Ample rice supply, yet soaring prices!

The rice market has been unstable for quite some time. Before the national elections, the prices had slightly decreased, but after the elections, rice prices are on the rise again. Currently, coarse varieties like Swarna and China are being sold at Tk 54 to Tk 56 per kilogram. The medium-grade Brridhan-29 is available at prices ranging from 58 to 60 Taka per kilogram. The popular Miniket rice, known for its small grains, is being sold at Tk 70 to Tk 75 per kilogram. In contrast, in the Nazirshail market, Miniket rice is being sold at a higher price, ranging from 70 to 80 Taka per kilogram. Aromatic varieties such as Kataribhog and other scented rice have even higher prices.

This unusual pricing is occurring during a season when the market is usually flooded with rice. Traders are making unjust profits at the expense of consumers, causing hardship for those who rely on rice as a staple food. The current cost of rice production is 43 Taka per kilogram. When 15% for taxes and profits is added, the retail price should ideally be 50 Taka per kilogram. However, due to market dynamics and profit motives, the actual retail price of rice per kilogram can go up to 70 Taka. However, the current prices at which rice is being bought and sold in the market during the full Aman season are unpredictable.

Many think this as exploitation by the businessmen. In this context, Prime Minister Sheikh Hasina recently mentioned in a party meeting that immediate measures would be taken to address the volatile situation, including rice and other essential commodities, through effective management. Prior to this, the Finance Minister, Commerce Minister, and Food Minister had announced stringent actions against hoarders.

Already, the National Consumer Rights Protection Directorate, along with the Food Department, district administrations, and law enforcement agencies, is conducting gradual campaigns. Despite a wholesale price reduction of 2-3 Taka per kilogram, the impact on retail prices remains negligible. Reports have surfaced of illegal hoarding from various parts of the country, where massive warehouses are being filled with thousands of sacks of rice. Corporate houses are particularly dominant in these activities, with major auto rice mills also playing a significant role. Medium and small mill owners are also aligning themselves with these practices. Their influence and business strategies are contributing to the escalation of rice prices.

Currently, there is no crisis in the country regarding rice. The government has a stockpile of approximately 14 lakh tons of rice, along with a total food grain reserve of around 17 lakh tons, including wheat. Aman rice procurement has reached nearly 4 lakh tons, and paddy procurement stands at 19,297 tons. In the current context, it appears that the government may achieve its rice procurement target of 5 lakh tons. However, the paddy procurement target may not be met.

It is worth noting that fulfilling the rice procurement target has been challenging in the past as well. This time, it is not expected that the rice procurement target of 2 lakh tons in the Sikkim Division will be achieved. Farmers have already sold their harvested rice to the owners of rice mills and representatives of large corporate houses during the paddy harvesting season. They no longer have the opportunity to go to the government warehouse and buy dry rice at the rate of Tk 30 per kg. Now the marketed surplus rice is all in the hands of big traders and paddy owners. They are supplying rice to the government and sending rice to the market. They control the market. They are the ones who set the price. They are also manipulating the price increase.

Traders say they have purchased rice at higher prices, leading to an increase in the cost of paddy. Naturally, major mills have acquired rice immediately after production. At that time, parboiled rice is sold at a price ranging from 9 to 11 Bangladeshi Taka per kilogram, while the government-set rate is 12 Taka, which the businessmen never adhere to. Later, when the price of rice rises in the market, farmers do not benefit from the sale, and the profit does not reflect in their hands. When partially dried rice is sold, it often fetches a higher price. In specific cases, small-grain rice is seen being sold at 13-14 Taka per kilogram. The distribution of profit within the total rice sales is very unequal, to the disadvantage of the farmers but advantageous to unscrupulous businessmen. In essence, the lion's share of the profit goes into the pockets of opportunistic traders.

This season, rice production in the country has improved significantly. Despite some damage to the aman (monsoon season) rice crop in the southeastern region due to consecutive cyclones and heavy rainfall, bumper yields have been reported in the northern and central regions of the country. Consequently, although the target production of rice for this season, set at one crore and 70 lakh metric tons, may not be fully achieved, it is expected to be at least one crore and 50 lakh metric tons. This accounts for half of our annual food requirements. This positive trend is anticipated to continue until the next April, covering the entire boro (dry season) rice season. Hence, there is no supply crisis for rice in the country. The issue of inflated prices is created by unscrupulous traders.

The government is making various efforts to control the rising prices, but success is elusive. This is because the unholy alliance of politicians, bureaucrats, and businessmen remains intact. Looking at it from one perspective, 67% of the current parliamentarians are businessmen. To ensure their profit margins, they might not be willing to break their self-interest alliance, which plays a role in keeping the prices of essential commodities, including rice, beyond the purchasing power of the common people. Before the elections, was it necessary for them to lower the prices of essential commodities? Now, with the elections approaching, they seem to be taking steps to alleviate the situation. The inflation rate for food prices in this country was above 12% in September-October. Now it has come down to just 9.5%.

Insufficient production, increased production costs, currency depreciation, foreign currency crisis, additional tariff rates, and global high prices are the main causes of high food inflation in our country. Additionally, corruption has contributed to this malaise. It's not limited to the rice sector; we have also identified corruption in the markets for onions, potatoes, edible oil, and sugar. This corruption is hampering our traders. It is high time to rein them in. The new government is currently in power, and it is imperative to seize this opportunity to shift from an unfavorable position of power to working for the benefit of the people.

Ensuring a natural level of rice prices primarily involves increasing rice production. The upcoming Boro season is crucial for rice production in this country, contributing to about 54% of the total rice supply. Recent prolonged cold spells, dense fog, and sporadic rainfall have somewhat hindered the cultivation and transplantation of Boro seedlings. However, the Boro season is generally secure, albeit dependent on irrigation. Sensitivity to chemical fertilizers is notable, and ensuring an adequate supply of these two elements is crucial.

Gas supply issues in Chattogram are impeding the production of fertilizers in factories. A consistent gas supply in that region is necessary. Additionally, the current high price of kerosene poses a challenge. Approximately 65% of irrigation relies on kerosene, emphasizing the need for subsidized kerosene to support farmers. Here, providing direct financial assistance to farmers is more practical than subsidized kerosene.

Many believe that importing rice is necessary to control the high prices of rice. However, in the current fiscal year, cash imports of this staple commodity have not been undertaken. In the previous year, approximately 10 lakh tons of rice were imported, similar to the import figure of the year before. Once again, there might be a need to import around 10 lakh tons. This is crucial for boosting domestic reserves.

To facilitate internal stockpiling growth, it is essential to ensure at least a 25 lakh ton increase. Failing to achieve this target would make it challenging to control rice market prices. Additionally, for effective implementation of open market operations and distribution of subsidized rice to the vulnerable population, an increased quantity of reserves is necessary. If rice procurement from domestic sources is enhanced, it can further elevate the market. Hence, importing rice remains a prudent choice.

Last year, the global average temperature exceeded the pre-industrial era by 1.48 degrees Celsius, surpassing the temperature rise in most industrial sectors. Now, in 2024, it is projected to further increase by 1.5 degrees Celsius due to global warming. This escalation could have significant implications for global food production. International food prices are likely to rise. Before such a situation arises, the country's food stock should be improved to a safe level. This will have a positive impact on overall food inflation.

Many believe that determining the prices of everyday products, including rice, in a free market system is not possible. This is a misconception. Setting prices in the market through supply and demand mechanisms is an optimal approach in the business sector. For domestically produced goods, the basis for price determination should be the production cost. This cost, along with distribution expenses and profit margins, will establish the consumer price.
For imported products, the focus should be on the import cost. Internal costs and the trader's profit margin will be added to determine the consumer price.

Announcements should be made at every level of the supply chain to ensure discipline in the market. This will prevent anyone from arbitrarily raising prices and causing harm to the vulnerable consumers. During periods of high inflation, fees and value additions should be minimized, providing relief to consumers in terms of product prices. Dependence on food imports is increasing in Bangladesh, with 9.3% of total food demand being met through imports in 2010. This reliance has risen to 11.2% in 2022. To counter this trend, special initiatives, especially focusing on the increased production of essential goods such as rice, wheat, potatoes, onions, pulses, and edible oil, may be considered. For this, additional economic support and policy backing should be provided.

Author: Agricultural Economist; Director, Dhaka School of Economics and former Vice-Chancellor, University of Global Village.