Tariff and rice import

Bangladesh's rice regime is partly influenced by policies pursued in other countries, especially in next-door neighbour India.  In this context, one can possibly recall that the country benefited hugely from imports of rice by the private sector in 1998. But, in fiscal year 2007-08, following export restrictions imposed by India, it suffered a serious setback. Thus, it is in the fitness of things that Bangladesh keeps a sharp watch on Indian food grains production and export-import trends and policy changes in the interest of farmers and consumers.  
  This year, in the wake of a good harvest of medium quality rice in India and zero import duty on rice from the Bangladesh side, the importers got sufficient incentive to import low-priced product and swell the market with its supplies. Eminent economist Mahabub Hossain has drawn our attention to the adverse ramifications of import in the face of good harvest at home and argued for imposing duty on import.
Rice millers and farmers' organisations have been pleading for imposing duty on rice import from India so that domestic prices remain at par with those of India. But the policy-makers turned a deaf ear to their pleas and failed to read the impacts of import of rice on the economy. This has cost the farmers heavily. Not only the large and medium farmers but also half of small and marginal farmers sell paddy in the market. The traditional notion that it is only the large and medium farmers who lose from low prices of paddy in the market is not correct.
  However,  very recently - and belated though -  the Food Ministry seems to have come to realise the reality on the ground that cheap rice imports from India could be very expensive at this time and decided to impose duty on import of rice. This may stem the rot partially. We are told that the Food Ministry has asked the National Board of Revenue (NBR) to slap duty on rice imports from India as import of rice from there during the last few months has allegedly swelled the Bangladesh market to cause a fall in rice prices. This might have benefited consumers at the cost of the cultivators who may lose incentive to grow rice.
If duty is not imposed on rice import, the consumers could be happy as they would be able to buy cheaper rice but producers, millions of whom are small and marginal farmers, would be hit below the belt.  For example, import cost of an Indian variety of rice called Swarna, also grown in border areas of Bangladesh, stood at Tk.24.50-Tk 25.20 per kg on March 03, 2015 when the price of local rice at that time was Tk.27/kg.
    It should be mentioned here that of late India has turned out to be a major source of rice imports for Bangladesh although the product is also being imported from Thailand, Myanmar, Pakistan and Vietnam.  As far as rice import is concerned, India provides a few advantages over other sources. First is the nearness of India - quick transport from there helps face the shortage of rice during crisis. Second, rice price is relatively lower as the Indian government provides huge subsidy on rice trade. This is unparalleled in contemporary cases of subsidy. For example, in 2001 and 2002, Indian exporters got rice from  government stock at $170 per ton as against production cost of $253/ton.  Rice was then dumped into Bangladesh market. India's food grain stock policy and its ramifications are worth mentioning. In 2001, stock of food in India was 62 million tonnes. J. Derez, a close associate of Amartya Sen, argued that if sacks of 62 million tons of food grains could be piled up one above the other, the distance could be one million km. Travelling such a distance would imply a journey to and from the moon. With a huge stock of food, India has, however, one of the worst records in nutritional deficiency. Finally, India exports boiled rice that is liked by Bangladeshis (except in Chittagong and Sylhet region).
  As per newspaper reports, from July, 2014 to April 7,  2015, rice imports through private channel stood at about 1.3 million tons which is more than three times the total imports in the last fiscal  (3,74,000 tons in fiscal 2013-14).  In fact, the volume is a four-year high. Mainly two reasons could be adduced to the large inflow of rice into Bangladesh: zero duty on imports of rice and higher production of medium-quality rice in India. The ample supply on the heels of increased food grain production at home has resulted in lower prices of rice than last year. On an average, fine, medium and coarse quality rice declined by 2-4 per cent per kg.
Paddy prices have gone down as millers are reluctant to buy. The freshly harvested Boro is reported to be selling at Tk.13 per kg (Tk.500/maund or per 40 kg) when the production cost is Tk.20/kg (Tk. 800 per maund). Imports soared although the latest harvests of Aus, Aman and Boro were relatively good. Production is higher than the domestic food grain requirement of about 30 million tons. Bangladesh produced 34.44 million tons of rice in fiscal 2013-14 up from 30.38 million a year ago (BBS).
The impact of duty imposed on import of rice would depend on the level of duty and its timing. Imposition of duty to restrict rice import has already become late.  A great deal of damage has already been done. In some areas, Boro harvest has begun and farmers are selling paddy. However, in larger parts of the country, harvest and sales on a large scale are yet to begin. Boro is the major rice crop. Its cultivation being very expensive, the farmers need to receive a fair price. Unless imports could be restricted to boost domestic price, the fair price may not reach farmers. Second, the duty level should be such that import becomes unprofitable.  
It is, however, good news that the government has already declared procurement price for Boro rice at Tk.32 per kg which is one taka more from the last season. The government intends to buy one million tons of rice under a four-month scheme starting from May 01 and 1,00,000 tons of paddy at Tk.22 per kg.  Given that rice and paddy production costs are Tk.27.5 per kg and Tk. 20 per kg respectively, the break-even price for Boro paddy stands at Tk. 800 per maund. Bangladesh should adopt market forces very carefully in the case of food grains. Interventions have to be there when market becomes a menace.
The writer is a Professor
of Economics at
Jahangirnagar University.  [email protected]