The rice economy

Rice, the four-letter word, is not just the staple food; it is at the centre of the overall life of Bengalis, whether it is culture, politics, or the economy. Although many things have changed in Bengali life over time, rice remains radiant in its own glory.

There are a few powerful statistics to substantiate this claim. Rice contributes two-thirds of the total caloric need of the country and is the source of half of the country's protein intake.

According to the Bangladesh Bureau of Statistics, crops and horticulture's share is about 10 per cent of the gross domestic product, with half coming from rice.

It also accounts for 48 per cent of the total rural employment. If rice trading, transport and processing activities are considered, employment percentage will go up. 

Understandably, rice remains at the heart of many of the discussions of stakeholders. However, there is one specific issue that, for some strange reasons, pops up every year and gets the attention of the policymakers, think tanks and media. It is heavily discussed. But, unfortunately, at the end of the day, it stays unresolved.

The issue is the price, which farmers get by selling paddy or rice, and consumers pay to buy rice for consumption. Year after year, the point of discussion remains the same: consumers pay more, but the farmers who produce them at the cost of their backbreaking labour are often underpaid.

One would argue if the consumers are paying more, then why are the farmers not getting their shares? Similarly, if the farmers sell their produce at a lower price, why do the consumers pay more? It's a vicious cycle. We need to understand the complex issue to find the root cause. 

In a so-called open market economy, the demand and supply equation should ideally dictate price.

According to the Bangladesh Rice Research Institute, the country's annual consumption requirement of rice is 35 million tonnes. In its report, India's Mordor Intelligence says the consumption is expected to be 39.7 million tonnes in 2021. Therefore, we can safely estimate that the annual demand for rice is around 37 million tonnes. 

From the production point of view, we are almost there to meet the demand. Bangladesh has done wonder in increasing its rice production. In 1971, we produced 10.59 million tonnes of rice, and it reached 37.4 million tonnes in 2020 as per an official figure. However, the United States Department of Agriculture (USDA) estimates 35.8 million tonnes of rice production in 2020.

In 2021, the projection for production is more than 37 million tonnes. According to a report from the USDA, Bangladesh would produce 19 million tonnes in the ongoing Boro season, which accounts for 55 per cent of the country's total rice production. However, the agriculture ministry is hopeful of harvesting 20.5 million tonnes.

In a nutshell, we have nearly a balanced demand and supply situation. Then why is the rice price at the consumer level constantly on the rise? The increased cost of production or inflation alone cannot justify the price hike.

The average price of coarse rice is Tk 48-50 a kilogram, while the price of the fine rice hovers around Tk 62-65 per kg. This is the highest price since 2017.

The price of coarse rice went up to Tk 50 a kg in 2008 as there was a production shortfall because of the cyclone Sidr, and the government could not fill up the deficit by importing on time due to the crisis in the global supply.

In 2020, the average price of coarse rice was Tk 48 per kg, which was 20 per cent higher than that of 2019.

Experts are pointing to two main reasons behind this abnormal price hike – shortages of rice in government storage and the tendency of storing more by different quarters in the backdrop of the coronavirus pandemic. A vested quarter hoarded more grains to fleece customers during the pandemic by creating an artificial crisis.

According to the food ministry, the government's rice stock has fallen to a 13-year low of 300,000 tonnes, whereas experts suggest keeping at least 1.25 million tonnes of grains in stock.

The main reason for the stock being dried up was the government's failure to procure as per its targets last year because of a higher price in the market. Only 83,000 tonnes of rice were procured against a target of 800,000 tonnes in the last Aman season.

When there is a price hike, the government normally launches programmes such as the open market sale (OMS), the Vulnerable Group Feeding (VGF) and the Food for Work to intervene in the local market to control food prices.

To understand the price mechanism holistically, we need to consider the influences of middlemen. Before rice reaches a consumer from a farmer, it passes through four more stages: traders, millers, wholesalers, and retailers.

In each stage, a markup is added, which eventually influences consumer price. In some cases, especially for the small and marginal farmers, there are more middlemen involved. The small and marginal farmers are in a hurry to sell their produces right after the harvest as they do not have storage capacity. Consequently, they are often forced to sell it at a lower price.

According to a study of the International Food Policy Research Institute (IFPRI), 83 per cent of farmers belong to the group of marginal and small category which have land less than 1.5 acres.

So, the government should buy paddy directly from the farmers, and it should buy more. The total rice equivalent procurement in 2018-2019 was only 7.25 per cent of the total production, and the scenario was dismal in 2020. An IFPRI study suggests the government buy at least 19 per cent of paddy to ensure minimum price support.

The government's storage facility is not adequate, and it is going to be 2.4 million tonnes. The country should have a capacity to store 5 million tonnes of rice to facilitate more procurement. If the government has enough stock, it can carry out programmes like OMS, VGF and Food for Work more, which eventually contribute to stabilising the price as and when necessary and help people in the low-income bracket.

There must be transparent and real-time information about the stock, both at the public and private level so that, in the case of an emergency, import decision can be taken well in advance, or in the case of a surplus, authorities might think about exports or other programmes. 

Any unscrupulous attempt to manipulate the price should be dealt with strictly. Therefore, a vigilant approach to monitoring the market dynamics is required.

Rice plays the most significant role in ensuring the food security of Bangladesh. Therefore, it should be taken care of with the utmost seriousness, appropriate policy, comprehensive plan, and intense focus so that the interests of the farmers and consumers are protected.

The author is chairman and managing director of BASF Bangladesh Ltd. Views are personal.