Remove barriers in supply chain to stabilise rice market

Price of staple food rice has been rising since the first week of April this year, triggered by crop damage for flood in haor areas. And retail prices of the coarse grain, consumed mainly by low and fixed income people, shot up to Tk 54 per kilogramme, the highest ever in the history of Bangladesh.

The soaring prices have hit the poor and low income people. To contain the spiral, the government took several measures including import duty withdrawal and importing through the Directorate General of Food. Recently, the government also started anti-hoarding drives.

The Daily Star (TDS) recently talked to Citta Majumder, managing director of Majumder Group of Industries, on the rice market. The group runs two automatic rice mills with 44 tonnes of combined milling capacity per hour. It is also active in importing rice from India.

Sohel Parvez, a senior reporter of The Daily Star, took the interview.

TDS: Rice market has suddenly become unstable recently. In your opinion, what are the reasons behind it?

Majumder: The demand supply mismatch is the main reason behind the price spiral. Prices rise when supply falls. And the market only declines when supply increases.

Rice production in the boro season fell owing to flood in haors, excessive rainfall and blast attack on boro, the biggest rice crop. The problem began to deepen after prices of newly harvested boro paddy began to rise.

Because of high prices of paddy, expenditure at mills went up to Tk 38-40 per kilogramme, which was higher than the government's procurement prices.

We, from our association, urged the government for slashing import duty on rice to increase supply and achieve procurement target. Otherwise, procurement target cannot be achieved. But the government did not pay heed to our appeal.

As a result, the government failed to reach its procurement target and the effect can be seen in the market now: a rush of people to buy rice.

The demand was so high that people did not bother about the quality of rice. We have seen new customers, whom we did not see in the past. From the demand, we realised that there was a huge deficit of rice this year.

After the government slashed duty substantially, prices of rice were supposed to fall. Local importers usually buy from India's Bardhaman and Arambagh as the quality of rice there is similar to rice grown in our north.

After duty cuts, local importers rushed to Bardhaman and Arambagh in India to buy rice at any cost. As a result, prices shot up to Rs 3,050 per quintal, which was Rs 2,300-2,400 before Eid-ul-Azha. Rs 1 is equivalent to Tk 1.26.

Initially, we sold rice at Tk 36.5 per kilogramme and then had to sell at Tk 40-41 per kilogramme because of increased costs. Then prices went up further.

The biggest damage was done after panic spread fast because of fake news on rice export ban by India. The extent of panic was such that people feared there might not be any rice in the future.

We saw the spread of such panic during the tenure of a caretaker government when rice prices rose to Tk 32 per kilogramme from Tk 22-24.

What I feel is that the shortage originated from various factors -- slump in import due to the imposition of 28 percent import duty, dwindling carry-over stock and crop losses for flood and excessive rainfall. Now it has become a very big problem.

TDS: There are allegations that a section of traders made hefty profits cashing in on the fake news on rice export ban by India.

Majumder: This may happen, nothing is impossible. This cannot be denied that there are both fair traders and profiteers in the market. But not all are the same. Some bought in much higher quantities than their requirements and stocked warehouses on expectation of further spike in prices.

TDS: Rice prices have come down after the government's meeting with millers. Is it going to be sustainable?

Majumder: Prices surged Tk 3-5 per kilogramme at importers' level, although there was no logical ground. Prices shot up because of panic. 

The recent drive by the government also had an impact on prices. But the decline may not sustain if we cannot ensure adequate supply in the market.

The government has to increase supply of the staple through imports to bring stability in the market.

TDS: Although you millers say there is a shortage, the government said there is one crore tonnes of rice in stock. What do you say about that?

Majumder: I have no idea. But the maximum amount of stock would be of fine varieties of paddy -- BR-28, BR-29 -- and large millers release these fine varieties slowly until summer when these varieties are harvested again. They do this to keep their business running. But there is a shortage of coarse grains which were mainly harvested nine months ago.

Cultivation of coarse grain, such as swarna and hybrid, has also declined. Import is the main source of coarse rice.

TDS: It is said that large rice millers and importers have stocked rice and they control the market. How many big rice millers operate in the market?

Majumder: It is estimated that there are about 400 semi-automatic and fully automatic rice mills in the country. Of that, there might be 50-60 large mills.

These mills have brands and they have to keep supply chain of these brands intact by ensuring regular supply to the market.

TDS: There are allegations that millers and traders are hiking prices artificially by hoarding paddy and rice.

Majumder: From my past experience, there was a shortage of rice during the tenure of the BNP-led government after 1991 election. The then commerce minister sat with us on several occasions. There were allegations of syndication and profiteering by importers. Such allegations also came in successive periods.

The truth is crop production falls when there is a natural disaster. As a result, supply declines leading to a price spiral.

TDS: Do you mean that there is no effect of hoarding on rice price?  

Majumder: Hoarding had occurred in the past. This is also present now and will be in the future. There are some people who stock to profit from sales later. But I personally think this does not influence the market too much.

On this point, let me tell you that we had to sell swarna rice at Tk 22 per kilogramme whereas it cost us Tk 32 each kilogramme. We hoarded the grains for eight months to raise its price, but we failed. Our capital just halved. The year 2014-15 was a 'black year' for us and our existence was at stake. All suffered because of the fall in prices. At that time, supply was higher than demand. Now, supply is low but demand is high.

TDS: What can the government do to bring down the prices of rice?

Majumder: The media should not report anything that prompts people to panic and rush to buy rice. I do not see anything to panic given the current stock in the country and imports in the pipeline.

To stabilise the market we have to increase supply. And bottlenecks in the supply chain should be eliminated. Railway should be given priority to import rice from India and foodgrains should be given priority among other import items.

Overall, supply has to be increased and problems in the supply chain should be removed. Creating panic or fear would not bring any good. This rather does the opposite.