How agriculture could reshape the Bangladesh economy
Once upon a time, the most sought after cotton fabric in the world came from Bangladesh. A gossamer fabric so fine, they say that an entire sari could fit into a matchbox. Then people and machines from other places arrived. Art was replaced by industry; craft by mass production. The world of fabric and clothing moved on.
In the industrial age, what matters is not craft, but scale. And scale requires finding markets for mass produced items. Hence, free trade. Economists point to David Ricardo’s theory of comparative advantage: if one country specializes in producing one good, and another country specializes in another good, and they trade with each other, both countries will gain from the exchange, even if one country can make both goods cheaper. Trade increases aggregate output.
Some simple math demonstrates the logic of Ricardo’s theory, and the middle class Bangladeshi home, furnished with smart TV, washing machine, and air conditioner, provides empirical evidence for it. The gains from trade may not be evenly distributed, but consumption clearly rises.
For Bangladesh, much of the gains are made possible by the myriad factories that dot the Bangladesh landscape, buzzing with innumerable workers who cut, shape and sew innumerable yards of cotton fabric. Only three countries in the world consume more cotton fabric than Bangladesh.
Cotton has been part of the history of South Asia for centuries. According to Ricardian trade theory, countries that have an abundance of these “factor endowments” should grow things to sell to countries that do not. And in the case of cotton they did.
But not anymore. Today, almost all the cotton delivered to the factories in Bangladesh is imported, from cotton grown elsewhere. Approximately one hundred countries grow and produce more cotton than Bangladesh.
This is odd. More Bangladeshis earn a living on farms than in factories. Yet agricultural exports from Bangladesh as a whole, not just cotton, are a drop in the bucket. Clearly, there is more to agriculture in the industrial age than land, labour, sunshine and rain.
Such as risk, and how it is managed.
Risk on the farm
Risk dominates the life of the farmer. Factory owners face risks, of course. Workers may not show up, or they may show up and join the picket line instead of the assembly line. Buyers might go elsewhere, or drive prices down. But factory owners know that phones, shirts or snacks are bought year round, so they can reasonably expect to need workers, year round. On the farm, however, labour demand is not steady, but spiky. It spikes during planting or harvest, and then drops off. Spiky demand for labour makes farming risky.
The steady work on the assembly line is not the only reason why workers may prefer the factory to the farm. Assembly line work is typically easier than ploughing, planting, and weeding. Life on the farm can be hard, and the day is long. One day spent picking cotton under a scorching sun would be enough to send most packing.
But what really separates the factory from the farm is not risk posed by labour, but by nature. The whims of wind and weather, and the wiles of insects and pests.
Factories have walls, doors, and locks to keep out unwanted visitors, whether human or insect, and a roof to keep out the elements. Most farms do not. The farm owner must manage not just labour risk and market risk, but also flood risk, drought risk, pest risk, disease risk, and theft risk. A lot can go wrong. Those who succeed in agriculture are those who best manage the risks of agriculture.
Risk is managed by sharing it. A pool of people share the burden of paying the insurer to take over the risks that each pool member is exposed to, individually. In a riskless world, there is no need to pool. In a riskless world, the cotton trade might pit the African or Asian farmer against the American farmer. In this scenario, factor endowments would be decisive. But in a world of risk, wrought by the unpredictable forces of nature, it is collective action that is decisive.
If, in a world of risk, the cotton trade pitted the African or Asian farmer against the American cotton farmer and American research universities and American seed companies and American state and federal governments, what would happen? Something that Ricardian comparative advantage would not necessarily predict. The largest cotton exporter in the world would be the United States of America.
Cotton goes to Texas
US$75 billion can ensure against a lot of risk. That, according to the OECD, is how much the US Department of Agriculture (USDA) spent on agricultural subsidies in 2019 to protect American farmers and consumers from the risks of nature and the markets.
Falling prices? The Agricultural Risk Coverage and Price Loss Coverage programs guarantee a price well above the world market. The harvest failed? The Federal Crop Insurance program writes a check to cover the loss, from among hundreds of insurance plans to choose from. The crop wasn’t insured? There’s insurance for uninsured crops, as well. A natural disaster? Seven other farmer compensation programs kick in. In 2020, American farmers derived just under forty percent of their total income from direct federal government aid.
If the government mitigates risks from nature and the markets, American farmers can focus on improving quantity and quality. And few have been better at that than cotton farmers in the southwestern American state of Texas.
Texas was a late entrant into the cotton trade, one dominated by the traditional cotton growers in the American Deep South: Georgia, Alabama, Mississippi, and the Carolinas. Today, Texan farmers account for more than forty percent of all cotton produced in the US. How did they beat the Deep South at their own game?
One reason is the sprawling campuses of Texas A&M and Texas Tech University, where scientists spend their days looking for ways to grow ever larger quantities of stronger, fluffier, whiter cotton.
The faculty members at A&M and Tech are rewarded not just for creating knowledge, but for commercializing it, just like their counterparts in private sector seed companies, biotech labs, or fertilizer suppliers. The alumni, for their part, ensure that the universities, created by the Texas legislature to serve provincial agricultural interests, stay on track, and are properly funded.
Over time, these well-funded American scientists and engineers came up with one innovation after another: tractors and combine harvesters, herbicides and defoliants, hybrid seeds and plants. Mechanical, chemical and biological ways to fight off pests and increase yields. Each advance along the yield curve created more spikes in labour demand, so engineers came up with yet more machines to do the work. The farmers in Texas embraced each innovation.
To make use of technology, however, or to benefit from government assistance, farmers need to be able to read, follow instructions, and become technically literate. Like the migrants who moved to the prairies of Texas. So while mechanization slowly replaced seasonal labourers on the American cotton farm, what drove small farm owners and sharecroppers in the Deep South out of farming altogether was illiteracy. In agriculture in the industrial age, if you can’t read, you can’t farm.
Farmers who can read can not only quickly learn to use machinery and inputs; they can also learn to navigate bureaucracies, act collectively, and exercise political power. To better manage risks and grow more cotton, farmers in west Texas used their growing clout to elect receptive state and federal representatives, to lobby government bureaucrats and to recruit scientists. After that, they joined forces to take control of the cotton value chain, and squeeze every dollar out of the plant.
Controlling the value chain
The cotton collected from the farms surrounding Lubbock in west Texas is deposited at the gin. Who owns the cotton gin? The cotton farmers. From the gin, the cotton is taken to the compress. There’s no need to press the cotton anymore, so the compress now serves as a warehouse and distribution point. The cotton farmers own the compress, too.
The fluffy white bolls are only part of the cotton value chain. The seed is used as meal to feed fish and farm animals, and turned into cottonseed oil to feed humans. Who owns the oil mill? The cotton gin. And since cotton is used for denim, there is a denim mill located near the cotton fields in Lubbock. Built and owned by the farmers. The west Texas farmers own and control the entire cotton value chain. Lock, stock and barrel.
But production is only half the story. As late entrants into the cotton trade, the Texas farmers faced a skeptical market. And the poor quality of the cotton coming out of the state in the early days didn’t help. The farmers learned that buyers want not just quality; they want consistency. Not knowing what you’re going to get may be amusing with a box of chocolates, but cotton buyers who have a factory to run generally don’t like surprises. Consistency, however, is easier in a factory than on a farm.
The west Texas farmers tackled the challenge of marketing the same way they had taken on the challenge of production: they got organized and recruited resources. To improve the quality and consistency of cotton coming out of west Texas, the farmers founded the Plains Cotton Cooperation Association (PCCA) and gave it one overriding mission: improve the quality of cotton. Then they turned for help to scientists at the USDA, who came up with a solution: computerized high volume instrument (HVI) testing of cotton samples.
The HVI testing stations run twenty-four hours a day, grading samples from each batch of cotton to be sent to market. The grading system taught cotton buyers across the world that when they took delivery of American cotton, they received precisely what they had ordered. The validation provided by HVI testing proved to be the silver bullet that cracked open the global cotton market for Texan farmers.
The final step for the farmers was to get paid. Here the PCCA came into its own. Farmers could either take their cotton to the PCCA electronic exchange, which matched buyers and sellers, or simply drop off their cotton at the gin, ask that it be put it into the marketing pool, and receive a check, based on the average selling price in the market. The co-op assumed the market risk; the farmer drove off with the cash.
The web of institutions
The story of cotton farming in west Texas is not about cheap labour, or subsidies. Financial support can make sense if the beneficiary becomes self-sustaining, or if it boosts productivity. Otherwise, subsidies simply transfer resources from the taxpayer to the farmer. And they often create political division and trade conflict, to boot. For most developing countries, exports that depend on recurring subsidies are a non-starter.
This is a story about literate, enterprising farmers with the political skill to navigate bureaucracies and form beneficial partnerships with each other and a variety of other actors. The partnerships help the farmers to manage risk, increase quality and yield, take control of the entire cotton value chain, and turn each link of the chain into cash.
These strategic partnerships form what American economist Pietra Rivoli calls a “web of institutions.” This web, and the alignment of interests behind it, is the real comparative advantage enjoyed by the Texan cotton farmer. This is what African and Asian farmers are up against.
Economists curious about development now take great interest in institutions. Some differentiate between “inclusive” and “extractive” institutions.
Inclusive institutions, like the ones in west Texas, are ladders: they provide a leg up. When institutions share risks, knowledge, inputs and training, and when farmers are literate and organized, the outcome is more cotton produced, of higher quality, sold into more markets. The increased revenues in turn fund the creation of more knowledge, more inputs and training, and so on. A virtuous circle.
Extractive institutions, however, like the ones found in places where farmers struggle to put food on the table, let alone dominate markets, are more snakes than ladders. They don’t provide a leg up; they take it away. When institutions are extractive, they are likely to exploit farmers who can’t read, can’t navigate bureaucracies, and can’t act collectively. The outcome is a vicious circle.
Without the web of inclusive institutions, it’s hard for farmers to compete in the global agricultural markets. Regardless of the amount of land, cheap labour, sunshine or rain.
Few Bangladeshi farmers now do battle in the global cotton markets. But they do produce an ever-expanding variety of fruits, vegetables, meat and seafood, to satisfy growing demand from a burgeoning Bangladeshi middle class. Can they succeed in the export markets?
Weaving the web in Bangladesh
Bangladesh’s earnings from agricultural exports are a fraction of the $10 billion earned by Vietnam, or the $40 billion earned by India. But just as Texas cotton farmers caught up with the Deep South, and then pulled away, Bangladeshi farmers can do the same. As in Texas, the key is institutions that support the farmer, with inputs, training and knowledge.
But there’s a catch. While the Bangladeshi factory owner can simply order machines and parts from Japan or China, the Bangladeshi farmer cannot. Unlike electronic components or motorcycle parts, agricultural inputs often do not travel well. What works on a farm in Texas won’t necessarily work in Tetulia.
The soil is different, as are the pests, weeds, water chemistry, temperature, rainfall, and humidity. They vary, not just from place to place, but even at the same place, at different elevations. The bewildering variety and permutations of soil, water and weather creates what scientists call agro-ecological specificity.
Specificity means that much of the knowledge useful to farmers in Bangladesh must be gathered in Bangladesh. This domain specific knowledge is the goal of scientists and bureaucrats at the nation’s research labs.
Domain-specific technology such as wheat that can grow in Satkhira, strawberries that can flourish in Rajshahi, or salinity-tolerant rice that can survive in Patuakhali, come not from local farmers, or from foreign suppliers, but from the labs at Dhaka University, Rajshahi University, Bangladesh Institute of Nuclear Agriculture, and the Bangladesh Agricultural Research Institute. Biotechnology that enables farmers to grow things that were not grown here before is reshaping agriculture in Bangladesh.
These advances are remarkable, given that public funding for agricultural research is typically a low priority in developing countries, and given declining foreign assistance for agricultural research in recent decades. But the researchers can’t rest on their laurels, for agriculture is a never-ending battle. Nature, unlike a factory, is alive. Organisms react and evolve, and the fittest are selected. A particular strategy to fight pests or improve yield may work for a time, before the pests and weeds build resistance, and return, with a vengeance.
Of course, scientists and government bureaucrats are not the only spiders weaving the Bangladeshi web of institutions. Private sector seed companies play their part. App developers, from the public and private sectors, provide farmers with information, linking them to networks and online markets. NGOs provide financing, supply inputs and training. In a country of many small farmers, these initiatives help to level the playing field, enabling small farmers to gain access to markets, and compete in them.
Farm inputs may differ in Texas compared to Bangladesh, but the challenge of marketing farm produce is universal. Expectant exporters soon learn, if they didn’t know it already, that marketing can make the difference between success and failure in foreign markets. Your reputation precedes you. Texas cotton farmers built their reputation for quality and reliability by rigorously testing and grading their cotton before shipping. What could prise open the global markets for Bangladeshi exporters? Third party certification? Traceability, perhaps using blockchain technology?
Marketing institutions will be a key element of the Bangladeshi web, one that will likely be more intricate. This is the tropics, after all. But it will be just as vital. For technology is a double-edged sword; the benefits come at a price. Tractors require fuel, parts and service. Apps need someone to manage the database, to update the software, to maintain the network. White collar workers are on intimate terms with this reality, encapsulated in those four ubiquitous workplace words: “Did you call IT?” The price we pay for technology is dependency.
Technology that makes us dependent means that without proper support, technology can be no solution at all. Technology combined with extractive institutions leaves the illiterate farmer, who may have squandered resources on inputs he can’t use or doesn’t know how to use, even worse off than before. Managing technological dependency, as in managing risk, requires inclusive institutions, ones that empower the end-user. Luckily, empowerment is less eco-specific than soil. Training, technical literacy, financing, and user support all work the same way in Tetulia as they do in Texas.
The consequences of agro-ecological specificity extend beyond domain-specific knowledge, however. For specificity has a flip-side. While it places limits on what knowledge and what inputs can be usefully imported, it also confers a dividend.
The ecological dividend
Ecological specificity is why cotton from Giza is prized above all others, why truffles from Perigord can cost one hundred times more than truffles from elsewhere, and why a pair of mangoes in Japan sold for four thousand dollars.
Agro-ecological specificity is why most of the world’s jute comes from Bangladesh and West Bengal, and it’s why fruit and vegetables grown in Bangladeshi differ in taste and texture not just from fruit and vegetables grown elsewhere, but also within Bangladesh, among its thirty different agro-ecological zones.
When this specificity is identified, understood and nurtured, the result is something more powerful than comparative advantage. The result is an unfair advantage.
It was agro-ecological specificity, wedded to craft and dedication, that created the fabled Dhaka muslin. Specificity and authenticity is what buyers crave. The men and women who wove that muslin are long gone, but the yearning for authenticity remains.
The image, etched onto countless table mats and wall coverings, of the rustic farmer, placidly steering his faithful ox through a lush paddy, captures that yearning. But while the farmer as cultural icon hearkens to an idyllic past, the farmer of the future is likely to be of a different breed. One raised not on the farm, but in the city.
The city continues to be a magnet for the young, but there is a quiet revolution underway, a countervailing trend. A few years ago, if you asked university students in a Dhaka classroom what they did, one or two might have said “develop apps” or “graphic design.” Now, there is a new response trending: “farming.” It may be cattle, it may be mangoes, but what makes these farmers different from their predecessors is that they have a choice, and they chose to farm. They sense the promise of agriculture in Bangladesh.
These young, urban technophiles, equipped to process knowledge, act collectively, and think strategically, have the potential to reshape the nation’s economic profile. Just as the entrepreneurial, forward-looking migrants did in west Texas, where they turned desolate plains and prairies into world-beating cotton farms.
Can Bangladesh make the most of its demographic and ecological dividends? To do so, the task at hand may be not just to teach farmers in the countryside how to read. The task may be to teach the literate, in the city, how to farm.
The author is a writer and researcher in Dhaka, who teaches at ULAB. He previously spent a decade in investment banking, in New York.