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Tuesday, July 1, 2008
Editorial

Beneath The Surface

Let's not forget the rice market

TRULY speaking, the current crisis in the market of agricultural commodities, especially of rice, is a grave concern for policy makers. According to reports, this has forced the government to strengthen its monitoring capacity. Earlier, it was expected that the bumper boro harvest might fill the silos by luring producers with the higher procurement price.

Unfortunately, the boost in the procurement price (crossing Tk.700/maund mark) seems to have served little purpose as the rice market continues to remain as volatile as before.

Economists are also looking for clues and, possibly, pulling their hair in disgust and dismay.

The whole scenario relating to market behaviour drove us to dig into the data base of a recently completed Brac-backed survey of 62 villages, where household level information on marketing of products is shown.

It needs to be mentioned that the said survey was completed in February 2008, covering the 2007 crop season. For this year, of course, we can extrapolate the events if we like.

In the 2007 crop season, about 60% of farms marketed 37% of the paddy produced. At disaggregate level, we find that more than four-fifths of farms over 1 ha marketed about 55% of the output.

Market participation is low at the lower end of the scale: about 30% of farms marketing less than 20%. This is quite obvious. But when compared with the situation of 2004, we find marginal differences, both in terms of the size of participants or in terms of the size of marketed output.

For example, in 2004, almost the same proportion of farms sold 41% of the total production. Whereas, the yearly average price of paddy increased from Tk.242/maund in 2000 to Tk.496/maund in 2007, it exceeds Tk.700/maund now.

Such price rise should have swelled the market but, seemingly, the bitter experience of the recent past has made farmers more inward looking for the sake of food security. In fact, we observe a rise in marketed output in the case of vegetables, pulses and other cash crops along with price rise.

What has been said about paddy marketing before is about the whole year. But sales take place within one month of harvest on which brokers and agencies mainly bank upon. In economists' jargon, it is called "distress sale," or forced sale, as it occurs under the pressure of economic problems -- paying debts, meeting contingencies etc.

Economics is replete with researches as to how and why distress sales deprive poor farms of their due shares. It is dubbed as exploitative in nature. As we shall see later, our empirical observations reject such hypothesis.

In the 2007 crop season, about half of the farm households sold roughly one-fifth of paddy within one month of harvest. Again, as we move down the farm size groups, we find increasing proportion of harvest sales, thus negating the proposition that it is only the poor who sell quickly due to economic reasons.

As a matter of fact, nowadays, distress is overcome by other means such as remittances, credit from NGOs, government's growing relief operations etc., rather than disposing off precious paddy soon as possible.

Both the rich and the poor look for some money, or the rich want space to get rid of the huge harvest. There is another point to ponder. The fact that harvest sales are no more signs of distress is shown by the fact that the difference between harvests and yearly average price hovered around 6-7%, implying no incentive for shelving sales for distant future.

But the worrisome news is that, back in 2004, the share of harvest sales was almost double at 41%! If we now project the recent past experience into 2008, we can possibly conclude that harvest sales this year could have been constricted further in the wake of growing expectation that rice prices might continue to rise further.

"Better late than now" position coupled with unscrupulous behaviour of rice dealers might have constrained the market supply situation. Under this condition, urban consumers and rural poor would possibly have to wait till a good amon harvest upsets the calculus of "better late than now" proposition. Meantime, production situation in other countries seemingly point to sobering effect in the international market in the coming year.

Let us now look at marketing behaviour by farm size. Non-farm households and households farming less than 0.4 ha (less than 100 decimals) are net buyers of rice, who are faced with severe food crisis during rice price spiral. In fact, these households are 70% of rural households.

However, given this distribution of market participation, it is hard to say whether farmers would come forward in response to high procurement price. If last year's price hike could be a lesson for them, "better late than now" position would rock the boat a little bit more unless imports come in and hoarding in urban centers can be checked.

Usually, price responsiveness works better for crops other than staple ones. Even in developed countries, market prices are not let to dictate responsiveness of farms. The states place a high stake on food security of people in the event of war or natural calamities. Subsidies on dairy products and sugar are clear examples.

For quite a long time, poor Bangladesh paraded through the path of market liberalisation and self-reliance in food production. The result was good for some years till international market situation taught us a good lesson.

Bangladesh should strive for self-sufficiency in food grain production through massive investments in research, extension, storage and communication. It will take a few days more for the rocking boat to reach the shore -- safe and sound.

Abdul Bayes is a Professor of Economics at Jahangirnagar University.

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