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WHAT WAS
IT ABOUT THE 1974 FAMINE?
About
Professor
Nurul Islam:
(Professor
Nurul Islam provides a penetrating analysis of the evolving struggle of
the Bengalis’ with Pakistan government’s policies on economic
issues that led to the birth of Bangladesh. He also provides an insight
into the important landmark economic policy issues during Bangladesh’s
formative years. The book begins by providing for the first time an insider’s
view of many little known aspects or subjects of economic debates and
negotiations with Pakistan that caused the great divide between East and
West Pakistan. He also examines in great detail the far reaching implications
of Awami League’s Six Point Programme, which was not fully understood
by many at that time.
In his capacity as the Deputy Chairman of the first Bangladesh Planning
Commission he was not only intimately associated with but also had a unique
insight into both the underlying rationale, the process of decision making
and of governance in those formative years.
The interpretation or assessment of some of these policy issues and developments
remains a subject of considerable controversy. Professor Islam’s
analysis is seen as a major contribution to the debate which attempts
to fill many gaps in facts and interpretation. In the concluding part
of the book, he discusses a few policy issues of contemporaneous importance
for Bangladesh in the light of the past and for the purposes of the future.
In his analysis of the major issues and incidents, he has drawn on his
personal notes as well as on many hitherto unpublished reports, documents
and communications, a few of which are reproduced in the book.
This book will be particularly useful for students, teachers and policy
makers as well as those interested in the political economy of nation
building.
Professor Nurul Islam was successively (1955-1975), professor of Economics,
Dhaka University, Director if the Pakistan Institute of Development Economics,
(Later Bangladesh Institute of Development Studies), Deputy Chairman of
the first Planning Commission of Bangladesh. From 1975 onwards he was
fellow at the International Food Policy Research Institute.
He held several visiting academic appointments at Yale and Cambridge University
and both London and Netherlands School of Economics. He was a member and
later the Chairman of the UN Committee of Development Planning policy.
He has written extensively on various aspects of trade, development, food
security and public policy. Among his published books are: Development
Planning in Bangladesh: A Study in Political Economy (UPL, 1979, reprint
1993), Development Strategy of Bangladesh (Pergamon, 1978), Foodgrain
Price Stabilization in Developing Countries: Issues and Experiences in
Asia (IFPRI, 1996) and Exploration in Development Issues: Selected Articles
of Nurul Islam Islam (Ashgate, 2003).
WHAT WAS IT ABOUT THE 1974 FAMINE?
In the recent
history of famines around the Third World, the 1974 Bangladesh famine
is one of the most well known, much analysed by social scientists at home
and abroad as to its cause and consequences.1 At home, its causes have
been a matter of some controversy, often subject to varying, sometimes
opposing, interpretations by different analysts or people with different
political affiliations. Naturally, the government of the day bore the
greatest responsibility as famine always brings discredit to any government.
It is considered a mark of a government’s failure that in its watch
people died for want of food i.e. the most basic necessity of life. As
one looks back at this phenomenon, it appears that during the period of
the famine itself, not all the factors that contributed to it were recognised
in terms of their true significance and in proper perspective.
10.1. INFLATION,
FLOODS AND SPECULATION
The proximate
causes of the 1974 famine were multiple: natural disasters (floods), speculative
market behavior in response to current and expected crop failures, adverse
macroeconomic external a circumstances, and non-availability of food aid
at the moment of crisis. All these factors acted together to depress entitlement
to food on the part of the most vulnerable groups i.e. those who depended
wholly or partially on wage labour for access to food. Over the years
up to the early 1970s, there had been an increase in the proportion if
marginal farmers and landless labourers in the rural population. The proportion
of landless households was around 40 percent.2 There was persistent monetary
expansion ranging between 70 percent in1972 to 18 percent in 1973, resulting
in a large monetary overhang up to mid-1974. This was fuelled by budgetary
deficit, caused by severe short fall in revenues and increased expenditures
of establishing a new government, large deficits of the bank financed
public enterprises and expansion of the private sector credit for trading,
construction, and commodity speculation.3 Consumer price index rose 52
percent in 1972, 33 percent in 1973 and 21 percent in January-June 1974.
Inflation led to a sharp fall in real wages of marginal farmers, agricultural
workers, and urban workers.
1A.K. Sen,
Poverty and Famine: An Essay in Entitlement and Deprivation, Oxford (1981).
M.Alamgir, Famine in South Asia-Political Economic of Mass Starvation
in Bangladesh. Cambridge, Mass: Oelgeschlager, Gunn and Hain, 1980;
M.Ahmed, Bangladesh: Era of Sheikh Mujibur Rahman, Chapter 9, Food and
Famine, The University Press Limited, Dhaka, 1983.
2 S.R. Osmani,
The Food Problem of Bangladesh. UN WIDER Working paper 29 (November 1987).
3 A. Hossain,
“A Second Look at the 1974 Famine: Additional Insights and Policy
Implications.” Journal of Bangladesh Studies, Vol.1,No.1 (1999).
The rise in the nominal (and real) price of rice in September-November
1974 was more than twice that in the corresponding period in 1973.4 Why
did the price of rice record such a large increase? Was rice output in
1974 smaller than that in 1973? Rice output in calendar year 1974 (consisting
of Aman harvests 1973, Boro 1974, and Aus 1974) was higher than the corresponding
output in 1973. But the floods in July-August 1974 caused not only extensive
damage to jute crop, a major source of employment and cash income for
the rural population, but more importantly, it adversely affected planting
for the next Aman and created the fear of a large short fall in the next
Aman crop. Added to this were exaggerated press reports about damage to
the Aus crop and the impending short fall in the Aman crop. Both factors
greatly aggravated the fears of future scarcity. The newly established
crop forecasting system was not yet realize enough to correctly estimate
the crop damage by floods or possible short fall in the Aman crop that
might be caused by the late planting. With a great deal of uncertainly
among traders and public agencies regarding the evolving food supply,
the time was rife for speculation. Most relevant for the expectation of
future prices-the critical variable that determined the accumulation of
trader’s stocks and speculative hoarding- was the ex ante expectation
of a short fall in the Aman crop.5 The fear of food shortage was to be
judged in the background of a very fragile food situation that persisted
in the years since independence. In the aftermath of six consecutive bad
crops from Aman 1971 to Aus 1973, including war damaged Boro crop in 1972,
about 1 million tons of foodgrains had to be imported during 1972-73 mostly
on commercial terms. The stocks of traders and farmers were greatly depleted
and badly needed to be replenished.
Prices started
to rise from March 1974 onwards. Why? There was a severe reduction in
public stocks starting end 1973. Which fell by more than half between
1972-73 and early 1974 when it was barely 150,000 tons. A drastic reduction
in public distribution, specially the modified rationing system and the
relief distribution, starting January 19746 led to the collapse of confidence
in the government’s ability to stabilise the price situation in the
coming months. This triggered a sharp rise in price as early as March
1974. There was an upsurge in speculative holdings of stocks by farmers,
consumers, and traders (both genuine traders and the new, rich speculators)
in anticipation of future scarcities.
4 The real price by 65-80 percent between the corresponding periods.
5 A. Hossain,
lbid. In the event rice output was 11.72 million tons in 1974 compared
with 9.93 million tons in 1973 and 9.79 million tons in 1972. The estimates
of loss due to flood and drought were 0.31 million tons and 0.25 million
tons respectively in 1972 and 1973, whereas the estimate of loss was 0.65
million tons in 1974.
6 Sobhan,
R., “Politics of Food and Famine in Bangladesh,” Economic and
Political Weekly (1984). The modified rationing system was intended for
the poorest segment in the rural areas, whereas relief distribution consisted
of free distribution of food to destitutes and those in severe economic
distress.
The attempt by the government to procure food from abroad did not succeed
party because of its own limited foreign exchange resources and party
because of delays in the commitment of aid by the United States. Foreign
exchange reserves in the first quarter of 1974 were less than half of
that in the first quarter of 1973. Reserves in the third quarter of 1974
were about 25 percent of what it was in the third quarter of 1973. Borrowings
under the IMF compensatory financing facility were also meagre- no more
than US$35 million starting in the second quarter of 1974 with US$18.1
million and US$ 38.1 million in the succeeding quarters. The creditworthiness
of Bangladesh was so low that purchases contracted under short term commercial
credit were cancelled.7 By September and October in 1974, monthly imports
ranged between 29,000 and 70,000 tons compared to the monthly requirement
of 250,000-300,000 tons.
10.2 HOW
IMPORTANT WAS SMUGGLING?
Was smuggling
to India large enough to create such a scarcity? During 1973-74 right
up to the famine period, there were widespread rumours and reports in
the press of smuggling of foodgrains to India. In response, the government
employed the army to guard the borders against smuggling from April 1974
onwards. There was no way one could estimate smuggling of foodgrains from
direct observations. From the list of goods confiscated by the army at
the borders, it appeared that rice was hardly the most important item,
but sixth or seventh in importance. Brian Reddaway of Cambridge University,
England, visiting the Bangladesh Institute of Development Studies at that
time, was requested to undertake a study of the subject. His study was
based on an indirect method of comparison of rice prices in border areas
with those in the interior markets that were on the direct trade route
to the border areas. Ex hypothesi, in case there was a large scale smuggling,
prices
7 It is interesting to reflect on the shortness of public memory. Recently,
a highly educated member of the party in power in 1974 asked me why not
possible for the government to import rice from Thailand, a close-by country
with large export surplus in order to damp down the rising prices. He
had to be remained that there was very little foreign exchange resources
and that prices in the world market were sky high. Even if by some turn
of luck we could get commercial credit and were able to purchase, we could
not possibly ship it on time. There was a great demand on shipping space
in view of many countries rushing to buy food in the face of the worldwide
food crisis. In addition, shipping cost sky rocketed pari passu.
Even as early as the second half of 1973, in response to delays in (a)
shipment of committed aid by US as well as (b) in the commitment of new
US aid, the government was obliged to seek an alternative short term relief
to tide over the delay. The USSR was requested to divert to Bangladesh
200,000 tons of grain she had purchased from Canada and the USA in order
for Bangladesh to avert a breakdown in the public food distribution system.
They were received during July-October 1973. It was expected that when
the US food aid came through later on in the year, it would be possible
to divert the grain shipments to the USSR to repay the debt. Subsequently,
however, the US declined to accept the arrangements for “swap”
and a short term deferred payment arrangement was worked out with the
USSR for its wheat shipment.
Were most
likely to be higher in the border areas than in the interior markets that
were supplying rice for smuggling. On a study of price behaviour in different
markets, he came to the conclusion that smuggling was not significant
so as to run into hundreds of thousands of tons.
Direct comparisons
of prices of jute in the border market in Bangladesh with those in a neighboring
border market in India- converted at the prevailing black market rates
of exchange between the Bangladesh and India currencies- did not indicate
high enough profit to justify large-scale smuggling.8 Large scale smuggling
would be inconsistent with highly variable smuggling profit margin from
month to month. The evidence indicated high variability. This was consistent
with the hypothesis of limited smuggling.
During this
period, I had an interesting encounter with Zia who was the Deputy Chief
of Staff in the army and was involved in supervising the anti-smuggling
operations along the borders. He at his own initiative came to see me
in my capacity as the Deputy Chairman to discuss his findings or judgment
that there was a very large scale smuggling ranging anywhere from half
a million to a million tons. He felt that the Prime Minister was not correctly
informed by his political colleagues and officials about the scale of
smuggling. Under the circumstances, I should intervene to convince the
Prime Minister about the gravity of the situation.
There was
some discussion between us as to the evidence the army had about large
scale rice smuggling. In the absence of any direct estimate of smuggling.
I tried to engage him in a discussion about various indirect indicators
that could help to explain or give an idea about the scale of smuggling.
For example, I wanted to know how, in his opinion; hundreds of thousands
of tons of rice were being smuggled in such a short time (between April-June).
This discussion took place at the time of the onset of July-August 1974
floods when prices rose very sharply. If smuggling was the cause for such
a spurt in prices, then it had to occur on a very large scale in the months
immediately following Aman and Boro harvests. How were such large quantities
transported of carried across the borders in such a short period? If rice
was to be transported in such large quantities, it could not be done in
small lots by individual smugglers. If that was the case, then very large
members of people or smugglers were to be seen crossing back and forth
the border continuously for a month or so. This was obviously ruled out,
since the army had not confirmed a large scale continuous movement of
people. Alternatively, rice had to be transported in big trucks and barges
and that was possible only through a few points at the border where they
could physically pass through. Therefore, if very substantial smuggling
did take place, it was unlikely that such a large scale crossborder movements
of trucks and barges would not have been detected by the public, the Bangladesh
Rifles (BDR) and the army.
8 W.B. Reddaway
and M. Rehman, The Scale of Smuggling Out of Bangladesh, BIDS (February
1975)
However, it was the contention of the army that even if they had observed
such large scale movements, they could not have seized or taken preventive
action since local party workers or leaders were in league with smugglers
with the connivance of local officials.9 But then newspapers, which were
full of reports and rumours on the food situation, did not report such
a very large scale movement of trucks and barges within the span of such
a short period.
The issue
was not that there was no smuggling. In fact, there was smuggling on a
regular basis since 1971 in spite of the presence of border defense forces.
The relevant question was how big was this smuggling of rice (as distinguished
from other commodities), and whether smuggling of rice could have taken
place on a large enough scale within a very short period to cause the
price of rice to skyrocket. Estimates of massive smuggling to rice that
Zia conveyed appeared improbable, considering the limited time involved
and the poor state of roads and transportation systems in the border and
adjoining areas in the early days of Bangladesh.
Zia was unhappy
about the results of our long discussion. Much later when he was the Deputy
Martial Law Administrator and was, in addition, in charge of the portfolios
of planning and Finance, he had an official in his staff who had earlier
worked with me. He had a long memory, recognized the officer, and recalled
to him that he could not convince me about the scale and implications
of smuggling of rice to India. At this distance of time, one remembers
that those were the days when emotions ran very high and the country was
passing through a great trauma. It was possible that disagreements on
reasonable grounds could be considered to be a politically inspired defense
of an official position.10
9 He suggested that politicians were engaged in such activities, earning
hung illegal incomes in the process. There were instances when the army
apprehended a few party workers of local leaders who were engaged either
directly in sponsoring or protecting such smugglers and there were interferences
and interventions by the top political leadership to let them free. As
against these allegations, there were counter-accusations and rumours
that the party’s political workers were being unduly and indiscriminately
harassed by the army.
10 The alleged
scale of smuggling remained a matter of casual empiricism at best. Crossborder
illegal trade, in general, is a widely recognized phenomenon in response
to changes in relative prices in Bangladesh and India. Unfortunately,
there have been few studies done in the last 30 years on a subject of
such great public concern. No comprehensive research based on a systematic
collection of direct and indirect data from both sides of the border was
undertaken. No attempt was made to elaborate and expand even the simple
methodology of professor Reddaway (this methodology could be improved,
in fact, along the lines suggested by Professor Reddaway himself) in respect
of different years and many commodities. I understand that a major study
of Indo-Bangladesh trade including size and composition of illegal trade,
supported by surveys and systematic data collection on both sides of the
border, is underway under the auspices of the World Bank.
Reverting
to the subject of the 1974 famine, under the circumstances depicted above,
the government had three principal means at its disposal to deal with
the emerging food crisis. First, it could resort to the domestic procurement
of rice for building stocks to maintain the public distribution system.
The circumstances were less than propitious for a successful public procurement.
First, due to short falls in production in 1972 and 1973, a major effort
by private traders and farmers to rebuild in 1974 their severely depleted
stocks was unavoidable in any case, no matter what was the future price
expectation. An attempt was launched in the early months of 1974 to intensify
procurement efforts. Procurement was not a success in 1973. It was voluntary
and the procurement price was lower than the market price. This was reportedly
made worse by inefficiency and corruption of the government agencies.
In 1974, procurement was made compulsory from all farmers according to
a graduated scale. The movement of rice from surplus areas was banned
in order to facilitate procurement in those areas. Local committees consisting
of (a) officials, (b) representatives of local elites, and (c) political
workers/leaders were constituted to facilitate procurement. The committees
were ineffective and were not of much help in facilitating procurement.
Already the expectation of a short fall in the next Aman crop had given
a boost to private hoarding. The introduction of compulsory procurement
had unwanted consequences; it aggravated the fear of future shortages
and further spurred the tendency to hoard.11 Total procurement in 1974
was no more than 130,000 tons.
The second
measure available to the government was to somehow mobilize public opinion
and galvanise the support of the people, including traders and hoarders,
to release stocks in view of the national crisis. This required a very
high degree of public confidence in the government. It was in such an
environment that I ventured to approach the Prime Minister with a plea
on the basis of my behalf that he still had very great credibility and
stature in the country. I suggested that he should go around the country
to appeal to traders, hoarders, and farmers that at a time of crises they
should release their stocks, either in the market or to the public procurement
agencies and share their supplies with the people at large. Under his
leadership, his political colleagues should also join in the task of mobilizing
public opinion and organizing people’s participation in a common
effort. After all, he had once led and mobilised the entire nation to
fight for independence at great sacrifices. This was an equally great-if
not a greater- challenge that he needed to face, and enthuse and lead
people to overcome.12
11 J. Faaland
et al. Aid and Influence (London: Macmillan, 1981)
12 [I vividly remember the occasion when I was making this plea on a monsoon
day in mid-1974 darkened by heavy clouds and rain, alone in the Prime
Minister’s office. He was greatly worried and looked visibly concerned.
He started to pace up and down in his room; soon he turned towards me
and uttered in a painful voice almost as a soliloquy, “You do not
know the people of Bangladesh. I have lived and worked with them at all
levels for many years of my life and know them very well. They are very
unforgiving. If one commits one mistake or fails them obnce, all your
life’s work goes in vain. They called me Father of the Nation: in
no time they could turn around and call me… (Expletive) of the Nation.”
I realised that he did not think that he could perform the wonders that
I wished him to perform. I never knew what “mistake” he was
referring to in his remarks. After a few words, I left in a spirit of
sadness.]
As I look
back, I was indeed very naïve in making such a suggestion. Appeals
to collective interests or threats of penalty never did stop speculative
hoarding, specially when rooted in strong price expectations. A massive
countrywide mobilisation of the people at the grassroots level by highly
motivated local leadership and popular organizations might theoretically
achieve such a feat. Unfortunately, history does not provide such examples,
not to speak of the fact that the socio-political circumstances in Bangladesh
were a far cry from such a scenario in terms either of organisation or
motivation.13
In the absence
of the above half measure that one could suggest in a state of desperation,
the real effective policy that would have averted the crisis was to substantially
augment the supplies of foodgrains (rice and wheat) to break the back
of rampant speculation. Building up government stocks and releasing large
quantities in the market through the public distribution system could
have restored confidence of traders and speculators in the ability of
the government to deal with the situation. To this end, efforts were vigorously
mounted to plead with all possible sources of food aid supplies. The world
market was caught in a rising spiral of food prices, now known as the
World Food Crises of 1974. China and Russia made large scale purchases
in the world market. The only foreign source that could provide enough
food aid was the United States.
10.3. THE
FOOD AID DEBACLE
Around mid-1973,
we approached the USAID with a request for food aid for the fiscal year
1973-74 so as to provide a sufficient lead-time. This was not for the
first time since independence that Bangladesh requested and received food
aid. In both 1972 and early 1973, Bangladesh received the US food aid.
In August 1973, the Bangladesh Finance Minister, Tajuddin Ahmed, made
a request for food aid in a meeting with the US Secretary of State in
Washington. Food import requirements estimated at 2.2 million tons were
to be met by commercial imports and food aid from various sources. The
United States was requested to provide about 300,000 tons of food aid.
I followed it up at a high-level meeting with the USAID in Washington
at the end of August 1973, and scaled down our request to 220,000 tons
after consultations with the USAID officials. During the same visit, I
took up the issue of food aid with the US Secretary of Agriculture, while
the
13 At this
time, there was a lack of confidence due to widespread perception fed
by press reports about corruption, poor law and order situation and violence
as well as a general sense of uncertainly regarding the future.
amount of
aid was decided by the USAID. While the Secretary, at the time of high
world prices, greatly preferred commercial sales to food aid, I tried
to plead on behalf of the hungry people of Bangladesh Consultations and
discussions both in Washington and Dhaka continued at various levels between
the two governments. In January 1974, the Bangladesh Ambassador in Washington
again took up the matter with the Assistant Secretary of State.
While frequent
contacts between the US and the Bangladesh government continued in Dhaka
and Washington, an unexpected message was conveyed on 27th May 1974, by
the US Ambassador. By this time price of rice was on a sustained upward
trend. The US government had come to know that Bangladesh was selling
jute bags to Cuba and under the US PL-480 regulations, food aid could
not be provided to any country that was trading with Cuba. My response
was as follows: The Jute Corporation of Bangladesh did indeed sell to
Cuba 4 million gunny bags for US$5 million as a one-time transaction.
There was no long term trade agreement for the sale of jute bags to Cuba
and, therefore, Bangladesh was not in a regular business of selling jute
bags to Cuba. Secondly, Bangladesh was desperately short of export earnings
and was faced with strong competition in the world markets for jute. She
was badly in need of taking advantage of any possibility for marketing
its principal export i.e. Jute. Thirdly, after all, the Jute Corporation
was not aware of this provision of the US law. Fourthly, during the last
two years, Bangladesh had received food aid and had singed several food
aid agreements with the US government. They had a long list of complicated
requirements to be fulfilled by the recipient country as required by the
US law. But this particular provision of the PL-480 was never brought
to the attention of the government. Fifthly, the request for food aid
under discussion had been under negotiations for almost nine months. During
this long period no mention was ever made of such a provision. If we had
known it earlier, we could have refrained from the sale of jute bags of
Cuba.
It was not
clear whether this sudden, unexpected bottleneck was the result of an
act of negligence on the part of the US bureaucracy. After all, it will
well known to the US government that Bangladesh and Cuba had good diplomatic
relations and the possibility of their getting into trade relations was
high. I discussed this matter almost 30 years later with the concerned
US official, who was then the head of the USAID office in Dhaka, now living
in Washington, D.C., I asked him why we were not forewarned in 1973 when
the request was first made. His reply was that neither he nor his colleagues
in Dhaka office were aware of this provision. His counterparts in Washington
also did not know or if they knew, did nit care to inform him about such
a provision of the US law. He further remarked that there were hundreds
of pages of regulations in the US PL-480, all of which few USAID officials
could master. This was how the lawyers made their living. Occasional lapses
like this did occur. The tragedy was that it occurred in Bangladesh at
a time of food crisis.
In any case, the US Ambassador in Dhaka and the US authorities in Washington
pointed out that exceptions are granted only in the case of nonstrategic
agricultural commodities of non-strategic raw materials for agriculture.
Jute, according to them, did not fall into this category. Exceptions could
also be granted if the President certified that such aid was in the US
national interest and, therefore, sought a waiver from the US Congress.
The USAID did not think that the US President could or would make such
a case for Bangladesh in this particular instance. It was pointed out
to the US government that in the recent past, the two US aid recipients
such as Argentina and Brazil had exported cars to Cuba. We were told that
the US citizens or the subsidiaries of the US corporations, as was the
case in these two countries, could be allowed to trade with Cuba under
a special license issued by the Department of Treasury. This was done
under the Trading with the Enemy Act. This was unrelated to PL-480 sale,
which was a government-to-government transaction in food aid. Under the
circumstances, the best that the Bangladesh government could do was to
provide an assurance to the US government that she would stop trading
with Cuba from that moment onward so that the US could reconsider the
grant of food aid.
In the meanwhile,
the US Ambassador had formally conveyed its above decision to the Ministry
of Foreign Affairs. After all, this involved diplomatic relations and
a matter of foreign policy of the government of Bangladesh. The Prime
Minister, confronted with this choice agreed to the US proposal, given
the magnitude of the food crisis in the country. At the same time, he
had the delicate task of conveying such an unpleasant decision to the
Cuban government. After all, Cuba was one of the first countries to recognise
Bangladesh in January 1972, when very few countries did so, and had sent
an Ambassador to Dhaka. At that time, most small countries, both developed
and developing, had their Ambassadors stationed in Delhi, concurrently
accredited to Dhaka. When the Cuban government was informed by the Prime
Minister of his predicament, it was both forthcoming and understanding.
It assured Bangladesh that the termination of trade with Cuba by Bangladesh
would not affect their relations.
In my capacity,
as the Deputy Chairman, I provided the following assurance to the USAID:
“The Bangladesh government is aware of the provisions of the US legislation
and it does not intend to permit government agencies or government owned
corporations to export to Cuba or permit vessels under Bangladesh registry
to sail to Cuba ports.” The written assurance from the Bangladesh
government as above was provided in July 1974 but agreement for food aid
was not signed until much later. Why? The Us Ambassador explained that
lawyers in the state Department had made the following determination.
Under the US law even though the transaction for export had already been
completed sometime in the past and payments had been made by the buyers,
Bangladesh was regarded as “currently trading” with Cuba, so
long as the jute bags were not physically shipped and had not left the
Bangladesh ports. Bangladesh was not on the main shipping routes nor she
had “conference lines” ships regularly calling at her ports.
It took some time before the shipment was physically off the dock. As
shipments started, we requested that since all the requirements of the
US law were now met, the food aid agreement was could now be signed without
further delays. We were already in the throes of a severe famine. Unfortunately,
the Ambassador reported that the lawyers in Washington would like to be
assured, before any agreement was signed, that the shipment was completed
and the last jute bag had physically left the Bangladesh port. This seemed
to us to be the harshest possible interpretation of the law. The last
shipment was not completed until October 1974. Agreement was eventually
signed more than a year after request for food aid was made to the US
government. By that time, the worst days of famine were over and much
deprivation had occurred.
Two questions
were raised in subsequent years about this phenomenon of the food aid
debacle. Why was the government of Bangladesh, when it embarked on the
negotiations for food aid, not alert enough to learn in advance all the
restrictions that were applicable to the US PL-480 food aid? After all,
the planning Commission or the Embassy in Washington should have done
all the research necessary for such negotiations so that the US government
was not provided with a reason for objective on any ground. As I look
back on it, I wonder whether the government had any reason to be so extra
careful and vigilant. As described earlier, for two years in the past,
Bangladesh had negotiated with and received food aid from the United States
and no hint was ever provided of such an eventuality. Numerous consultations
at various levels of the US government, including US congressmen, were
held and never such an issue was raised.
A second
question was raised by some that even if food aid was provided on time,
it was not large enough to have provided much relief in view of such a
steep rise in price. The facts were as follows: By 8th November 1974,
agreement was signed for a total food aid of 200,000 tons of wheat and
50,000 tons of rice under PL-480 Title I. This was in response to the
original request for 1973-74. This quantity could have been delivered
by late 1973 of early 1974 if there was no Cuban trade bottleneck in the
way. By the middle of 1974, a new round of our requests for food aid for
1974-75 was awaiting the US government’s decision. Consideration
of this request was delayed because the earlier request for 1973-74 was
held up due to the Cuba question. The request for additional US food aid
for the year 1974-75 reached as high as 400,000 tons of wheat, bringing
the total aid request to the 650,00 tons for a two-year period. If this
request was acted upon earlier, i.e. middle of 1974, as it would have
been the case in the course of normal circumstances, this would have greatly
dampened speculative forces. This could have effectively countered the
price rise emanating from the gloomy forecast of Aman crop of January
1975.14, 15 Moreover, the release of stocks as a results in the third
quarter of 1974 could have, in all likelihood, moderated the impact of
famine.
14 [Brief
for the visit of Mr. Parker, UDAID Administrator dated 14 January 1975.]
15 [Minutes of the meeting between Bangladesh Ambassador and US Undersecretary
of State, December 1974. By the end of year 1974, the US government was
actually considering a grant to Bangladesh ranging from 250,000 tons to
650,000 tons, additional to what was agreed in 1974. If there was any
public knowledge that such quantities of additional food aid were even
vaguely discussed, this could have made an electrifying impact on price
expectations.]
It should
be emphasized that the role of food aid under the circumstances was not
only to add to the available supplies in the public distribution system
but also, much more importantly, to calm the speculative fever. To restore
confidence, it was the timing of the injection of additional supplies
rather than its quantum that was important. Also, food aid would have
enabled the restoration of the distribution of food under the modified
rationing and under relief- an avenue predominantly meant for the rural
poor. This could have been focused on the areas in distress, specially
in the northern districts, and would have affected speculation for the
future.
One could
argue why the government did not redistribute, whatever meager supplies
it had, diverting supplies to the hardest hit rural poor from the urban
population, including government employees, both civil and military. The
percentage of the total public distribution devoted to modified rationing
and relief grants fell from 69 percent in 1972-73 to 42 percent in 1974-75.
The absolute amount distribution through these two channels fell from
64,000-85,000 tons during July-September 1974 to 32,000-65,000 tons during
October-November 1974, whereas the amount through urban-oriented rationing
system fell from 88,000-92,000 tons to 77,000-86,000 tons.16 It was no
doubt a failure of public policy not to concentrate on the urban and rural
poor at the cost of the urban middle and upper income groups. At the same
time, it should not be forgotten that in the urban areas, there were also
desperately poor people who were receiving food rations. If, let us say,
50000 to 60000 thousand tons were diverted to the poorest rural areas
this would not have provided a great deal of help but given the dire circumstances
even a small help would have mattered. I do not recall any proposal by
the Ministry of Food to the Cabinet for such redistribution to the most
distressed areas/people. The Food Ministry was closely monitoring the
price movements as well as the levels of distress and starvation of deaths
in different areas. Historically, food distribution in the rural areas
was always a second order of priority, after the urban needs were met.
The Food Ministry through and acted in the traditional mode, in spite
of the exceptional circumstances then prevailing. For that matter, the
whole Cabinet through in the same vein. The threat of political and social
instability that could be created by the disaffected urban population
might have been perceived to be much greater than what could be caused
by the poor in distant, deprived areas.
16 Rehman
Sobhan, Ibid.
Was there any other alternative way of raising the “entitlements”
of the poor i.e. to add to their purchasing power to buy food in the market?
In the absence of food distribution, could the government have distributed
cash to the most distressed areas/people through the rural works programmes
of directly to the destitutes, orphans, and widows? This was a possibility
which was not even thought of or conceived at that time. The additional
purchasing power of the poor would have enabled them to compete for access
to food in the market place. This, no doubt, would have added to the upward
pressure on local prices in distant rural areas; nonetheless it might
have redistributed some amount of food available in the market towards
the poor.
To revert
to the case of food aid, it was intriguing to observe how the request
for aid led donors to discuss, however cursorily, wider and unrelated
issues of concern to them. When the Bangladesh Finance Minister called
upon the US Secretary of State in August 1973, primarily to appeal for
food aid, the latter spoke, first about the need for countries to develop
an efficient agriculture following the example of the United States. In
spite of its large production, the US agriculture was hard pressed to
meet the demands from so many importing countries at a time of worldwide
food shortage. Second, he gave his “occasional advice” for the
speedy settlement of disputes with Pakistan. Referring to the proposal
of Bangladesh for “war crimes” trials of the Pakistan army,
he confirmed that humanity never learned from “war crimes” trials.
He appreciated that the Nigerian government was pragmatic in not having
“was crimes” trials following the Biafran war and advised that
it was “not good to have such trials.” The countries of the
subcontinent, in his opinion, should try to work out a solution of their
immediate problems and then devote all their attention to their economic
and other internal difficulties.17
During the
period that the food aid negotiations were under way, an incident was
worth recalling. It illustrated how a politician could let his narrow
electoral interests influence the provision of food aid, linking his support
for aid to the recipients’ compliance with his request. This was
the case with Mr. Otto E. Passman, Chairman of the House Appropriation
Committee on Foreign Assistance in 1974, who wanted as early as August
1974 a particular US shipping agent to be appointed by the government
of Bangladesh, without resort to competitive bidding, for handling the
shipment of the US food aid. The agent, he insisted, would no doubt get
a “brokerage commission” from the shipping company and would,
therefore, not charge a fee from the government for his services. But
he conveniently forgot to mention that the shipping charges would reflect
the commission that the shippers would have to pay (since there was no
free lunch). This was a cost which the government of Bangladesh could
have been spared if
17 Minutes
of meetings dated August 1973.
the Embassy following its standard practice was to award the contract
directly to the most competitive or the cheapest shipper. 18
Mr. Passman
was from the rice growing state of Louisiana and was a vigorous promoter
of rice export through food aid. He visited Bangladesh during December
1974-Janyary 1975, following his tour of Thailand, the competing rice
exporter. He supported food aid in rice rather than in wheat, even though
for a given financial allocation of food aid from USAID, a smaller amount
of food aid in-kind would be received in view of higher price of rice.
On his arrival in Dhaka in the company of his friend- a big rice trader
from the state of Louisiana- and having heard in Bangkok that Bangladesh
was considering buying rice from Thailand, he met me along with the US
Ambassador and his trader friend. He was unhappy that while US was providing
food aid to Bangladesh, the latter instead of buying rice from its benefactor
country decided to buy it from Thailand. He thought that the linking of
the US food aid to Bangladesh’s purchase of rice from USA was a perfectly
reasonable quid pro quo, no matter how meager were the financial resources
of Bangladesh. This was in spite than of the fact that the import price
of rice from Thailand was much lower than that form USA. In fact, he proceeded
to demonstrate how beneficial was such a deal for Bangladesh. After all,
as an influential member of the US Congress he had supported and to Bangladesh
in the past and intended to do more in the future.
The question
might be posed as to why no serious food crisis or famine conditions occurred
in Bangladesh in some later years, even though there were severe floods
and damage to crops. There was a great scare and fear of shortages following
crop failures in 1979, 1984, 1988 and 1998. If the speculative fever in
1974, arising from flood damages and expectations of a short fall in Aman
crop, led to such spectacular rise in price, why it was not repeated in
the later years? Paradoxically, in all these years, whereas in 1974 the
reverse had happened i.e. output was larger than in previous years. The
answer was that, in all these years, imports (commercial and food aid)
were available to dampen speculation.
In 1979,
there was a severe incidence of drought during the early months affecting
all the three crops. Ex. ante exaggerated fears of crop damage ran very
high all throughout, even though crop damage was not quite so high as
that in 1974. Yet increase in the price of rice was only 30 percent, as
against 100-200 percent in 1974. During 1984 again, there were great fears
of crop damage because of several rounds of floods, threatening to reduce
four successive crops. In both years, foreign exchange reserves were adequate
and food aid climate for Bangladesh was favorable. It was true of both
multilateral (WFP/FAO) and bilateral food aid. In 1979, there was an specially
favorable response from the most unlikely source
18 See three
attachments
i.e. IMF.19 Also, the response was very prompt. There was a change in
the international climate, including improved institutional arrangements
for rapid response to food emergencies following the lessons of the world
food crisis of 1974.
The ability
to import food on commercial terms and to obtain generous food aid made
it possible to extend very considerably the public distribution system,
dampen rise in price as well as relieve distress through a rapid expansion
of feeding and food-for-works programme.20 All these factors convinced
traders and speculators that the government was able to contain the impact
of scarcity by releasing large stocks and expansion of the public distribution
system. In none of these two years, i.e. 1979 and 1984, there was, therefore,
any significant increase in prices like that in 1974. Speculative hoarding
or stockholding was severely discouraged.21 Similar experiences were repeated
in 1988 and 1998. The fall in rice output in 1988 in the end was more
than it was in 1983-84. There were apprehensions of a great short fall
in output and high rise in price. But the rise in price was greatly moderated
because of a very large increase in commercial imports, thanks to large
foreign exchange reserves that were five times as high as that in 1974.
Also, stocks at the beginning of the lean season in 1988 were the highest
ever relative to what was usual in the late 1980s permitting a very large
increase in the public distribution of food. Again, the crop short fall
in 1998 was worse and it was met by a massive increase in imports and
this time it was overwhelmingly private imports from India-which were
easy and cheap to transport at short notice. By the 1980s and 1990s, there
was a significant increase in the relative importance of the irrigated
winter crop, i.e. Boro crop-less susceptible to the impact of weather
variations. Furthermore, an expansion of wheat output added to the food
availability and the diversification of sources of food supply. It reduced
the impact of a fall in Aman of Aus crop.
19 There was a stand by agreement with the Fund in that which stipulated
a credit ceiling for government borrowing. Heavy government borrowing
from the Central Bank to finance its commercial imports violated the ceiling
but the IMF did not raise any problem even though in the next year, i.e.
1980, it did object.
20 Osmani,
Ibid
21 Osmani, Ibid
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