What can the government do to help our rice farmers?
Our food producers may not have food on their very own plates. There has been a downward pressure on paddy and rice prices owing to surplus production.
As of this Boro season in May, farmers have produced approximately 200 million tons of rice. There are dual forces at play -- those that increase costs of production and those that lower market prices.
According to the Department of Agriculture Marketing (DAM), the average wholesale price of paddy was Tk12.97 per kg as of May 20. The cost of producing a maund (approximately 40kg) is almost Tk1,000 but the market selling price is far below at Tk500-600.
If farmers persistently incur these losses, farmers’ living standards and our overall food security as a nation could be undermined.
Drivers of high cost of production
The production process is plagued with inefficiencies which push up the costs of production. Farmers often require labour assistance, especially during harvesting season.
However, there is then a limited supply of labour available relative to farmers’ demand. Additionally, even if laborers are available, they charge a high wage rate which farmers cannot usually afford.
This has resulted in farmers not being able to harvest crops in a timely manner. The efficiency of the production process could also greatly benefit from mechanization.
Currently, even though 92% of land is prepared using some form of technology, there are other areas that could use further mechanization. Only 3% of the land uses machinery/instruments to incorporate fertilizers.
For transplanting and harvesting, this proportion is lower at 1%. For storage, the usage is 3-4%. Limited use of technology coupled with labour supply problems make it virtually impossible for farmers to operate efficiently.
Drivers of low prices
Simultaneously, there isa downward pressure on prices received by farmers. To safeguard farmers and consumers from price volatility, the government intervenes in the market by buying crops from farmers and create their own reservoirs (“buffer stocks”).
During seasons of high prices/low supply, the government releases their own stocks, increasing supply, thus stabilizing prices. During seasons of low prices/high supply, the government generates demand in the market by buying from farmers, thus driving prices up.
However, this has not been carried out sufficiently in Bangladesh. The volume of production of food products has been 800 million tons. But the reservoir of the Ministry of Food with regards to paddy, rice, and wheat is only 2.1 million tons.
The department of food frequently buys less than the predetermined amount. In the last Boro season, the government was supposed to purchase around 1 million tons of paddy from the farmers. But they ended up buying less than a quarter of that amount.
To make matters worse, our farmers compete with imports. Despite our surplus production, there have been imports of products in a similar category. In FY2017-18, a staggering 4 million tons of rice have been imported.
This creates excess supply and places a further downward pressure on rice prices. The market is also dominated by private traders and millers who have the negotiating power to drive down prices they pay farmers. 40% of the final market price benefits millers and other private sector intermediaries.
On May 22, the National Board of Revenue increased the import duty on rice to create a financial disincentive for importers. The duty was increased from 28% to 55%. While the customs duty was kept constant at 25%, the regulatory duty was raised from 3% to 25%. But this may be too late as a huge volume of rice has already been imported.
Furthermore, there have also been delays in the government’s procurement of paddy and rice. Procurement was supposed to occur on April 25 but actually began later in mid-May.
The government has provided financial assistance to farmers. For the past few years, Tk9000cr has been allotted. Most of these funds are allocated towards fertilizers, diesel, and electricity.
However, the allotted funds have not been completely spent. Sufficient investment and expenditure should be directed towards technological innovation, improving warehouses, storage facilities (egsilos).
Farmers would reap long-term benefits from these steps, as these would further increase efficiency driving down costs. Subsidies may not be an effective tool, as millers (as opposed to growers) may gain advantages. The government directly purchasing crops from farmers seems to be the best way forward.
India’s minimum support price
In India, one of the central agricultural policies is the Minimum Support Price (MSP) which safeguards farmers from price volatility. Prior to the beginning of a season where surplus production is expected, the government determines a specific price.
When the market price falls below that price, the government purchases stocks directly from farmers at the predetermined price. To effectively implement this policy, access to comprehensive data is required -- price targets should be determined for each individual commodity and should also take note of production costs to ensure farmers retain profits.
Technology can also be utilized to predict periods of excess production, giving both farmers and the government the opportunity to react quickly.
Mamun Rashid is a leading economic analyst.