Importing foodgrains: Puzzling at first sight

Bangladesh has been importing foodgrains in recent months. And in huge quantities, too. This has come as a surprise to many. It was widely believed that Bangladesh had become nearly self-sufficient in respect of foodgrains. Production of both rice and wheat has maintained a steady rate of growth. Except in years of  severe flood the country did not have to go for sizeable import of foodgrains. Stocks in government godowns have provided credible food security. Import of foodgrains in recent months has, therefore, been puzzling at first sight.
According to published reports, import of foodgrains has surged 95 per cent in the first half of the first half of current fiscal year compared to a year ago. Rice and wheat import rose to 1.86 million tonnes between last July and January 09 from 0.95 million tonnes during the same period last year. Total foodgrain imports till now have already exceeded imports for whole of last fiscal. In fiscal 2012-13 foodgrains imports were 1.88 million tonnes out of which rice comprised 28, 930 thousand tonnes. From July to January 09 this year rice import rose to 0.2 million tonnes whereas it was only 15800 thousand tonnes during the same time last year. Wheat import rose by 77 per cent to 1.66 million tonnes in six months since July 2013.
Imports of foodgrains may be necessary either due to a shortage in production and supply or higher price in domestic market compared to international price. According to market sources, price differences between domestic and international market has been the main cause behind the surge in imports. In the fortnight ending January 10, the wholesale price of rice was US$ 338 a tonne in Kolkata market while it was US$ 434 in Dhaka market, according to the ministry of food. Higher import of foodgrains may be due to shortfall in production, as has been pointed out above. Bangladesh Bureau of Statistics is yet to finalise the total output of Amon rice in the last season. Amon rice accounts for 35 per cent of annual rice production. According to available report scented rice was cultivated on more lands in the last Amon season. This may have caused shortfall in coarse and parboiled rice production. Though final estimate regarding the production of these varieties are yet to be made it can be said that the substitution was not extensive and therefore, could not have caused a drastic fall in Amon production. The recent political turmoil also can not be held responsible for any significant shortfall in the current in Amon rice production as its impact will be more on the current Boro production. While speculative activity by farmers may have some effect on prices, the impact can not be great considering their limited holding capacity.
In the absence of any drastic fall in production of rice and wheat other causes for there higher prices in domestic market have to be explored. One explanation is found in manipulation of the wholesale market by millers, middlemen and traders to depress prices immediately after harvest and build stocks for raising prices later. In a recent editorial the Financial Express (24 January) has pointed out that "what they do is monopoly business of the worst kind." Operation of syndicates and cartels in foodgrains market has been identified as the most important cause for high price in domestic market in recent years. It, therefore, appears that two sets of syndicates are at work in the domestic market of foodgrains. While one is busy manipulating the wholesale market, the other is availing of the price differential between the domestic and international markets. It is quite anomalous because the two syndicates cannot operate profitably at the same time. The price of foodgrains at the retail market has to be more or less uniform sooner or later bringing down prices of locally produced rice or wheat. In spite of manipulation by the two sets of syndicates prices of foodgrains are equalised by the market forces.
Market correction of price differential (between domestic and international markets) however, cannot take place if the higher price in domestic market is due to higher cost of production. It seems this cause is immediately behind the higher price of rice in domestic market in recent months. Reports about farmers forced to pay higher price for fertiliser and seed and higher tariff for diesel/electricity have persisted. Higher cost of these inputs and services are both due to inadequate supply and malpractices by traders and providers of services. The price of all types of fertiliser rose last year increasing the cost of production. Political turmoil alone cannot be held responsible as its duration was not prolonged, at least not during the last Amon season. The distorted market for agricultural inputs and less than efficient service provider have been forcing the prices of inputs and services for a long time leading to increase in cost of production of foodgrains. Disruption in the market caused by political disturbance gives them (traders and service providers) an excuse to ratchet up prices for higher margin of profit or rent-seeking.
Higher price of foodgrains can, therefore, be said to be due to both manipulation by syndicates at the level of wholesale market of foodgrains and distortion of the market for input supply and services provision by traders and service providers. The farmers are at a great disadvantage in this situation because of their weak bargaining position with the traders of foodgraings and sellers of inputs. The benefit of higher price is reaped exclusively by members of syndicates in foodgrains market and traders of inputs.
High prices caused by manipulation of market can be counteracted by import of lower-priced food from international markets. Over time, there will be an equilibrium between domestic and international prices because of competition. But higher prices owing to high cost of production will remain static for some time and then give in to imported lower-priced foodgrains resulting in reduced domestic production. Thus the country will become permanently dependent on imported foodgrains because of price differential. This will run counter to the policy for food security. The government, therefore, has to take all necessary measures immediately to reduce cost of production of foodgrains. There is urgency in this because once farmers switch over to alternative crops, even on a limited scale, the dependence on import will go on increasing.                
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