This study aims to understand the supply chain of rice (after farmgate), the role of various actors associated to the collection of paddy, milling and marketing of rice and power of these actors in different segments of the supply chain. The study also enquires for possible sources of market distortions that may lead to monopolistic or oligopolistic behavior in the market. 

The study has utilized both primary and secondary information to understand the supply chain of paddy and rice. The collected data reveals the role of actors in each stage of the chain. Relevant literature and data from secondary sources enable us to understand the structure of the market, the pattern of supply, demand, import, and consumption. The study has analyzed available wholesale and retail price time-series data of rice at the spatial level. The analysis is extended over rice growing and non-growing regions to understand the co-movement in prices across markets. 

Primary data is collected from key market functionaries through Key Informant Interviews (KII) to understand the market conducts of the agents. The major districts with intense rice related activities are identified from various secondary sources, from which four major districts, Dinajpur, Bogra, Kushtia and Naogaon are included as sampling sites. In addition to that, four major markets in Dhaka, Badamtoli Babubazar, Kawran Bazar, Mohammad Krishi Market, and Cantonment Kochukhet Bazar were included in the sampling design. The interviews were conducted with 32 wholesalers, 8 commission agents, 16 auto millers, 17 Aratdars, and 13 Beparis/Farias. 

The focus of the analysis on competition is set on the millers since millers are believed to be the most influential stage in the supply chain of rice. To assess their conduct, we have examined a database of auto rice millers, maintained by the Ministry of Food. In addition, a focus group discussion (FGD) with rice millers’ association is arranged to qualitatively extract information on trading mechanisms and causes of the unexplained occasional price hike. The information on millers’ market conducts obtained from KII and FGD is collated with the constructs of concentration ratio obtained from the Ministry of Food to develop insights on millers’ role in the market.

In terms of method of analysis, descriptive analysis on competition and trading indicators is primarily followed. In addition, market integration is studied with the means of cointegration techniques on time-series of national and regional prices. The cointegration tests is performed between retail and wholesale prices on monthly price data collected from the Department of Agricultural Marketing (DAM). The analysis is extended both for within district retail and wholesale prices as well as cross-district wholesale prices. We have tested whether a cointegration or long-run relationship exists between wholesale prices of rice in major growing regions and prices in major consumption districts for three qualities of rice- coarse, medium, and fine.

The following are the main findings of this study. 

Demand and supply of rice

In 2016-17 a total of 33.8 million metric ton rice was produced in the country. More than 50% of this production is high yielding variety, known as Boro rice. The major supply of rice comes in the harvesting seasons of Boro and Aman as these two varieties constitute around 91 percent of rice production. Though rice is cultivated in almost all districts of Bangladesh, major share of production is concentrated in few districts. Both for Boro and Aman varieties Mymensing, Noagaon, Dinajpur and Bogra are among the top 4 districts. Aus is mainly produced in Cumilla, Noagaon, Sylhet and Bhola districts. 

The supply of rice and accordingly, the price of rice depends mostly on the harvesting time of the wide varieties. During the harvesting period, the price usually remains lower than in other seasons of the year. The total supply of rice and the price of rice also depend on the world market for rice. According to the FAO statistics of 2017, Bangladesh is the 4th largest rice-producing country of the world, with 6.36% of share in world production. Bangladesh is mostly self-sufficient in producing rice to meet domestic demand. However, Bangladesh imports a small quantity of rice every year (mostly high-quality rice).

There are various estimates of rice demand. Estimation by Islam and Talukdar (2017) has estimated the total demand for rice in 2015 to be 32.3 million tons, which is close to the total production of 34 million tons in the respective year.

Market Structure and Intermediaries in the rice market

Different earlier studies have noted that the main actors in the rice supply chain include- Paddy Farias, Paddy Beparis, Paddy Aratdars/Wholesalers (paikers), Rice Millers (mainly auto, semi-auto, traditional chatal); Rice Aratdars/Wholesalers (both in local markets and distant markets) and Rice Retailers. The most common types of intermediaries referred to in the vernacular are faria, bepari, aratdar, and paikar. In addition, there are various local names in different regions of the country like cycle bepari, kanda bepari, bharkiwala and lai faria. Things are further complicated by changing the roles of some intermediaries with time, although the name remains unchanged. Traditional microprocessors dominate the local value chain of rice. In contrast, the extended value chain is dominated by modern (auto) rice millers catering to deficit areas and large urban centers.

Different studies have revealed that among all the actors, the large rice millers and commission agents are playing the most dominant role. Their dominance is mainly driven by credit (especially given to meet urgent productive and non-productive needs) and other supportive dependence of the small farmers and local intermediaries on them (primarily auto millers). Those studies have also noted that millers are not only the most powerful actors in the rice supply chain; in particular, auto rice millers are the most powerful actors in the rice supply chain.

The present study has also reported some basic characteristics of dominant actors in the rice value chain, which are presented in section 5 of this report. It is noted that in the upstream of the supply chain, traders named Faria/Bepari plays a major role in moving paddy from farmers to millers or Aratdars. Aratdar establishes the linkage between stages in the upstream and millers.  This study has also noted the dominance of millers in the rice value chain and has pointed out that a large share of the millers is involved in rice/paddy related trading business, which implies their upstream and downstream linkages well. 

In general, since millers have to conduct milling operations throughout the year, they procure paddy mostly during the harvest season when the price is low and store to utilize those as inputs to continue milling activities for several months until the next harvest takes place. It appears that 12.5% of the millers have maximum storage capacity, which is larger than the amount of paddy that they are legally allowed to store by government regulation (according to Hoarding Act). Similarly, if the storage capacity could be utilized for rice storage completely, a large proportion of millers will have the capacity to store more rice than what they are legally allowed. It implies that millers are capable of hoarding rice, and in that case, they can influence the market to some extent.

Spatial Distribution of Millers, Milling Capacity and the Concentration ratio

Analyzing the data of auto rice millers by the Ministry of Food, it is noted that the top 50 millers constitute 20% of all rice milled by a total of 949 auto rice millers in the country. These top-50 mills have an average milling capacity of 1574 ton fortnightly. This is an average scenario of the concentration of rice milling for the whole country. The spatial analysis of the concentration of rice milling reveals heavy concentration in some areas. This indicates the concentration of market power among the small number of millers of those areas. 

Competitiveness in the Rice market of Bangladesh: Challenges of Competitiveness

Analysis of price data suggests that monthly national wholesale and retail prices of fine, medium, and coarse quality rice move together. For both medium and fine quality rice, the retail-wholesale price gap shows similar variation as do the prices in the level. However, the coefficient of variation of the retail-wholesale price gap for coarse quality rice is notably higher. If transaction cost for trading between regions is less likely to vary across the quality of rice, such evidence of higher variation in the retail-wholesale price gap for coarse quality type may be indicative of differentiated transaction cost or market power by traders.

In general, like any other agricultural commodity, seasonality is one of the major deterministic factors in the variation of rice prices over time and across space in Bangladesh. Also, the price is affected by various shocks. The price movement over the last decade shows that price of rice is almost stable compared to the international prices. The evidence on a strong correlation between local and wholesale prices is weak, which is justified given the protected nature of the domestic rice market. The price of fine rice appears to be higher than the international price, while the opposite seems evident for coarse quality rice. This reality probably reflects that government support for rice varies by quality types. 

Regression analysis to understand the impact of public stock on market prices of various qualities of rice reveals that public stock has a statistically significant negative association with retail and wholesale prices. This pattern is consistent across the quality of rice. It is found that larger public stock of rice exerts downward pressure on both wholesale and retail rice prices. It suggests that such a public policy tool is effective in stabilizing the rice price to some extent, although the magnitude itself is not too large. Maintaining a larger public stock of rice may thus act as a threat to traders’ frequent speculation and protect the wellbeing of the poor segment of the population.

Discussion and recommendations 

• Prices in the growing region and consuming region usually move together and prices are mostly stable. The majority of the evidence supports a cointegrated market. This is mainly possible because of the huge government support and protection in the market.

• Market responds to shocks, such as production shocks, and prices go up occasionally: it does not necessarily mean anti-competitive behavior. Any such shocks create uncertainty; in that context, both supplies and buyers may behave with pre-cautionary buying and speculative hoarding. The ineffective implementation of the hoarding Act of Bangladesh allows the hoarding of paddy/ rice for several months. 

• Public procurement of rice appears to help stabilize rice prices to a significant extent. Increases in public stock of rice exert downward pressure on rice prices.  

• Supply chain is mainly dominated by the Millers. Aratdars are the upstream link of the millers while wholesalers are their downstream link. Millers spread network in big cities by employing a paid representative to coordinate with other market actors and gather market information. 

• Very large auto rice millers have the possibility to exercise anti-competitive behavior in the rice supply chain of Bangladesh. 

• Market Investment of millers is significant. A large share of their investment is financed through banks. This appears to be a barrier of entry to the market. They must run business throughout the year and withholding of production even for a shorter period would incur a loss. They maintain a large stock of paddy for this operation, but it is hardly monitored whether they keep their stock more than the allowed period in the Hoarding Act of Bangladesh and keep a higher quantity than the permitted volume. Lacks in the monitoring system for the implementation of the hoarding act make it difficult to separate the anti-competitive actions of large millers from their natural market concentration. 

• Millers are found to be well-connected with the association of similar traders. That association appears to be well-structured, but it is hard to find any evidence of collusion. They exchange market information, help each other in crisis, work as an informal insurance mechanism. However, relatively small and medium auto mills suffer from the crisis of working capital and let the larger auto mills to naturally take hold of the market (as the larger mills do not usually face the problems of working capital). 

• However a superior set of information accessible only by the large millers could be translated into higher profit for them. 

• Farmers are mostly excluded from the value-adding activities beyond the farm gate in the rice supply chain. Most of the farmers (mainly small and medium ones) remain dependent on the local actors (farias/beparies) as price takers in the local markets. However, larger farmers are capable of keeping stock at home and selling their harvest almost round the year (at least till the next harvest). Very large farmers also keep some market power.

The following actions could be taken to address the possible anti-competitive behavior in the rice supply chain. 

• There should be coordination among the activities of the Ministry of Commerce, Ministry of Food, and Competition Commission. The Plan of Action of the National Food Policy should include the role of the Competition Commission in bringing stability in price by keeping the market competitive. 

• Given that public procurement of rice is effective as a price stabilization tool, the PFDS can be streamlined to make it efficient in predicting demand-supply gap in the rice market, especially incorporating the likelihood of natural shocks and resulting emergency situation. If PFDS can intervene in the market in times of shortage with adequate supply, this will act as a threat for traders and reduce margin from speculative activities in the rice market.

• Considering the flash flood event of 2017 and the resulting upsurge in the rice market, the importance of quick government policy revision is further noted. Had the import decision by reducing trade barriers been taken faster, the market would have stabilized sooner. Accordingly, the effective role of PFDS during emergencies will largely hinge on how quickly it can respond in such a situation.

• The current procurement practice of PFDS (under Ministry of Food) for setting rice prices is largely arbitrary. Instead, it can follow a competitive bidding procedure to reduce distortion in the market. In addition, coordination between ministries of food, agriculture, and finance is critical for efficient pricing decisions. The Food Planning and Monitoring Committee (FPMC) may bring more coordination between the ministries associated with this high-level committee. 

• The Competition Commission should increase its visibility so that actors of the supply chain of different products can communicate any anti-competitive behavior to the Commission. Moreover, the Competition Commission should have regular access to the database on the price of agricultural commodities (for example the Department of Agricultural Marketing, Food Planning and Monitoring Unit etc.)

• The Hoarding act needs to be implemented properly. Millers need to report their stock information to the registration authority every month. But they are reluctant to do that regularly. Even if they do, monitoring is very limited to observe whether they are reporting properly. 

• The summary report that is produced by the District Food office (on rice and paddy stock) should be communicated to the Competition Commission regularly. 

• Short term Credit should be made available to the farmers so that they can sustain a temporary price fall during the harvesting time.  

• Government policy towards agricultural development, food security and rice marketing needs to be coordinated and therefore, the government should take more a supply chain approach rather than considering separate actions for separate actors.