Mamun Rashid is the managing director and country officer of Citibank NA, Bangladesh. With a banking career spanning over 20 years he has served many senior positions in treasury, institutional banking, debt restructuring & recoveries and corporate banking in three leading multinational banks at home and abroad. Rashid is also the chairman of International Chamber of Commerce (ICC) standing committee on Banking Techniques and Practice for Bangladesh.

The Daily Star has talked to Rashid to get his views on the country's commodity prices.

Excerpts:
DS: You know the prices of essential commodities such as rice and soybeans have been rising in the local market for the last couple of years. Why? Is it due to soaring prices in the international commodity markets or alleged 'syndication' by local traders?
MR: If we take a look at the international commodity market benchmarks like Chicago Board of Trade (CBOT) Rough Rice and Chicago Board Of Trade (CBOT) Soybean, we will see both the indices have risen by almost 50 percent in the last one year. Whereas in the local market price of rice has gone up by 60 percent and price of soybean has almost doubled. Hence, we cannot say the local price increase can be fully explained by international commodity price increase. Even though the freight charges have gone up significantly, all these figures indicate local market is most probably going through a supply shortage. Otherwise, the price of the two markets would have converged as per the general economic theory.

DS: What will be the impact of soaring petroleum prices on commodity market?
MR: Oil prices have gone up by more than 30 percent in the last 5 months. We are paying more foreign currency to import the same volume of oil due to increased prices. This increase in oil price has not been passed on to the consumers; rather the government, in the form of subsidy, has absorbed it. How long and how much price increase the government would absorb that remains a pertinent question, given the high amount of debt papers being issued to the financial market to fund Bangladesh Petroleum Corporation's balance sheet. However, prices have started to come down recently it has already dropped to $ 88 per barrel from a high of $100, mostly due to US recession expectation among the market participants. Even though many economists are talking about $75 level for oil price, I think it's too early to say. If US economy goes through a “V” shaped recovery because of the aggressive rate cut and giant fiscal stimulus package, we will not have to wait a long time to see the oil price rising again. Increase in fuel price, will of course keep on affecting shipment cost, as well as, domestic movements of commodities and thereby commodity prices.

DS: It is said that Bangladesh has become vulnerable to the steady rise in commodity prices on global market. Why? Do the governments lack policies to attain food autarky?
MR: If there is a hike in commodity prices, importing countries like Bangladesh will always experience a rise in price in the local market. However, comprehensive and robust policies can help us to keep the price hikes at a minimum level. If we can ensure timely and adequate import of food grains, price hikes, which are not related to international commodity price jumps, can be eliminated to a greater extent. But it is always easy to say than do decisions by major producer countries to curb or even to stop exporting commodities have made consistent sourcing of the commodities very difficult now-a-days. In such context, we definitely need to put up more effort to diversify our import sources along with a movement towards a proactive approach based on commodity price forecasts/ harvesting.

DS: The government has recently appointed joint forces to keep the price hike of essentials under control. But economists are opposed to the move, saying it is a wrong decision. Do you endorse the economists' view?
MR: Such actions can sometimes douse the noise in the local market. However, if there is a genuine shortage of supply in the local market price hikes would happen anyway. Economists who are opposing the actions by joint forces are more concerned with later scenario. My view is we need to be vigilant all the time in the local market, as well as, with the international commodity market. Any irregular price movement in the local market must be addressed. Side by side, we need to take a more proactive and comprehensive approach to tackle the international commodity price hikes which I have said earlier.

DS: We are aware that increased demand for soybean to produce bio-fuel is pushing soybean prices high on the global market. Where might the prices of soybean end up in near future?
MR: Modern research has led to a remarkable variety of uses of the soybean. Soybean oil can be processed into margarine, shortening, and vegetarian cheeses. This oil is used as an ingredient in paints, adhesives, fertilizers, sizing for cloth, linoleum backing, insect sprays, and fire extinguisher fluids, among other products. Soybean meal serves as a high-protein meat substitute in many food products, including baby foods, and can be imparted with a meat like texture for increasing the cooked yield of such products as ground meat and bologna. Apart from all the new uses, soybean oil still constitutes about half of global edible vegetable oil production. Increased consumption has made CBOT Soybean futures to soar by more than 70 percent in the last one year. Currently CBOT Soybean futures contracts are trading higher. I would not at all be amazed to see it trading at much higher ranges by the end of this year.

DS: Govt says it is having problems in procuring food grain from the international market because traditional exporters such as China have stopped exporting food grains, such as rice. What is your prediction about future price of rice in the international market?
MR: Economists around the world are talking about US recession. Recession fears have dragged down the prices of commodities which have industrial use. But, commodities like food grain, which are very inelastic in nature, will experience gradual price increase even if there is modest level of US recession.

DS: Will the appreciation of taka help Bangladesh bring down prices of major imported food grains such as rice, soybean and pulses?
MR: Appreciation of taka would reduce the local currency costs of importing commodity. But commodity market price exhibits more volatility than foreign exchange rates. So we cannot expect the price hike in international commodity price to get fully offset by even a significant appreciation of taka. Appreciation of taka will also have a negative impact on exporters and remitters, which will have a negative impact on the purchasing capacity and supply of dollars.

DS: Do you have any suggestions to keep commodity prices lower in the local market? How can Bangladesh come out of the soaring prices that has already affected majority of the population of which 40 percent or 5.6 crore are poor?
MR: I have already talked about the policy measures that need to be taken to counter the global scenario of commodity price hikes. We also need to think about the commodity hedges available through different financial institutions and commodity exchanges. These hedges, which have been in existence in the developed market for years, have already started to become very popular in our neighboring markets in India, Pakistan and Sri Lanka. Modern financial instruments now offer hedges even against the rising freight prices for commodities. Our regulators, financial organizations and importers need to work together to bring and popularize these products in Bangladesh.