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Import duty on rice: Too little too late

  • Published at 02:05 am June 11th, 2018
  • Last updated at 02:38 am June 11th, 2018
File photo of rice sacks stored up in a depot Dhaka Tribune

Since the finance minister announced in his budget speech that an import duty will be imposed on rice, the price of rice in the retail market has gone up by Tk2-3 per kg.

Although market insiders believe that the prices will not go up any further, many say the hike itself is artificial.

A bumper local paddy production and around two million tons of surplus import means that there is plenty of rice to go around.

“The current price hike is normal. Hoarders who invested for last few months, are taking the opportunity by hiking the price,” said Nirod Boron Saha, convener of Noagaon Rice Wholesalers’ Association.

“This will not continue for long. There is a surplus of imported rice in the market,” he added.

Last year, after two natural disasters - advance flash flood in the Haor basins and pest attacks on Boro paddy – struck the rice paddy, the government estimated the production loss to be around two million tons.

As a result, price in the local market hiked from Tk30-32 to Tk42-44 mid last year.

Massive surplus

In response to the price hike and anticipated shortage, the government withdrew the import duty on rice in September.

A floodgate opened as private importers rushed to make use of the break and import as much rice as they could.

As of the last week of May, letters of credit (LC) have been opened for 4.5 million tons of rice import through the private sector - mostly from India, Bangladesh Bank data said.

Food Ministry data said the country has already received around 3.9 million tons of rice through government and private import.

According to Ministry of Agriculture, the country produced 19.2 million tons of rice in the Boro season that ended in May, which is enough to meet demands till the next production cycle of Aman by the end of the year.

“If we deduct last year’s damage of around two million tons from the imported 4.5 million tons, we are left with around 2.5 million tons of surplus rice in the market. So there is no reason for the prices to go up any further,” Nirod Boron added.

An untimely measure

Finance Minister AMA Muhith in his budget speech proposed to re-impose the 28% duty on import of rice from the beginning of 2018-19 fiscal.

“This year, we had a bumper rice production. Thus to protect local farmers, 25% customs duty and 3% regulatory duty have been re-imposed on rice import,” the minister said.

It is unlikely however, that this will have any impact on the farmer’s bottomline.

Nirod Boron said: “Imposing duty will definitely reduce the rate of rice import; it could stop the import altogether. But this will not help the marginalized farmers any more at this moment.”

As an example, he explained, the local price of one maund of medium paddy currently is around Tk780-800, which is about Tk100 less than that of the same time last year. The poor farmers were bound to sell their produce just after the harvest. 

“Only a handful of mid-level rich farmers can hoard their produce, and the rest has to be sold off to middlemen,” he said.

The least that Muhith’s proposal has accomplished, according to business insiders and agriculture analysts, is that it will stem the flow of Indian imported rice into the country.

Dr Quazi Shahabuddin, former director general of Bangladesh Institute of Development Studies, said: “Imposing import duty on rice is an effective instrument to check the rice prices in the local market. At the same time, it ensures fair prices to the growers. Usually the government withdraws import duty on rice when there is a shortage and when there is a surplus , the duty is imposed.”

He welcomed the decision of re-imposing the 28% import duty in the proposed budget, as it was required to stop unnecessary import.

A day after Muhith’s announcement, Indian authorities reduced the export price of rice by $10 per ton. However, this is unlikely to affect imports since this translates to only about Tk0.82 per kg rice, said Nirod Boron.

According to the Directorate General of Food, as of June 5, the government’s food reserve stood at 1.262 million tons of food grains.

Of this, 1.002 million tons was rice and the rest wheat.