact, 0 otherwse Non-agrcultural ncome (Z 8 ) Proporton of total ncome Herfndahl ndex of crop Number dversfcaton (Z 9 ) Number of observatons 06 Note: a = Includes jute, pulses, olseeds, spces, potatoes and vegetables. The gross value of each output s used to construct ths compound/aggregate varable, and s expressed n Taka. 8

30 Table 3. Parameter estmates of the stochastc nput dstance functons ncludng neffcency effects. Varables Parameters Coeffcents S.E. Producton Varables Constant α ln(fertlzers/land) α ln(labour/land) α ln(anmal/land) α ln(irrgaton/land) α ln(pestcdes/land) α ln(seeds/land) α ½ ln(fertlzers/land) α ½ ln(labour/land) α ½ ln(anmal/land) α ½ ln(irrgaton/land) α ½ ln(pestcdes/land) α ½ ln(seeds/land) α ln(fertlzers/land) x ln(labour/land) α ln(fertlzers/land) x ln(anmal/land) α ln(fertlzers/land) x ln(irrgaton/land) α ln(fertlzers/land) x ln(pestcdes/land) α ln(fertlzers/land) x ln(seeds/land) α ln(labour/land) x ln(anmal/land) α ln(labour/land) x ln(irrgaton/land) α ln(labour/land) x ln(pestcdes/land) α ln(labour/land) x ln(seeds/land) α ln(anmal/land) x ln(irrgaton/land) α ln(anmal/land) x ln(pestcdes/land) α ln(anmal/land) x ln(seeds/land) α ln(irrgaton/land) x ln(pestcdes/land) α ln(irrgaton/land) x ln(seeds/land) α ln(pestcdes/land) x ln(seeds/land) α ln(tradtonal rce) β ln(modern rce) β ln(modern wheat) β ln(cash crops) β ½ ln(tradtonal rce) β ½ ln(modern rce) β ½ ln(modern wheat) β ½ ln(cash crops) β ln(tradtonal rce) x ln(modern rce) β ln(tradtonal rce) x ln(modern wheat) β ln(tradtonal rce) x ln(cash crops) β ln(modern rce) x ln(modern wheat) β ln(modern rce) x ln(cash crops) β ln(modern wheat) x ln(cash crops) β ln(fertlzers/land) x ln(tradtonal rce) τ ln(fertlzers/land) x ln(modern rce) τ ln(fertlzers/land) x ln(modern wheat) τ