How food prices can be stabilised
In December 2023, the price of onions exceeded Tk 100 per kg in the retail market. News outlets widely reported that syndicates were allegedly manipulating the market by creating artificial shortages to drive up prices. However, just one year later, during the same period, the price fell below Tk 50 per kg. Some of the producers are incurring heavy losses due to the low price of onion. This raises a fundamental question: if these syndicates of suppliers are so powerful, why are they allowing prices to drop this time?
While the syndicate narrative is often compelling and easily resonates with the public, it does not hold up under scrutiny. In 2023, India, a major supplier of onions to Bangladesh, imposed an export ban due to weather-related disruptions that significantly reduced its domestic supply. This led to a sharp spike in the onion price in Bangladesh. In contrast, last year, Indian exports flowed freely, and local production in Bangladesh also remained stable. Consequently, the market experienced a glut, driving prices down.
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However, while there may be no syndicate at play in the onion market, the extreme price fluctuations severely impact both producers and consumers. This leads to a pressing question: how can prices be stabilised amid the shifting dynamics of domestic and international factors?
The conventional market-based approach to food price stabilisation assumes that all participating countries operate in a cooperative equilibrium. This presupposes a seamless exchange system where surplus-producing nations export their excess to deficit countries and vice versa during times of scarcity. For example, when a country experiences high domestic food prices, it is assumed that another country with lower prices will readily step in to supply the needed goods.
However, such cooperation is not binding, and no guarantees exist that this mechanism will function as envisioned. In practice, countries often prioritise their own food security over international cooperation, relying on trade policies tailored to their domestic needs. A case in point is India's ban on non-basmati rice export during the 2007-2008 food crisis. This policy effectively shielded India from skyrocketing global rice prices, which rose by 160 percent between June 2007 and June 2008. Meanwhile, India's domestic rice prices increased by only eight percent, contributing significantly to then-Prime Minister Manmohan Singh's re-election in 2009.
This example highlights a divergence from the long-standing recommendations of academics and policy analysts since the 1980s, who have argued against direct market interventions. Instead, they advocate for social safety nets and market-based risk management tools to help populations cope with price volatility. Yet, the 2007-2008 food crisis revealed that countries with interventionist policies, such as China and India, performed better in maintaining price stability than those adhering strictly to market-based approaches. This raises critical questions about the effectiveness of the dominant economic paradigm in addressing food crises.
Bangladesh provides another illustrative case, particularly in its onion market. The country heavily relies on India to meet its onion demand. However, whenever adverse weather events or other disruptions affect India's onion production, the Indian government often restricts exports to stabilise its own market. This leaves Bangladesh vulnerable to sharp price hikes, underscoring the risks of over-reliance on external markets for price stabilisation.
An alternative could be competitive storage driven by private incentives. Prices can be stabilised if domestic onion producers can store onions during periods of low prices—such as during harvest surpluses—and sell them during lean seasons. Yet, cooperation challenges persist even at the domestic level. Publicly managed storages often compete with private storages, leading to distrust and inefficiencies. Policymakers frequently intervene in private storage activities, either by releasing publicly held stocks or through imports, undermining private investors' confidence in the profitability of their ventures. The lack of coordination creates confusion in the storage market. Private entrepreneurs hesitate to invest in storage facilities, fearing that government actions during times of scarcity will render their investments unprofitable or even lead to losses. Consequently, the storage market remains underdeveloped, exacerbating price volatility during crises.
A coordinated approach to storage management can address these issues. Governments must strike a balance between regulating public storage and encouraging private investment. Clear, predictable policies that foster collaboration between public and private sectors are crucial to building a resilient storage system capable of stabilising food prices.
It is also worth examining the global dynamics of food trade. Export bans are often criticised for exacerbating global shortages. However, they reflect a pragmatic response to domestic pressures. Establishing international agreements that allow for conditional export restrictions can ensure that domestic needs are met without severely disrupting global markets.
Additionally, regional trade agreements and alliances can provide more reliable frameworks for cooperation. For example, South Asian nations could collaborate to establish shared food reserves or harmonised policies for essential commodities. Such initiatives can reduce dependency on global markets and provide a safety net during crises.
However, addressing food price volatility requires a broader perspective that considers the unique circumstances of each country. For instance, Bangladesh's reliance on India for onion imports is a structural vulnerability that demands a long-term strategy. Diversifying import sources, investing in domestic production, and developing robust supply chain infrastructure are all critical steps towards achieving greater self-reliance. Encouraging technological innovations in storage, such as climate-controlled facilities and improved preservation techniques, could further enhance the capacity to manage food stocks effectively.
In addition, the government should ensure that essential commodities remain within reach for low-income households during crises. This may involve direct subsidies, rationing systems or targeted cash transfers. Furthermore, educating farmers, traders, and consumers about the benefits of coordinated storage, transparent pricing mechanisms, and fair-trade practices can foster trust and cooperation. The government should also involve private sector actors in policy discussions to align incentives and create a shared vision for food security.
Ultimately, addressing food price volatility demands a multi-pronged approach that transcends the limitations of conventional market-based solutions. By integrating public and private efforts, leveraging regional cooperation, and adopting socially inclusive policies, countries can build resilient food systems capable of withstanding future crises. For nations like Bangladesh, the journey towards stability begins with recognising that market dynamics alone cannot ensure food security. Pragmatic, coordinated actions are needed to safeguard the livelihoods and well-being of millions.
Dr Rushad Faridi is professor in the Department of Economics at the University of Dhaka. He can be contacted at rushad.16@gmail.com.
Views expressed in this article are the author's own.
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