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Delinking of Local and International Prices: Exploring Competition in the Bangladesh Rice Market

Dr.Minhaj Mahmud
Bangladesh Institute of Development Studies (BIDS)E-17, Agargaon, Sher-e-Bangla Nagar Dhaka-1207.

Syed Naimul Wadood
Department of Economics, University of Dhaka.

Abstract/ Executive Summary:

This study takes a broader perspective on the issue of recent price divergence between national and international markets in the recent years by looking into local rice markets, its segments, various agents, their incentives as well as their interactions. We also investigate the relationship between local and international prices by employing standard econometric methodology. The study posits that recent price divergences could be explained through local market dynamics better as in the recent years private import of rice were not virtually happening in Bangladesh.

Keywords: Delinking,Local and international prices, Exploring,Rice market

Location:

Start Date: 01-01-2011

End Date: 28-02-2012

Program Area: Socio-economic and Policy

Commodity: Rice

Objectives:

To investigate the relationship between local and international prices by employing standard econometric methodology.

Methodology:

Firstly, primary data were collected using comprehensive enterprise level questionnaires at different segments of markets as well as key-informant interviews from major supply points(Dinajpur, Naogan, Bogra, Kustia and Jessore) and major urban destinations(Chittagong and Dhaka). The survey focused on overall supply chain by studying Growers (the very first node of supply chain), Millers, rice Aratdars (brokers, also known as commission agents), rice Wholesalers and Retailers (the last point of the supply chain from whom customers buy rice). The survey instrument focused on various firm and market specific information, particularly detail of pricing decisions, bargaining issues, by employing open ended questions to a greater extent. We employ both descriptive and regression techniques to analyze survey data. Secondly, monthly price data of various rice varieties were collected from secondary sources to examine trends and volatility of rice prices as well as examining the relationships between local and international prices by employing time series estimation techniques such as co-integration analysis.

Source of Information: Biennial Report-2011-2012, BIDS

Article Link (Online Journal):

Funding Source:

Budget:

Total Budget (Tk.) :

Achievement/Findings:

As observed rice markets contain a large network of intermediaries from the beginning point of the farmer to the end point of the consumer. These intermediaries differ in terms of their respective sizes, roles, objectives, skill and expertise, technical support, constraints, strategies, etc. The intermediaries interact and often bargain with each other, who are striving for securing self-interests. Almost all the contracts within this market are informal, in the form of verbal or mobile phone conversation or hand-written notes. Here, “trust” and “reputation” are important on which the firm invests overtime to operate in this market for long many years. On the other hand, default risk is seen quite high, which is cited as one major cause of exit of firms from the market. Even though the entry cost is not prohibitively high, the issue of default risk, trust and reputation, skill and expertise and correct knowledge of the business partners are very essential to survive and hence these can be considered as steep entry barriers.

Knowledge Management: Report/Proceedings