Rice in the market

In Bangladesh, marketing of paddy is mostly done by medium and large landowning households. Nearly one-half of the total marketed paddy comes from 13 per cent of rural households (owning 1.0 ha and above). As against this, about 30 per cent of the marketed output comes from about three-fourths of the rural households (owning up to 0.40 ha). From the angle of economic status, solvent rural households that comprise 15 per cent of the total, supply 41 per cent of the marketed paddy.
On the other hand, 'self-sufficient' or 'break-even' households, who constitute 42 per cent of rural households, appear to supply about half of the marketed output. Over time, however, the share of marketed output from both the groups has increased. Finally, the 'poor' segment, which constitutes about 45 per cent of rural households, supplies only 13 per cent of the total marketed output. The policy implication of this precarious position is that we need to keep the price of paddy at a remunerative level to appease the actors in the market. In the same breadth, the impact of that on the poor households should not take a back-seat in our mind.
Unfortunately, empirical information on the level of storage of staple food at household level is scant. The issue of storage stole our attention during the food crisis in 2007 when, belying our belief to an extent, rice prices continued to rise even immediately after the harvest. The question that arose at that time was: did the farmers store more paddy on the heels of price hike? Based on household level information, we observe the following behavioural dynamics as far as storage was concerned.
Taking 2007 as our point of focus, we observe that farmers have considerable stock holding capacity that is hardly taken into account by policymakers and researchers. We also notice that all classes of farmers keep stocks to tide over bad days. Field survey shows that output held in stock was 10 per cent of the output produced before Aman harvest (lean season), and the same percentage of the output of one month after Boro harvest (peak season). Quite expectedly perhaps, the level of stock is related to farm size but in recent years, the equal percentage in peak period is stored by all levels of farm size. For example, large and medium groups keep 22-30 per cent of total harvest as stock against 18-19 per cent by the poor groups. By and large, it is not always true that farmers sell total output immediately after harvest, and how much stock they would keep depends on the expectation about future prices.
One of the most debated issues is harvest or distress sales. It is being hypothesised that harvest/distress sales are signs of economic hardships of households who attempt to dispose of the produce as quickly as possible to pay for debt or meet other exigencies. Close at the heel is the hypothesis that farmers' inability to hold harvested crops deprives them of a better price in future when supply in the market decreases.
We observe that sales within one month of harvest increased from 49 per cent to 63 per cent over time. Interestingly, poor farmers (up to 0.40 ha) have reduced distress sales over time, although in absolute terms, they still sell roughly two-thirds of output immediately after harvest. This can be compared with about 50 per cent of the large and the medium farmers. By and large, the medium and large farms sell a smaller proportion of their crops at harvest time than small and marginal farms, because the former group has higher economic capacity for holding stocks. Or, it may be so that solvent farmers could wait for the fortune from the market-swings. Second, the proportion of output sold at harvest - and for all classes of farmers - has increased over time. This is particularly true for recent years because the price margin for sales later in the season has declined. However, in periods of rising prices, larger farmers would hold more stocks in the expectation of getting better prices.
The important question is: have farmers faced economic losses due to early sales? It appears that as a result of growing market integration, information dissemination and storage costs, harvest sales are less harmful these days than possibly they were before. We note the following reasons in support of this hypothesis:
l The seasonal fluctuations in rice prices came down from 10 to 13 per cent in 1988 to 5.0 to 8.0 per cent in recent years; and
l Holding of stocks has a cost because of (a) high rate of interest, (b) reduction in the weight of the grain, and (c) storage loss, and as such there should not be any incentive to hold on production except for keeping stocks for home consumption.
In examining agricultural prices, we have decomposed the whole period (1988-2007) into two sub-periods, particularly keeping in mind the rise in foodgrain prices in 2007. We notice that the prices of paddy fell almost four times between 2000 and 2014 while it increased at a much slower rate between 1988 and 2000. Obviously, the poor benefited most from the low prices in earlier periods as they appear to spend a large chunk of their incomes on rice, and rice provides most of their calorie needs.
Besides, the other crop for which the price remained relatively depressed is oilseeds due to competition from the low-cost imported oil up to the very beginning of the 21st century but after 2000, price of oilseeds increased four times between 2000 and 2014. Prices of potato increased somewhat at a robust rate over the entire comparable periods, but escalated during 2004 and 2007. However, soaring prices of paddy at about 9 per cent/year during 2000-2014 were translated into higher prices of rice to hit the poor groups below the belt. Finally, we notice that the price of paddy increased at par with prices of other agricultural products in post-2000 period but, the price of paddy still remains relatively lower compared to other commodities. The implications of this in terms of balanced nutrition are well-understood.
The writer, a former Professor of Economics at Jahangirnagar University, is Chair, Department of Economics and Social Science (ESS), BRAC University.
[email protected]/[email protected]