Published in The SARCist in June 2015.
The Economics of Informal Cattle Trade between Bangladesh and India
A Bangladesh Perspective on Changing Scenario
, Additional Research Director & Research Associate, Centre for Policy Dialogue (CPD)
1. Background
Cross-border cattle trade between Bangladesh and India through informal channel is a long-standing debated issue. The economic argument of cattle trade is overruled by non-economic argument of religious, political and humanitarian issues. The academics in both sides are in favour of establishing a formal channel for cattle trade (Rahman, 2012). However, the issue is not so easy to settle down due to religious and political sensitivity in it. After the incumbent government took power in India during 2014, this issue received new attention in Indo-Bangla discussion. But a number of recent incidences in India gave an indication of further rise in complexity on this issue. Bangladesh as recipient of the Indian cattle needs to take into account of such developments in India particularly in the context of its domestic demand for meats, hides and skins. Present paper explores possible options for Bangladesh in view of changing circumstances in the supply-side in the upper segment of the cattle supply chain (operate in India).
2. Cross Border Supply Chain of Cattles and Other related Products
The informal supply chain between India and Bangladesh for cross-border trading of cattle heads is accounted for about 1.5 million cows every year (20,000 to 30,000 cattle heads daily) (Bhattacharjee, 2014). Such a trade ensures considerable margin for the major players of this supply chain. According to the Bhattacharjee (2014), a cattle head sourced from an Indian state (e.g. Haryana) at a cost of Rs.500-3000 is finally sold at retail market in Bangladesh at Rs.20000-40000. This trade thus ensures a total margin of Rs.19500 –Rs.37000 which is about 1230 – 3900 per cent. Of that margin, traders in the upstream of the supply chain at the Indian side receives about Rs.4500 (23 per cent of total margin) while traders in the downstream in Bangladesh side receives about Rs.15000-Rs.32000 (as high as 77 per cent). The difference in the margin between agents of both sides depends on availability of supply, seasonality in demand, operational costs mainly transport cost, bribes to law enforcement agencies in both sides and premium associated with risks for illegal crossing of border by Bangladeshi traders.
Domestic cattle market in India is mainly guided by the Directive of Principles of State Policy as per Article 48 of the Constitution which delineates that “the state shall endeavor to organize agriculture and animal husbandry on modern and scientific lines and shall, in particular, take steps for preserving and improving the breeds, and prohibiting the slaughter, of cows and calves and other milch and draught cattle”. Based on this directive, a total of 16 out of 29 states have enacted laws by prohibiting intra-state cattle trading and slaughtering. Officially, two states allow slaughtering of cows – West Bengal and Kerala. Overall intra-state cattle trade in India targeted to cross-border trade to Bangladesh takes place under legal restraints.
There is a formal supply chain operates in India on cross-border trading of chilled meat and raw hides and skins. India officially exports a sizable amount of beef mostly buffalo meat every year – during 2014, US$4.3 billion amount of beef (buffalo meat) was exported to 65 countries but not to Bangladesh for low demand of buffalo meat. Similarly, a formal channel for cross-border trading of raw hides and skins operates in India – during 2013 about US$6.61 million worth of processed leather of bovine animals was exported mainly to Thailand, China, Hong Kong, Bangladesh, Malaysia, Slovenia, Portugal, USA, Vietnam and South Africa. To meet the differentiated demand at the local market, India regularly imports hides and skins of bovine animals – during 2014 it has imported US$3.6 million hides. Overall a vibrant formal supply chain operates in India for meat, raw hides and skins of bovine animals.
3. Changing Dynamics in Informal Cattle Trade with India
India’s domestic cattle market appears to face more difficulties now a days because of increasing political pressure to ban on slaughtering and intra-state trading of cattle. Recently, Haryana and Maharastra have enacted laws banning slaughtering and intra-state trading of cows. Haryana is one of the major sources of cattle heads for Bangladesh’s market. How much the new legal bindings would put adverse impact on intra-state trade of cattle is unclear. Anecdotal information shows that despite having such laws in most of the sources of cattle for Bangladesh such as Rajasthan, Punjab, Himachal Pradesh, Madhya Pradesh, Utter Pradesh and Bihar, intra-state trade of cattle was hardly affected.
Besides, Indian Home Minister in his recent statement has put emphasis on tightening Bangladesh-India border to restrict cross-border trade of cattle to Bangladesh. Tightening of border security would obviously raise seizure of more cattle by the Indian border security force and would increase number of arrest of Bangladeshi cattle traders. But at the same time, this may also cause rise in black marketing of cattle from India but at a higher cost.
4. Impact and Implications of Possible Changes in Informal Cattle Trade on Bangladesh’s Livestock Sector
Any possible change in informal cattle trade with India is likely to have impact and implications on Bangladesh’s domestic livestock market. There is already a huge unmet demand for milk, meat and hides and skins in Bangladesh because of rising demand for more protein intake owing to higher household income (Table 1). However, domestic production of milk and meat could meet only a part of local demand (43 per cent and 67.2 per cent respectively). Even a part of that domestic production of meat and milk is associated with imported cattle from India. Thus domestic supply base of milk and meat of Bangladesh is still very weak.
Although Bangladesh has one of the highest densities of livestock in the world (145 ruminants per sq. km), this could hardly meet domestic demand for meat, milk and leather. Cattle production over the years did not experience considerable rise – between 2004 and 2014 stock of cattle heads increased at a rate of mere 0.4 per cent per year (Table 1). Consequently, its share in total stock of ruminant has decelerated (from 51 per cent in 2004 to 43.8 per cent in 2013). A part of this deficit was met through increased production of goat – its share has increased from 43.1 per cent to 47.1 per cent during the same comparable period. Besides, increased supply of chicken and egg help to meet a part of demand for animal protein. Because of having a limited level of diversity in domestic livestock, any short term crisis owing to shortage of supply of any source of protein (e.g. cattle) could be accommodated at a limited scale through increased supply of protein from alternate sources as was happened earlier (e.g. during the period of mad cow disease or bird flu). However, such adjustment and accommodation would be difficult in case the crisis prolongs for a long period of time.
There is huge demand for hides and skins in the domestic leather industry which is met from domestic supply (3 million cattle head every year). Of the total production of hides and skins, 50 per cent consumed locally and rest 50 per cent is exported to 53 countries in the form of semi-finished leather (75 per cent) and finished leather (20 per cent). Since about 50 per cent of total annual demand for cattle (1.5 million cattle) is met through imported cattle from India, Bangladesh’s domestic production of cattle could cater a large part of domestic demand only by reducing export of semi-processed and processed leather.
In this backdrop, there may have been a number of consequences to domestic livestock market in case import of cattle through informal channel from India is getting restrained in the coming days. Firstly, a major adverse impact would be on seasonal supply of cattle particularly for the religious festival called Eid-ulAzha. As a result, price of cattle will go up during the festival period and a large part of Muslim people would look for other ruminant animals (e.g. goat, lamb) for slaughtering during the festival. Secondly, there would have a shortage of regular supply of meat at least in short to medium term which would cause high retail price of beef. Because of it, people may change consumption pattern shifting their demand to other animal protein such as chicken, egg and partly goat. Thirdly, a part of demand for beef would be met through increasing import of beef from international market. In fact, Bangladesh regularly imports chilled meat from different countries (US$0.12 million in 2013). Despite that an upward adjustment of retail price of beef is likely to happen.
Restriction on import of cattle from India would cause shortages in supply and consequent rise in price of hides and skins at least in short to medium term. If a part of export of semi-processed and processed leather could be diverted to the domestic market along with rise in import of processed leather (US$44.5 million amount of processed leather was imported in 2013), impact on local leather market would not be so high. However, an upward adjustment of price of raw hides and skins is likely to happen which will rise manufacturing cost of leather products and that need to be accommodated by the manufacturers from their margin.
5. Suggestive Remarks
There is huge scope for development of a formal supply chain for cattle between India and Bangladesh. Creating special provision by amending national policy and state level acts/rules, India may consider facilitating development of a cross-border cattle trade based supply chain. In this case, existing and proposed border hats could be successfully utilized for free trade of cattle. Another alternative would be import of chilled meat and skin (of cattle) from India through formal channel. It is well understood that development of formal channel for cross-border trade of cattle heads would significantly reduce informal and illegal trade and thereby would reduce harassment of trespassers at the border points. Bangladesh should take strong stand at its border point by discouraging people to illegally trespass Indian borders for cattle trade. Since a large part of this illegal activity is induced by poverty at the border region in Bangladesh, targeted development programmes are necessary for these regions.
Under the changing circumstances, if import of cattle heads from India face further restraint in the future, Bangladesh should explore possible alternatives with the objective of phase-wise reduction of its dependence on imported cattle heads from India. In order to improve domestic stock of livestock particularly cattle both public and private investment will need to be increased. Import of meat and skins by the private sector may need to be facilitated in order to accommodate changing local demand at least in short to medium terms.