Prologue: Thoughts on raising the standard of living in Bangladesh by increasing the productivity of labor & the productivity of dairy cows.

Writing the following is not really part of my assignment, so let's consider it a prologue to the official report. I want to express some personal observations and biases. Roy

The official annual gross domestic product (GDP) per capita in Bangladesh is $265. The actual GDP is higher because of unofficial transactions and barter. This doesn't tell the whole story as many items cost less in Bangladesh than in the USA, making the official purchasing power parity (in relation to the U.S.) of Bangladesh $1,380 (1998 estimate.). There is considerable room and a great human need for improvement in the standard of living. By comparison, the U.S. PPP is $31,500; China, $3,600; Taiwan, $16,500; Russia, $4,000, Ukraine, $2,200; Switzerland $26,400; Japan, $23,100, Germany, $22,100, France, $22,600 and Luxembourg, $32,700.

As a recent first-time visitor to Bangladesh, (I) improving the productivity of labor and (II) increasing production in the dairy sector stand out as two important opportunities for creating more wealth (GDP) in Bangladesh.

(I) Most people need jobs in order to earn a living and to care for their families. A national policy that encourages people to be employed is natural and seems benevolent. The consequences of people being unemployed are usually tragic. However, in order to increase the national GDP (and their own standard of living), people working must produce something of value, not just be employed. Rising productivity is the key ingredient in improving living standards. It allows businesses to pay higher wages to workers based on increased output rather than having to raise product prices, which would be inflationary. Thus, the real need is not full employment but an increase in the productivity of labor if a higher standard of living is to be achieved in the country.

(II) When considering the potential social benefit of increasing productivity in the dairy sector, we're talking about a more important objective than just money. The need of a significant number of the 130 million people who call Bangladesh home to consume more dietary protein has been identified as a pressing human health need. By improving the productivity of the dairy sector, both the national GDP and dietary protein intake levels can be improved significantly. There is a great opportunity to contribute to improvement here.

Following are my comments on (I) why the focus on full employment should be modified to emphasize increasing the productivity of labor and (II) why we are justified to concentrate on improving the productivity of the dairy sector. The latter is the real objective of this volunteer assignment and will be the focus of my official report.

I. Labor Productivity

As in Mexico and other developing countries that I've visited, the people of Bangladesh seem to have an attitude towards labor that puts great emphasis on full employment, which on the surface, seems to be socially responsible. However, I'm concerned that when suggestions are made on ways to reduce the cost and amount of labor, the usual response is that it would cause unemployment, with the implication that labor saving ideas are a threat against society and should not be considered. Everywhere the focus appears to be on full employment with little concern for high labor productivity. Labor inefficiency seems to be justified if it keeps people employed. I think this is fallacious macroeconomic reasoning.

When a society focuses on full employment rather than on high labor productivity, per capita GDP is reduced. To increase the standard of living of a population, the productivity of labor of that population must increase. Having people employed that aren't producing at their full potential is a national crime. Management has the social responsibility to focus on increasing the productivity of labor. (1) Management that under-utilizes the (2) labor factor of production should either change their approach or be replaced, just as they should be removed if they misuse (3) capital and/or (4) land and its resources.

To realize a high standard of living, people (1) must want to work and (2) when they do work they need to get something done - produce something of value.

To realize high labor productivity, people must be (1) trained for the job they are performing and (2) capital needs to be invested into machines and infrastructure that will help them increase their labor productivity.

As per capita GDP goes up, labor becomes more expensive in relation to machinery, making the investment of capital into labor-saving machines more desirable for the firm striving to maximize its profit. By implementing this twin mechanism of (1) training people and (2) investing in machinery that increases the productivity of labor, the USA has been able to maintain one of the highest standards of living in the world and still be able to compete globally with countries that have less skilled and cheaper labor that is working in a less developed infrastructure and therefore producing less output per hour of labor input.

So, who pays when management fails to keep their employees working at their optimum output? Quite simply, everybody!

If a business doubles the output of labor, they can theoretically double the wages paid to labor (less the cost of equipment etc. of improving labor productivity) without increasing company costs, so using labor inefficiently hurts (1) labor by keeping wages low. If the company doesn't reflect its cost of labor in the price of its goods and/or services, the (2) stockholders lose income and return on their investment and, in the worst case scenario, the business goes out of business. When the company passes on its labor costs in the prices charged for what they produce, which it must do to stay in business, the final (3) consumer pays for labor inefficiency. This reduces the standard of living of the consumer. If the buyer is another business, it raises the cost of what that business pays for supplies so it must increase the price of what they sell and the final consumer still loses.

In short, if labor is utilized more efficiently it can be paid more, and since labor also consumes, if the product is produced more efficiently, what labor buys will cost less. When society subsidies redundant employees in the name of full employment, it is a net economic loss to society. Increasing labor productivity is important to everyone!

Labor productivity often can be increased by management decisions alone with little to no investment in machinery. For example, one person working in a feed mill and pushing an inexpensive hand truck carrying six sacks can replace five other people who were carrying the sacks on their head. Using a pallet jack, while a little more expensive than a hand truck (particularly when the cost of pallets is considered), would reduce labor input further. A forklift would improve labor efficiency tremendously but would also be very expensive and in many situations in Bangladesh may not be cost effective. (Economic theory suggests that you should make improvements until marginal cost equals marginal revenue. This assumes that capital is available for the investment.) Another example of how to increase labor productivity is to install a bin vibrator to replace the worker who sits on top of the bin that feeds the conditioning chamber for the pellet mill and whose sole function is using a stick to be sure that the contents of the bin empty on schedule. (The topic of improving labor productivity in the SBFFL plant in Valuka will be discussed in much more detail in the report that follows.)

One reason for mistakenly focusing on full employment, rather than on labor productivity, can be blamed on an economic falsehood known as the "constant size of the economic pie myth." The size of the economic pie can be increased if the productivity of labor is increased. With an increased GDP (and standard of living), there will be an increase in demand. (Demand = "wants" of consumers backed up by money to spend to satisfy those "wants"). A worker whose productivity has been increased can be paid more without being inflationary. With more money to spend, workers demand more goods and services. This greater demand increases the number of people employed to meet the increased demand. This causes the economic pie to increase in size to fill the greater demand. Unproductive labor lowers the GDP and the standard of living.

Let's argue this in reverse! The huge size of the economic pie in the USA is in large part due to the very high productivity of labor that results from having a (1) well-trained labor force and (2) investment capital that has been invested for generations in labor saving machinery and an improved infrastructure. It is no anomaly that the U.S. is enjoying full employment! What would happen to the high standard of living and full employment that is enjoyed by U.S. citizens if labor productivity were reduced dramatically by outlawing tractors, forcing the use of horses, or even workers with shovels, to till the soil? There are no more people here to employee, and even if there were, the resultant drop in the standard of living would be dramatic and unacceptable. What happens if our literacy rate is halved?

Can there be any argument about the positive effect of high labor productivity on both the (1) standard of living and (2) full employment? The people of Bangladesh (and the world) want an improved economy and a higher standard of living. How can they accomplish that? [I acknowledge that the distribution of limited resources (oil) will be a challenge.]

Increasing the standard of living of a country starts with changing the attitudes of the people, including management and politicians. A country's macroeconomic priorities must be correct. (1) Managing with the objective of increasing labor productivity, rather than just achieving full employment, leads to an increased standard of living and supports full employment. (2) Focusing on full employment without a concern for labor productivity results in a lower standard of living and, only to the extent that it is subsidized, full employment. Many developing countries need a "change in attitude!"

It is the responsibility of society and management to provide the (1) training and (2) infrastructure to support high labor productivity. It is up to management to help employees produce more, not by the whip, but by working smarter. Management must manage!

II. Dairy Sector Productivity

Bangladesh has one of the highest densities of cattle per hectare of arable and pasture land in the world. According to the Foreign Agriculture Organization (FAO) of the United Nations (1992), the density of cattle in Bangladesh is 2.47 per hectare compared to 1.12 for India, 0.59 for New Zealand and 0.38 for the USA. At the same time, it is disturbing to learn that Bangladesh ranks "dead" last in production per cow per lactation with 206 liters (about two-thirds of a liter/day) compared to 986 liters for India, 3,412 for New Zealand and 7,478 per lactation for the USA (USDA 1995). In 1999, the U.S. average production/cow on DHIA was 8078 liters/lactation.

Our discussion in the first part of this prologue concerning the benefits of high labor productivity can be applied to the benefits of increasing milk production per cow. Animals have a maintenance requirement that must be satisfied before the production of meat, milk and work can take place. Theoretically, you could feed a "zillion" milk cows at or below the maintenance level and not have any milk production. It seems that Bangladesh is almost at that level and it doesn't need to be. Our job is to change this dreadful situation.

Mr. Hasibur Rahman, managing director of Dhamrai Dairy Ltd., told the attendees at the National Workshop on Prospects and Problems of Dairy Industry in Bangladesh (18 Nov. 1999), "Unproductive, uneconomic and aged dairy cattle should be culled in order to reduce the load on dairy feeds which will eventually increase production of dairy products." (Bolding and italics are mine.)

In the USA, during the last decade the number of cows has decreased ten percent (down from 10,127,000 in 1990 to 9,156,000 in 1999) while the total amount of milk produced has increased ten percent (up from 67,400 million liters in 1990 to 73,960 million liters in 1999) because production per cow has increased dramatically (up from 6655 liters in 1990 to 8078 in 1999, which is a 21% improvement). We should encourage this type of improvement in Bangladesh.

Dairymen in Bangladesh should follow Mr. Rahman's advice. Available feedstuffs should be fed to fewer cows, with the remaining cows fed above their maintenance requirements so that more of the nutrients in the feed can be captured in animal products such as milk, meat and manure. The ration (concentrate and forage) needs to be nutritionally balanced to allow the cow to reach its genetic potential. This means feeding the calf so that it can be bred by 15 months of age so that it enters the milking string at 24 months of age.

If a cow is kept to produce milk, it should be fed liberally enough to produce milk and not limit-fed and just maintained. This is a challenge in Bangladesh because of the lack of quality feedstuffs, particularly quality forage, since rice straw is the main forage available. Rice straw contains only 3 percent protein while the rumen microorganisms require 10% crude protein on a dry matter basis to function properly. This means that the dairy ration must be supplemented with enough protein to satisfy the rumen bugs as well as enough additional protein (some urea is OK if sulfur is added and soluble carbohydrates are present) to promote good milk production.

When rice straw is the principle forage, a dairy ration must be supplemented with all the nutrients. This can be done by using vitamins and minerals and mostly by-products from the production of food for human consumption. The ruminant animal gives us an excellent opportunity to convert bio-mass and urea that can't be used directly by humans, into quality food that is high in protein, energy, fat, carbohydrates, vitamins and minerals; BUT dairy cows must be fed a nutritionally balanced ration to reach their potential. Since cows in Bangladesh produce low quantities of milk and, in the aggregate, supply only about 15% of the milk needed by the population, there is great opportunity for improvement.

In addition to milk, ruminants produce meat, manure and "horse" power. We should remember that the ruminant animal, if fed properly, does a good job of converting rice straw into valuable manure in addition to producing milk and meat. When evaluating the benefits of feeding ruminants, the value of manure in improving crop production must be considered. We should concentrate on producing milk, meat, manure and money.

I think it is possible to increase milk production per cow in Bangladesh dramatically if we (1) do a better job of raising calves so that they reach their full genetic potential to process feed and produce milk and (2) feed lactating dairy cows a balanced ration that will support optimum milk production. Suggestions on how to do this are presented in a paper I wrote and gave at a dairy seminar in Dhaka, which will be a part of my official report.

The main point I want to make is this; the objective should not be to have a large number of cows in the country but instead the goal should be to increase the production of milk, meat, manure and money per cow.

This is similar to our thesis that management needs to increase labor productivity and then watch full employment evolve. Our goal in feeding dairy cows should be to look at marginal cost versus marginal revenue, and feed and manage to optimize the profit earned by the dairyman. Profit is not a dirty word. Managers that increase profits have increased the efficiency of the allocation of the factors of production. That is good for a country and its population.

More than any assignment on which I've worked, I am excited about the potential to improve the human condition in Bangladesh by working with Saudi-Bangla Fish Feed Ltd. to produce quality dairy feed that is fed properly to the cows in Bangladesh. Other countries have more inherent agricultural potential (such as Ukraine) than Bangladesh, but the people with whom I've worked have shown that they have the "right stuff" to improve the production of milk significantly in Bangladesh. There is a huge potential to improve profitability in the dairy industry of Bangladesh, while at the same time increase the supply of wholesome food in a country that needs more dairy products to improve their diet.

Now for my main report that will give some suggestions on how I think SBFFL can profitably improve the production and quality of dairy feeds while increasing the human food supply. Working to meet those objectives allows us all to feel good about our work.

Roy Chapin, Ph.D., Animal Nutritionist

11145 Chapin Lane, Amity, Oregon 97101
Phone: 503-835-7317
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