Productivity and Efficiency of Rice Mills in Bangladesh: Economic, Social and Food Security Implications

Research Report prepared for IFPRI under the Policy

Research and Strategy Support Program (PRSSP)

The research was performed by M Asaduzzaman, Nazneen Ahmed, Md. Ahiduzzaman, Md. Abdur Rahmanand Moogdho Mim Mahzab. 

Details: 

Rice mills remain at the central part of the rice value chain which entails close relationships with both paddy and rice markets. Operations of rice mills have notable implications for consumption, trading of rice, employment generation, land use, electricity consumption etc. This study aimed at looking into the efficiency of various types of rice mills in their operation and implications of that on social and economic issue and on food security. The study is based on both primary and secondary data covering quantitative and qualitative information. Primary data was collected through a survey of 402 rice mills in Bangladesh, which included auto and semi-auto rice mills, traditional chatals and hullers. 

Analysis of various operational aspects of rice mills reveal that a structural change has been taking place in the operations of rice milling. The age old traditional milling system is being replaced more and more by modern and mechanized mills, some of which are fully automatic. Though automatic mills require huge amount of investment, the gross revenue is also higher. The current value of equipment in an average auto ricemill is nearly 13 times of that in a semi-automatic mill and 127 times of that in an average Engelberg mill (chatal). However the drying space needed in semi auto or traditional mills involve opportunity cost of land. If this opportunity cost of land is taken into account then the gaps between the investments in traditional and auto mills narrow down. 

Employment structure of auto mills also differs from traditional mills. The number of permanent staff in automatic mills is roughly twice that in chatals and 60% more than in semi-autos. The differences are also unsurprisingly reflected in the capital/labour (value of capital/cost of labour) ratio which is 4.4 for automatic rice mills which is 3 times that in semi-auto mills and more than 17 times that for chatals. About 38% of the labour force in rice milling is women. They are employed most in drying and cleaning part of the process. But they are also, though limited, involved interestingly also in the milling and polishing part of the process which are generally thought to be men’s jobs.

As the auto mills are less dependent on natural weather for drying and other operations of the mill, their operations seemed to be less risky. They can operate even during the rainy season. In addition to the sophisticated machines used in auto mills, the fact that they can operate round the year, result in higher productivity in auto mills compared to the productivity in traditional mills. In a running week an auto mill can mill 6394 maunds (or 255780 KG) of rice. In comparison a semi auto mill are able to mill 1516 maunds of rice, which is 4 times less than the production by auto mills. 

Various econometric models used in analyzing the characteristics and productivity of various types of mills reveal the followings: i) the volume of paddy milled is a major factor when it comes to value addition. In that regard, the auto mills have comparative advantage over semi auto mills and traditional mills; ii) for all categories of mills, labor has positive relationship with overall output. Capital has also positive relationship only except semi auto mills. This implies that the structure of semi auto mills can operate efficiently in the current form and any increase in the capital may give negative productivity; iii) Maximum likelihood estimation of the parameters of the stochastic frontier provides efficiency scores for different types of mills and it is noted that traditional and semi auto mills are doing better in terms of efficiency. Given the cost structure of auto mills it is noted that every auto mill cannot run the production process efficiently from the vey onset. It usually takes a good amount of time for them to increase the average score of efficiency. Whereas Semi Auto and Traditional mills have low capital cost structure and they optimize within a shorter period of time even with their limited resources.

In terms of food security increase in the number of auto rice mills may ensure better supply of rice and accessibility throughout the year covering different parts of the country. However natural size of this auto mills indicate their power to influence price of rice which may be threat to ensure food security. Another dimension of implication is demand for some apparently unnecessary machineries by the auto mills such as color sorters and polishers. These are mainly used to make the rice more white and attractive. However the white rice has less nutritional value. Thus it may be the case that rising number of auto mills are creating demand for less nutritious rice which is a concern for food security. 

For ensuring round the year smooth supply of rice large millers need to ensure supply of paddy to be milled. This means they need to keep stock, which they often keep not in their warehouse only, but with large farmers (with a promise to give higher price when purchasing in future). Thus careful policies are required to ensure that auto mills are able to maintain regular flow of paddy but not exercise their market power. Moreover the government need to take measure so that rise in the number of modern mills do not give wrong signal to the market to consume rice on the basis of while color and polishing. 

Strategic policies by the government can ensure smooth supply of rice in the market at the same time keep stability in price and maintain food security.