The 'price' of high rice prices

That soaring rice prices are hitting households below the belt is not a secret in a market economy and a society with media independence. Media independence has both a good and a bad side -- depending on how one looks at it. It is good because it keeps a government awake and updated so that riots and rumours do not cost popularity of the government. That is why it is said that democratic societies with press freedom rarely face famines.
The bad side is that some governments, especially autocratic, feel embarrassed by the "horror" news and consider it to be a conspiracy of the opponents. I feel that the present government will take the reports as wake-up calls in a country where rice prices determine politics. The high price of onions and its impact on state election results in India may be recalled. Rice has a price in the market, but its soaring trend with reduced accessibility might force a government to pay heavy price in terms of popularity.
Rice and reality
Rice is not only a staple food for Bangladeshis; it is also a strategic commodity. In economic jargon, the demand is inelastic for the poor segment of the population. Hence, they have to spend upto 60-70 percent of their income on rice alone. In a country where rice is a source of calories for survival, the poor people's coarse rice is reportedly selling at Tk.32-33/kg. The price of food-grains seems to have escalated by 30 percent in the last one month and 70 per cent in the last one year. Food prices have affected the overall inflation rate, driving it to double-digit level.
That means, a rickshaw puller earning Tk.100/day, and with a family of six, can buy just three kilograms of rice (the required amount), but nothing would be left for vegetables or for non-food expenses; or else, the poor puller could reduce the consumption of rice by one kilo to meet other expenses. The said household might have to withdraw children from education. Reducing consumption would mean that the next day his earning may not be Tk.100, as calorie deficiency might make him weak and force him to return home after few hours of driving.
However, in some places, rise in nominal wage on the heels of increased demand for labour may provide some solace to the labour class. The fixed low-income groups are worst hit. Middle-income groups -- the major vote bank -- also suffer, but a wage hike might heal their wounds temporarily.
Another factor should also be noted. Two-thirds of rural households are net buyers of rice in the market, while only one-third are net sellers. Again, 14 percent of rural households supply 80 percent of the surplus in the market, and a remunerative price for them is also a candidate for due attention. Bangladesh's rice policy is thus faced with conflicting policy choices: keeping rice prices low for the majority and high for the minority who supply the bulk to the market.
Rising prices of rice in Bangladesh is the talk of the dining tables and tea stalls. As I presume, it is also the talk of our advisers sitting there with the responsibility of feeding people at an affordable price. Surely, the government does have a role to play in stabilising prices, and any statement counter to that it is destabilising for the market and damaging for the government.
Worldwide woes
Let me say that rising food prices are a worldwide reality, with prices of several different staple food stuffs reaching a record levels. The rising price of oil (now $100/barrel) may fuel the flame by raising farming costs and higher shipping costs in the equation. Climate change could also have an adverse impact. An official of FAO says: "Rarely has the world felt such a widespread and commonly shared concern about food price inflation, a fear which is fueling debates about the future direction of agriculture commodity prices in importing and exporting countries."
Role of government
The government has a positive role to play in this crisis. It should wake up to soaring rice prices. But how? Policies must be chalked out with an eye on immediate, medium-term and long-term needs. The immediate steps should be geared to avert food deficit till the boro harvest reaches home. That should lead to the following.
First, import rice even at higher price. Bangladesh has the reserves to do that. The imports should be immediate and well monitored. Second, immediately open OMS and extend the operation beyond the paurashavas. Third, continue the VGF operations. Fourth, let the market take care of fertiliser distribution, but with "watch-dogs" set by the government to oversee it. Remember, farmers are concerned more with timely availability of inputs rather than with rise in input price (unless it is abnormal). Fifth, request donors to supply food as aid, instead of cash.
On the other hand, the long-term solutions have to do with climate change and cropping patterns, technological breakthrough in, and infrastructure for, non-rice crops, technologies for backward agro-ecological regions, changing dietary diversity etc. But more important is living in the short-run. In the long run we all are dead!
Abdul Bayes is a Professor of Economics at Jahangirnagar University.