Financial Inclusion and Food Security in Bangladesh

The concept of food security has evolved over time and the world has taken a more comprehensive view of food and nutrition security in recent years. The most widely used and globally endorsed definition of food security maintains that ‘food security exists, when all people at all times, have physical, social and economic access to sufficient, safe and nutritious food which meets the dietary needs and food preferences for an active and healthy life’. This definition stresses four major dimensions of food security:

Just as poverty is multidimensional, food and nutrition security has many faces in Bangladesh. Even if the poor households may succeed in securing some food, the quality of their diet is not likely to meet dietary energy requirements and would lack protein and essential micronutrients. Thus poverty and undernutrition are entwined in a vicious cycle since undernourished people would be less productive, would have lower lifetime earnings, and would be more prone to chronic illness and disability. For the children in the poor households, malnutrition can have severe and permanent consequences for their physical and intellectual development and they will never make up for the nutritional shortfalls at the beginning of their lives.

Since poverty still remains a rural phenomenon despite increasing urbanisation, the rural poor depend mostly on agriculture, forestry, fisheries and related activities for their survival. The promotion of the rural economy in a sustainable way has the potential of increasing employment opportunities in rural areas, reducing income disparities, limiting pre-mature rural-urban migration, and ultimately reducing poverty at its very source. In addition, development of rural areas contributes to the preservation of the rural landscape, protection of indigenous cultures and traditions while rural societies could serve as a social buffer for the urban poor in periods of economic crisis or other unexpected events.

In Bangladesh, small and marginal farmers, landless peasants, and hired farm workers generally experience a high degree of food insecurity. As such, the majority of the undernourished people, especially malnourished mothers and children, including the people living in absolute poverty can be found on small farms. More than 85 percent of the farms in Bangladesh are less than 1 hectare, and small farmers and their families represent around 60 million people.

Historically, it is observed that the small farmers in Bangladesh have high potential to grow more food in a sustainable manner, improve their livelihoods, and contribute to overall food security. However, the capacity of the small farmers is constrained by several factors such as insecure access to land, limited knowledge of improved technologies and management practices, and inadequate access to training, credit, extension, organisation, and marketing services. In view of the potentials, supporting small farmers could be one of the most effective ways to reduce poverty and hunger at the household level and improve food security at the household and national levels in Bangladesh.

Along with financial inclusion, this requires effective designing of investments and public policies for increasing technological, financial, and marketing support to small farmers to improve their productivity and overall food security. Since small farmers are characterised by smaller applications of capital but higher use of labour and other family owned inputs along with having a generally higher index of cropping intensity and diversification, their financial inclusion can play a powerful role in bringing both efficiency and equity gains as well as food and nutrition security.

For the purpose, public policies at the national level have to adequately recognise the multiple potential of the rural economy. The analytical underpinnings of the development strategy for Bangladesh must recognise the strong links of agriculture with other sectors and the wide possibility that productivity-induced agricultural expansion can pull other sectors with it, and increase economic activity and employment opportunities in the rural areas. While good infrastructure and functioning labour and other markets are important for rural areas, there is substantial scope for using an agricultural entry point approach for rural and overall development and poverty alleviation in Bangladesh. It is seen that, despite income diversification by rural households, households in the lowest expenditure categories have a larger share of agriculture in their total income than households in the higher income groups.

Further, it needs to be recognised that an unprecedented transformation of the agricultural sector is currently underway in Bangladesh. Growing per capita incomes are raising the demand for high value food products with greater emphasis on food quality and safety issues creating significant impact on the structure of food systems towards the spread of the modern food chains and consolidation of production, distribution and retail segments of food markets. The role of traditional supply chains is shrinking creating new anti-poverty entry points requiring new skills and capital.

The rapid expansion of ‘new agriculture’ in Bangladesh points to the need for increased access to finance and modern technologies (research and extension systems) which can support higher quality and safety standards demanded by the consumers. The trend towards greater domestic market integration and globalisation will affect the links between primary agriculture and up-stream and down-stream sectors in different ways. On the one hand, market integration will weaken the links between agriculture and the local economy, but will open up new links to larger national and global markets creating new challenges of domestic and foreign competition for small-farmer dominated agriculture.

The nonfarm rural economy will also be subjected to greater competition from cheaper consumer goods of the supermarkets and other retail outlets. This may force the small scale and artisanal food processing to give way to more organised and capital intensive processing including other activities in up or down-stream primary agriculture (e.g. transport or input processing and other activities). In such cases, even if the inverse relationship between farm size and productivity holds in primary production especially of staples, larger farmers are likely to have an advantage in producing what will increasingly be demanded: high value products requiring capital intensive technologies and human and managerial capital. However, the disadvantages of small farmers and their rural livelihoods are not without opportunities: access to larger markets and higher value alternatives will also be available for those who innovate and are able to take up opportunities created by the changing agriculture.

In these circumstances, public policy will have a significant role to play. In addition to providing traditional public goods, new agriculture also needs assistance in dealing with new product requirements and creating proper institutional and regulatory framework to enable small farmers to organise for exploiting available economies of scale and promoting competition.

In Bangladesh, the growing concern over food and nutrition security and sustainable development brings into the forefront the need to explore new paths for future growth with focus on environmental sustainability. In so far as agriculture is concerned, the policies are required to promote agriculture growth that is employment generating, spatially broad based, economically efficient and environmentally sustainable. The policy framework should address issues of natural resource sustainability on the one hand and the livelihood of the people depending on agriculture (as the main user of natural resources) on the other.