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

Food Security Under Scanner

El Niño casts shadow over crop production Worsening further the awful inflation.

Last week Bangladesh Bank divulged that inflation reached 9.33% at the end of March. At the end of December last year, inflation was 8.72%. Clearly, inflationary situation has worsened since the start of this year. Ordinary consumers know this well and everyday they feel the hit of skyrocketing prices of foods and other commodities.

Govt is running a rationing program for the poor through family card targeting 5 million families. Long queue before Trade Corporation of Bangladesh trucks captures the awful condition lower income group endures at the ground.

RMG exports fell short of anticipated target in the last two months and fetched less forex than the corresponding two months of the previous year. This is a bad sign while economy is under IMF prescription. Import has reduced significantly following the contractionary monetary policy.

Moreover, National Board of Revenue has to augment its revenue target as per IMF conditions.Next year it has to achieve Tk 30,000 crore more revenue. But grim situation in export and stalled growth in private sector make it harder to attain. Govt may print more money to meet the revenue shortfall.

On the other hand,The National Ocean and Atmospheric Administration (NOAA) has predicted that this year El Niño may arrive in India by July-August,affecting the rainfall and the Kharif crop in India¹. India is a major rice producer. If El Niño conditions seriously hamper rice production,then rice price will hike in the international market. Though Bangladesh has gradually increased its crop production many times for the last one decade,it hinges heavily on grain import to meet the mismatch in demand and supply and to ensure food security. A crisis in grain supply may lead to increase its spending on food security. Since foreign fund is in short supply ,govt may opt for printing money to meet the extra spending.

Another thing I have recently noticed that this year alone govt has to pay Taka 1 trillion as interest payments. This means it has to compromise spending on other sectors or to print money to meet the debt obligation. As this is an election year,govt may also embark upon politically motivated development projects to unite the loyalists. Often the money may stem from printing more money. This will push up the price level further, depreciating Taka further and increasing the woes of consumers. Officially, govt is following gradual contractionary policy. But three quarters after its introduction ,we have witnessed further rise in price levels. Like hiding of true figure of forex reserve,govt may hide its action of printing and injecting more money into the economy. That will be indeed a disastrous thing.

Notes And References

1. "El Niño Likely To Arrive In India By July-August 2023”,Down To Earth,March 13,2023. For more read at https://m.youtube.com/watch?v=klaPGvfJkJQ&t=14s