Rice Price Hike: Profits devoured by middlemen

The rice market in Bangladesh has been volatile for some time now. Currently, coarse varieties like Swarna and China are being sold at BDT 55-60 per kilogram, medium-grade BRRI Dhan 29 at BDT 61-65, and finer Miniket at BDT 70-75. The premium Nazirshail variety ranges between BDT 75-85 depending on the market, while aromatic rice varieties like Kataribhog are even pricier. This price hike during the peak Aman harvesting season is unusual and suggests that traders are exploiting consumers for undue profit, causing immense hardship to the poor.

This year, the production cost of rice stands at BDT 46 per kilogram. Adding 15% for marketing and profit margins, the retail price of coarse rice should be BDT 53 per kilogram, while finer varieties should not exceed BDT 75 per kilogram. However, current prices far exceed these estimates, leading many to believe that manipulative tactics by traders are at play.

The National Consumer Rights Protection Directorate and law enforcement agencies have conducted market raids, but these efforts have had minimal impact at the retail level. Traders and mill owners are allegedly hoarding paddy, restricting rice supply to the market, and artificially inflating prices. The dominance of corporate houses and large automated rice millers has further exacerbated the situation, with medium and small millers and seasonal traders also contributing to the price manipulation.

Another critical factor is reduced production. Recent floods impacted Aus paddy production, while Aman paddy cultivation was disrupted due to a reduction in arable land and delayed planting, leading to lower yields. This year, combined Aus and Aman production is estimated at 18 million tons, contributing around 46% of total rice production. The earlier Boro harvest yielded 20.6 million tons, bringing the total estimated production for 2024 to 38.6 million tons. Against a demand of 37 million tons, with 10% reserved for stock, the total requirement stands at 40.7 million tons, suggesting limited surplus.

Currently, government reserves hold only 800,000 tons of rice, far below the ideal minimum of 1.25 million tons. While the government has initiated rice imports, reducing import duties to encourage private sector participation, only 141,000 tons had been imported as of January 8, 2024. International price hikes and currency devaluation have made imports costly, with each ton costing approximately USD 500, translating to BDT 61 per kilogram at retail after adding transportation and profit margins. This discourages private importers, further limiting market supply and enabling unscrupulous traders to exploit the situation.

Government rice procurement is ongoing, with 2.63 lakh tons of Aman rice and 9,741 tons of paddy collected as of January 8. However, achieving the target of 650,000 tons of rice seems feasible, while the 350,000-ton paddy collection target is unlikely to be met. Farmers have already sold most of their produce to millers and corporate representatives at prices far below the government-fixed rate of BDT 33 per kilogram for dry paddy. Now, the surplus paddy is concentrated in the hands of large traders and mill owners, who control supply and prices.

Traders argue that higher procurement costs are driving up rice prices, but most millers purchased wet paddy immediately after harvest at BDT 900-1,100 per maund, far below the government rate. Farmers receive little benefit from the inflated rice prices, as profits are monopolized by intermediaries.

Food inflation in November 2023 stood at 13.8%, dropping slightly to 12.92% in December. Factors like natural disasters, increased production costs, currency depreciation, foreign exchange shortages, and global price hikes are driving food inflation. Added to this is market manipulation, which affects not only rice but also onions, potatoes, edible oil, and sugar.

Increasing rice production is crucial to stabilizing prices. The upcoming Boro season, which contributes 54% of the total rice supply, is relatively secure but depends heavily on irrigation and fertilizers. Continuous gas supply to fertilizer factories and subsidies for fuel-dependent irrigation are essential.

While some suggest large-scale rice imports to curb high prices, international factors and production volatility make imports costly. The government should focus on achieving a 2.5-million-ton reserve to ensure market stability and expand subsidized distribution programs for the poor. Additionally, sustainable production of staples like rice, wheat, onions, and edible oil must be prioritized through increased financial support and policy interventions.

Finally, regulating market prices based on production costs and marketing margins is vital. Declared pricing at each distribution level would simplify monitoring and prevent undue exploitation of consumers by unscrupulous traders.

Dr. Jahangir Alam is an agricultural economist, researcher, and educator. He is the former Director General of the Bangladesh Livestock Research Institute and former Vice-Chancellor of the University of Global Village.