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Does Government Intervention Matter? Revisiting Recent Rice Price Increases in Bangladesh

Manoj Misra
University of Alberta, Edmonton, Canada

Abstract/ Executive Summary:

The specter of food crisis is haunting the world again in 2011. This comes after a short period of decline in food prices since they peaked in the summer of 2008. The addition of seven point five million people during the 2007-08 food crisis with the estimated food insecure population of sixty-five point three million in Bangladesh (FAO/WFP 2008) underlines the magnitude of food insecurity in the country. In this article it trace the volatility in Bangladesh’s rice market since the 2007-8 food crisis in terms of the country’s deregulation of agricultural sector and the gradual elimination of market regulatory mechanisms. It demonstrate that despite Bangladesh’s relatively minor dependence on the international rice market and a steady domestic supply, the lack of strong government regulation and monitoring of the market resulted in irrational rice-price increases. It argue that the alleged connections between the domestic and the international rice markets are largely hypothetical, and therefore the domestic price increases must be analyzed in terms of internal management of the market. The methodology of this article involves critical review of literature and data collected from secondary sources. Referring to Stiglitz, it conclude that the Bangladesh rice market is far from developed and thus warrants a strong regulatory regime.

Keywords: Bangladesh, Commercialization of agriculture, Rice price, Market regulation, Food security, National policy, Global food crisis

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Program Area: Socio-economic and Policy

Non-commodity: Impact

Objectives:

The objective of this article was not to analyze the specific factors that caused the price fluctuations in Bangladesh, although this would be a fascinating study. Within the limited scope of this article, it attempted to draw attention to the importance of market regulation given the possibility of distortions caused by individual or organized agents.

Methodology:

In this review paper, discussed details on the following sub titles- 1. Introduction, 2. Theoretical Framework, 3. A Review of National Policies, 4. The 1999 National Agriculture Policy (NAP), 5. The Bangladesh PRSPs, 6. The Bangladesh 2006 National Food Policy, 7. The Crisis That Wasn’t There, 8. Domestic Rice Scenario, 9. Rice Import Scenario, 10. Fuel Price Scenario and 11. Conclusion.

Source of Information: PGDT 11 (2012) 112-130

Article Link (Online Journal):

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Achievement/Findings:

From the above discussion, it is abundantly clear that during the global food crisis and afterwards there was neither substantial supply shortages nor was the volume of imports so high that it could significantly impact rice prices in the domestic market. The analysis of fuel prices also suggests that the extent of rice-price increases were incompatible with that of the fuel price hikes. The continued trend of high prices amid abundant domestic supplies of rice must serve as a wakeup call that a proper analysis of the price instability must adopt a holistic approach. Bangladesh government’s policies of “non-distortionary food grain market intervention” (Bangladesh 2006) measures consisting of price incentives and building up public stock of food grains have repeatedly been proven ineffective in arresting price fluctuations. Food security is too big an issue to be left with the market alone. In the quest for commercialization of the agricultural sector, the state became too reluctant to properly monitor the market and thus was in no position to control the prices when the crisis hit. As macro-economic theory suggests, market forces may drive down the cost of essential commodities at a justifiable level in the long run, but there needs to be a short term solution in place to protect the poor from periodic fluctuations. The existence of price-controlling syndicates as admitted by the state itself makes it even more compelling for the state to actively regulate the market. The presence of an Agricultural Price Commission, as envisaged in the National Food Policy might have been helpful in alleviating the situation. The phenomenon of sustained high prices of rice is unforeseen in the relatively short history of Bangladesh. In a developing economy like that of Bangladesh’s, where the flow of information is highly skewed and imperfect, and where market distorting elements are ever present, the absence of government monitoring and regulation means opportunities for easy profits. The invisible hand of the market functions to deliver maximum profits to those who are already in advantageous positions. Ensuring public welfare is the primary mandate of the state and for that matter it must regulate the market so that the drive for profit does not come at the expense of public good. As Stiglitz argues, it is the duty of the state to make the market work. The invisible hand of the market is a pure myth, which needs to be demystified and put into context.

Knowledge Management: Journal