Bangladesh Rice Stock Policy

and the International Market

Paul Dorosh

Director

Development Strategy

and Governance Division

IFPRI

Workshop on

Evidence-Based Policy Options

For Food And Nutrition Security

in Bangladesh

1 October 2014, Dhaka

Plan of Presentation• Bangladesh Rice Trade and Stock Regimes: 1994-2014

• Lessons from the 2007/08 world rice price shock

• Conclusions– A judicious combination of public stocks and (private and public

sector) international trade has successfully stabilized rice prices over most of the 2000s.

– Ensuring rice availability and avoiding price spikes in the future will require:

Continued investments in productionModerate national stocks combined with openness to

international trade and Ongoing support to market monitoring and timely

policy analysis.

Bangladesh Rice Import Trade Regimes

Period Trade Regime

Average

Public

Stocks

('000 tons)

Average

Private

Imports

('000 tons) Description

1996/97 Autarky 551 30Abundant harvests keep domestic prices below

import parity

1997/98 - 98/99

Supply shocks;

Private imports

from India 360 1834

Consecutive poor aman harvests raise

domestic prices to import parity (ex:

wholesale India)

1999/00 - 01/02

Autarky / minimal

private imports 593 358

Good harvests keep domestic prices below

import parity (Bangkok and BPL)

2002/03 - 06/07

Private imports

from India (BPL 531 948 Domestic prices track BPL import parity

2007/08

World Rice Price

Shock 472 1681

India bans private rice exports as world prices

rise; domestic prices rise sharply but generally

far below import parity ex: Bangkok

2008/09 - 13/14 Autarky 856 172

Domestic prices above BPL India import parity,

but generally below import parity ex: Bangkok

and Delhi.

Bangladesh: Nominal Rice Prices and Imports2005-2014

0

50

100

150

200

250

300

350

400

0

10

20

30

40

50

60

70

Jan-0

5

Jul-

05

Jan-0

6

Jul-

06

Jan-0

7

Jul-

07

Jan-0

8

Jul-

08

Jan-0

9

Jul-

09

Jan-1

0

Jul-

10

Jan-1

1

Jul-

11

Jan-1

2

Jul-

12

Jan-1

3

Jul-

13

Jan-1

4

Imp

ort

s (t

ho

usa

nd

to

ns)

Pri

ce (

Ta

ka

/kg

)

Private Sector Imports Dhaka Wholesale Price Import Parity(ex: Delhi)

Import Parity (ex: Bangkok) Import Parity (BPL)

Wholesale price

0

50

100

150

200

250

300

350

400

0

10

20

30

40

50

60

70

80

90

Jan-0

5

Jul-

05

Jan-0

6

Jul-

06

Jan-0

7

Jul-

07

Jan-0

8

Jul-

08

Jan-0

9

Jul-

09

Jan-1

0

Jul-

10

Jan-1

1

Jul-

11

Jan-1

2

Jul-

12

Jan-1

3

Jul-

13

Jan-1

4

Imp

ort

s (t

hou

san

d t

on

s)

Pri

ce (

2014)

Tak

a/k

g

Private Sector Imports Dhaka Wholesale Price Import Parity(ex: Delhi)

Import Parity (ex: Bangkok) Import Parity (BPL)

Bangladesh: Real Rice Prices and Imports2005-2014

Trade Liberalization and the Private Sector Rice Import Trade: 1994-2001

• Bangladesh liberalized its import trade in rice in the early 1990s.

• In years of relatively poor harvests in the mid- to late 1990s, import parity prices provided a price ceiling for Bangladesh domestic market prices.

• Following the 1998 flood, private sector imports exceeded 200 thousand tons/month for seven consecutive months, stabilizing domestic prices at import parity (based on India wholesale market prices plus transport and marketing costs).

Price Stabilization through Subsidized Trade2002/3 to 2006/7

• In 2000/01 and again from 2002/03 to 2006/07, Bangladesh prices tracked import parity based on BPL sales prices

– A specific Indian government program existed in 2002/3 for subsidized exports of rice obtained from FCI stocks at BPL prices

– There were no explicit policy statements regarding export subsidies in later years.

– Econometric analysis shows that the co-movement of Bangladesh wholesale and import parity (BPL) prices is statistically significant over the 2003 - 2007 period

The World Price Shock of 2007/08

• In late 2007, world prices of rice and other cereals increased sharply as major exporters cut back export supplies.

• India initially banned private exports of non-basmati rice, but Bangladesh later negotiated a fixed volume of imports at a set price

• Bangladesh private sector imports from August 2007-April 2008 reached were 1.6 mn tons.

• Nonetheless, domestic prices in Bangladesh rose sharply.

Current Trade Regime2008/09 to 2013/14

• Domestic prices remain well above BPL import parity with minimal private sector imports

• Domestic wholesale prices have generally been below import parity ex: Bangkok

– Small scale imports have occurred when domestic prices have neared import parity

– Since late 2008, import parity ex: Bangkok has generally been above import parity ex: Delhi wholesale markets

• Apart from government commercial imports, rice has essentially been a non-traded good in these years.

Implications for Public Stock Policy

• The experience of India’s export trade restrictions and extremely high and volatile international prices suggest the need for larger public rice stocks

• However, public stocks also involve substantial costs (storage losses, other financial costs, risk of possible disruption of private trade and storage)

• Given the uncertainties of trade with India and the international market, how much should public stocks be increased?

Bangladesh: Rice Stocks 2007/08

-400

-200

0

200

400

600

800

1000

tho

usa

nd

to

ns

Net Dom Dist Private Imports Rice Stocks

Simulations: Increased Public Distribution

• In early 2008, public stocks were insufficient to allow much more distribution– End April stocks: rice 220K tons, wheat 120 K tons

• Simulations suggest that an extra 1.1mn tons of net distribution (with ½ month of private stock reduction) reduces the real price rise to only 2-3%

• If private stocks do not increase, an extra 300K tons of net distribution is sufficient to keep prices stable

• Relatively small timely interventions may calm markets and stabilize prices at low cost

Implications for Rice Stocks

• These calculations suggest that ready availability of approximately 1.0 million tons of rice through drawdown of public stocks or imports would enable Bangladesh to handle similar disruptions in the future, provided that private imports can supplement supplies as in 2007/08, as well, (or about 2.0 million tons, otherwise).

• Since 2007/08 the Government of Bangladesh has increased its average rice stocks by 61 percent from an average of 531 thousand tons (2002/03 to 2006/07) to 856 thousand tons (from 2008/09 to 2013/14).

Bangladesh: Rice and Wheat Stocks1996/97 – 2013/14

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

0

200

400

600

800

1000

1200

1400

1600

19

96

/97

19

97

/98

19

98

/99

19

99

/00

20

00

/01

20

01

/02

20

02

/03

20

03

/04

20

04

/05

20

05

/06

20

06

/07

20

07

/08

20

08

/09

20

09

/10

20

10

/11

20

11

/12

20

12

/13

20

13

/14

Ave

rage

Sto

cks

('0

00

to

ns)

Rice Wheat Rice / Total

2008/09-13/14Ave Rice Stocks856K tons

2002/03-06/07Ave Rice Stocks531K tons

Concluding Observations• A judicious combination of public stocks and (private and

public sector) international trade has successfully stabilized rice prices over most of the 2000s.

• Ensuring rice availability and avoiding price spikes in the future will require:

1) Continued investments in production

2) Moderate national stocks combined with openness to international trade and

3) Ongoing support to market monitoring and timely policy analysis.

References

Dorosh, Paul and Shahidur Rashid. 2013. “Trade Subsidies, Export Bans and Price Stabilization: Lessons of Bangladesh – India Rice Trade in the 2000s”, Food Policy 41: 103-111 August. http://www.sciencedirect.com/science/article/pii/S0306919213000523

Dorosh, Paul A. 2001. “Trade Liberalization and National Food Security: Rice Trade between Bangladesh and India”, World Development, 29(4): 673-689.

Dorosh, Paul A. 2009. “Price Stabilization, International Trade and National Cereal Stocks: World Price Shocks and Policy Response in South Asia”, Food Security 1(2):137-149.