Marketing flaws lead to increase in rice prices

In the fiscal 2018-19, 36.53 million tonnes of rice was produced from Aush, Aman, and Boro paddy from 11.55 million hectares of land in the country.  In the following year, rice output increased to 38.69 million tonnes from 11.76 million hectares of land.

In other words, paddy cultivation increased by 1.82% and rice production increased by 5.91% in the past one year.

As a result of the increase in both rice cultivation area and production, Bangladesh stood third in the world replacing Indonesia in terms of rice output last year. China and India were in the first and second positions, respectively.

Considering the total land area of the country, the current position of Bangladesh is undoubtedly enviable.

The real claimants of this achievement are firstly the agrarian society of the country, secondly the agricultural educational institutions and scientists and thirdly the agriculture-friendly policy of the current government. We have a responsibility to show our gratitude to all of them.

The total demand for rice in the country is estimated at 33 million tonnes, which is 5.69 million tonnes less than the total supply of 38.69 million tons (5.5 million tonnes according to BRRI data).

Therefore, in economic terms, there is no logical reason for an increase in rice price. The issue seems to be related to the market management and marketing of the staple cereal.

According to official data, the price of coarse rice was Tk42 per kg last year. This year, it is being sold at Tk46-48 a kg. Even though the government has fixed the per kg price of fine-grade miniket rice at Tk51.50, it is being sold at Tk55-62 depending on the variation of marketplaces.

The sale of rice at a subsidised price in the open market and rice distribution at Tk10 per kg for the poor has also remained stopped until now.

The government's current rice reserves are a little over 11 lakh tonnes, which is 5 lakh tonnes less compared to last year. The price of paddy has increased by Tk7 per kg from Tk20 earlier. That is why mill owners want to sell rice to the government at the rate of Tk46 a kg.

According to field data published in Sarabangla, rice mill owners buy paddy at lower prices during harvesting seasons and it costs about Tk27.86 to make one kg of rice. On the other hand, the production cost of each kg of rice for millers is Tk35.80 at the most during the off-season.

On average, rice mill owners have to spend Tk32.34 to process one kg of rice. The government is supposed to buy rice from mill owners at Tk36 per kg. Considering the average cost, the demand of rice millers to pay Tk46 per kg clearly makes an impression of additional profit for them.

From the mill owners' point of view, the reasons behind the increase in the market price of rice is higher transportation costs due to purchase of paddy from North Bengal; the market price of paddy that has been officially fixed is relatively high; higher transport and labour costs in the event of floods, cyclone Amphan, and the coronavirus.

They also argue that as the current market price of paddy is Tk1,100-1,300 per 40 kg, they will suffer if they sell rice at less than Tk54 per kg.

The other reasons for price hike, as often cited by mill owners, are an increase in the stocks of paddy at the farmer and wholesaler levels; holding of paddy/rice by many people in the fear of a rise in prices, etc.

However, these arguments do not seem valid reasons in economic sense, rather these indicate the millers' tendency to make extra profits.

Better valid reasons are as follows.

The price should be determined on the basis of supply and demand but supply is being obstructed in one way or another. Additionally, there is the tendency to increase rice price step by step and the tendency of rice mill owners and traders to be over-organised through trade unions.

Besides, the government's dependence on rice mill owners for purchasing rice without stockpiling paddy due to shortage of warehouses and an increased deficit of coarse rice due to the distribution of coarse rice as relief in coronavirus, cyclone Amphan and floods are also responsible for the rise in rice price. In some cases, political influence is also being observed.

To bring the price of rice to a tolerable level, the government may need to import coarse rice. And the government is working to do what is required, said Agriculture Minister Md Abdur Razzaque, MP.

According to the Ministry of Agriculture, this year's floods damaged crops worth about Tk1,323 crore, affecting over 12.72 lakh farmers in 37 districts. The government has taken initiatives to increase agricultural production by providing financial support to flood-affected farmers.

The plan to import coarse rice is a good step to control the current market price of rice. However, the money allocated (subsidy) in the budget needs to be disbursed in a timely manner and in appropriate areas so that agricultural production is not hampered in any way.

Increasing the scope of the food-for-work (through rice) programme to reduce the impact of the coronavirus pandemic and reduce the price of rice will be beneficial for the poor and that can also improve the rural infrastructure.

Steps that can ensure stability in market

The market can be controlled if the concerned authorities of the government collect ample rice as per the agreement with millers and arrange for the rice to be sold at OMS or union level in the open market. The supply of coarse rice and selling those in the open market need to be increased to keep prices affordable so that low-income people can eat as much as they need.

If the price of fine rice is a little higher or at the current level and if the richer quarters in society spend a little more of their income on rice, the income of the rice-producing farmers, and the labour in rural areas will increase. It is a kind of trade-off, but no one will object if farmers enjoy the benefits of higher prices.

Besides, the government will have to keep a close watch on whether some people are stockpiling rice as planned. If anyone does so, provide punishment so that others do not dare to do such things.

Stakeholders in rice market prices are farmers, government policy, scientists, rice mill owners, the business community, transport owners, flood/heavy rain/drought, production volume, political environment, etc. Apart from regular discussions with rice mill owners, rice traders, and government agencies, no hostile behavior of other stakeholders is being observed to affect the market price of rice.

So in the current coronavirus situation, the rice mill owners and those who are involved in the rice business will maintain their professionalism in this service business and it is the expectation of the common people of the society to them.

Negotiations with rice mill owners should be continued so that they do not deliberately organize and influence the market price too much.

It will be difficult to control the market price of rice if the government adopts any kind of laxity or negligence in the procurement and storage of paddy/rice in time.

Finally, the news that Bangladesh has surpassed Indonesia in rice production through its agri-friendly policy is very promising. In order to continue production, special attention needs to be paid to ensure that farmers get good prices for their production.

It is hoped that their unparalleled success will not be misled by the cunning tactics of some amateur rice mill owners and traders. It is also expected that the Ministry of Food, the Ministry of Commerce and the Ministry of Home Affairs will jointly control the market through regular market supervision.

The author is Professor, Department of Agricultural Economics and Director, Institute of Agribusiness and Development Studies at Bangladesh Agricultural University, Mymensingh. Email: [email protected]