Unstable rice market in the election year

| Updated: October 24, 2017 04:43:08

Unstable rice market in the election year

Rice is the staple food for Bangladeshis. It is the main crop covering more than three-fourths of arable lands. It is called a strategic or political commodity in some Asian countries. It thus calls for due care or support from plough to plate. It is so sensitive an item that only about one-tenths of total global production of rice enters the international market with the rest being consumed or stocked by producing countries - 90 per cent of production in Asia alone. The thin international market sometimes could be swallowed up by a country like China if it faces fall in domestic production.  
In fact, all food grains produced anywhere in the world need some kind of 'protection' from government to ensure price stability. The best examples are the developed countries that heavily subsidise food grain production and consumption.  The price of rice serves as a barometer to measure the popularity (hence efficiency) of a government in many countries, including Bangladesh. It is thus no wonder that in election campaigns, politicians promise to ensure, if elected, lower food prices - rice in particular.
Food crisis is not anything new. The world, particularly Bangladesh, witnessed a food or rice crisis in 2007-08 when the world supply dipped to its lowest level. The rise in rice price was so steep that within three months price sky-rocketed from Tk.19/kg at the end of April to Tk.35/kg in February, 2008. During the last three months of the current year, price of rice in Bangladesh rose from Tk.35 to Tk.45/kg - a rise by 30 per cent. However, the difference between then and now is not only in the level of prices but also in the mitigating factors. For example, in 2008 dry season bumper Boro crop - accounting for 55 per cent of total rice production - made its way to the market to stabilise prices. This year rice procurement seems to be in a perilous state and imports are yet to take place. From the bitter experience of Bangladesh in 2008, we (late Mahabub Hossain and I) suggested on several occasions that Bangladesh should not rely too much on imports, especially of rice, and should build its own stock to respond to rice crises.
India and China are the world's largest hoarders of rice. Importing countries like Bangladesh should always keep an eye on them lest it faces a cat-and-mouse race to buy rice from the international market. In 2001, for example, total stock of food grains in India stood at 62 million tons when the emergency stock should have been 25 million tons.  Jean Derez, a co-author and colleague of Amartya Sen, reacted to the volume of stock arguing that if 62 million tons of food grains could be piled up in sacks on one over another, the distance would be one million kilometres. And travelling such a distance would amount to going to the moon and return! But despite such huge stocks of food grains, the nutritional status in India is worse than sub-Sahara Africa often fraught with famine.
Neglecting all lessons of 2008, the Bangladesh government sat idle while  rice stock in the country dropped to as low as 2,00,000 tons in the recent weeks. Normally, the silos should be filled with one million tons-6,00,000 tons at the minimum. This depletion of stock has led to three unintended but serious consequences. First, rice-centric government programmes for the poor get blocked thus putting salt to the injury; second, the profit-seeking rice millers, hoarders, and traders get a boost to hoard more in the expectation of further drawdown thus leading to the rise in prices. Food grain stock is inversely related to the 'windfall gains' that this group of unscrupulous agents in rice market always waits for. Third, a fall in stock or a failure in procurement, along with adverse world market, gives rise to fear about further rise in prices. Thus both buying and hoarding sprees reinforce to make the market volatile.
There is a gradual process through which stocks generally deplete; it does not happen that today we have one million tons, tomorrow it will be only 2,00,000 tons. The food ministry could have acted to replenish when the stock reached 5,00,000 tons just a few months back. In the meantime, they could also be cautious following the natural calamities in Haor and other parts causing a loss of roughly one million tons of rice. There is another mistake on the part of the concerned ministry. The laudable declaration of lowering duties from 28 per cent to 10 per cent on rice imports should have been made much earlier to get supplies at lower prices. Noteworthy is the fact that price of rice in the international market has gone up by 15-20 US dollars per ton very recently-  Vietnam raised it by 14 dollars within one month, India and Thailand by 10 dollars per ton.
The price of rice in local market in Bangladesh has reached a record high with coarse rice selling at Tk.48/kg against Tk.34 in India and Vietnam and Tk. 38 in Thailand. The condition has exacerbated following the failure to procure reasonable quantity of rice on time. Thus the present crisis relating to rice seems to have sprung from three main causes: complacency about self-sufficiency, procurement at snail's pace, misjudgment about stock drawdown and replenishment and misreading of the international rice market.
As economists, we should, however,  also bear in mind that a rise in rice price is a boon to farmers as its price is the main determinant of supply in the market. Only 15-20 per cent of rural households supply rice in the market and incentives should be ingrained in the supply chain. But the conditions under which such market-driven incentives to producers tend to work are (a) the rise in price must be at par with rise in cost of production plus producers' margin by, say, 10 per cent, and (b) consumers' surplus loss as a result of increased prices should match producers' surplus gain implying that farmers should harvest the fruits of the rising prices.  Unfortunately, none of the forces seem to work in Bangladesh. 
Whenever rice prices rise, the benefit goes to millers, traders and hoarders. The poor suffer most by curtailing consumption of rice, by pulling out children out of schools and putting them to earning activities, and consuming less nutritious food. In fact, these happened during the 2008 crisis and possibly that would happen this time too - in the election year.
The writer is a former Professor of Economics at Jahangirnagar University. 
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