Agricultural marketing, price stabilization, value chains and

global/regional tradeBart Minten (IFPRI)

A.Z.M. Shafiqul Alam (Ministry of Agriculture)Uttam K.Dev (Center for Policy Dialogue)

Aktaruz Z.K. Kabir (Ministry of Commerce) David Laborde (IFPRI)

Mohammed Hassanullah (Independent Consultant)K.A.S. Murshid (Bangladesh Institute for Development Studies)

26-27 May 2010

BANGLADESH FOOD SECURITY INVESTMENT FORUM 2010

Stability in food consumption, on average, but changing domestic food marketing

systems

73/74 - Rural

73/74 - Urban

83/84 - Rural

83/84 - Urban

95/96 - Rural

95/96 - Urban

04/05 - Rural

04/05 - Urban

0

20

40

60

80

100

120

140

160

180

200

Average per capita consumption of foodgrains (Source: HIES)

Wheat

Rice

kg/p

erso

n/da

y

Change 1: Seasonality

J F M A M J J A S O N D0.9

0.95

1

1.05

1.1

Changes in rice price seasonality (prices over 12-month moving average)

60-6995-07

Seas

onal

ity in

dex

Change 2: Increase in marketed quantities

- Rice production has tripled since the 60s- Because of urbanization, food markets have developed even more- One-third of rural households are net rice sellers- Because of population increase and urbanization, the quantities marketed will increase further in future

Change 3: Change of role of public sector

Imports of foodgrains by Bangladesh

0

1000

2000

3000

4000

5000

6000

1981/8

2

1984/8

5

1987/8

8

1990/9

1

1993/9

4

1996/9

7

1999/0

0

2002/0

3*

2005/0

6

2008/0

9

Food Aid GoB Commercial Private

Change 4: Rise of high-value and perishable commodities

Per capita expenditures (100%=all)

Urban Rural0

10

20

30

40

50

60

70

80

90

100

OtherOils, fats, pulsesSpicesFruitsVegetablesEggs and dairyMeatFishCereals

%

Change 5: Increase in demand for food quality

1999 20090

10

20

30

40

50

60

70

80

90

100

Turnover of rice wholesalers in Dhaka

Medium and fine rice

Coarse rice

%

Change 6: Rise of modern retail and processing sector

- Agri-processing is starting from a low base but has been growing at 8% per year between 1985 and 2005- Rice milling is most important, generating 40% of the employment- Processing high-value products is limited- Modern retail is currently small but is growing rapidly (around 100 stores in country), as seen in other Asian countries

Staple food marketing seems to be functioning well

1. In contrast with the situation earlier, foodgrain markets rather well integrated over space and time (because of transport investments; availability of mobile phones; competitive environment; low barriers to entry); information and physical flows from surplus to deficit areas

2. Share of producer in final retail price is rather good for well-connected areas (cost of bringing 100 kgs of paddy from rural producer to urban consumer is 30% more expensive in India)

Price structure rice and potato

Coarse rice Medium rice Potato harvest Potato off-season0.00

5.00

10.00

15.00

20.00

25.00

30.00

35.00

Urban retailUrban wholesaleTransport to DhakaStorageMillRural wholesaleProducer

Tk/k

g

Price stability

- Important political challenge for any government in a liberalized system

- Impact of government interventions have been limited

- Procurement prices is not floor price- Open Market Sales (OMS) is not ceiling price- OMS never higher than 2% of supply prior to 2010- Reduce impact on poor through targeted subsidies

of the Public Food Distribution System (PFDS)

High-value food marketing

- Growing demands (projected at $8 billion in 2020).

- Important opportunities that might provide extra sources for employment (for example, 600.000 persons employed in shrimp and fish sector) and for rural income growth;

- Significant challenges, especially related to food safety and quality.

Global and regional trade 1. Trade can be important tool towards achieving

food security:- specialization; - import food when needed (trade assures a price

ceiling as seen in floods of 1998 and 2004); - import farm inputs; - export high-value products 2. In last 3 decades, important changes towards

liberalization of agricultural trade

Issues in international/regional trade

1. High degree of concentration: three most important trade partners represent 75% of market share for most products

2. Reliance on export subsidies might create problems of efficiency and sustainability

3. Preferential agreements not fully taken advantage of and might be eroded over time

4. Safta agreements bring little benefits to Bangladesh (changes in income small but negative)

Why invest in an improved marketing environment?

• A 1 Tk/kg savings in rice marketing margins would lead to 14 billion Tk benefits a year (200 million $) for consumers and producers

• Benefits much higher (rice represents 30% (rural) to 40% of food consumer budget) if we include all types of food;

• Important to do continuous interventions and investments to create a competitive environment where private trade can flourish;

• However, there are no magic bullets

Intervention 1: Policy changes towards an enabling environment conducive for private

trade

- Better regulatory framework for local markets (amendment of different market related Acts, rationalization of market charges, etc.)

- Strengthening of capacity to deal with food safety and quality requirements: strengthening of DAM, Hortex Foundation and quality certification schemes

Intervention 2: Marketing infrastructure development

- Transportation and cargo handling (however, transportation costs is only tiny share of final rice price for well-connected areas; larger return of investments in less well-connected areas)

- Assembly and wholesale market infrastructure development (better access to potable water, toilets, sewage systems, loading spaces and storage facilities)

- Laboratory and testing infrastructure development and strengthening of Bangladesh Standards and Testing Institution

Intervention 3: Credit

- Improved access to credit for farmers (inventory credit) or through farmers’ credit cards

- Investment credit for agro-processing development

Intervention 4: Research and Development

- Good investments in rice research in the past with notable successes; however, less investments have been done in high-value products

- Research on input and output markets; lack of reliable data; exporters might miss markets because information not available

- No good evaluation studies available on marketing investments; limits possibilities of priority settings; more investments in monitoring and evaluation

- Better understand possibilities of marketing groups and of contract farming

Intervention 5: Capacity building

- Extension of farmers but also other stakeholders in value chain

- Better market information systems could be developed, relying on ICT driven systems

- Capacity building towards well-functioning commodity and industry organizations: need functional platform where private industry can interact with government

Intervention 6: Take advantage of international trade

- Encourage high-value exports but try to move up quality ladder

- Assess use of export subsidies after initial stage

- Diversify input and output markets- Use preferential agreements more efficiently- Further evaluate SAFTA benefits versus

multilateral agreements