How to protect our paddy farmers

Farmers' cry after failing to cut a profit in every harvest season has become a routine headline for Bangladeshi newspapers. 

At the same time, people are struggling to afford a sufficient amount of rice throughout the country. 

More often than not, the very production cost of the farmers does not get covered by the value of sales, let alone yield profit. Photo: Rehman Asad

These two facts paint quite a contradictory picture of the rice supply chain and a discrepancy between harvesting and household consumption.

Bangladesh has become self-sufficient in terms of rice production. It produces almost 35.8 million tonnes of rice every year. Despite steady supply, the rice prices tend to fluctuate casually and unnaturally. 

At the production level, there are mainly six actors, namely, seeds dealers, fertiliser and pesticide dealers, tractors & power tiller renters, irrigation water pump renters, labourers and finally the ones who combine all these – the paddy producer. 

While the first five actors have their fair share of complaints, the paddy farmers are probably the ones with the highest degree of disenfranchisement.

The paddy producers are so disgruntled with the system that one paddy producer burnt their standing paddy as a protest in May 2019 for not getting a fair price for his harvest. Few others around the country did the same in support. 

Many problems are plaguing the paddy farmers. For instance, after reaping the paddy from the field, producers usually have growing pressure to pay off the debts incurred during the production process. 

So when the harvest season comes, the desperate, debt-ridden farmers cannot but settle for a price that barely meets the market value. 

Mill owners, wholesalers and other middlemen who process paddy into rice take advantage of the financial vulnerability of producers and they offer very little price. As a result, producers very often incur substantial losses per maund of paddy produced. 

More specifically, the ratio of paddy to rice is 1.45:1. That is, 27.5 kg rice can be extracted from a maund of paddy which sells for Tk700-800.  

More often than not, the very production cost of the farmers does not get covered by the value of sales, let alone yield profit. 

Currently, rice sells for Tk50-65 per kg in the market depending on its variety. Arithmetically, the price of this amount of paddy is only Tk25 to 29.

A rough arithmetic calculation will show that the middlemen of the rice supply chain are supposed to be adding 25-36 tk value to each kg of rice, which is definitely not the case given their relatively low production cost. That means the middlemen and other syndicates are deliberately increasing the price of rice while the farmers suffer from misery. 

A few measures can be taken by the government to save the paddy producers from such tragic price discrimination.

Reforming procurement strategy

In the fiscal year 2014-'15, the total amount of rice produced was measured at 34.71 million metric tonnes. The government's procurement target was 1.432 million metric tonnes whereas the government bought 1.033 million metric tonnes. 

The government's total procurement of paddy and rice ranges from 3% to 4% of total production. It is high time the government's procurement capacity saw a significant expansion to facilitate more buying directly from the producers.

Another aspect of reforming the procurement strategy is alleviating the corruption involved in it. Farmers often report allegations such as local muscle power, non-farmers selling paddy to the government instead of poor farmers; farmers getting compelled to give up their privilege of selling to the government by giving their Krishi card to others for money; unfairness in the lottery process of granting Krishi cards etc.

Installing automatic rice mills in villages 

Agri-scientists opine that the shorter the "soil to dining table" journey, the better off are the producers. That means the presence of fewer middlemen in the supply chain. 

On the other hand, it is always the auto rice mill owners and the wholesalers who are to be blamed for raising the price. Experts imply that their market share of rice is so big of an amount that they can set the price as they wish. Common people are the price takers, mill owners' syndicates are the price setters. 

With these two issues in the scenario, it is better to turn the paddy producers into rice sellers. Hypothetically, if all producers become rice sellers, mill owners' syndicates will no longer be effective in setting prices as they wish. 

Their grasp over the rice market will die down in the presence of excess supply of rice by every producer. If the government takes steps to install more and more semi-automatic and fully automatic rice mills for marginal producers, it will help them reap a good profit while keeping the price of rice under control. 

An automatic rice mill can process 200 to 1500 tonnes of paddy into rice per day. Such mills can easily turn the total harvest of a season into rice in the shortest time.

Another strategy to this approach is giving producers loans for buying mobile hullers. If every paddy producer owns a mobile huller, they all can be rice sellers as well and earn more profit.

Providing short time loans

During a harvest season, producers tend to sell their products as fast as they can because of pressure to repay their loans. But the price of paddy usually rises sometimes later in the harvest season. Marginal farmers and producers need to tide over this period. 

A short-term interest-free loan provided by the government could very well come in handy for them to not succumb to the episode of the very low price of paddy.

Often it is reported that the volatility of the rice market is caused by mill owners' and wholesalers' syndicates. Together they raise the price for no good reason at all even with a steady supply of rice. 

Rice is the main food in Bangladesh and its demand is inelastic i.e., even after a price rise, people have no option of not buying it. Although the switch to coarse grains, but that too with extra price. 

The syndicate devours people's all this extra money just because they control the supply chain. But the bigger syndicate is the government and the biggest syndicate are the people. If they form together no syndicate can keep the producers and marginal farmers from what price they deserve.

Zulkernain Khandaker graduated in Economics from the University of Dhaka. Email: [email protected]

Disclaimer: The views and opinions expressed in this article are those of the authors and do not necessarily reflect the opinions and views of The Business Standard.