Effectiveness of Bangladesh`s Rice Procurement System and Possible Alternatives: Supporting Farmers` Income

and Sustaining Production Incentives

Principal Investigator:

Dr. Mohammad Jahangir AlamDepartment of Agribusiness and Marketing

BAU, Mymensingh-2202

Interim Report Prepared for Presentation at NFPCSP Workshop

Roposhi Bangla Hotel, Dhaka 100028-29 November, 2012

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Research Team

Prof. Dr. Shaheen AkterCo-Investigator

Mr. Kazi Shek Farid Research Assistant

Dr. Ismat Ara BegumCo-Investigator

Mrs. Ferdoushi Begum Research Assistant

Mr. Md. Nahid Sattar Research Assistant

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Purposes of domestic rice procurement are: (i) Building stocks for PFDS & (ii) Income support to farmers

For the said purposes -- govt. provides a support price > cost of production (ensure that farmers do not produce at a loss because of distress sells)

Higher prices, are in conflict with the objective of keeping prices low enough for low-income consumers

Conflict can be avoided through

Higher govt. subsidies– BUT have budgetary implications & can reduce investment in public goods

Besides impact on govt. budget, proc. prices that are too far above market prices can favor rent seeking activities

Introduction

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Moreover - timing of announcement is also an important decision. It could

Encourage investment by farmers & greater input uses

Improve prices when farmers engage in distress sells

Food Policy Plan of Action (2008-15): importance of enhancing the effectiveness of system & providing effective support to producer, while ensuring stable consumers` price

Given this backdrop, the research will contribute to understand –

Effectiveness of the system in terms of impact on the farmers Alternative system & instruments to achieve the objective of

sustaining farmers` income

Introduction (2)

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To examine to what extent the current procurement system supports rice prices and farmers` income, thus providing production incentives (with emphasis on marginal & small farmers)

To examine to what extent the current procurement system allows the government to procure adequate supplies for its distribution needs

To identify actionable options for enhancing the effectiveness of the procurement system considering their relative costs and benefits, and possible alternative methods for supporting farm income, other than a procurement system

Objectives

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The study is designed to conduct into four phases

Phase 1 → review, farmers stocking behaviour & proportionate of proc. from farmers & millers (literature, HIES & historical data)

Phase 2 → relationships estimation (historical data)

Phase 3 → effectiveness & constraint of proc. system (field survey)

Phase 4 → feasibility, practicality & acceptability of alternative proc. systems and of alternative methods (survey in phase 3, FGD & KII)

Study Phasing

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Addressing the stocking behaviour & procurement:

1) What are the evidences of the domestic proc. & rice price stabilization interventions?

2) What are the stocking behaviours of farmers?

3) What is the proportion of grain that is procured from farmers and millers?

Research Questions in Phase 1

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Phase 1: Literature review, stocking behaviours & procurement

Farmers` stocking behaviour (Research question 2)

For calculating stocking behaviour (quantity & proportion of production stored), we have used HIES 2010 data

We have calculated this by season, farm sizes and income quartile

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On top of that , the following stock functions will be estimated

Change in Stock function: S=f (Xi)where S= change in stock & Xi= explanatory variables

x1= size of production (& its square)x2=other sources of acquisition (e. g. payments in kind & received)x3=pricex4=main occupation of hhx5=size of hhx6= location of hh (to correlate with timing of crop in a particular location) etc. x6= cost of stocking, etc.

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Production, disposal and stocks Marginal farms(0.05 – 0.49 acre)

Small farms(0.50 – 2.49 acre)

Medium & Large farms (> 2.49 acre)

Mean Std Mean Std Mean StdBoroProduction (kg/year) 596.5 681.1 1612.3 1412.7 4411.6 4101.7Change in Stocks (kg/year) 76.3 161.0 229.7 458.3 671.2 1480.2% Stocks =(Stocks/Production)*100 12.9 23.3 13.9 23.2 15.2 23.5Number of farms 693 2046 546AmanProduction (kg/year) 361.9 445.9 950.5 724.2 2701.7 2282.6Change in Stocks (kg/year) 21.7 109.1 78.1 244.2 341.4 920.0% Stocks =(Stocks/Production)*100 4.7 15.1 7.0 17.5 11.6 21.2Number of farms 501 1694 504AusProduction (kg/year) 354.4 437.1 715.8 626.9 1490.4 1506.8Change in Stocks (kg/year) 27.2 140.2 38.0 114.4 121.8 318.1% Stocks =(Stocks/Production)*100 3.8 13.8 4.9 13.7 7.7 16.9Number of farms 119 480 185

Table 1 : Disposal of paddy in Boro, Aman and Aus seasons by farm size

Source: Calculated from HIES 2010

Preliminary findings

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Production, disposal and stocks Marginal farms(0.05 – 0.49 acre)

Small farms(0.50 – 2.49 acre)

Medium & Large farms (> 2.49 acre)

Mean % of production

Mean % of production

Mean % of production

1. Production (kg/year)742.2 100 2047.0 100 5771.9 100

2. Given to landlord (kg/year)84.8 11.4 207.3 10.1 364.7 6.3

3. Paid for wages (kg/year)8.8 1.2 33.0 1.6 163.5 2.8

4. Seed (kg/year)6.5 0.9 23.2 1.1 64.8 1.1

5. Feed (kg/year)1.9 0.3 3.8 0.2 12.3 0.2

6. Wastage (kg/year)3.1 0.4 6.5 0.3 14.0 0.2

7. Other uses (kg/year)5.2 0.7 16.9 0.8 29.8 0.5

8. Consumption (kg/year)412.3 55.6 855.8 41.8 1531.0 26.5

9. Sold (kg/year)142.1 19.2 658.7 32.2 2791.4 48.4

10. Change in Stocks (kg/year)77.4 10.4 241.8 11.8 800.4 13.9

Number of farms 826 2566 701

Table 2 : Production and disposal of all paddy by farm size

Note: Stocks= 1.-(sum of 2. to 9.) Source: Calculated from HIES 2010

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Production, disposal and stocks

Surplus districts (Kg/household)

Surplus districts %

Deficit districts (Kg/household)

Deficit districts %

1. Production 2556.7 100 2158.4 1002. Given to landlord 225.0 8.8 179.5 8.33. Paid for wages 45.0 1.8 60.5 2.84. Seed 24.3 1.0 31.7 1.55. Feed 4.9 0.2 4.8 0.26. Wastage 6.0 0.2 9.1 0.47. Other uses 18.0 0.7 14.3 0.78. Consumption 897.3 35.1 851.0 39.49. Sold 1060.2 41.5 651.1 30.210. Stocks 275.9 10.8 356.4 16.5

Table 3: Production, disposal & stocks of all paddy by surplus & deficit district categories

Source: Author`s calculated from HIES 2010

Average production is higher in the surplus districts, stocks are less than the deficit districts

Share as a percentage of production by Income quartile 12

Consumption Sold Stocks 0

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45Lowest quartile Quartile 2Quartile 3 Highest quartile

Per

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Consumption, sold and stocks

Stock is the lowest for lowest quartile & highest for highest quartile

Domestic procurement (Research question 3)

Calculation of domestic procurement from farmers & millers

We will impute total domestic procurement which is a sum of the procurement from farmers & millers (Total domestic proc. = ∑ proc. from farmers & millers)

Calculated by season (Aman & Boro)

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Figure 1: Procurement from farmers (Aman and Boro)

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Figures indicate that the percentage of grain procured from farmers in both Boro & Aman is declining & it is very sharply in the recent past

Between 1989/90 – 2011/12, only 21.35% was procured from farmers (Aman) Between 1991 - 2012, only 20% of the grain was procured from farmers (Boro)

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Figure 2: Procurement from millers (Aman and Boro)

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Proportion of grain that was produced from millers (Aman season) fluctuated to a great extent

Proportion of Boro procurement from the millers is rising sharply. In fact, 80% of the grain was procured from the millers.

Conclusion is – the millers are the primary source of procurement.

0102030405060708090

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What is the relationship between ----

a) Production deviations from trend & govt. procurement?

b) Production deviations from trend & govt. distributions?

c) Proc. price & prevailing market price?

d) Government stock & price level?

e) Procurement & deviations of real market prices from trend, and

f) Distributions & deviations of real market prices from trend

Research Questions in Phase 2

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Phase 2: Estimating relationships

Models

Estimating trend

In doing this, we will estimate polynomial trend function

Y = production, T = time trend & n= order of polynomial

Other models could also be used (linear, quadratic etc.)

tn

ii TY 0

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Y=actual procurement (distribution) & Xi= explanatory variablesx1= Opening govt. stock at the start of the seasonx2= planned dist. of current seasonx3= deviation of prod. from trend x4= deviation of real (inflation adjusted) market price from average of past n years (t= 1, 2 or 3)

titit XY 0

Prod. deviations from trend & govt. procurement; Production deviations from trend & govt. distributions?

Models

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Government stock & market price

where Pm=market price & S=government stock

Procurement & market price –

where Pm=market price

Pp=procurement price

tptimt PP 0 ttimt SP 0

Procurement & deviations of real market prices from trend, and Distributions & deviations of real market prices from trend

titit PY 0

Y=actual procurement (distribution) & Xi= explanatory variablesPit = deviation of real market prices

Data: Historical data such as total rice production, total government procurement, total government distribution, procurement price, market price, government stock for both Boro and Aman will be used

Will explore the relationships for(i) the entire data period; (ii) before 1992; and(iii) 1992 & after.

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Figure 3: Production deviation from trend and procurement

Initial results were a bit surprising

BUT latter, it shows the similar trend

r = 0.48

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o Here most of the year, we found the positive correlation between good production and procurement

r = 0.57

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Figure 4: Production deviations from trend and public distribution

PFD was surprisingly low during years of low production (1997/98 -1998/99)

BUT some years such as 1999/2000 and 2004/05, when prod. deviation from trend was small, distribution was relatively higher

r = 0.77

Qun

tity

(‘000

MT)

Addressing overall assessment, alternative systems, methods:

1) What is the farmer`s overall assessment of the proc. system?

2) What are the overall views of millers on the effectiveness of the system?

3) What are the other country experiences on alternative systems & farmer`s income support?

4) What are the feasible alternative systems & alternative methods (other than proc.) that would enhance the benefits to rice farmers?

Phase 3 & 4

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Research Questions:

Table 4: Farmers selection (Non-participating farmers) (n=300)

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Dhaka Division (n=150) Rajshahi Division (n=150)Sherpur (n=75) Mymensingh (n=75) Dinajpur (n=75) Naogaon (n=75)

LSD (5) LSD (5)Marginal & small Medium Large Marginal & small Medium Large

Effectiveness and constraints (Questions 1 & 2)

Table 5: Participating farmers (n = 200)

Dhaka (n=100) Rajshahi (n=100)Sherpur (n=50) Mymensingh (n=50) Dinajpur (n=50) Naogaon (n=50)

LSD (5) LSD (5)

Table 6: Millers’ sampling (n= 280)Dhaka (n=140) Rajshahi (n=140)

Sherpur (n=70) Mymensingh (n=70) Dinajpur (n=70) Naogaon (n=70)LSD (5) LSD (5)

Husking Semi-auto Auto Husking Semi-auto Auto

Phase 4: Feasibility, practicality & acceptability of alternative methods

Critical theoretical review (pointing out the existing paradox in fixing both a quantity to be procured & a procurement price) (comes from phase 1)

Alternative Systems and Instruments:

In the form of a matrix listing instruments along the left hand side and objectives across the top.

Cells of the matrix can then be filled with plus, minus, or zero depending on the effect of each instrument on each objective

In doing so, FGDs, KIIs & results in the different phases will be the keys

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Matrix Development

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Instruments Objectives Expected ImpactProducer Consumer Govt. Society

Bangladesh Domestic procurement To support the producers

India Regulating exports Disincentives for grain exports

(bans on wheat and maize and non basmati rice exports)

Indonesia

Philippines

So on

On top of that - we will explore whether we can use any quantitative tools (as suggested by Mr. Naser Farid, DG, FPMU) especially to see the impact at government exchequer

Different activities and its` status

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Work Plan Update/Progress madeWorking on research problem, literature review, formulating conceptual framework etc.

Completed

Draft inception report Completed Preparation and submission of final inception report Completed Inception workshop at BAU CompletedPreparation of methodological note which will incorporates questionnaire, sample design and detailed fieldwork plan

Completed

Collecting secondary data from official sources including the HIES 2010 data, secondary data analysis/ KIIs

CompletedKIIs are going on

Secondary data cleaning and model estimation Major part of this step completed (has been working to improve the results from the model estimation)

Developing questionnaire, pre-testing and finalizing questionnaire

Completed

Sampling, selection of data enumerators, and organizing training

Completed(Training will be arranged before going to field survey)

Consultation with different professors and researchers at national and international levels

Completed

Preparation and submission of interim report Submitted Conducting field survey with face to face interview/FGD To be done (survey period has been changed after

consultation with TAT and CTA)Field Data cleaning/preparation (field survey data) To be done after/during field surveyData analysis and model estimation To be donePreparation and submission of (a) draft report & (b) dataset, codebooks & documentation (in electronic format)

To be completed on time

Final workshop with results To be completed on timePreparation and submission of final report To be completed on time

Thank You

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