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Food Quality Changes and Implications: Evidence from the Rice Value Chain of Bangladesh

Bart Minten
International Food Policy Research Institute (IFPRI)

K.A.S. Murshid
Bangladesh Institute for Development Studies

Thomas Reardon
Michigan State University, IFPRI, and Renmin University of China

Abstract/ Executive Summary:

In Dhaka, the capital of Bangladesh-one of the poorest countries in Asia, where rice accounts for almost 70 percent of consumers’ caloric intake-the share of the less expensive coarse rice is shown to be rapidly decreasing in rice markets and the quality premium for the fine rice has been consistently on the rise in the last decades. It thus seems that the role of rice as only a cheap staple food is being redefined. The increasing demand for the more expensive varieties is seemingly associated with a more important off-farm food sector—in particular, milling, retailing, and branding-as well as a transformed milling industry. We further find that the labor rewards for growing different rice varieties are not significantly different and that farmers do not benefit directly from consumers’ increased willingness to pay for rice.

Keywords: Food quality changes, Implications, Rice value chain, Bangladesh

Location:

Start Date:

End Date:

Program Area: Socio-economic and Policy

Non-commodity: Performance

Objectives:

We first present some background information on the rice sector in Bangladesh in Section 2. Section 3 describes the data and methodology used. In Section 4, basic descriptive statistics from the primary surveys are presented. Section 5 looks at rice quality downstream in urban retail markets while Section 6 studies it upstream, at the farm level. Section 7 then explores who benefits from the increasing willingness to pay for rice quality in the value chain. We finish with conclusions in Section 8.

Methodology:

The purpose of the study is to understand how quality impacts the rice value chain in Bangladesh from rural areas to the capital, Dhaka, which, along with its metropolitan area, is home to approximately13 million people.7 To get at this information, two types of activities were organized. Interviews were conducted with key informants in the value chain in October 2009. That information was used to design questionnaires for each level in the value chain. These questionnaires were then fielded at the end of 2009 (November and December). The implemented instruments included surveys upstream in the supply chain with rice-producing households and villages, midstream with wholesalers and millers, and downstream with retailers. Upstream in the supply chain, the district of Noagoan was selected to represent rural production areas because it is an important rice-producing district, supplying rice to the capital. The district is located about 200 kilometers north of Dhaka. The village and household survey was set up as follows. The two most important paddy-producing thana (subdistricts) in the district of Noagoan were selected. In each thana, the villages were stratified based on total rice produced in the village. Then five villages from each thana were randomly selected-two from the stratum of high-producing villages, two from the stratum of medium-producing villages, and one from the stratum of low-producing villages. In each selected village, a village questionnaire was implemented and a census of households was conducted to enumerate the paddy producers. The sampling of the rice farmers was done in a two-step process. First, rice farmers were ranked by rice area cultivated from the biggest to the smallest. A cut-off was set when 50% of the total rice area in the village was reached. Second, 11 households were then randomly selected from each group, reflecting their respective share in the rice value chain. 8 Thus, 220 paddy-farming households were selected in total. 9 A survey focusing on rice production and marketing practices was then implemented. Midstream in the supply chain, the wholesaler survey was set up as follows. First, interviews were conducted with village traders and other rural off-wholesale-market traders who buy from households in that village or from other traders (17 in total). Second, 43 traders were interviewed from the local rural wholesale market in the selected district. Third, 30 urban wholesale traders were interviewed in Dhaka, half from each of the two most important rice wholesale markets in the city, Badamtoli and Krishi markets. These traders were randomly selected after a census was done. Also in midstream, a list of all the millers in the district of Noagoan was obtained. A stratified random selection of 20 millers was done (8 with automatic mills, 5 with semiautomatic mills, and 7 with small mills)10 and detailed surveys were conducted, focusing on information related to purchases, sales, and milling patterns. These different technology strata for mills were selected given the presumed importance in the processing of different varieties by the larger mills, which are usually automatic or semiautomatic. For example, Murshid (2011) found that the increasing availability and affordability of better-quality rice in the market has become possible because of the increasing availability and use of modernized mills. Downstream in the supply chain, a retail survey was conducted in Dhaka, covering both traditional and modern retailers. First, five thana were randomly selected in different parts of Dhaka (north, east, west, south, and central). In each thana, a census was done of all retail markets, and two markets were randomly selected. A census of all rice retailers was done for each market, and 12 traders were then randomly selected and interviewed. A total of 120 traditional retailers were thus interviewed. Second, 20 surveys were conducted with modern retailers. In each thana that was selected for the traditional retail survey, a census of modern retail stores was conducted and 4 were randomly selected.11 A price survey was then implemented for both types of retailer.

Source of Information: Selected Paper prepared for presentation at the International Association of Agricultural Economists (IAAE) Triennial Conference, Foz do Iguaçu, Brazil, 18-24 August, 2012.

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Achievement/Findings:

The impact of the changing demand for food quality on food systems in developing countries is not yet well understood. Most of the existing literature has looked at the impact of modern channels (export markets or modern retail) and has mostly focused on their effects on producers or solely on non staple products. In this paper, we look at the case of rice in Bangladesh and study changes in rice quality, based on unique surveys fielded at different levels of the value chain: upstream, midstream, and downstream. While previous research has shown the decline of rice as a staple food in Asian markets (for example, Timmer 2010), little research has been done on quality change within the rice sector itself. Two major findings emerge. First, the share of higher-quality rice (medium and fine) is found in our survey to be rapidly increasing in rice markets. We also find that the price premium for fine rice has been consistently rising over the last decades in Dhaka. These types of rice are sold in traditional urban retail markets at significantly higher prices than the lower-quality coarse rice. The emerging modern retail sells it at even higher prices. It is interesting that we find such a shift towards higher-priced varieties in one of the poorest countries in Asia. Second, the labor rewards for growing high- and low-quality rice are found not to be significantly different. Farmers thus currently do not benefit directly from higher retail prices and from consumers’ increased willingness to pay for rice quality. In a well-functioning agricultural economy, one would expect farmers to be paid for the extra effort to produce quality, but one would expect not to find larger returns on the production of higher-quality versus lower-quality rice if labor effort and non-labor input outlays were similar. The latter seems to be the case in Bangladesh. By contrast, the quality premium is especially captured by the millers and retailers, who, unlike farmers, charge higher margins for fine and common rice relative to coarse rice. The findings point to several implications. First, there is the widespread belief that farmers would be better off if they can produce products that fetch higher prices in retail markets and that measures are needed to assure that fruits of price differentiations are filtering through to the producer (e.g. Fitter and Kaplinksy, 2001). We find price differentiation at the retail level but we do not find that that farmers benefit from growing high-priced retail varieties. Advising farmers to focus on such high-price retail varieties only might thus be misguided. Second, the lack of availability of high-yielding varieties of the highest-quality (fine) rice leads to increased costs in the rice value chain, resulting from the conversion of low paddy quality to high rice quality. Most of the research in Bangladesh has focused on improving yields for the cheapest rice varieties and it seems that failure to focus on a broader set of varieties has led to lower consumer surplus. If higher-yielding varieties of fine rice were more readily available, consumer surplus would be enhanced as varieties would then become available at lower prices for consumers. However, it should be noted that, in the current value chain, such varieties do not lead to higher producer benefits. Third, at odds with the focus of the Asian food security debate on the farm sector per se, midstream (traders; processors) and downstream (retailers) agents play an important role in food price formation and driven by urbanization, the increasing demand for quality and convenience, and the availability of better technologies of milling, their role might further be increasing over time (as shown in our study by the lower share of the farmer in the final retail for high quality compared to low quality rice). However, this off-farm sector is often neglected in food security debates that focus often on the farm only.

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