Structure, Conduct and Performance of the Rice Market and the Impact of Technological Changes in

Milling

1

Institution

Institute of Agribusiness and Development Studies

(IADS) BAU, Mymensingh

Research TeamProfessor Dr. Shankar Kumar Raha- PIProfessor Dr. Md. Monjurul Alam – CIMd. Moniruzzaman – CIDr. M. A. Awal - CI

Objectives of the Research Project

2

1. To provide evidence and provide new evidence on rice market structure, conduct and performance in Bangladesh and

To analyze the impacts of technological changes in the rice milling sector on employment, financial viability of rice mills, market concentration, rice quality, and cost of milling

2. To construct detail estimates of costs and margins for key agents along the rice marketing chain in Bangladesh and

to analyze market integration between domestic and international markets.

3. To suggest policy implications for improving market structure, conduct and performance.

Methodology

3

The study will be conducted by adopting the structure, conduct and performance approach (SCP). This technique was first formalized by Mason (1939) and his detailed case study approach was modified by Bain (1951).

Market structure Market conduct Market performance

Methodology (Contd.)

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Area District Faria Bepari Aratdar cum wholesaler

Miller Aratdar Aratdar cum wholesaler

wholesaler

Wholesaler cum retailer

Retailer Importer

Paddy Milled riceKey agents

Surplus

Dinajpur 15 17 13 20 0 6 5 8 11Rangpur 0 13 16 10 3 7 3 4 13Naogaon 3 27 21 20 1 5 10 0 11Bogra 2 15 6 8 0 2 15 0 7Sherpur 0 1 32 15 4 0 8 2 8Comilla 1 3 3 2 0 0 10 14 1

Deficit

Kushtia 16 2 7 25 0 0 17 4 8Sylhet 0 7 0 2 0 0 11 9 5Khulna 0 2 7 2 6 4 8 9 3Dhaka 0 10 1 2 16 0 10 5 11 2Noakhali 2 4 5 2 0 0 12 6 10Chittagong 0 5 2 2 0 0 20 5 15 3

Total 39 134 112 110 30 24 129 66 103 5

Methodology (Contd.)

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(a) Estimation of market concentration

4 firm concentration ratio, Entropy index, and Gini coefficient.

(b) Financial viability of the mills was assessed by using NPV, IRR, BCR.

(c) Calculation of marketing costs and margins was done by using

standard formula (Kohls and Uhl, 2005)

(d) Market integration Market integration was examined by applying co-integration

method developed by Engle and GrangerData: monthly wholesale price from 1990 to 2011(domestic mkts).

Data: monthly export price of Thailand, Vietnam, and Eastern

India converted into import parity price (1975 to 2011)

Overview of the structure, conduct and performance of rice market in Bangladesh

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Researcher Year FindingsFarruk, M.O.

1970 He labeled the markets as oligopolistic as well as oligopsonistic but close observation of the functioning of this structure in the different markets did not support the prevalence of unethical market conduct.

Islam et al 1987 The net return to all the functionaries in the channels was low due to intense competition. Excessive profit of the functionaries was not found. Capacity utilization of the mills varied from 40% to 65% at the peak period and 20% to 48% in low volume months.

Chowdhury, N.

1992 The market was found atomistic on both sides. The aratdar-cum wholesalers were powerful in the rice market as they handled about 80% -90% of all rice. No excessive concentration was found in rice milling industry.

Rahman, S.M.S.

1998 No collusion among the sellers and buyers were observed but the millers complained about aratdars’ collusive activity.

Siddique, M.A.B.

2010 He found low level of concentration in the rice milling, Identified a no. of requirements for the entry. The millers are price taker not price maker. Performance of the rice milling industry was not good in terms of capacity utilization. Maximum mills are running with decades old machines.

Overview of the structure, conduct and performance of rice market in Bangladesh contd.

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5.4.1Buyer concentration in paddy markets

8

Birg

anj,

Dinajpu

r

Naim

ile B

azar

, Bog

ra

Amba

ri, D

inajpu

r

Chand

ina,

Com

illa

Dhant

ara,

Dha

ka

Trim

ohini,

Naoga

on

Farm

hat,

Dinajpu

r

Ailcha

ra B

azar

, Kus

htia

Dhara

Baz

ar, M

ymen

singh

Kalir

ghat

, Kaz

ir Ba

zar,

Sylhet

0

10

20

30

40

50

60

70

80

90

Markets

4 fir

m c

once

ntra

tion

(%)

Structure, conduct and performance of paddy market in Bangladesh

5.5 Conduct at paddy market -3

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5.4.2 Entry barrier In fact there is no barrier except arrangement of requisite capital

5.4.3 Degree of product differentiation (paddy)No deliberate effort is made to make the paddy differentiated in the market.

No formal system exist for dissemination of market information. Paddy traders collect market information through their own effort.

5.4.4 Distribution of market information

Paddy market is operating smoothly throughout the country; Millers are getting paddy as much they need, though farmers are not

getting reasonable price for their paddy. Farmers’ perspective, paddy market is not running in favour of them.

5.6 Performance of paddy market

Market structure, conduct and performance of rice milling industry

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Measure Seller concentration in rice millsCR4 0.69 %Entropy Index , (E) 3.60 ,Log n =3.66Gini –Coefficient 0.2436

5.7 Dimensions of market structure (4) 5.7.1 Seller concentration in rice mill industry

Lack of utilitiesSkilled

manpowerTough

competition

Sufficient capital

Suitable site

5.7.3 Entry barrier

5.7.2 Degree of product differentiation

5.8.1 Price Policies

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Selling price of rice is set independently Automatic rice mill owners are in better position in negotiation for setting price. In the case of husking and semi-automatic mills buyers are more powerful.

5.8 Market conduct

5.8.2 Product Policy

5.8.3 Policies aimed at coercing rivals

With the changing of milling technology, millers are capable to process rice according their own choice and also to buyer’s choice

Sometimes the millers supply rice with labeling as per direction of trader- buyers.

No evidence of predatory and/or exclusionary tactics adopted by the established firms in rice market.

5.9 Performance-Dimensions

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Capacity utilization of rice mills

Size of selling cost Product quality Progressiveness of the industry Employment position Discrimination by sex

Automatic Semi-automatic Husking48

50

52

54

56

58

56.24

51.78

Rice mill

Cap

aci

ty u

tiliza

tion

(%

) 54.45

Paddy Separator

Colour sorterRice shifter

De-stoner

Modern Rice mill Equipment

Silky polisher

Cone Polisher

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Impact of technological changes in rice milling

Table 6.1: Milling cost and profit by different types of rice mill

14*Without modern equipment**With modern equipment

Type of rice mill

cost of paddy (Tk.)

Milling cost

(Tk./ton of rice)

Totalcost(Tk.)

Return (Tk.) Total return(Tk.)

Profit (Tk.)

Whole rice

recovery %

Rice By-product

Husking 24300 2601 26901 27000 2230 29230 2329 65

Semi-Auto* 25427 2943 28370 28500 2414 30914 2544 66.25

Semi-Auto** 26016 3452 29468 30000 3448 33448 3980 64.75

Auto rice mill* 25177 2563 27740 30000 3478 33478 5738 67.5

Auto rice mill** 26361 3070 29431 32000 3712 35712 6281 66

Impact of technological changes in rice milling

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Type of rice mill

EmploymentLabour,

Tk/ton of paddy

Staff cost, Tk/ton of

paddy

Labour, man-hr/ ton of paddy

Labour, man-

days/yr

Staff, man-hr/to

n of paddy

Staff, man-

days/yr

Husking 403 147 14.17 2232 6.95 1095Semi-Auto 403 168 14.17 2274 9.13 1095Semi-Auto 483 216 15.67 3015 4.50 1460Auto rice mill 100 173

3.20 3120 5.99 5840

Auto rice mill (with modern equipment)

116 101 3.95 5925 4.14 6205

Table 6.2. Employment in different rice mills

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Type of mill IRRNPV(‘000Tk.)

at 10%BCR

(at 10%)Husking rice mill 18.45% 418 1.002Semi-auto rice mill 25.23% 10325 1.046Auto-rice mill 32.54% 117471 1.063

Financial viability of the rice mills

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Rice miller

Aratdar-cum-wholesalerFaria

Farmer

Bepari

Aratdar-cum-wholesaler

Paddy processor

Retailer

Wholesaler-cum-retailerWholesalerAratdar

Consumer

Government procurementGovernment procurement

Procurement centre

Figure 5.1: Typical Marketing Channels of Paddy/ Rice in Bangladesh

18Gross market-

ing marginMarketing cost Net margin

0

200

400

600

800

1000

1200

1400

1600

1800

2000

114.91 66.17 48.74

11170.5 40.5

93.6756.17

37.5

849.98

430.38419.6

27.81

7.8120

216.02

145.1670.86

261.53

144.91

116.62

196.51

31.9164.61

Retailer

Wholesaler cum retailer

Wholesaler

Aratdar(Rice)

Rice mill

Aratdar

Bepari

Faria

Marketing margins of paddy/rice for different actors (for 1 quintal of rice /and equivalent amount of paddy)

Share of different actors in gross marketing margin, marketing cost and net margin

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Gross market-ing margin

Marketing cost

Net margin0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

6.14 6.94 5.35.93 7.4

4.41

5.015.89

4.08

45.445.2

45.7

1.490.82000000000

00012.18

11.515.2

7.71

14

15.2

12.7

10.53.35

17.92 Retailer

Wholesaler cum retailer

Wholesaler

Aratdar(Rice)

Rice mill

Aratdar

Bepari

Faria

20Map 6.1: Extent of rice surplus and deficit at district level in 2010

in 2010

Integration of Rice market

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All the 12 districts rice markets found integrated This study strongly supports marketing efficiency in the selected

rice markets.The results of the strong forms of market integration indicate

strong form of market integration in all the rice markets Govt. price policy of rice will be effective in rice market. Rice market of Bangladesh , Eastern India, Vietnam and Thailand

found integrated The strong form of market integration does not support Eastern

India-Thailand, Vietnam-Eastern India, Eastern India-Bangladesh and rest of markets support strong form of market integration.

Policy options

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Formation of farmers’ marketing cooperative / group

Dissemination of paddy prices of different important

markets (by cell phone, display board at market places).

Provision of credit facilities for the farmers and paddy

traders.

Husking mills should either be closed or modernized.

Profitable cases should be financed .

Labeling on the bag of rice should be mandatory.

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Needs investigation of the nutritional aspects of milled rice after extracting bran to ensure the quality of rice.

Ensure regular and undisrupted power supply to rice mills

Vocational training programme helps to produce qualified personnel for operating automatic rice mills.

Govt. should develop a complete and accurate data base on rice mills and market intermediaries

Policy options contd.

Thank You for

Patience Hearing

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