Principal Investigator: Mohammad Jahangir Alam, PhD Department of Agribusiness and Marketing

1. Effectiveness of Bangladesh`s Rice Procurement System and Possible Alternatives: Supporting Farmers` Income and Sustaining Production Incentives Principal Investigator: Mohammad Jahangir Alam, PhD Department of Agribusiness and Marketing BAU, Mymensingh-2202 Draft Results Prepared for Presentation at NFPCSP Workshop Roposhi Bangla Hotel, Dhaka 1000 3 -4 July, 2013

2. Research Team

3. Introduction • 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 >production cost (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 for low-income consumers • This conflict can be avoided through • Higher govt. subsidies– BUT it has 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

4. Introduction (2) • Moreover - announcement timing is also an important decision. It could-- • encourage investment by farmers & greater input uses • improve prices when farmers engage in forced sells • Food Policy Plan of Action (2008-15): have put importance of enhancing the effectiveness of system and providing effective support to producer, while ensuring stable consumers` price • Given this backdrop, the research contributes to understand – • Effectiveness of the system in terms of impact on the farmers • Alternative system & instruments to achieve the objective of sustaining farmers` income

5. Objectives • 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

6. Study Phasing (Indicative) The study is designed to conduct into four phases Phase 1 → review, farmers stocking behaviour & proportionate of proc. from farmers & millers (literature, HIES 2010 & time series data) Phase 2→ relationships amongst different variables (time series data) Phase 3→ effectiveness & constraint of proc. system (survey data) Phase 4→ feasibility, practicality & acceptability of alternative proc. systems and of alternative methods (literature, survey in phase 3, FGD & KII)

7. Phase 1: Literature review, stocking behaviours & procurement Research Questions in Phase 1 Addressing the stocking behaviour & procurement: What are the evidences of the domestic proc. & rice price stabilization interventions? What are the stocking behaviours of farmers? What is the proportion of grain that is procured from farmers and millers?

8. 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 seasons, farm sizes, income quartiles, administrative divisions and surplus/deficit regions Econometric model of farmers` stock function Stock (change in stock) function: S=f (Xi) where S= stock (change) in stock & Xi= explanatory variables x1= size of production (& its square) x2=different sources of acquisition (e. g. payments in kind & received) x3=price x4=main occupation of household x5=size of household x6= location of household (to correlate with timing of crop in a particular location) & x6= cost of stocking (DON’T have this variable in HIES 2010), etc.

9. Preliminary results Table 1 : Disposal of paddy in Boro, Aman and Aus seasons by farm size • Source: Calculated from HIES 2010

10. Table 2 : Production and disposal of all paddy by farm size • Note: Stocks= 1.-(sum of 2. to 9.) • Source: Calculated from HIES 2010

11. Table 3: Production, disposal & stocks of all paddy by surplus & deficit districts • Source: Author`s calculated from HIES 2010 Average stock of household in the surplus districts is less than the average stocks of household in the deficit districts

12. Figure 1: Share as a percentage of production by Income quartile Percent of total production Stock is the lowest for lowest quartile & highest for highest quartile

13. Table 4: Annual production and disposal of all paddy by administrative divisions • Source: Author`s calculated from HIES 2010

14. Domestic procurement (Research question 3) • Calculation of domestic procurement from farmers and millers • Calculated total domestic procurement which is a sum of the procurement from farmers and millers • (Total domestic proc. = ∑ proc. from farmers & millers) • Calculated by season (Aman & Boro)

15. Figure 2: Procurement from farmers (Aman and Boro) Percentage of procured grain Percentage of procured grain • Figures indicate that the percentage of grain procured from farmers in both Boro & Aman is declining & it is sharply declined in the recent past years • During 1989/90 – 2011/12, only 21.35% of grain was procured from farmers (Aman) • During 1991 - 2012, only 20% of the grain was procured from farmers (Boro)

16. Figure 3: Procurement from millers (Aman and Boro) Percentage of procured grain (Boro) Percentage of procured grain (Aman) • Proportions of Aman procurement from millers were fluctuated • Proportions of Boro procurement from the millers were rising sharply. In fact, 80% of the grain was procured from the millers. • Millers are the primary source of procurement.

17. Phase 2: Estimation of relationships Research Questions in Phase 2 • What is the relationship between ---- • Production deviations from trend & government procurements ; • Production deviations from trend &government distributions; • Procurement & deviations of real market prices from trend; • Distributions & deviations of real market prices from trend ; • Procurement prices &prevailing market prices; and • Government stock & price level

18. Time Series Econometric Models • Prod. deviations from trend and govt. procurement; • Production deviations from trend and govt. distributions; Estimating trend • In doing this, we are estimating polynomial (2nd degree, 3rd degree) trend function • Y = production, T = time trend & n= order of polynomial • Other models could also be used (I, e., exponential) Y=actual procurement (distribution) & Xi= explanatory variables x1= Opening govt. stock at the start of the season x2= planned dist. of that season x3= deviation of prod. from trend x4= deviation of real (inflation adjusted) market price from average of past n years (t= 1, 2 or 3)

19. Time Series Econometric Models (contd.) Procurement & market price – where Pm=market price Pp=procurement price Government stock & market price where Pm=market price & S=government stock Will explore the relationships for • Entire data period; • Before 1992; and • 1992 & after. 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

20. Figure 4: Production deviation from trend and procurement Quntity (‘000 MT) -Aman • Results shows that until 1999, in the low production years procurement were higher • BUT later, it shows more or less similar trend • r = 0.48 Quntity (‘000 MT)- Boro • Here most of the year, we found the positive correlation between good production and procurement • r = 0.57

21. Figure 5: Production deviations from trend and public distribution Quntity (‘000 MT) • PFD was 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 high • r = 0.77

22. Phase 3 & 4 Research Questions: Addressing overall assessment, alternative systems, methods: What is the farmer`s overall assessment of the proc. system? What are the overall views of millers on the effectiveness of the system? What are the other country experiences on alternative systems & farmer`s income support? What are the feasible alternative systems & alternative methods (other than proc.) that would enhance the benefits to rice farmers?

23. Effectiveness and constraints (Questions 1 & 2) Table 5: Farmers selection (Non-participating farmers) (n=305) Table 6: Participating farmers (n = 181) Table 7: Millers’ sampling (n= 303)

24. Overall assessment, perceptions & difficulties faced by the farmers & millers Table 8 : Perception ofnon-participating farmers % of total respondents • Source: Author`s calculated from Field Survey, 2012-13

25. Table 9 : Perception ofparticipating farmers % of total respondents • Source: Author`s calculated from Field Survey, 2012-13

26. Table 11 : Perceptions of millers % of total respondents • Source: Author`s calculated from Field Survey, 2012-13

27. Table 10 : Perceptions of millers about the procurement programme • Source: Author`s calculated from Field Survey, 2012-13

28. 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, literature, FGDs, KIIs & results in the different phases are being used and in under development

29. Table 12. Matrix of policy, objectives, instruments and expected output

30. Thank You