Why is rice import so imperative?

Nazim Iqbal | Published: February 23, 2018 20:48:18 | Updated: February 23, 2018 20:51:20

The US Department of Agriculture (USDA) in a report recently raised its forecast on Bangladesh's rice import to 3.4 million tonnes in 2017-18, which is more than double its earlier prediction of 1.6 million tonnes in November last year. In tandem with this forecast, rice imports are on course for a 32-year high this fiscal year on the back of huge demand from private traders for high prices in the local market. As of February 9, imports of the grain stood at 2.8 million tonnes in contrast with 0.13 million tonnes brought into the country in the fiscal 2016-17, according to data from the food ministry. Of the amount, private traders brought in 2.12 million tonnes and the government 0.76 million tonnes. The last time higher quantities of rice were imported was back in the fiscal year 1998-99, when 3.0 million tonnes arrived from abroad. And as of January 27 this year, letters of credit were opened to import 3.75 million tonnes of rice.

Since our independence in 1971, we have been facing a trade deficit. Such a bulk import of rice exacerbates the trade deficit even further. But the massive amount of import, especially rice import, is not as bad as it seems. In fact, it was necessary to import rice for proper functioning of Bangladesh's economy. Had the rice not been imported, our economy could be under the cosh. The pressure could hit society and politics as well. Different aspects and major reasons in favour of rice import are highlighted here.

First we will discuss the reason of import. Then we will discuss the ways rice was imported. Finally we will discuss the consequences if rice was not imported in bulk.

For some years we were self-sufficient in food production and the price of rice was at least within the reach of masses. But our economy is witnessing a shortage of rice supply and a sharp increase and instability in rice prices in the last one year. The instability and increase in rice prices left a serious impact on the life of lower income and lower-middle income people. A large quantity of the staple food was imported mainly to tackle the shortage of rice and increase of rice prices. It is a common economic reality that when the supply force is less than the demand force, there will be an increase in prices.

There are reasons for less supply of rice. Six districts in the haor region, which were hit hard by floods and excessive rain doing damage to 2.0 million (20 lakh) tones of boro crop in 2017 created the sudden shortfall. Besides we also lost a significant portion of boro rice to fungal attack (rice blast) in 19 districts. These have hit the supply of rice in the market and eventually led to the rise in prices of staple food.

Unfortunately, there were also low stocks of rice in government silos. Although the government tried to increase stocks buying from local millers, apparently the latter were reluctant to sell at the government-fixed price. Simply, the reason was that local millers were able to sell at higher prices.

There was also a decline in aman crops due to delayed cultivation caused by recurrent floods which affected seedlings and plantations in the primary stages in the northern region of the country. Heavy rainfall and winds damaged the growth of aman crops. These factors had an adverse impact on aman production. As a result, the supply of rice was seriously disrupted.

Another reason for weak supply of aman rice was farmers' reluctance to release all their production at a time. Rather, they supplied aman crop gradually.

Farmers are not getting the expected rice yield from their fields. As a result, the return is falling. According to International Food Policy Research Institute (IFPRI), in five years (2012-16) rice production growth was 0.7 per cent whereas in the previous five years rice production growth was 4.8 per cent.

About 1.1 million Rohingyas, who fled from Myanmar and took shelter in Bangladesh exacerbated the rice crisis and price increase in market, according to United Nation's Food and Agricultural Organisation (FAO).

The public and private sectors imported a large amount of rice from India, Myanmar, Vietnam and other countries to tackle the shortage of rice. Thus the import of rice increases the supply. The government intervened in the market with the operation of Open Market Sale (OMS) that gives an opportunity to many low income people to get access to a sufficient amount of the staple food to their need.

The government did not only import rice, but also bought from private importers. To give incentives to private importers, the government cut tariffs very significantly.

Private importers are still importing rice as there is a price gap between the domestic and international markets.

The large-scale rice import was done not only to stabilise the market but also to prevent the serious consequences of increase in rice prices.

Though the price of rice is still high, it might not be under control, if we did not import rice. It would happen because of weak supply force against a strong demand among about 160 million consumers. Demand for rice is always high as rice is the main food of our country. Rice is part and parcel of our food habit. So demand for rice is highly inelastic. Inelastic demand means the change in quantity demanded is lower than the change in price. The quantity demanded does not fall too much due to an increase in price. So the increase in price of rice affects us widely.

A major reason for import was to control the inflation rate, as a big portion of our consumption expenditure depends on the rice. Rice is a staple food item in Bangladesh and therefore plays an important role in determining inflation.

According to the latest Monetary Policy Statement (January-June 2018), the inflation rate will be around 5.7-6.0 per cent in June, 2018. A moderate inflation rate is necessary for a good functioning economy but any further domestic or external shocks will drive up the inflation rate. A higher inflation rate deteriorates the economy just as its counterpart unemployment hampers economic growth. So inflation is needed to be controlled.

To control the inflation rate, the price of rice needs to be controlled. The rice price is linked to the supply. To increase the supply, import of rice was necessary.

Uncontrolled increase in prices of rice has some effects on income. For many lower income and lower-middle income people the staple food cut a major portion of their income. Their standard of living falls even more when the rice price increases.

However, to cool the market, import was the only option left.

According to the state-run Trading Corporation of Bangladesh (TCB), there was an overall 21 per cent increase in the price of rice in 2017. As a result, many people fell below the poverty line. According to Dhaka-based South Asian Network on Economic Modelling (SANEM), a total of 520,000 people became poor only because of sharp increase in prices of rice.

The government has taken an initiative for launching Open Market Sale (OMS) for lower and lower-middle income people. To control the rice market, it is also needed to increase the supply and import is the only option.

Import of the staple food has broken two decades' record questioning food self-sufficiency of our country.

In such a case, OMS is an appreciable move which can help ensure reasonable prices for the commoners.

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