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Case Backgrounder: Rural Market Structure in Bangladesh

Drafted by M. Farhanul Enam, Katalyst
Introduction
The scope of defining rural in today’s 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
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areas through consumption demand.

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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

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The fisheries sub-sector has increased substantially. Figure 5 shows the contribution of different sub-sectors within agriculture. Farm Sector During the last three decades. Katalyst 2 . Agricultural value added as a percentage of Gross Domestic Product (GDP) declined from around 60 percent in 1972 to around 23 percent in 2001. Farhanul Enam. Employment in agriculture is also an important source of women’s employment. The major changes in women’s roles in recent years seem to be primarily an across-the-board increase in women’s participation in the agricultural labor force.Whether the urban-rural devide continues or disappears depends largely on how markets in urban and rural areas are integrated with each other. This decline has not happened due to a decline in agricultural value but growth in other sectors. The absolute numbers of workers in the agricultural sector continue to increase. there has been a significant structural change in agriculture in Bangladesh both in terms of its contribution to national economy and employment. its contribution declined to 57 percent in 2000/01. fisheries and forestry – it is the crop sub-sector that has experienced the greatest decline. Women dominate homestead vegetable production and livestock raising. overall. how efficiently goods and services move spatially. In fact. respectively. The relative contribution of the crops sub-sector has declined from 75 percent in 1972-73 to 57 percent in 2000-01. While the crop sub-sector contributed more than 71 percent of agricultural GDP in 1972/73. and agriculture remains the major source of rural employment in Bangladesh. livestock. In fact. there has also been a change in output composition. Men largely control market activities. the share of agricultural employment in total employment has declined from 77 percent in 1974 to about 50 percent in 2001. from 11 percent to 24 percent in the same period. Drafted by M. however. Commensurately. and how efficient formal and informal institutions are. with men still dominating in fieldwork and women becoming more involved in preparation and post-harvest activities. Within the different sub-sectors of agriculture. the share of women in the agricultural labor force increased relatively rapidly. agriculture in Bangladesh has performed reasonably well over the past decades. during the last decade. how efficient the information dissemination process is. Among the four sub-sectors – crop. The contributions of the livestock and the forestry sector have hovered around 10 to 15 percent and 5 to 10 percent.

Farhanul Enam. rather than that which exists in reality.” but in this paper we include only agricultural production (whether crop. livestock. forestry. 1993a: 1). and landless households are filling their vacuum as tenants. the traditional market is seen ‘as a flexible atomistic realm of impersonal exchange and dispersed competition. oligopoly and other forms of distortion have also been discussed comprehensively in the literature. yet we do not know much about its relation to change nor the complementary factors needed to enter the non-farm sector. Non-farm income now contributes. In context of rural markets in Bangladesh – these are characterized by the following features. where exchange of commodities is in fact a simple process. With an increase in non-farm activities in rural areas. The notion of the market in economics is an abstract one. these households are not participating in the more rewarding nonfarming sector. the market in economic literature is perfectly competitive. Schooling is one of the important determinants of occupational mobility. characterized by Voluntary transactions on an equal basis between autonomous. which is why it is difficult to define them (Harriss-White.Non-farm Sector There are difficulties in defining what is “farm” and “non-farm. there are diversities in the forms of various relationships among market players.8 percent per year. Katalyst 3 . • markets (and the nature of exchange in them) are wide and diverse. large and medium farmers are leaving farming. 1988). rather they have various social and political (power) relations among them that influence the process and outcomes of market interactions. 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. seasonality and regional variations. While farming gives a livelihood opportunities to landless households that were not previously available to them. According to that notion. the basic nature of the (economic) market has hardly changed. whereas income from the non-farm sector grew at a rate of 6. 1996). What barriers prevent women and the landless from entering the often more lucrative nonfarm sector are not well understood yet. Thus in economics the market is the supreme medium for the expression of individual choice (Hodgson. 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. more than 50 percent of total rural household income. In most cases. Based on a nationally representative survey. Real markets are very diverse and a complicated socio-economic phenomena. Drafted by M. usually private. Real market is an economically qualified. different systems of production and marketing.” even if they relate to agriculture. or fisheries) as “farm” and secondary and tertiary activities as “non-farm. entities with material motivations’ (White.4 percent per year from 1987 to 2000. on average. • The market players are not only buyers and sellers. though models of monopoly. types of produce. income from the farm sector grew at a rate of 1.

feed. financial). social and cultural exchange for rural communities in Bangladesh. which represents the vulnerable situation of farmers to sell their product at a very low price just after the harvest. One of the key roles of HMC is to ensure that the development fund is apportioned and used properly. etc. Drafted by M. the HMCs are either non-existent or dysfunctional that affect investment and growth of these market places. Collectively they are the most basic and predominant form of rural market organization around which buyers (consumers. Katalyst 4 . 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. transportation. processing. Another feature of agricultural product marketing is ‘Distress Sale’. ‘Rural Haats’ are the oldest and significant platforms of economic. comprised of selected/elected haat user. fertilizer. trade associations (labor. pesticides). input markets and credit markets. Bangladesh has approximately 20. Rural Development & Cooperatives) and they are leased annually. avail services (e.) and various service providers (SPs) congregate to exchange information and enter into transacted trade or exchange relationships. In reality. There are various other factors that hinder the development of agricultural marketing in Bangladesh. Each haat by law is supposed to have a Haat Management Committee (HMC). middlemen traders)..g. But it becomes difficult maintaining the required service level in the delivery of the product at retail level. • The socio-economic status of the market players is unequal and discriminatory. retailers). By law a percentage of this lease money is allocated for Haat development. The structure involves stock points in feeder towns to service these retail outlets at the village levels. socio-economic status and political power and influence. the livelihood of the small and marginal farmers is adversely affected. The infrastructures of agricultural market and transport are underdeveloped which obstruct the farmers from transporting their products to the market places. gather market information. As vibrant economic exchange hubs. Haats are generally owned by the Government (the line ministry being Ministry of Local Government.• markets are linked very closely with a number of other markets such as labour markets. Farmers also lack proper storage facilities. Haats play a vital role in the rural economy by allowing producers and farmers to procure essential inputs and raw materials (e. sellers (farmers. The existent market structure consists of primary rural market and retail sales outlet.000 haats networked all over the country.. agro-tool rental. which guides and oversees the development of the Haat. Physical Distribution & Channel Management The problems of physical distribution and channel management adversely affect the service as well as the cost aspect. Farhanul Enam. and liquidate produce through retail or wholesale trading.g. For the various inefficiencies prevailing in the product market. For this reason the farmers are dependent to a large extent on the middlemen for marketing their products. seeds.

It has been seen that within a month after the harvest. Drafted by M. They store the crop and sell it when there is upward trend in the price level at the market. Lack of storage facilities also plays a compelling role in the affair. 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. 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. 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. labour and product market have produced negative impact on the livelihood of the farmers. the trade liberalization process associated with the strategies adopted by the WTO. Farhanul Enam. 40% and 27% respectively. ● 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. This is because just after the harvest farmers sell their produce as soon as possible to repay their loan. There is a large difference in the price that the farmers get and the retail price of the product. There is a negative relationship between the size of farm and distress sale. Thus the chain of intermediaries can be regarded as obstacle to farmers in getting fair price for their products. ● Lack of storage facility is another reason for which farmers have to sell their product shortly after harvest at low price. As the price is low during the harvest. Research has revealed the following issues: ● Farmers do not get any benefit from increase in the price level in the rice market.Concerning Issues Agricultural marketing in Bangladesh is a multiple stage procedure. ● 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. Farmers do not get their share of increased price in the market. Distress sale shows the vulnerability of the small and marginal farmers of Bangladesh. Along with the various inefficiencies. social. At this time of the year. Just after the harvest the market price of crops fall and increase later. Katalyst 5 . The profitability of farmers is low. The interfaces have led to the degradation of the various livelihood assets. ● 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. There are innumerous small farmers who are not able to achieve economies of scale from their production. the farmers are deprived of their due income from their product. physical and human assets. For small. 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. produced output outruns the demand and thus the price falls. which shows that the increased portion of price is appropriated by the intermediaries before reaching the farmers. Their vulnerability forces them to sell their product at a very low price in the market. with their interfaces in the input. medium and large farms it is 59%. 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. small farmers have to take two-third of their product to the market for sale. Farmers’ livelihood assets consist of financial. Fluctuation of Price Level and Distress Sale One of the difficulties of marketing agricultural product is the fluctuation of the price level. political. The various inefficiencies prevailing in the product market identified above affect the livelihood of the poor farmers in the rural areas. as seen from field survey. capital.

Varghese Kurien saw an opportunity and it gave birth to one of the most successful organizations of India . The supermarkets play a vital role in supplying agricultural products to the middle and high income class of population in the urban areas. although the coverage is very negligible. This is best done through the face-to-face 'below the line' touch. The marketing of horticulture products have been brought to this class of people through supermarkets to a large extent. Language and regional behaviour variations should be considered while developing rural communications strategy. To communicate effectively with rural audiences. in relation to each product category. the rural consumer feels inhibited and ill equipped to buy confidently. 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.Rural Marketing: Opportunities lie Ahead An eminent personality once asked a gathering – If you see a woman in a village milking a cow. radios are found to be the most popular medium for reaching rural masses. the supermarket chain is very insignificant in providing marketing facilities to the growing population. as they would have a better connect with rural mindset. but will be the foundation for it to prosper. Square. 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. service support and company credentials in the minds of rural consumers. Rural Bangladesh has a very high ownership of transistor radios and as these run on batteries. Increased competition. can benefit from the use of marketing techniques. before developing a communication package to deliver the product message. 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. pesticides. But even though. 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.AMUL All businesses. Katalyst 6 . Knowing who the customers are and having an effective marketing program in place to meet their needs over the long term. However. supermarkets started appearing. feel and talk mode at haats. there is a strong need to build reassurance and trust about product quality. Advertising and Public Relations agencies should entrust development of rural communications packages to professionals hailing from small towns. Bata. The development of supermarkets is a recent addition of domestic retail marketing of goods. Moreover. With hardly any key influencer within the village and few sources of information (since print and electronic media have limited reach). Promotion & Marketing Communication In the area of communication. rural Drafted by M. experiences of Unilever. ACI and other companies suggest that consumer and business products or services have good prospects in rural Bangladesh. saturating urban markets and globalization are encouraging firms look for new markets and opportunities in the rural setting. melas and mandis. where growth of purchasing power and an available consumer base is evident. Less than five years ago. Farhanul Enam. organic and eco-friendly farming are increasingly getting popular through this system. regardless of size. Earlier. Hence. the general perception among most urban-centric private enterprises was that the rural markets have potential only for agricultural inputs like seed. fertilizers. But that is exactly where Dr. cattle feed and agricultural machinery. As a general rule. will not only guarantee the continued existence of a business. it is important to understand the aspirations. fears and hopes of rural customers. replied in the negative. do you see an opportunity? Most did not reply and the ones who did reply. There are now about 30 supermarkets. of which 22 are located in Dhaka city.

Democracy Watch 2002. To effectively tap the rural market. NILG would not be able to train even 15 per cent of all union parishad members over the next five years. The National Institute of Local Government (NILG). The need for a comprehensive training and orientation programme has been widely noted (GoB 2003.marketing involves more intensive personal selling efforts compared to urban marketing. To reduce poverty in the country. a brand must associate itself with the same things the rural community does. For this. melas and other activities where they assemble. celebrations. Even if used to full capacity. improve the quality of social services. Drafted by M. it is crucial to develop the rural areas. Farhanul Enam. Local government capacity Capacity of local government personnel is another serious constraint: the entire process of planning. auditing and accounting in local bodies is weak due to inadequate personnel (Siddiqui 2005). Ali 2002. itself lacks capacity to provide the necessary quality of training or number of training spaces on courses. Companies need to understand the psyche of the rural consumers and then act accordingly. Bangladesh needs to accelerate the growth of agriculture and non-farm sectors. ensure proper functioning of the rural institutions and expand the rural infrastructure. Katalyst 7 . 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. budgeting. so that the brand can be associated with the myriad rituals. the officially designated training organisation. festivals. Conclusion Poverty reduction is the central challenge for Bangladesh. Siddiqui 2006b).