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Case Backgrounder: Rural Market Structure in Bangladesh

Drafted by M. Farhanul Enam, Katalyst


Introduction
The scope of defining rural in todays context is becoming overwhelmingly difficult as the gap between
urban and rural divide is being narrowing down with the growth of modern communication and
technology. Therefore, ruralness perhaps can be best understood with the meaning provided by the
specific context in which it is described.
For our case rural areas are large and isolated areas of a country, often with low population density
and limited access to knowledge and resources. However, when rural areas put together as
homogeneous community with similar constraints and opportunities, it may then dictate the
representation of the total population and economic scenario of a country such as Bangladesh.
The population is predominantly rural with about 76.61 percent of the total population living in rural
areas and directly or indirectly engaged in a wide range of agricultural activities (BBS, 2001)
Bangladesh witnesses a gradual increase in the share of the industrial and service sectors to GDP
over the years yet agriculture remains a fundamental sector with Contribution of 22% to GDP and
Absorption of more than 60% of national workforce.
The agricultural business in Bangladesh is mainly centers round three types of agents including
producers, traders and consumers. The traders are not doing anything special but gaining the extra
profit from change of hands. This system exploits the producers directly by not giving the appropriate
share they actually deserve.
Despite significant growth potential, several constraints exist amidst rural market systems that are
detrimental to a sustained and high economic growth. With the aim of efficiently exploiting agronomic
and non-farming sector potential on a sustainable basis, the formulation of the rural development
strategy should force to amplify the competitive advantage to engage in efficient production practices,
take out supply-side constraints, and grant a favorable trade environment.
Rural Economy
Being an agro based country the rural economy of Bangladesh has gone through immense structural
changes in recent years more specifically in agriculture inputs and outputs. This had also a positive
impact on the rural markets in Bangladesh as they are being progressively more integrated with urban
markets through modern communication infrastructure and public-private partnership institutions.
In recent past, non-farm activities such as trade and transportation are found to expedite rural growth
over agricultural production. It can provide employment opportunities for a growing labor force,
promote growth and equitable income distribution, and contribute to poverty alleviation (Islam 1997).
For the sake of simplicity, both farm & non-farm sector and rural-urban location can be
diagrammatically presented. Figure 1 depicts the rural-urban continuum and places the farm and nonfarm sector in that continuum. Activities divided further into primary, secondary and tertiary sectors
have sectoral as well as spatial dimensions. While primary activities such as crop production are
located in rural areas and linkages to urban areas are through consumption demand, secondary
activities such as processing and packaging activities can be located both in urban or in rural areas
and can have both production and consumption linkages. In contrast to primary activities, tertiary
activities such as trade and transportation dominate urban areas, and link urban areas with rural
1
areas through consumption demand.

Urban-Rural Links and Transformation In Bangladesh: A Review of the Issues, James Garrett and Shyamal
Chowdhury International Food Policy Research Institute (IFPRI) Washington, D.C. USA

Drafted by M. Farhanul Enam, Katalyst

Whether the urban-rural devide continues or disappears depends largely on how markets in urban
and rural areas are integrated with each other, how efficiently goods and services move spatially, how
efficient the information dissemination process is, and how efficient formal and informal institutions
are.
Farm Sector
During the last three decades, there has been a significant structural change in agriculture in
Bangladesh both in terms of its contribution to national economy and employment. Agricultural value
added as a percentage of Gross Domestic Product (GDP) declined from around 60 percent in 1972 to
around 23 percent in 2001. This decline has not happened due to a decline in agricultural value but
growth in other sectors. In fact, overall, agriculture in Bangladesh has performed reasonably well over
the past decades.
Commensurately, the share of agricultural employment in total employment has declined from 77
percent in 1974 to about 50 percent in 2001. The absolute numbers of workers in the agricultural
sector continue to increase, however, and agriculture remains the major source of rural employment
in Bangladesh.
Employment in agriculture is also an important source of womens employment. In fact, during the last
decade, the share of women in the agricultural labor force increased relatively rapidly. The major
changes in womens roles in recent years seem to be primarily an across-the-board increase in
womens participation in the agricultural labor force, with men still dominating in fieldwork and women
becoming more involved in preparation and post-harvest activities. Women dominate homestead
vegetable production and livestock raising. Men largely control market activities.
Within the different sub-sectors of agriculture, there has also been a change in output composition.
Figure 5 shows the contribution of different sub-sectors within agriculture. Among the four sub-sectors
crop, livestock, fisheries and forestry it is the crop sub-sector that has experienced the greatest
decline. While the crop sub-sector contributed more than 71 percent of agricultural GDP in 1972/73,
its contribution declined to 57 percent in 2000/01.
The relative contribution of the crops sub-sector has declined from 75 percent in 1972-73 to 57
percent in 2000-01. The fisheries sub-sector has increased substantially, from 11 percent to 24
percent in the same period. The contributions of the livestock and the forestry sector have hovered
around 10 to 15 percent and 5 to 10 percent, respectively.

Drafted by M. Farhanul Enam, Katalyst

Non-farm Sector
There are difficulties in defining what is farm and non-farm, but in this paper we include only
agricultural production (whether crop, livestock, forestry, or fisheries) as farm and secondary and
tertiary activities as non-farm, even if they relate to agriculture.
Based on a nationally representative survey, income from the farm sector grew at a rate of 1.4
percent per year from 1987 to 2000, whereas income from the non-farm sector grew at a rate of 6.8
percent per year. Non-farm income now contributes, on average, more than 50 percent of total rural
household income.
With an increase in non-farm activities in rural areas, large and medium farmers are leaving farming,
and landless households are filling their vacuum as tenants. While farming gives a livelihood
opportunities to landless households that were not previously available to them, these households are
not participating in the
more rewarding nonfarming sector.
What barriers prevent
women
and
the
landless
from
entering the often
more lucrative nonfarm sector are not
well understood yet.
Schooling is one of
the
important
determinants
of
occupational mobility,
yet we do not know
much
about
its
relation to change nor
the
complementary
factors needed to
enter the non-farm
sector.
Rural Markets
The notion of the market is at the centre of economic literature and is so strong that since the time of
Adam Smith, the basic nature of the (economic) market has hardly changed. According to that notion,
the traditional market is seen as a flexible atomistic realm of impersonal exchange and dispersed
competition, characterized by Voluntary transactions on an equal basis between autonomous, usually
private, entities with material motivations (White, 1993a: 1). Thus in economics the market is the
supreme medium for the expression of individual choice (Hodgson, 1988). In most cases, the market
in economic literature is perfectly competitive, though models of monopoly, oligopoly and other forms
of distortion have also been discussed comprehensively in the literature. The notion of the market in
economics is an abstract one, where exchange of commodities is in fact a simple process, rather than
that which exists in reality. Real markets are very diverse and a complicated socio-economic
phenomena, which is why it is difficult to define them (Harriss-White, 1996). Real market is an
economically qualified, purposeful interchange of commodities on the basis of quid pro quo
obligations at a mutually agreed upon exchange rate in a cluster of exchange and rivalry relations.
In context of rural markets in Bangladesh these are characterized by the following features.
markets (and the nature of exchange in them) are wide and diverse; there are diversities in the
forms of various relationships among market players, types of produce, different systems of
production and marketing, seasonality and regional variations.
The market players are not only buyers and sellers, rather they have various social and political
(power) relations among them that influence the process and outcomes of market interactions.

Drafted by M. Farhanul Enam, Katalyst

markets are linked very closely with a number of other markets such as labour markets, input
markets and credit markets.
The socio-economic status of the market players is unequal and discriminatory.
It is evident from the above discussion that there are inequalities among those who participate in
market exchange in terms of the differences in their wealth, socio-economic status and political power
and influence.
Rural Haats are the oldest and significant platforms of economic, social and cultural exchange for
rural communities in Bangladesh. Bangladesh has approximately 20,000 haats networked all over the
country. Collectively they are the most basic and predominant form of rural market organization
around which buyers (consumers, middlemen traders), sellers (farmers, retailers), trade associations
(labor, transportation, etc.) and various service providers (SPs) congregate to exchange information
and enter into transacted trade or exchange relationships.
As vibrant economic exchange hubs, Haats play a vital role in the rural economy by allowing
producers and farmers to procure essential inputs and raw materials (e.g., seeds, fertilizer, feed,
pesticides), avail services (e.g., processing, agro-tool rental, financial), gather market information, and
liquidate produce through retail or wholesale trading.
Each haat by law is supposed to have a Haat Management Committee (HMC), comprised of
selected/elected haat user, which guides and oversees the development of the Haat. Haats are
generally owned by the Government (the line ministry being Ministry of Local Government, Rural
Development & Cooperatives) and they are leased annually. By law a percentage of this lease money
is allocated for Haat development. One of the key roles of HMC is to ensure that the development
fund is apportioned and used properly. In reality, the HMCs are either non-existent or dysfunctional
that affect investment and growth of these market places.

Physical Distribution & Channel Management


The problems of physical distribution and channel
management adversely affect the service as well as
the cost aspect. The existent market structure
consists of primary rural market and retail sales
outlet. The structure involves stock points in feeder
towns to service these retail outlets at the village
levels. But it becomes difficult maintaining the
required service level in the delivery of the product at
retail level.
There are various other factors that hinder the
development
of
agricultural
marketing
in
Bangladesh. The infrastructures of agricultural
market and transport are underdeveloped which
obstruct the farmers from transporting their products
to the market places. For this reason the farmers are
dependent to a large extent on the middlemen for
marketing their products. Another feature of
agricultural product marketing is Distress Sale,
which represents the vulnerable situation of farmers
to sell their product at a very low price just after the
harvest. Farmers also lack proper storage facilities.
For the various inefficiencies prevailing in the
product market, the livelihood of the small and marginal farmers is adversely affected.

Drafted by M. Farhanul Enam, Katalyst

Concerning Issues
Agricultural marketing in Bangladesh is a multiple stage procedure. There is a large difference in the
price that the farmers get and the retail price of the product. There are innumerous small farmers who
are not able to achieve economies of scale from their production. Most of the farmers produce in a
small scale as they are not able to bear the high input cost and there is not sufficient credit available
to them. The profitability of farmers is low. Farmers do not get their share of increased price in the
market.
Research has revealed the following issues:
Farmers do not get any benefit from increase in the price level in the rice market, as seen from field
survey, which shows that the increased portion of price is appropriated by the intermediaries before
reaching the farmers. Thus the chain of intermediaries can be regarded as obstacle to farmers in
getting fair price for their products, and it affects the livelihood of the poor farmers thereby hindering
the growth of the agricultural sector.
The marketing system is characterized by underdeveloped market infrastructure and transport.
Most farmers in remote rural areas sell their products to the local merchants in the market places
and are dependent on the latter for selling their products.
There is a system of paying rent in the market while selling their produce and it appropriates a
significant part of the proceeds they get from selling their products.
Farmers in many rural areas are forced to sell their output just after the harvest either to repay their
loan or to meet their household expenses.
Lack of storage facility is another reason for which farmers have to sell their product shortly after
harvest at low price.
The various inefficiencies prevailing in the product market identified above affect the livelihood of the
poor farmers in the rural areas. Along with the various inefficiencies, the trade liberalization process
associated with the strategies adopted by the WTO, with their interfaces in the input, capital, labour
and product market have produced negative impact on the livelihood of the farmers. Farmers
livelihood assets consist of financial, social, political, physical and human assets. The interfaces have
led to the degradation of the various livelihood assets.
Fluctuation of Price Level and Distress Sale
One of the difficulties of marketing agricultural product is the fluctuation of the price level. Just after
the harvest the market price of crops fall and increase later. This is because just after the harvest
farmers sell their produce as soon as possible to repay their loan. Lack of storage facilities also plays
a compelling role in the affair. At this time of the year, produced output outruns the demand and thus
the price falls. As the price is low during the harvest, the farmers are deprived of their due income
from their product.
Distress sale shows the vulnerability of the small and marginal farmers of Bangladesh. Their
vulnerability forces them to sell their product at a very low price in the market. There is a negative
relationship between the size of farm and distress sale. It has been seen that within a month after the
harvest, small farmers have to take two-third of their product to the market for sale. For small, medium
and large farms it is 59%, 40% and 27% respectively. It proves that small farmers are forced to sell
their product in the market after the harvest to meet their necessary requirements rather than to get
profit from this. It has been seen that farmers get a price which is 6 percent less than the average
price of whole year when they sell their produce within a month after the harvest.
Big farmers who can store their product do not have to face loss as the small farmers due to the
difference in the market price of the whole year and selling price just after the harvest. They store the
crop and sell it when there is upward trend in the price level at the market.
Drafted by M. Farhanul Enam, Katalyst

Rural Marketing: Opportunities lie Ahead


An eminent personality once asked a gathering
If you see a woman in a village milking a cow, do you see an opportunity?
Most did not reply and the ones who did reply, replied in the negative. But that is exactly where Dr.
Varghese Kurien saw an opportunity and it gave birth to one of the most successful organizations of
India - AMUL
All businesses, regardless of size, can benefit from the use of marketing techniques. Small and
medium sized businesses can be especially vulnerable to change and marketing is an essential
instrument for increasing SMEs competitiveness and enhancing their growth. Knowing who the
customers are and having an effective marketing program in place to meet their needs over the long
term, will not only guarantee the continued existence of a business, but will be the foundation for it to
prosper.
Increased competition, saturating urban markets and globalization are encouraging firms look for new
markets and opportunities in the rural setting, where growth of purchasing power and an available
consumer base is evident. Socio-economic changes in the rural areas are triggering demand for not
only urban products but also for rural produces drawing the attention of producers of all types.
Earlier, the general perception among most urban-centric private enterprises was that the rural
markets have potential only for agricultural inputs like seed, fertilizers, pesticides, cattle feed and
agricultural machinery. However, experiences of Unilever, Bata, Square, ACI and other companies
suggest that consumer and business products or services have good prospects in rural Bangladesh.
Moreover, producers in rural areas are now increasingly looking for market opportunities and such
urban-rural linkage can create a real win-win situation for both the urban and rural enterprises.
The development of supermarkets is a recent addition of domestic retail marketing of goods. Less
than five years ago, supermarkets started appearing. There are now about 30 supermarkets, of which
22 are located in Dhaka city. The supermarkets play a vital role in supplying agricultural products to
the middle and high income class of population in the urban areas. The marketing of horticulture
products have been brought to this class of people through supermarkets to a large extent. But even
though, the supermarket chain is very insignificant in providing marketing facilities to the growing
population, organic and eco-friendly farming are increasingly getting popular through this system,
although the coverage is very negligible.
Promotion & Marketing Communication
In the area of communication, companies have perhaps failed to recognize that a rural consumer may
be buying a particular brand or even the product category itself (particularly durables) for the first time.
With hardly any key influencer within the village and few sources of information (since print and
electronic media have limited reach), the rural consumer feels inhibited and ill equipped to buy
confidently.
To communicate effectively with rural audiences, it is important to understand the aspirations, fears
and hopes of rural customers, in relation to each product category, before developing a
communication package to deliver the product message. Hence, there is a strong need to build
reassurance and trust about product quality, service support and company credentials in the minds of
rural consumers. This is best done through the face-to-face 'below the line' touch, feel and talk mode
at haats, melas and mandis.
Language and regional behaviour variations should be considered while developing rural
communications strategy. Advertising and Public Relations agencies should entrust development of
rural communications packages to professionals hailing from small towns, as they would have a better
connect with rural mindset.
Rural Bangladesh has a very high ownership of transistor radios and as these run on batteries, radios
are found to be the most popular medium for reaching rural masses. As a general rule, rural
Drafted by M. Farhanul Enam, Katalyst

marketing involves more intensive personal selling efforts compared to urban marketing. Companies
need to understand the psyche of the rural consumers and then act accordingly. To effectively tap the
rural market, a brand must associate itself with the same things the rural community does. This can
be achieved by utilizing the various media in rural areas to reach out to their readers in their own
language and in large numbers, so that the brand can be associated with the myriad rituals,
celebrations, festivals, melas and other activities where they assemble.
Local government capacity
Capacity of local government personnel is another serious constraint: the entire process of planning,
budgeting, auditing and accounting in local bodies is weak due to inadequate personnel (Siddiqui
2005). The National Institute of Local Government (NILG), the officially designated training
organisation, itself lacks capacity to provide the necessary quality of training or number of training
spaces on courses. Even if used to full capacity, NILG would not be able to train even 15 per cent of
all union parishad members over the next five years. The need for a comprehensive training and
orientation programme has been widely noted (GoB 2003; Ali 2002; Democracy Watch 2002; Siddiqui
2006b).

Conclusion
Poverty reduction is the central challenge for Bangladesh. To reduce poverty in the country, it is
crucial to develop the rural areas. For this, Bangladesh needs to accelerate the growth of agriculture
and non-farm sectors, improve the quality of social services, ensure proper functioning of the rural
institutions and expand the rural infrastructure.

Drafted by M. Farhanul Enam, Katalyst