Could There Be A Stable Grain Market?

Bad weather augurs ill for crop yield, Making holes in the poor's food shield. Rice grower may become major importer, Making food inflation a serious matter.

After heatwaves flash flood poses challenges to Boro harvest, which has already been started in the haor areas and will take some time to be completed. Heavy downpour could submerge the Boro crop,which accounts large part of our rice production. This year Boro harvest is crucial for Bangladesh as this part of the world is witnessing fury of the climate and El Niño is yet to arrive.

This year government has set a production target for 4.27 million tons.Last year Bangladesh produced 3.92 million tons of rice. Both the import and public procurement of grain declined compared to last year. Food grain stock has also decreased this year,only 1.8 million tons of grains available at govt storage facilities¹. But at the domestic market food inflation shows no sign to abate. A good Boro harvest could give great relief.

Harsh climatic conditions cast shadow over crop production in major producing countries. China is major producer of both rice and wheat. But rice production took a hit due to high temperatures there. El Niño may also make an impact on India's rice production. In addition, grain deal between Russia and Ukraine may discontinue if both the countries do not reach a consensus. In that case, wheat prices in the international market may go up again.

Luckily, both Thailand and Vietnam, two major producers and exporters, have good news in terms of rice production^{2 & 3}. Bangladesh in the past imported rice from these two countries. If they have a good harvest this year, then Bangladesh will import rice from them again. But as China will import grain from these countries because of bad harvest, price may again go up in the international market.

Worrying thing is higher grain prices in international market may worsen the food inflation at home. Govt's monetary policy is not working as inflation is still hovering around double digit figures. Grain price hike will only make the matter worse. Despite good harvest at home,it will increase the social security spending. Government has to increase rice import to check the food price inflation.

I think the best measure is to go for early negotiation with the exporting countries. Securing early commitment from few of these countries at one hand will stabilize the local grain market and will ensure food security for the vulnerable population on the other.

Notes And References

1. ”Major Economic Indicators: Monthly Update”,March 2023.Bangladesh Bank.
2. ”Vietnam’s Rice Export Forecast To Enjoy Another Successful Year”,Vietnam Plus,February 03,2023. For more read at https://en.vietnamplus.vn/vietnams-rice-export-forecast-to-enjoy-another-successful-year/247796.vnp
3. ”Thai Rice Output To Reach Five-Year High”,www.world-grain.com,March 21,2023.For more read https://www.world-grain.com/articles/18264-thai-rice-output-to-reach-five-year-high

Harvest Worry

Flash flood causes harvest worry,
Import must amid production glory.
High wages in haor land,
Asks for support grand.

United State Department Of Agriculture has recently cautioned that Bangladesh may have to import 10.5 million tons of rice, corn and wheat in spite of a record 2% increase in food production. The report particularly highlights that Bangladesh may face impediment in food import due to ongoing war in Ukraine as fertilizer and wheat import from Ukraine and Russia may be hampered¹.

The news has come at a moment when flash flood is causing damage to winter crop(Boro) grown in haor(back swamp turned into cultivable land in dry season).According to Water Development Board, there are 96 haors in the country and flash flood caused by early norwesters already inundated 10 haors. In Sunamganj,3000 hectares of haor land went under water. Luckily,large haors have remained unaffected. Initial estimate put the damage to winter crops somewhere around TK 500 million².

In Sunamganj,Department of Agricultural Extension fears further flash flood as heavy rain forecast in upstream India between April 15 and 17. This year 222,805 hectares of land came under Boro cultivation in Sunamganj and only 5000 hectares have so far been harvested. District officials have made urgent request to complete harvest before further inundation³.

All this effort is to save Boro crop. Why?Last year ,I penned this piece “Rice Stock Woe”. Sharing parts of it again:

Just a year ago Bangladesh was ranked third largest rice producing country in the world by an institution. There is indeed truth in it. This success is largely driven by Boro, which is our biggest crop.Currently Boro harvest is going on.Once it is done we will see slight improvement in government's storing of rice. In 2012, our total foodgrain production was 36.83 million tons of which Boro accounts 18.76 million tons. In 2019, total foodgrain production was 41.57 million tons of which Boro accounts for 19.62 million tons(Source: BER 2019). Boro's share in total food production is always more than 45%⁴.

So any disruption in Boro cultivation and harvest will compound govt’s food worries. Rising foodgrain prices have already pushed millions of people to awkward position. Coarse rice is being sold between TK48 and TK 50. Moreover, rural labor market registered a rise in wages. Laborer demand Tk 800-1000/day.In Harvest time, they charge TK 200 more. But many rural peasants hardly afford the rising cost of labor. So most of the Boro paddy lay in the field. They await mercy of the local administration and politicians. Earlier administration and politicians extended support to marginalized farmers to harvest Boro crop. This time this support is noticeably absent.

Wrapping up with some lines of my piece “Monsoon Rage”⁵,written back in July 2017:

“In their trying time, as the calamity unfolds with all its severity, they find none of their leaders by their side. They looked up and sought mercy of the supreme. Trust, loyalty, love, respect are not written in black and white clauses of a contract. They are tested and cemented as relationship grows. Any act that drives a wedge between people and politicians is tantamount to breach of trust. Peoples’ lost confidence in politicians augurs ill for the future of fragile democracy.”

Notes And References:

1 “Deshe Utpadon Barleo Amdani Korte Hobey Koti Ton Khadya(Despite Increase In Production, Bangladesh May Have To Import Food)”,Iftekhar Mahmud, Daily Prothom Alo(Page-01),April 09,2022.

2 “Haor E Dui Diner Modhey Arekti Dhole'r Shonka(Another Flash Flood Feared In Haor Within Two Days)”,Daily Prothom Alo(Page-03),April 09,2022.

3 “Haorey Dhan Katar Onorodhey Miking(Miking For Requesting Harvest In Haor)”,Daily Prothom Alo(Page-03),April 14,2022.

4 “Rice Stock Woe”,Rezaul Hoque,https://hoquestake.blogspot.com,April 28,2021. For more read at https://hoquestake.blogspot.com/2021/04/rice-stock-woe.html?m=1

5 “Monsoon Rage”, Rezaul Hoque,https://rezaulhoque.WordPress.com, July 16,2017 For more read at https://rezaulhoque.wordpress.com/2017/07/16/monsoon-rage/

La Semaine Dernière A Mes Yeux

(08 avril --- 15 avril)

Selon un reportage, Bangladesh a payé beaucoup pour donner deux vaccins à un ressortissant parmi les pays de Sud-Asie.

Selon un reportage, collision entre deux avions de Biman Bangladesh Airlines a causé dégâts à deux appareils.

Selon un reportage, le gouvernement a fait appel aux agriculteurs de moissonner le riz hivernal qui avait été cultivé dans 222.805 hectares de terrain de haor(lac transformé champ de riz en hiver) à Sunamganj avant de deux grand orages.

Make Good Use Of BPC Subsidy

Falling oil price salvages BPC subsidy,
Retail store sustains consumer activity.
Oil price ushers good news for irrigation,
No evidence of its role in rice price reduction.
Reviving consumer activity and food security
Calls for distribution of spared BPC subsidy.

All-time-low crude oil price extends the spell of profitability for Bangladesh Petroleum Corporation, country’s biggest corporation. Earlier government had provided the much needed fund to subsidize its operation. Higher oil prices made inroads into BPC’s profitability, as evident from the graph. Prior to 2015, BPC regularly incurred loss. Since 2015, it has been treading along the profit-making path. Thanks to oil price less than $70/barrel.

Meanwhile, govt handed out huge subsidy to BPC between 2009 and 2015. The highest was Tk 13557.83 crore in 2013. Back then crude was selling at US$ 108.41/barrel. Since 2015, amount of subsidy has declined to zero. On average govt provided Tk4512.204 crore of subsidy between 2009 and 2015.

Lower oil price relieved the govt from providing huge subsidy to BPC. In the time of pandemic, this is indeed a good news. Salvaged subsidy money could easily be mobilized to help sectors which are in dire conditions. Instead of making frantic requests to other nations for rescuing ailing economy, govt can make good use of this money.

Shops and supermarkets will incur heavy loss, some unsolicited news report says that it will stand at Tk1200 billion, as pandemic lockdowns stall eid shopping activities across Bangladesh. Ramadan and Eid sales jointly account for quarter/half of supermarkets’ annual sales. At the onset of this pandemic, association of shop and grocery owners made frantic plea to govt to give them monetary support. Most of these shops generate employment and act as catalyst to consumerism. Indefinite lockdown makes a dent in their operational expenditure and consumer activity. Many manufacturing and consumer good companies supply them good in the form of credit. Their money also gets locked into coronavirus confinement measures. BPC subsidy money, at least part of it, could be channeled out to help shop owners to meet their operational expenses. The platform of the shop owners could facilitate the distribution of the compensation among the members. Money at the hand of shop owners, in turn, will help clearing the bill of consumer good supplier. So the ecosystem prevailed in the grocery business prior to pandemic will get back into function.

Another sector that can be benefited from the falling oil price and spared BPC subsidy is the agriculture. The winter crop Boro hinges heavily on irrigation. Irrigation consumes lots of fuel. So the irrigation cost will be lower in the wake of lower oil price. By the same token, production cost of urea will be much lower as its key ingredient methane or natural gas is a substitute of crude oil in energy market. LNG prices will be lower in any fall in crude oil price.

However, it is not quite evident whether crude oil price plays any role in influencing the rice price.

I did a little analysis to see whether crude price and Boro production played any role in shaping the price of rice between 2009 and 2018. Data were picked from Bangladesh Economic Review 2018. Durbin-Watson statistic for 10 observations and 2 explanatory variables reported no autocorrelation (d=1.952). Later logarithmic transformation were carried out and regression ran on transformed variables. Result looked like this:

lnRice_t = -44.377-0.17115lnCrude_t+4.950lnBoro_t

(t=-3.62,p=0.008,se=12.20) (t=-1.63,p=0.147,se=0.105) (t=3.94,p=0.005,se=1.254)
(F=8.208, p=0.0146)
where lnRice_t= log natural of coarse rice price at t,
lnCrude_t= log natural of crude oil price at t,
lnBoro_t = log natural of Boro price at t.

Note that crude oil price coefficient turned out to be not significant and negative sign before it calls into question our typical belief.

Boro coefficient, appeared significant in the result, says that holding everything constant a 1% increase in Boro production led to 4.95% increase in coarse price rise in the given period. Well, rice price certainly does not depend on these two variables , there are other factors too. Production of other varieties, food inflation, calamities etc also play a role in shaping price of rice. Inclusion of these variables may yield a meaningful result.

Nevertheless, there will be no denying that part of the saved BPC should also go to provide cash support to the farmers. For instance, the money can be allotted to purchase paddy from farmers at a higher price as part of government’s ongoing rice purchase program. Or it can be used to provide soft agricultural credit. Like the platform of shop owners, agricultural cooperatives can be formed to steer management of the incentive program.

Falling oil price leaves the government some fund, used to give subsidy and finance development expenditure, to cogitate on where to spend them in the time of pandemic. Agriculture and retail stores vie for getting a hold of it. Both are crucial to revive the ecosystem of consumer activity and ensure food security. Instead of swallowing costly bait of foreign credit , govt should make good use of this salvaged subsidy.