Research Report prepared for IFPRI under the Policy

Research and Strategy Support Program (PRSSP)

Mustafa K. Mujeri 

Nazneen Ahmed

Mohammad Iqbal Hossain

April 2013

Bangladesh Institute of Development Studies (BIDS)

E-17 Agargaon, Sher-e-Bangla Nagar

Dhaka-1207, Bangladesh

Executive Summary

The study links the concepts of value chain and food security, a linkage that has received little research attention particularly in the context of the rice sector in Bangladesh. The broad objective of the research is to analyze whether improving the value chain could enhance the competitive advantage of Bangladesh’s rice sector, and if so, how this could be achieved in practice. It is expected that the results of the study would contribute to food security policy because of the intricate links between more competitive rice value chains and improved food security. 

Value Chain and Food Security

The relevant literature indicates that both value chain and food security have a common interest in competitive advantage of the participants across the entire value chain. The present study brings out two important concerns related to food security in Bangladesh: (i) the role of rice in the country’s food security in the midst of fundamental changes in marketing and distribution of rice in a transitional economy; and (ii) potential of utilizing value chain in improving competitive advantage of the rice sector which can create significant positive impact on food security.  

In Bangladesh, a major food security goal is to achieve self-sufficiency in rice so that the country can meet its entire requirements from domestic production. The concern has received added importance especially after the crisis that affected the global food market in 2007-08. In order to achieve the goal, the government’s policy is to provide adequate support to the rice farmers to ensure competitive advantage of the rice sector through the provision of subsidized inputs in conjunction with procurement and trade policies and other measures. 

A more effective rice value chain would supplement the existing government policies to improve the performance of rice supply chains, and thus the competitive advantage of the participants in the chain (including farmers), through higher levels of co-ordination and value creation among the chain members. It is expected that this would lead to improved value creation and more equitable value sharing among the chain participants, with positive impact on food security.

Methodological Considerations

The study is guided by a social constructionist paradigm with a focus on qualitative analysis. Both qualitative and quantitative data collected from primary and secondary sources have been used in the analysis. The primary data have been collected through fieldwork using separate semi-structured questionnaires for different participants in the rice supply chain. 

The data were collected during the months of March-April 2012 from seven purposively selected districts (Bogra, Brahmanbaria, Dhaka, Dinajpur, Kushtia, Naogaon, and Sherpur) of the country. The study adopted a mixed method incorporating case studies, inductive analysis, and marketing margin analysis. For capturing the differential impact of typical rice supply chains, three different chains have been studied: (i) traditional (bulk) rice supply chain; (ii) modern (supermarket) rice supply chain; and (iii) imported private and public procurement/PFDS rice supply chain.

Empirical Findings

The three rice value chains (studied in the present study) in operation in Bangladesh show that the farmers get very similar prices under alternative chains and the end product quality variation does not bring much benefit to the farmers. The major beneficiaries of such differentiation are the millers and other participants in the downstream chain e.g. wholesalers, retailers, and the supermarkets. 

The marketing margin analysis shows the disadvantaged situation of the farmers who receive the least returns in relative terms along with bearing a higher share of risks. The study suggests that the largest amount of the value in the chain is created and retained by the millers and the highest net margin is also received by the rice millers. The large rice millers, by virtue of their big volume of business, can exert significant influence on the value chain, especially at the upstream level, and create pressure on the chain participants to act in favor of the interest of the large millers. The production of quality-differentiated rice under the supermarket value chain is found to be more profitable, especially for the rice millers. 

The nature and the process of the present rice procurement system normally exclude the small and traditional rice millers as well as the farmers to participate in the procurement process. It thus appears that the rice sector tends to be increasingly dominated by the large rice millers (e.g. automatic and/or semi-automatic rice mills) who exert significant control over rice processing and marketing in Bangladesh. The expansion of the supermarket value chain is more likely to lead to the creation of conditions in which more collaborative and dependent relationships may flourish in the rice market.

The exchange relationships among the participants, in almost all cases, are based on buyer-seller interactions at each stage of the chain rather than across the entire chain. While many of the relationships have been built over the years, their domain is mostly transactional exchange rather than value creation. Such relationships do not create value jointly by the participants and hence are unlikely to enhance the competitive advantage of the chain. 

Major Conclusions and Recommendations

For improving the rice value chain, it is important to adopt measures based on the principles of maximizing efficiency of the entire value chain which will contribute to improving the performance of the rice market. The key, however, is the equitable value sharing among the chain members which can improve the competitive advantage of the rice sector. This will contribute to improving the overall food security in the country as all chain members including the farmers will be better off and the rice sector will become more productive and efficient. 

The findings suggest that the reliance on the market alone is not likely to lead to more efficiency in the rice value chain and enhance the competitiveness of the rice farmers. The government needs to adopt effective policies for ensuring fair prices to the growers through procurement and other means, enhancing the staying power of the farmers by creating storage (e.g. community level through cooperative, public-private partnership and other mechanisms) facilities for paddy and better access to credit by the farmers, and encouraging farmers to enter into more collaborative vertical and horizontal partnerships to enhance capability and bargaining power. 

For enhancing and sustaining the benefits of the supply chain approach, rice productivity needs to be continuously increased through adoption of improved technology and other measures. The failure to provide fair prices to the farmers, low innovations and productivity, and market imperfections are the outcomes of unfair dependency relationships across the chain members and lack of their collective collaboration. The implementation of a value chain focus for the rice sector will improve the conditions of the chain participants as well as deliver rice having better quality and higher value to the rice consumers.