An Assignment On The Public Procurement System of Rice in Bangladesh

Course No. & Title: AM 504; Agribusiness Marketing Research

DATE OF SUBMISSION: 31 DECEMBER,2011

Submitted By
Id. No. 11 AEM-JJ02M Reg. No. 33554 Session:2006-07 MS. In Agricultural Economics (Agribusiness & Marketing)

Submitted To
Dr. Mohammad Jahangir Alam Associate Professor Department of Agribusiness and Marketing Bangladesh Agricultural University

BANGLADESH AGRICULTURAL UNIVERSITY MYMENSINGH-2202

PUBLIC PROCUREMENT SYSTEM OF RICE IN BANGLADESH

Given problems for formulating the assignment are as follows: Critically evaluate the public procurement system of rice in Bangladesh along with a detailed literature review of domestic procurement and rice price stability. 2. Suppose you are asked to conduct a research on the constraints of

rice procurement system in Bangladesh. Explain how you are going to do that. 3. You are asked to investigate whether procurement price follows

market price at the time of procurement. Present your result and interpretation. What are the policy recommendations?

PUBLIC PROCUREMENT SYSTEM OF RICE IN BANGLADESH

INTRODUCTION
Bangladesh is an agro based country where rice is the staple food. Most of the food security of Bangladesh depends on rice production. But it is seen in the recent years that rice price is increasing very sharply. But actual benefit of the price rise does not go to the farmers hand. But a large number of middlemen involved I the value chain of rice get the large share of price rise. Due to the high cost of production and lower returns from rice production compared to other crop production, farmers are shifting to other crop production. As a result the food security of Bangladesh has become vulnerable in the recent few years. To face this situation government tries to take some initiative to build a food reserve for future. Public procurement of rice is done for the purpose of food security and also to support the farmers by ensuring a minimum price above its cost of production.

1. Rice Procurement and Price Stabilization

Review of the literature

A lot of works had been done on public procurement of rice and price stabilization in Bangladesh. Now it is researched very widely mainly in the rice producing countries. Actually public procurement system is practiced by the government to support the farmers and also to ensure food stock for food security of the country. To determine the procurement price and market price a lot of literatures are available.But it is not an easy task to ensure the price support of the farmers and keeping the retail fresh rice price at a reasonable stage. Some related literatures are given below by the alphabetic order.

Ahmed (1979) reported that procurement of rice by the Food Department from domestic producers and the market has been a long-standing practice since the initiation of the public food marketing system in Bangladesh. During the 1960s, procurement by the government generally involved an involuntary delivery of rice by large farmers at a fixed price

Ahmed (1992) reported that the government instituted Palli Rationing, whose brief was to distribute subsidized food grain (at 25% subsidies) to "eligible households" in rural areas. Unlike what it substituted, the PR was accepted as a priority claimant on the distribution indent, and soon became the single most important public distribution channel for rice. Significantly for rice prices, the PR was extremely poorly targeted and "leaked" heavily.

Ahmed and Bernard(1988); Goletti and Farid (1993) made statement about the effect of public procurement on harvest prices is about its net, independent effect, while controlling for other variables that simultaneously impact on rice prices. Because the degree of market integration, at once over seasons, space and form, is increasing over time.

Chowdhury (1987) studied that the public procurement program could be impacting upon harvest prices in the small number of surplus-generating districts in the way envisaged by its backers without nation-wide harvest prices being able to pick up the difference.

Chowdhury (1990);Golletti et al.(1992; Ahmed et al.(1993) found that changes in private stocks are treated relative to two variables, both expectational. The first is public rice stocks. It has been shown, separately, that public rice stocks are a major determinant of rice future prices. The second is about changes in pre-harvest private storages as a result a proxy for severity of future of expectation regarding prospective harvest shortfall (as scarcity). This idea draws upon the anticipatory price hypothesis (Working, 1958; Bouis, 1983) as applied to Bangladesh (Montgomery 1983; Ravallion, 1987).

(Goletti 2000) studied that some researchers argue that public food stocks also provide "political insurance," by making it possible for the Government to avoid criticism for failing to tackle sharp swings in rice prices or to meet disaster relief needs

Dorosh and Shahabuddin (2002) give the example of the four years preceding their study, out of which, three witnessed excessively high procurement prices for the boro season, resulting in elevated costs for the Government and windfall profits for those fortunate enough to sell at the procurement centers. Since the bulk of rice that is procured is bought from millers or other traders, any rents would disproportionately benefit millers and traders (there are reports of procurement centers refusing to buy from farmers and colluding with the millers and middle men). Osmani and Quasem(1990) reported that the consensus prevailing up until the middle of 1980's was that the procurement program in Bangladesh did not fare very successfully by the criterion that an intervention to ensure incentive prices should at least hold them within a reasonable difference from the incentive price in a year of good harvest.

Shahabuddin (1992) Rice procurement is significantly influenced in the by rice production, and the extent of HYV adoption. Lagged adjustment in rice procurement is pervasive.

Shahabuddin (1992; Ahmed et al. (1993) the determination of rice procurement as endogenous to a process of the determination of price is grounded in a citable theory, and has been reported by a number of authors.

Shahbuddin and Islam (1999) reported that the procurement would appear to be largely controlled by the political elites, Union Parishad (UP) Chairpersons, UP members and traders. The sellers' list is largely fake and a considerable number of the sellers are fraudulent.

Public procurement system

Public procurement system is executed by the government appointed organizations and personnel. Here the farmers are the seller and government is the buyer of rice the procedure is as follows: Government procures rice from the millers through its procurement centers located in different areas of Bangladesh. There is an office in charge and other employees in each procurement center. Upazilla Controller of Food (UCF) supervises the procurement system in each district. Governments target each procurement center on the basis of each procurement capacity and national procurement target. Then the UCF called committee meeting and listed the farmers and millers. Rice procurement target was distributed among the agreement millers on the basis of their milling capacity. The agreement millers are those millers who are already listed for selling rice to the procurement center. Union Perished chairman gives the listed the farmers to the UCF for selling rice to the procurement center. A farmer can sell minimum 70kg and maximum 5 tons paddy to procurement center. Procumbent channels are as follows: Farmer
Procurement Center Farmer
Faria
Miller
Procurement Centre y Farmer
Bepari
Miller
Procurement Centre Farmer
Faria
Bepari
Miller
Procurement Centre

(This portion is modified from an MS. Thesis)

Evaluation or public procurement of rice

Public procurement of rice is an essential government operation in Bangladesh. As it is done for the price support to the farmers but it also serves as the buffer stock of food of the country. Many researchers have conducted research on this topics. But most of the case the researcher found some mismanagement. Finally they have agreed that some basic problems associated with this need to remove.

y Limitation of the government: excessive public sector imports, particularly in years of good harvests (even in some flood years), which occupied warehouse space, severely restricting the ability to procure during the next harvest.

y Mismanagement: Mismanagement of public procurement of rice is a remarkable problem. Sometimes the first aim to support the farmers does not fulfill. The responsible agencies are not interested to do the work properly, as why farmers remain deprived. y Information gap: Procurement price are not announced to the farmers in the right way. They do not get the announced price due to the corruption of the responsible government personnel. y Systematic problem: Government collect rice from the dealers who purchased the rice directly from farmers. As the farmers are not in united

form so it is very usual to be deprived by the dealers. Dealers tell lie about the procurement price to farmers and compel them to sell the rice at a lower price. y Obligation: due to the obligation of the purchase limit most of the little farmers do not sell rice directly to the government personnel. Many large farmers also do not sell desired amount due to limitation. y Low price: sometimes government procurement price does not give any benefit to farmers. For example in recent few years the cost of production is very high but procurement price sets at a lower price that is not enough to support farmers indeed. This is because of poor market research by the government. y Political pressure: due to political interfere it is not possible to implement the announced price. Political leaders purchase rice at a lower price from the farmers and then they sell to the government. As a result the main aim remains undone. y Insufficient number of people are available to execute properly the procurement program. Moreover quantity of procurement fluctuates and irregular procurement creates uncertainty among farmers. y Bangladesh imports grain easily; the country finds it difficult to export rice when it has surpluses. y Limited financial resources of the government y Institutional impediments to speedy purchase from and payment to small sellers y Collusion between traders and officials, which enables the traders to capture the margins between the market price and the procurement price.

y Bad transport system is also constraint for which remote area procurement hampers. y Road and transport system and availability of suitable transport are not available. So it before execution procurement program in remote areas proper transport facilities should be developed.

2. The Constraints of Rice Procurement System In Bangladesh: A Research Design To conduct a research on the constraints of rice procurement system in Bangladesh we have to follow some basic steps as below. Problem formulation: As we have identified our research problem as the constraints of public procurement of rice in Bangladesh so we need to give a title of research. Then need to find out the objectives of the research study along with detailed literature review. Title: Our research title is given that the constraints of rice procurement system in Bangladesh Literature review: in this step the essential literature related to the research problem. Research design: as we have a good literature on this topic so we need to use descriptive and causal research methodology. Data collection method and forms: As there are various literatures on public procurement but a limited literature on the constraints, so we have to collect

primary data along with the secondary sources data. For the purpose we need to collect data from the government personnel and also with the other dealers, middlemen and farmers who are the main target. Open ended questionnaire will be used for the type of study. We need to know the problems and also probable solution and other relevant information.

Design sample and collect data: In this step sampling design will be specified. Who will be included into sample and the type of sampling will be used need to determine. To determine sample we need to classify the desired population according to the research purpose. Sample may be collect by nonprobability sampling technique and judgment sampling will be more appropriate. By appointing well trained personnel data will be collected. Data analyze and interpret: When all the data are in hand they need to prepare for analysis. First it should be justified all the data collected are relevant and collected properly. By sequence data editing, data coding and data tabulation will be done properly. Next statistical tests will be applied to the data, these test should be anticipated before data collection. Findings of the study: Here we have found some basic constraints of rice procurement in Bangladesh. These constraints are as follows: y Lack of manpower: Public procurement mainly facing the lacking of manpower to operate the program successfully.

y Insufficient number of procurement centers: There is shortage of adequate number of procurement centers. y Poor areas. y Systematic problem: Farmers have limited access in the collection center. So there is a possibility to make price discrimination. Sometimes announced price is not enough to support the farmers. y Demand and Supply maladjustment: there is a possibility of not fulfill the target. y Political pressure: Local government bodies and political leaders also create impediment to implement the procurement program properly for their personal interests. y Price is set after the panting season which does not reflect impact on the production area. y Lack of adequate funding is also a constraint. y Corruption of the personnel involved with procurement system. y Business syndicate by the shadow of political parties is now the big constraint to implement the procurement program. Finally the obtained result will be disclosed and interpreted properly. The research result will provide planning guideline to policy makers and other government officials related to procurement to remove the constraints. public procurement authority Information dissemination: Government cant provide the

procurement price information in the right time to farmers and in the remote

sometimes cant determine the real demand and supply situation. As a result

Report writing: when the research is completed then a report is made. This report includes all kinds the methods used to conduct the study and various steps including references from where secondary data were obtained, and also various facts and figures.

3. PROCUREMENT PRICE FOLLOWS MARKET PRICE AT THE TIME OF PROCUREMENT

It is not an easy task to comment directly that procurement price follows market price at the time of procurement or not. To make this comment we need to investigate the market price and procurement price of different years.
Table: Trend in Growers and Procurement Prices During the Aman and Boro Seasons Year Aman Season Procure- Growers ment Price Price (Tk./md) (Tk./md) 124 117 124 135 135 144 144 165 165 114 131 137 137 149 187 184 Boro Season Procure- Growers ment Price Price (Tk./md) (Tk./md) 124 136 124 135 135 144 144 165 165 122 140 140 158 169 149 147

1981/82 November December 1982/83 November December 1983/84 November December 1984/85 November December

May June May June May June May June

1985/86 November December 1986/87 November December 1987/88 November December 1988/89 November December 1989/90 November December 1990/91 November December 1991/92 November December 1992/93 November December 1993/94 November December 1994/95 November December 1995/96 November December 1999 November

170 170 175 175 200 200 210 210 220 220 220 220 243 243 223 223 228 228 265 265 272 272 480

171 171 181 178 192 195 203 202 207 207 241 241 246 246 191 191 198 198 279 279 286 286 580

May June May June May June May June May June May June May June May June May June May June May June May

175 175 200 200 200 200 210 210 220 220 240 240 243 243 223 223 228 228 265 265 272 272 480

175 166 189 189 160 165 193 190 206 206 230 230 232 232 164 164 194 184 244 244 211 211 495

Source: World Bank (1990), and the authors calculations for the recent period (1988/89 to 1995/96) Note: 1 Mound = 37.324 kg

( This table has been collected from FMRSP Working Paper No. 13, Title: The Domestic Rice Procurement Program in Bangladesh an Evaluation by Quazi Shahabuddin and K.M. Nabiul islam ,September 1999) Discussion: if we look on the above table that the farmers price and procurement price do not follows each other. If we consider the farmers price as market price than we will look that most of the time procurement price is above the market price except few cases. In recent few years market price was below procurement price. A group of market syndicate controls the total market since recent few years. They jointly purchase the rice from the farmers at a lower price and then sell to public procurement program. This syndicate compels the farmers to sell rice at a lower price. Moreover the most of the farmers are very needy so they do not wait until the public procurement. Another reason is lack of market information dissemination and bumper harvest. Farmers cant determine the probable price when there is a bumper harvest occurs. Comparison between market price and procurement price in recent years Year 2008 2009 2010 20011 Market price(tk/kg) 26 24 20 21 Procurement price (tk/kg) 28 25 22 23

Result and Interpretation: By analyzing all the relevant data and information it can be said the procurement price is set above the market price. Actually government support is more or less beneficial to the farmers. But due to various systematic problems and constraints the aim of public procurement of rice sometimes hampers badly. Policy recommendation: Public procurement of rice in Bangladesh is done for two important purposes. They are y To give support to the farmers by setting rice price above the production cost. y To maintain the buffer stock of food of the country Another aim is to maintain the price level by purchasing rice in bumper production season and selling rice by OMS program in the low production season. But the aim of procurement sometimes may not fulfill due to some shortcomings and constraints. Here I will suggest some policy to implement in public procurement of rice.  Enhancing the capacity and collection center to collect the rice from the remote corner of the country at a lower cost.  Appoint more employees including marketing researcher to determine the actual cost of production, procurement cost and satisfactory procurement price for the farmers.  Announce the procurement price during the planting season not in the harvesting season.

 It is recommended that these two commodities are procured by two different means as they serve two different purposes. Rice for PFDS should be procured by competitive tender at centers of consumption. Paddy for price support should be procured at centers of production. Thus a balance will be maintained. As the quantum of tendered rice will increase eventually, the paddy quantum will reduce in step.  Road and transport system and availability of suitable transport are not available. So it before execution procurement program in remote areas proper transport facilities should be developed.  Export facility should be creating if there is a huge amount of surplus.  In the near future, or right now, if the indications are right, the major portion of procurement is taking the shape of a buffer stock. Management of such a. stock is primarily different from a distribution or a current stock. Long range storage without loss of quality is the first prerequisite. Appropriate technical solution Lo this problems needs to be addressed.  Monitoring should be increased and properly done.  Need to find out the corruption and impediments from local leaders should be removing by enforcing by the government.

CONCLUSION
Public procurement system is the way of governmental necessities. But rice procurement is done not only for government need but mainly it is done for giving support to the farmers from price fall situation. Moreover it is also done for maintaining the price stability of the country. As rice is our staple food so other food grain also other commodities price also related with rice price. It is very important for the government to maintain the farmers profitability and also keeping the general price level of necessities in the range of common people. So to maintain government popularity rice price is a very crucial topic. But in recent few years procurement program is facing problems due to the business syndicate and political pressure. Moreover World Bank also creates pressure on the government to reduce subsidy gradually from agriculture i.e. rice. Nevertheless Government should remove the constraints of public procurement of rice for successful price policy and food security.

REFERENCE  Bangladesh Bureau of Statistics (BBS). 1995-96. Household Expenditure Survey.  Basak,J.K.(2001)Impacts of Increasing Production Costs on Rice Price: Implications for Food Security.  Chowdhury, Nuimuddin.1994. Causalities and cost effectiveness of Public rice procurement In Bangladesh. International Food Policy Research Institute. Bangladesh Food Policy Project. Funded by USAID under Basic Order Agreement Contract No. DAN-411 1-B-00-911200,Delivery Order No. 7.  Department of Agricultural Marketing (DAM), Ministry of Agriculture, Government of the People.s Republic of Bangladesh.  Foodgrain Stocks in Bangladesh. FMRSP Working Paper. FMRSP-IFPRI, Dhaka, Bangladesh.  Food Planning and Monitoring Unit (FPMU), Ministry of Food, Government of the  People.s Republic of Bangladesh. 1999. Database on Food Situation Bangladesh.Dhaka, Bangladesh.  Monthly Statistical Bulletin Bangladesh. Economic report.  Shahabuddin, Quazi. 1999. Nature and Extent of Fluctuations in Rice Prices in Bangladesh. FMRSP Draft Report, Mimeo.

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