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Prepared for: Dr. Mohammed Farashuddin Visiting Professor Course Instructor: Macroeconomics Course Code: E202
Prepared for: Dr. Mohammed Farashuddin Visiting Professor Course Instructor: Macroeconomics Course Code: E202
Batch 18 (A)
processed food items and a supply-demand gap, currently exploited by foreign suppliers. Neighboring India is the 11th largest consumer market with a market size of US$737936 million. (UN Statistics Devision , 2009). Capturing local and neighboring markets alone can create significant leverage in Bangladesh economy. However, further market potential exists as the market is not necessarily restricted to Bangladesh and India. 2) Risk minimization through Diversification of Exports: Currently around 75% of the economys export earnings come from Textile sector alone. So much dependency in one sector is risky. Agro based industry sector has the potential to go through a revolutionary expansion, hedging the economy against market risks. Currently, frozen food a component of agro based industry is the second largest export earning sector in Bangladesh. 3) Increased GDP composition of Industry sector: In Bangladesh much of the GDP growth came from service sector. Service sector GDP composition is 53% compared to industrial contribution of 29% only. This situation is undesirable as economic development, to be established on a solid ground requires higher contribution from Industrial sectors. Agro based industry is the most viable option given the competitive advantages and investment environment. 4) Poverty Alleviation through Employment and Income Generation: Vibrant Agro based industry sector is found to generate many jobs in upstream and downstream sectors (UNIDO, IFAD, FAO, 2008). Agro based industry can play a strategic role in Bangladesh in a pro-poor growth policy as 72% of the population live in rural areas and around 50% of labor force is employed in agriculture (CIA World Factbook, 2010). As possibilities for income generation are restricted in rural areas, agro processing, manufacturing and commercial and service activities of agro based industry can play a pivotal role in increasing economic efficiency and reducing disparity.
5) Contribution to GDP and economic growth: Industrial development in agro based sector can work as an added boost to GDP growth in a country like Bangladesh. An extended definition of the agro-processing sector which includes not only agro industries but also distribution and trading activities, would roughly account for more than a third of the GDP in Indonesia, Chile, Brazil and Thailand, and between 20 - 25% in Sub-Saharan countries. The entire food system, including the production of primary goods and commodities, marketing and retailing, would account for more than 50% of developing countries GDP (based on World Bank, FAO and UNIDO databases) (UNIDO, IFAD, FAO, 2008). On average, productivity levels in food processing are above the
manufacturing Average, making it one of the more efficient economic sectors in least developed countries (HDI). Incremental investment here could benefit the overall competitive position of the countries in question (based on UNIDO Industrial Statistics Database 2005). In low and middle income countries the food processing sector is typically one of the largest industrial activities in terms of value-adding. Using the UNIDO Industrial Statistics Database 2005, agro-processing value added as a share of GDP amounts to 4.3% for low income countries and 5% for lower middle and upper middle income countries. This, however, neglects artisan production and the informal sector, which are particularly important in low income countries. It can therefore be safely assumed that the figures heavily underestimate the true extent of agro-industrys contribution to GDP in those countries (UNIDO, IFAD, FAO, 2008). 6) Socioeconomic development: Strong synergies can exist between agroindustry and socioeconomic development. Agro-industry provides capital and services to farmers (e.g. seeds and equipment, training, production and
market
information),
promotes
entrepreneurship,
raises
demand
for
agricultural products and connects farmers with markets through the handling, processing, marketing and distribution of agricultural products. As a result, productivity and quality of agricultural production, farm returns, economic stability for rural households, food security and innovation throughout the value chain can be enhanced. Efficient agroindustry can therefore spur agricultural growth, and accompanied by a strong link with smallholders enhance socioeconomic development (UNIDO, IFAD, FAO, 2008).
In the short run, identifying few frozen fish export items with comparative advantages and focusing on those items. Increasing value through maintaining hygiene, proper sorting and packaging. Also, diversification can be achieved through ornamental fish farming which are premium products catering to the needs of hobbyists.
In the long run, Compliance with demanding regulation through capacity building. Government can help out the frozen fish exporters through various fiscal policy mechanisms and direct investment.
2) Cotton and Yarn Industry: Cotton is directly related to the basic human needs of clothes. Self sufficiency in food and clothes is often prerequisite for development. Unfortunately, in Bangladesh the textile industry growth has been artificially generated largely from foreign exports of cotton and yarn. Only 3% of cotton demand is met by national production (BCA, 2010). This sector must grow to provide back linkage support to textile industry which now depends on international cotton price. The recommendations are: In the short run, the policy makers should incentivize cotton farming and development of yarn industry. Cotton should be recognized as a high priority sector. Tax benefits can be given to textile companies for using locally produced cotton. In the long run, research and development should be initiated to produce high yielding and resistant cotton variants. 3) Fruits and Vegetables Processing: Fruits and vegetables can be processed into jams, jellies, juices, ketchups, sauces, pickles and chips. Traditionally, this segment of the local market was dominated by foreign, especially Indian brands. Auspiciously, a burgeoning growth in local brands is seen in recent times which are now competing for market shares with foreign brands. Leading groups in this segment are Pran foods and AFBL. If the growth continues soon local brands will not only dominate local markets but compete in international markets. Currently, export is there but the volume remains insignificant. The recommendations are:
In the short run, government should facilitate local brands by giving tax benefits, by imposing higher taxes on foreign brands and by developing local electronic media which will reduce viewership of foreign brands and advertisements.
In the long run, government can set up research and development institutes for formulation of new process items.
4) Leather Industry: Leather industry can be included as an agro based industry given the broad definition. Leather industry in Bangladesh has not reached its full potential due to environmental noncompliance, which is becoming an increasingly important issue in exporting countries. Legal compliance is low due to high fixed and operating costs. The recommendations are: In the short run, government should facilitate legal compliance through subsidizing establishment of ETP plants. In the long run, the industry should be relocated in separate processing companies. 5) Meat and Halal Food Industry: Halal food market is a fast growing and highly profitable market worldwide. Beef and Chicken meats can be processed, packaged and marketed. But development in this sector is capital intensive. Moreover, the local supply of meat does not meet local demands currently. The recommendations are: In the short run, government can incentivize large scale poultry and cattle farming to meet the supply demand gap. Private investment in this sector should be encouraged through tax benefits. In the long run, the government should incentivize establishment large scale meat processing through tax benefits and subsidies. zones with integrated and common pollution minimization facilities. The operating cost can be divided among
6) Jute Processing: Raw jute can be processed into various range and type of secondary products. With increasing environmental concern jute can regain its lost glory if jute products are innovatively designed, properly planned and marketed. The recommendations are: In the short run, government should identify jute as a priority sector and encourage private sector contribution through incentives and awareness campaigns. In the long run, government should establish jute research and creative design institute who will come up with novel and diversified design of jute products. 7) Fresh Vegetables and Flowers Export: Fresh vegetables and flowers can be stored in cold storage and exported. This subsector is underdeveloped due to lack of storage facilities and high freight time and cost. The recommendations are: In the short run, decentralized cold facilities can be setup by the public sector. Alternatively, Private sector can be incentivized to encourage private cold storage companies. In the long run, Special air route can be opened to allow rapid export of perishable items at lower costs.
5. CONCLUSION
Agro based industrial development can ensure food and cloth security, thereby laying the foundation of an advanced economy. Developed agro based industry is a prerequisite for surefooted and sustainable development. Bangladesh is on her way to become a middle income country. Agro based industrial development can work both as an acceleration factor and as a solidification factor, giving the GDP growth the much needed push and hedging our economy against market risk. The policymakers therefore, must give this sector its proper weightage and develop effective incentive mechanisms to encourage private sector involvement.
BIBLIOGRAPHY
Board of Investment Bangladesh, 2012. s.l.: s.n. CIA World Factbook, 2010. s.l.: s.n. Development Associates Inc., March 2005. An Evaluation of The Bangladesh Agro Based Industries and Technology Development Project, s.l.: s.n. UN Statistics Devision , 2009. s.l.: United Nation. UNIDO, IFAD, FAO, 2008. The importance of Agro Industry in