A strange decision to let the private sector import huge amounts of rice despite near self-sufficiency in production has destabilised the staple food grain’s local market.
As a result, with just about two months to go for another Boro harvest, the government is starting yet another bout of popular open market sale (OMS) of rice to clear the stocks.
And the government does not want any publicity.
Over the last few years, the average annual demand for rice in Bangladesh has been around 36.5 million tonnes, Food Ministry data shows. Average production has been there and there about – 36.06 million tonnes in 2014-15 fiscal year.
Theoretically, therefore, the small gap – of around 440,000 tonnes in this case – between demand and production should be met by import.
During the ongoing fiscal year, around 393,000 tonnes of rice have been already imported – mostly from India. Interestingly, letters of credit (L/Cs) have been opened for another 322,000 tonnes of rice, which add up to around 700,000 tonnes.
The quantity alone is not big enough to destabilise the local market. But, what has made the situation a total hodge-podge for the government is the staggering amount of rice – nearly 1.5 million tonnes – that was imported in the previous fiscal year.
A near self-sufficiency means that Bangladesh produces enough rice to feed everyone. Therefore, the huge quantity imported the previous year should theoretically remain unsold. Again people often prefer imported rice over local rice.
Whichever way it is, a huge amount of rice has remained unsold from the previous fiscal year and this is now exerting a pressure on the market.
Add to that an estimated Tk300 crore that the government will have to pay as subsidy for selling rice and flour at reduced prices, sector insiders say.
Local rice merchants had been trying to pursue the government to impose duty to discourage importers. Early last year, months after the proposal was raised from local merchants, the government imposed a 10% duty on rice import. In December, that was increased to 20%.
But by that time, most of the imported rice was either brought into the country or L/Cs were opened.
As a result of the high duty, however, the import of rice has remained low this year.
A stock-take
The government’s current stock of rice is now nearly 1.11 million tonnes. Almost entire of this is the coarse rice made from Boro paddy. At this time one year ago, just before the Boro harvest, the government had a little over 1.13 million tonnes of rice in stock.
So, the scenario of the government’s collection and stock has not changed very much. The government usually uses this stock as security for future events such as major flood, cyclone or drought.
According to Nirod Boron Saha, chairman of the Husking Mill Owners’ Association, the country is headed for yet another bumper harvest of Boro in a couple of months’ time if the weather does not go haywire.
Therefore, an open market sale of rice – in which the government sells stocked rice at a lower-than-market price to help people with low incomes – is a perfectly rational decision at this moment. Because the government needs to clear its stocks to make room for the upcoming bumper Boro harvest.
Earlier this month, the Food Ministry proposed selling 1.5 million tonnes of rice and flour in stock at reduced prices.
Usually, the government goes for massive publicity every time it launches an OMS of rice. So, why does the government not want publicity for an OMS now?
The Aman adversity
Before going to the USA last week, Finance Minister AMA Muhith wrote to Food Minister Quamrul Islam, asking him to stay low profile with this OMS.
The letter that the Dhaka Tribune has seen reads that rice would be sold at Tk15 per kilogram in the OMS. Food Ministry’s latest data from February 18 shows that the lowest market price of coarse rice was Tk24.
For several decades, the Boro paddy has been the biggest contributor to Bangladesh’s near self-sufficiency in food.
Boro is processed to make cheap coarse rice. This, of course, caters to the needs of the lower-middle and lower income people, who comprise a majority of the population.
Aman, on the other hand, is another popular rice but it is a finer and relatively expensive variety. So, naturally, Aman does not feature very prominently in the government’s stock.
According to market experts, the imported Indian rice is slightly better in quality than the coarse rice produced from Boro paddy. So, the imported rice competes with Aman and reduces its price.
Last year, the production of Aman was healthy. This year, the government is yet to release the Aman production figure but producers say the amount has remained almost the same although there has been two moderate floods.
Ministry sources said that the finance minister has probably asked the Food Ministry to not go for broad publicity for the OMS because it might affect the price of Aman, which is already reeling from the competition with imported rice.
So, the Aman growers are likely to be the worst sufferers as their produce may remain unsold because of the excess imported rice in the market coupled with the low OMS price.
“Even the growers of coarse rice will be affected by the low OMS price. Needless to say, Aman growers would also suffer heavily,” said SK Murshid, director general of Bangladesh Institute of Development Studies.
Food Minister Quamrul Islam, however, does not quite agree. He said the fear of a negative impact on the price of rice is not logical. “The low price of OMS will only serve the poorer section of people,” he said.
The way out
Nirod Boron Saha, an influential merchant from the north, the hub of domestic rice supply in the country, said that the market could be stablised if the government starts exporting the excess rice.
Bangladesh usually does not export rice. Last fiscal year, however, around 50,000 tonnes of rice was exported to Sri Lanka experimentally.