Courier Asks: Should we get used to a higher rice price?

Wednesday, September 27th, 2017


The great challenge that Bangladesh faces, in particular its government in terms of food policy, is in attaining self-sufficiency and providing production incentives to farmers while at the same time ensuring that food prices remain low and stable.


Rice acts as the most important crop of all in meeting these complex objectives. It accounts for 48 percent of total rural employment, provides two-thirds of the calorie needs of the nation, and contributes to 70 percent of agricultural GDP. More than 13 million farms grow rice covering some 10.5 million hectares, according to the Bangladesh Institute of Development Studies.


At the same time, the price of rice is an extremely sensitive, almost emotive issue. It can foment the seeds of social unrest in a way nothing else can. At the same time, it stands to reason that a higher price regime can increase incomes for millions of farmers. And it was only in 2016 that a paper authored by BIDS director general Dr KAS Murshid and Senior Research Fellow of the Institute Dr Mohammad Yunus, recommended “a cautious move” in the direction of a higher rice price regime.


Titled “Rice Prices and their Relationship to Growth and Development”, the paper was presented by Dr Yunus on the concluding day of the BIDS Almanac in December 2016. Its main policy recommendation was based on the finding that  a 10 percent increase in farmgate/wholesale and retail rice prices would raise real income by 0.11 percent, on average. It also found that given the 10 percent increase in price, average income in Bangladesh would rise by 0.2 percent on average in the long run, and the agricultural wage rate would increase by about 20 percent. Consequently, the poverty rate would fall slightly from 31.5 to 31.23 percent in the long run, the paper stated.


Messrs Murshid and Yunus (2016) also state that higher rice prices would hardly affect the poor, especially in the rural area, as evident from agricultural wage rate and rice price dynamics over time. This is in direct contrast of course, to the CPD and World Bank findings from June that the increased prices were particularly hurting the poorer households.


Therefore, when we asked Dr Yunus how he saw the events of 2017 surrounding the rice price in the context of the policy recommendation in the paper he co-authored, he started his answer with a rather sheepish, “This is much different to what we anticipated…”


To be fair to him, it is. First of all, the paper in question worked with a far more palatable rate of increase, 10 percent, as opposed to the near-doubling in a year, or 40 percent in the space of three months, that we have seen play out. Such drastic numbers clearly lay outside the scope of the paper.


He went on to explain the difference in the scenario the paper foresaw, and what has played out this year, with the principal difference lying in the disruption caused in this year’s rice market by the flashfloods that occurred in April. “Our recommendation was for a controlled move in that direction (a higher price regime) under normal circumstances.”


It’s very easy to see, he says. Bangladesh’s proportion of arable land has been decreasing, while the population continues to grow. Keeping the objective of self-sufficiency in mind, naturally the country’s food production, which overwhelmingly means rice production, must increase. Increasing imports is an option, but time and time again, we have seen whenever the government moves to replenish food stocks through procurement in the international market, prices have gone up steeply.


“In light of these experiences, plus the fact that incomes have increased in Bangladesh to the point that we now claim ourselves to be a (lower) middle-income nation, we recommend incentivising the local farmers to keep growing rice by raising the price that we in the urban areas pay for rice. Otherwise, we may soon see the day when instead of farming, he opts for rickshawpulling,” Dr Yunus explained.


That makes perfect sense of course. Besides, as Dr Yunus further said, if we’re not swayed from buying a shirt that used to cost Tk 500 before for Tk 700 now in the new economic context, we should have no problem buying rice that used to cost Tk 40 per kg earlier for Tk 45 now. As long as the farmer does get the lion’s share of the increase, it’s not right nor wise, to keep the price artificially suppressed.


But he said Tk 45, not Tk 65.

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