This paper has studied the basic interrelationships in the public foodgrain distribution system in Bangladesh. To this end, the aggregate price model developed by Raisuddin (1979) earlier was reestimated using more recent data covering the period, 1972/73 to 1983/84.  This was subsequently used to analyse the impact of different production scenarios on market price of rice and also to explore how the market price of rice and foodgrain consumption are influenced by policies related to ration price, ration quota, and the share of rice in total ration distribution.

The impact of a production shortfall in a “bad crop” year was observed to be quite severe as a ten per cent shortfall in foodgrain production from the “normal” level resulted in about sixteen per cent increase in price of rice (wholesale, coarse variety) in the open market. Also, it was observed that a five per cent shortfall in production would lead to about nine per cent increase in market price of rice. The empirical analysis further showed that an eight per cent reduction in ration offtake brought about through an increase in ration price by Tk. 40/md. resulted in a price increase of about 2 per cent in a “normal” crop year. Also, it was observed that a reduction in the share of rice in total ration offtake from 35% to 20% resulted in a price increase of only 2.2%. Furthermore, if rice is completely substituted by wheat in ration distribution, this policy would lead to about five per cent increase in price of rice in the open market.