An abrupt increase in rice price has produced deep concern and confusion among policymakers. The concern stems from its negative impact on access to sufficient food grains on the less fortunate population with the prospect of plunging the nation's food security situation to an alarming level. The confusion, on the other hand, is caused by the occurrence of the price spike in spite of apparent availability of abundant rice with private sector traders.

Plummeting purchasing power stemming from increased rice price is likely to significantly lower per capita daily calorie consumption of the population hovering around the poverty line. This dent in per capita calorie consumption is likely to push many more below the poverty line.

Stability in food grain prices is quintessential in countries where a considerable portion of calorie is sourced from cereals. In Bangladesh, nearly 70 percent of the calorie requirement is met from cereal, most of which comes from rice. Therefore, how crucial a role the stability of rice price plays in ensuring relative food security is easily discernible.

The reason behind sourcing a large proportion of calorie intake from cereals in developing countries is largely economic as cereal happens to be the cheapest source of calorie. In developed nations, hardly 40-50 percent of calorie requirement is sourced from cereals. The rest comes from other rather pricy food like meat, fat and fruits. Vegetables, a rich source of micronutrients essential for better utilisation of other food, however, contain sparse amount of calories.

Regarding the confusion, statistically there should be plenty of rice supplies with the traders from what they procured from the preceding and ongoing harvests.  Market price of a commodity, however, is not always determined by the two protagonists in the market—demand and supply. Speculations also play a significant part and at times distort commodity prices. Most speculations stem from certain rational factors but some are completely baseless.

To counter market speculations and to ensure sufficient market supplies during shortages, the parastatals in nation states hold a predetermined amount of security stock of products vital for the individual nations. In the US, the government holds a considerable amount of fossil fuel to contain abnormal price increase due to either supply crunch or market speculations.

During my time with USAID/Bangladesh ending in 1997, the recommended level of food security stock for Bangladesh was 900,000 MT. It was subsequently increased to 1.3 million MT to meet any emergencies or to have a firm grip on market prices. The government intervened in the market with sufficient supplies whenever the rice price went 20 percent above the official government procurement price. The intent was to stabilise the price at a level affordable for the low-income population.

Colluding with the aim of artificiality controlling market price in a market with umpteen sellers and buyers is next to impossible. It's only possible in monopolistic or oligopolistic markets where there is either one seller or a few sellers and many buyers.

There must be some other reasons that are playing a role in the spike in rice price.  The present government-held food security stock is reportedly a mere 700,000 MT, way below the recommended 1.3 million MT. The traders therefore got an opportunity to test the government's ability to effectively intervene in the food grain market by slowing down release of their stocks in the market. They are also perhaps envisioning a lower than expected aman production this season and much lower rice production in the upcoming boro season given the worsening Covid-19 situation.

The government is busy procuring rice instead of injecting whatever limited amount they could to increase market supplies to contain the price hike. In a situation of short supply, siphoning off large amounts from the market is bound to be counterproductive. Besides lowering supplies available for immediate consumption, it sends a wrong signal to the market causing further distortion in market price. 

To resolve the rice price conundrum, the government should take immediate measures to import sufficient rice on its own to replenish its food security stock. It should better look for sources who are capable of making expeditious shipments.  Also, the government must shun procuring from the domestic market to ensure ready availability of relatively larger rice supplies for the consumers.

Furthermore, appropriate measures must be taken to encourage increased rice import in the private sector until the rice price stabilises. One such measure the government may consider is waiving import duty on rice import for a period of time. It may decide to reimpose appropriate import duty on rice once the supply situation improves.

ASM Jahangir is a former Senior Programme Manager of USAID/Bangladesh.