Trade Liberalization and National Food Security:
Rice Trade between Bangladesh and India
PAUL A. DOROSH
*International Food Policy Research Institute, Washington, DC, USA
Summary. ÐFollowing a poor harvest in late 1997 and a massive ¯ood in 1998, private sector traders in Bangladesh imported several million metric tons of rice from India. This paper presents evidence that this trade, made possible by separate trade liberalizations in India and Bangladesh in the early 1990s, augmented domestic supplies and stabilized prices in Bangladesh at import parity levels. Letters of credit data indicating the participation of hundreds of importers, and a close correlation of price movements across the two countries suggest that the trade was competitive. A risk of co-incident crop shortfalls in the two countries remains, though these have occurred rarely in the past two decades. Bangladesh imports from alternative sources would also enhance food availability if another production shortfall occurs, but these imports face higher transport costs and would involve far fewer importing ®rms given the economies of scale of shipments by sea.
The positive contribution of trade liberalization to short-run food security in Bangladesh in recent years does not minimize the importance of increased agricultural productivity and rural economic growth to provide rural poor households with sucient incomes to acquire food. Nonetheless, the Bangladesh experience shows that trade liberalization oers potential bene®ts for national food security by enabling a rapid increase of food supplies following domestic production shortfalls. Ó 2001 Elsevier Science Ltd. All rights reserved.
1. INTRODUCTION
For more than ®ve decades, the governments of South Asian countries have intervened heavily in food markets. Spurred by a deter-mination to prevent a major famine such as the Great Bengal famine of 1943, both India and Pakistan (and later Bangladesh) continued various forms of state procurement, storage and distribution of food grains (mainly rice and wheat) (Tyagi, 1990; Ahmed, Haggblade, & Chowdhury, 2000; Krishnaji & Krishnan, 2000). Broad trade liberalization in India and Bangladesh in the early 1990s, that included allowing private traders to import and export food grain (though still with some restrictions), have added an important new dimension to food policy and food security in Bangladesh.
A substantial theoretical and modeling liter-ature exists on the issue of price stabilization. Economic theory suggests that unless risk aversion is very high, there are only minimal bene®ts of price stabilization for food produc-ers and consumproduc-ers, as measured in terms of consumer and producer surplus (Turnovsky, Shalit, & Schmitz, 1980; Newberg & Stiglitz, 1981). Timmer (1989) nonetheless argues that other considerations, such as the contribution
of food price stability to increased household investment in productive activities rather than in stockholding, are major bene®ts of price
stabilization. Moreover, political
consider-ations including the perceived risk of food shortages in major urban centers, lead many governments to attempt to stabilize food prices and operate public food distribution programs, with varying degrees of success (Islam & Thomas, 1996). Finally, both theory and
empirical modeling suggest that allowing
export and import parity to set ¯oor and ceiling prices, and relying on international trade to help stabilize prices can reduce the need for
2001 Elsevier Science Ltd. All rights reserved Printed in Great Britain 0305-750X/01/$ - see front matter
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*I would like to thank Raisuddin Ahmed, Ruhul Amin, M. Abdul Aziz, Carlo del Ninno, Naser Farid, Nurul Islam, Shahjahan Miah, K.A.S. Murshid, S.R. Osmani, Mahfoozur Rahman, Quazi Shahabuddin and two anonymous reviewers for their insights on Bangladesh rice markets and helpful comments on this manuscript. Thanks also to Chowdhury Shameem Mahmoud, Amzad Hossain and Anarul Kabir for able research assistance and to USAID/Dhaka who provided funding in support of this work. The usual disclaimers apply. Final revision accepted: 9 September 2000.
large government stocks and reduce costs (Pinckney, 1988; Goletti, 1994).
Following major rice production shortfalls in Bangladesh in late 1997 and again in late 1998, private sector traders imported several million metric tons of rice from India. This paper presents evidence that this trade augmented domestic supplies and stabilized prices in Bangladesh. Nonetheless, in spite of the posi-tive contribution of trade liberalization to short-run food security in Bangladesh in recent years, widespread concerns remain regarding possible adverse aects on long-term food security. In particular, can the private sector and international markets be relied on as a source of food grain? More broadly, what are the implications of trade liberalization for public sector price stabilization and food distribution?
Section 2 of this paper presents an overview of the rice economies of Bangladesh and India, comparing production patterns and the role of the public sector in rice markets. Trade policy reforms and changes in the level of trade ¯ows are also highlighted. Section 3 describes the surges in crossborder trade of rice between
India and Bangladesh following recent
production shortfalls in Bangladesh. This section also discusses the uncertainty regarding the volume of the rice trade, examining the
discrepancy between Indian export and
Bangladesh import data and providing esti-mates of Bangladesh net availability and consumer demand for rice. Section 4 explores the impacts of the trade with India on Bangladesh prices and the reliability of the
Indian rice trade as a source of rice supply for Bangladesh. Section 5 summarizes and discus-ses the implications for Bangladesh food policy.
2. THE RICE ECONOMIES OF BANGLADESH AND INDIA
The rice economy of Bangladesh shares much in common with that of India, particularly the eastern states of West Bengal, Bihar, Orissa and Andhra Pradesh. These regions share the same colonial history, as well as similar agro-ecolo-gies and crop technoloagro-ecolo-gies. Nonetheless, there are substantial dierences between Bangladesh and India in terms of the overall importance of rice in food consumption, seasonal patterns of production, levels of public stocks, channels of public foodgrain distribution and trade policy. Together, these factors have heavily in¯uenced the evolution of external trade in rice of the two countries.
(a) Rice production, markets and consumption
No single foodgrain dominates India's food consumption as does rice in Bangladesh. Rice accounts for 72.8% of calories consumed in
Bangladesh, but only 33.3% of calories
consumed in India (Table 1). In India, wheat (20.4%) and other foodgrains (sorghum, millet and maize, 9.4%) are the major foodgrains in substantial regions of the country. Thus, on a national basis, though rice is the leading food in India in terms of calories consumed, annual
Table 1. The Bangladesh and India rice economies, 1997±98a
Bangaladesh India Dierence (1))(2)
(1) (2) (3)
Population (million) 125.0 966.2 )841.2
Rice Production ('000 MTs) 18,862 83,508 )64,646
Aman(kharif) ('000 MTs) 8,850 72,500 )63,650
Boro/aus(rabi) ('000 MTs) 10,012 11,000 )988
Imports ('000 MTs) 1,203 33 1,170 Exports ('000 MTs) 0 5,770 )5,770
Net imports ('000 MTs) 1,203 )5,737 6,940
Net imports/production (%) 6.4 )6.9 13.2
Government rice stocks ('000 MTs) 350 12,883 )12,533
Government rice stocks/production (%) 1.9 15.4 )13.6
Rice consumption (kg/cap/year) 152.3b 83.9 68.4
Calorie share (%) 72.8b 33.3 39.4 aSource: (1) Bangladesh data from, FPMU, 1999, except for rice consumption and calorie share.
(2) India data from FAO, 2000, and CMIE, August 1998.
bNotes: FAO, 2000.
rice consumption was only 83.9 kg per capita in 1997±98, only half of per capita rice consump-tion in Bangladesh. Nonetheless, given the
nearly eight-fold dierence in population
between the two countries (966 million people in India compared with 125 million people in Bangladesh in 1997±98), total rice consumption in India is 4.3 times greater than in Bangladesh, and total wheat consumption is 21 times greater than in Bangladesh.
Nearly 90% of India's rice is produced in
the monsoon season (called kharif in India
and aman in Bangladesh). Rice seedlings for
this rain-fed crop are typically transplanted in July or August and the rice is harvested in November or December. During this season, India's production of rice is about 70 million metric tons (milled equivalent), nearly eight times that of Bangladesh (about nine million tons). In contrast, India's rice production
during the drier, winter (rabi) season is
approximately the same magnitude as in the
corresponding boro and aus seasons in
Bangladesh (11.0 million tons in India and
10.0 million tons in Bangladesh in 1997±98).1
Thus, Bangladesh rice production is only a small share of the total regional production of
rice during the aman (kharif) season, while it
is approximately half of the regional
produc-tion in the boro/aus (rabi) season (Dorosh,
1999).
Rice production in India is concentrated in the Ganges river basin, Punjab, and the southern states of Andhra Pradesh and Tamil
Nadu. During the rabi (boro/aus) season, rice
production in India is much more concen-trated, however, with two states (Andhra Pradesh and West Bengal), together account-ing for 65.9% of production. Overall, the state of West Bengal produces about 12.6 mn MTs of rice annually (equal to 15.5% of India's production and about two-thirds of Bangla-desh rice production). Assam, which borders Bangladesh on the north, has an annual production of about 3.3 mn MTs. The two other states bordering Bangladesh (Meghalaya and Tripura) produce little rice, less than 0.7 mn MTs in total. Average rice yields in West Bengal from 1995±96 to 1997±98 were 2.14 MTs/hectare (rice equivalent), 17% higher
than in Bangladesh (1.82 MTs/hectare).
Average yields in Rajshahi division in north-west Bangladesh, where high-yield varieties (HYVs) have been widely adopted, were even closer to those in West Bengal (2.00 MTs/ hectare).
(b) Government policy and public foodgrain distribution
The public foodgrain distributions in India and Bangladesh share much in common, in part a carry-over from their common colonial experience. In both countries, foodgrain is typically procured at ®xed prices. In Bangla-desh, most government procurement is done through purchases of grain directly from farmers or traders at the ®xed procurement
price. 2In India, ®xed procurement prices and
state procurement targets for rice and wheat are set annually by the central government, and state government institutions or cooperatives procure grain on behalf of the Food Corpora-tion of India (FCI). Non-basmati rice is procured through a levy on rice millers that involves compulsory sales at below-market prices (Pal, Bahl, & Mruthyunjaya, 1993; Dorosh, 1999).
Until Bangladesh instituted major reforms in the early 1990s, subsidized sales of grain through ration systems were major distribution channels in both countries. In Bangladesh, between 1988±89 and 1990±91, on average 612,000 MTs of rice and wheat were sold through the Rural Rationing and the Urban Statutory Rationing channels, 26.7% of total foodgrain distribution (which averaged 2.294 mn MTs). Total sales channels, including open market sales and other programs, accounted for 63.5% of distribution, with relief and food-for-work channels accounting for the other 36.5% of distribution in these years. Reforms in
1991±92 and 1992±93 closed the Rural
Rationing and Statutory Rationing channels, in an eort to improve the targeting of foodgrain distribution, as well as to reduce ®scal costs
(Ahmed et al., 2000). As a result, both the
percentage and total amount of foodgrain distributed through targeted and relief channels increased in the mid- to late-1990s, averaging 1.166 mn MTs per year from 1995±96 to 1997± 98, 72.8% of the 1.603 mn MTs total annual average distribution during these three years.
late 1990s included dierential sales prices and ration sizes for households Above the Poverty Line (APL) and Below the Poverty Line (BPL).
(c) Rice trade by Bangladesh and India
India's trade in non-basmati rice up until the mid-1990s was small, and generally limited to public sector exports or imports. Total rice exports in the 1980s averaged only 415,000 MTs per year, with basmati rice accounting for the bulk of these exports (Table 2). In three years, 1984±85, 1988±89 and 1989±90, over 500,000 MTs of rice were imported. In the early 1990s, total rice export trade increased some-what to reach 903,000 MTs in 1993±94. Non-basmati exports accounted for 42.3% of the total volume of rice trade from 1992±93 to 1994±95, with exports ranging from 243,000 to 448,000 MTs (Table 3).
Private sector exports were liberalized in India in October 1994, though still subject to export quotas. At the same time, FCI stocks of rice soared from 8.5 mn MTs of rice on January 1, 1993 to 17.4 mn MTs on January 1, 1995, as successive good harvests and increases in procurement combined with a reduction in
otake caused by an increase in sales prices. In order to dispose of aging rice stocks, FCI began exporting large quantities of rice, and as a result, non-basmati rice exports (both public and private) surged to 4.54 mn MTs in 1995±
96.3 Thereafter, non-basmati rice exports
continued at high levels, averaging 3.17 mn MTs per year from 1995±96 to 1998±99. According to Government of India data (CMIE, 1999a), Bangladesh was the leading importer in this period, with 26.4% of the total value of non-basmati exports, followed by South Africa (10.7%) and Indonesia (7.3%). In all, Africa's share of India's exports was 27%. Much of these exports were lower quality, broken rice.
A major change in macroeconomic policy in India, the gradual liberalization of trade and a depreciation of the rupee, also played a major role in increasing the ®nancial returns from exports of rice. During 1990±96 the rupee was devalued by 50% relative to the US dollar, from 17.50 to 35.43 Rs/$ (IMF, Various Issues). Given cumulative in¯ation in India of 74.6%, and a 9.8% increase in the international price of traded goods (here proxied by the US wholesale price index), the 102% decline in the nominal
Table 2. Rice production, trade and stock changes in India, 1980±81 to 1997±98a
Year Production ('000 MT)
Imports ('000 MT)
Stock changes ('000 MT)
Exports ('000 MT)
Total supply ('000 MT)
Net imports/total supply (%) 1980±81 53,568 4 )7,006 480 46,086 )1.0
1981±82 53,282 52 2,080 970 54,445 )1.7
1982±83 47,205 21 7,037 538 53,724 )1.0
1983±84 60,062 208 )10,118 231 49,921 0.0
1984±85 58,398 501 )538 199 58,161 0.5
1985±86 63,910 52 )6,421 316 57,225 )0.5
1986±87 60,550 22 3,244 254 63,563 )0.4
1987±88 56,921 26 6,733 390 63,290 )0.6
1988±89 70,948 706 )10,287 351 61,016 0.6
1989±90 73,577 593 )3,377 424 70,370 0.2
1990±91 74,382 146 )3,155 507 70,867 )0.5
1991±92 74,732 100 3,478 680 77,630 )0.7
1992±93 72,704 176 4,786 582 77,083 )0.5
1993±94 80,440 139 )1,398 770 78,411 )0.8
1994±95 81,080 63 )1,155 903 79,084 )1.1
1995±96 79,668 53 4,595 4,927 79,389 )6.1
1996±97 81,374 33 6,503 2,520 85,390 )2.9 1997±98 83,508 33 5,770 2,142 87,170 )2.4
Average (1980±81 to 1989±90)
59,842 219 )1,865 415 57,780 )0.3
Average (1990±91 to 1997±98)
78,486 93 2,428 1,629 79,378 )1.9
aSource: Food Balance Sheets, FAO, 2000.
exchange rate during 1990±96 resulted in a real exchange rate depreciation of approximately 27%. This real depreciation increased the competitiveness of producers of tradeable goods in India, including rice producers.
Bangladesh, in contrast, has been a consis-tent net importer of rice throughout the last two decades, though as in India, substantial increases in rice production have reduced net imports over time. In the 1980s, rice imports (exclusively by the public sector) averaged 266,000 MTs per year (Table 4). During the 1990s, rice imports fell to an average of 133,000 MTs, though there have been substantial year-to-year ¯uctuations.
Throughout the 1980s and early 1990s, Thailand was the major source of Bangladesh rice imports. The 1994 liberalization that permitted private sector imports coincided with India's rice trade liberalization and build-up of public rice stocks, however, and dramatically changed the rice import trade. India, which enjoys the advantages of lower transport costs, reduced time of delivery (for private sector imports) and the possibility of smaller import
contracts delivered by truck, quickly replaced Thailand as the major source of imports of Bangladesh. In 1996±97 and 1997±98, 91.6% of Bangladesh rice imports came from India, with the next largest import sources, Pakistan, Vietnam and Thailand, each accounting for only 1±3% of the trade (Government of Bangladesh BBS, various years).
3. PRIVATE SECTOR RICE TRADE BETWEEN INDIA AND BANGLADESH
(a) Production shortfalls and Bangladesh rice imports from India
Soon after the liberalization of international trade of rice in 1994, Bangladesh imported substantial quantities of rice from India during a period of three successive poor Bangladesh rice harvests. Severe drought reduced the size of
the aman 1994±95 harvest; fertilizer shortages
reduced the size of the 1995 boro crop;4 and
further bad weather reduced the 1995±96aman
crop, as well.5 Given the poor harvests, there
Table 3. India total rice exports, 1992±93 to 1998±99a
1992±93 1993±94 1994±95 1995±96 1996±97 1997±98 1998±99 Average (1995±96 to
1998±99) Total exports
(MTs)
580,409 770,000 890,620 4,914,013 2,512,197 2,389,066 4,940,777 2,459,342
Non-basmati
255,619 242,773 448,495 4,540,699 1,989,040 1,795,743 4,340,175 3,166,414 Basmati 324,790 527,227 442,125 373,314 523,157 593,323 600,602 522,599 Total exports
(Rs.lakh)
97,560 128,672 120,579 456,808 317,236 337,100 620,080 288,537
Non-basmati
17,496 22,546 34,047 371,741 192,472 168,538 433,455 291,552 Basmati 80,064 106,126 86,532 85,067 124,764 168,562 186,625 141,255 Average price (Rs/kg)b
Non-basmati
6.84 9.29 7.59 8.19 9.68 9.39 9.99 9.3 Basmati 24.65 20.13 19.57 22.79 23.85 28.41 31.07 26.5 Exchange rates
Rs/$ 26.41 31.36 31.40 33.46 35.50 37.12 42.08 37.0 Tk/$ 39.00 39.84 40.24 40.47 42.22 44.71 47.59 29.2 Average price ($/MT)
Non-basmati
259.15 296.10 241.78 244.66 272.57 252.84 237.33 251.9 Basmati 933.35 641.78 623.35 680.98 671.77 765.35 738.43 714.1
aSource: Trade data in rupees and metric tons from CMIE, Agriculture, p. 401, September 1999. b
Table 4. Bangladesh foodgrain trade, 1980±81 to 1998±99a
Year Food aid Commercial Public import Private import Total import Rice Wheat Total Rice Wheat Total Rice Wheat Total Rice Wheat Total Rice Wheat Total 1980±81 19 732 751 65 260 325 84 992 1,076 0 0 0 84 992 1,076 1981±82 30 1,111 1,141 114 0 114 144 1,111 1,255 0 0 0 144 1,111 1,255 1982±83 131 845 976 186 682 868 317 1,527 1844 0 0 0 317 1527 1844 1983±84 117 1,324 1,441 62 553 615 179 1877 2056 0 0 0 179 1,877 2,056 1984±85 125 1,181 1,306 570 717 1287 695 1,898 2,593 0 0 0 695 1,898 2,593 1985±86 27 1,060 1,087 10 103 113 37 1,163 1,200 0 0 0 37 1,163 1,200 1986±87 108 1,317 1,425 150 192 342 258 1,509 1,767 0 0 0 258 1,509 1,767 1987±88 192 1,595 1,787 398 732 1130 590 2,327 2,917 0 0 0 590 2,327 2,917 1988±89 40 1,316 1,356 21 759 780 61 2,075 2,136 0 0 0 61 2,075 2,136 1989±90 41 908 949 258 326 584 299 1,234 1,533 0 0 0 299 1,234 1,533 1990±91 10 1,530 1,540 0 37 37 10 1,567 1,577 0 0 0 10 1,567 1,577 1991±92 39 1,375 1,414 0 150 150 39 1,525 1,564 0 0 0 39 1,525 1,564 1992±93 19 716 735 0 93 93 19 809 828 0 355 355 19 1,164 1,183 1993±94 0 654 654 0 0 0 0 654 654 74 238 312 74 892 966 1994±95 0 935 935 230 390 620 230 1,325 1,555 583 430 1,013 813 1755 2568 1995±96 1 737 738 487 352 839 488 1,089 1,577 650 200 850 1,138 1,289 2,427 1996±97 10 608 618 9 103 112 19 711 730 15 222 237 34 933 967 1997±98 0 549 549 0 650 650 0 1,199 1,199 993 142 1,135 992.6 1,341 2,334 1998±99 59 1,174 1,233 334 429 763 393 1,603 1,996 2,663 805 3,468 3,056 2,408 5,464 Average
(1980±81 to 89±90)
83 1,139 1,222 183 432 616 266 1,571 1,838 0 0 0 266 1,571 1,838 Average
(1990±91 to 98±99)
15 920 935 118 245 363 133 1,165 1,298 553 266 819 686 1,430 2,117
a
Source: Government of Bangladesh, Ministry of Food (1999a).
WORLDD
EVELO
PMENT
was a substantial excess of demand over supply at import parity prices, so that 1.127 mn MTs (an average of 66,000 MTs per month), were imported by the private sector, in addition to 704,000 MTs imported by the government.
(b) The 1997±98 aman rice shortfall in Bangladesh
Rice ¯ows between the two countries came nearly to a halt in 1996 and 1997, however, as favorable weather and stable input supplies
helped boost rice production and drop
domestic market prices below import parity
levels (Figure 1). 6 But, following another
poor aman rice harvest in Bangladesh in
November/December, 1997 rice prices rose sharply, and within two months of the start of
theaman harvest, again reached import parity
levels. 7
Despite pressure for immediate large-scale foodgrain imports, the Bangladesh Ministry of Food opted for a cautious strategy involving only moderate increases in government imports of rice and wheat. Instead, the government
encouraged private sector food imports
through removal of a surcharge on rice imports, and increased open market sales (OMS) and distribution to poor households,
while maintaining adequate foodgrain stock levels. Given the price incentives for imports and the large gap between domestic supply and demand, 917,000 MTs of rice were imported by the private sector through ocial channels from December 1997 to May 1998.
(c) Rice imports after the 1998 Bangladesh ¯ood
A good boro rice harvest in May 1998
brought a sharp decline in rice imports from India as prices dropped below import parity. But from July to September, ¯oods in
Bangla-desh destroyed 300,000 MTs of the aus crop
and caused extensive damage to seedbeds and
transplanted seedlings for the aman crop. 8
Government rice policy was based on the realization that government imports and food aid, alone, would not be sucient to make up the projected 2.2 mn MTs shortfall in food
grain supply before the wheat andboroharvests
in April±June of 1999.
As the Government of Bangladesh continued its policy of encouraging private sector imports, the private sector imported more than 200,000 MTs of rice per month from August 1998 to March 1999, with private rice imports reaching 288,000 MTs in January and 345,000 MTs in
February 1999. 9
Figure 1.Rice prices and quantity of private imports in Bangladesh, 1993±99. Note: From November 1998, the carrying cost has increased by 1.1 Tk/kg, from 2.0 Tk/kg to 3.1 Tk/kg. Source: Dorosh (1999) calculated using data from
In comparison with private sector rice
imports, government interventions in the
domestic rice market were small, only 399,000 MTs from July 1998 to April 1999. Private sector rice imports, equal to 2.42 mn MTs in this period, were thus 6.1 times larger than
government rice distribution.10
Thus, because of the poor 1997±98 aman
harvest and the ¯ood-damaged ausand aman
harvests in 1998±99, Bangladesh rice prices (wholesale Dhaka) remained close to the import parity prices of rice originating from
India for most of calendar year 1998. 11
Wholesale prices after the ¯ood were in fact
remarkably stable. The national average
wholesale prices of coarse rice remained in the range of 14.14±14.83 Taka/kg from September
1998 to mid-April 1999.12 With a good boro
harvest in April and May, market prices fell by
19%, from 14.46 Tk/kg (aman coarse rice) in
the third week of April to 11.74 Tk/kg (boro
HYV rice) in the second week of May, bring-ing to an end a nine-month period of high rice prices and concerns about post-¯ood food availability.
(d) Alternate estimates of the volume of rice trade
The behavior of market prices in Bangladesh suggests that rice imports from India were a major source of supply. The volume of this rice trade remains somewhat uncertain, however, for two major reasons. First, Bangladesh import data dier substantially from India export data. Second, calculations of total availability of rice in Bangladesh are not consistent with market price movements and estimated rice demand.
(e) Comparisons of import and export data
Table 5 compares Bangladesh rice import and India rice export data since the liberaliza-tion of private sector rice trade by Bangladesh
in 1994.13As shown, the Bangladesh customs
data indicate that 3.172 mn MTs of rice were imported from India from April 1998 to March 1999, 2.827 mn MTs (89.1%) by the private sector. Indian data on the quantity of rice exports to Bangladesh were unavailable, but
Table 5. Comparison of Bangladesh rice import and India rice export data, 1994±95 to 1998±99a
1994±95 1995±96 1996±97 1997±98 1997±98 1998±99 Bangladesh imports from India ('000 MTs)
Private sector 327 862 133 505 505 2,827 Public sector 6 674 47 5 5 345 Total 333 1,536 180 510 510 3,172 Other public rice imports
(Food Aid)
0 1 5 0 0 58
India exports to Bangladesh (mn Rs)
Non-basmati 887 9,503 1,453 3,599 3,599 22,102
Basmati 2 15 0 8 8 43
Total 889 9,518 1,453 3,608 3,608 22,145 Price of India exports to Bangladesh (Rs/kg)
Non-basmati 7.59 8.19 9.68 9.39 8.65 9.99 Basmati 19.57 22.79 23.85 28.41 28.41 31.07 Exchange rate (Rs/Tk) 0.780 0.825 0.841 0.826 0.826 0.883 Price of India exports to Bangladesh (Rs/kg)
Non-basmati 9.73 9.93 11.51 11.37 10.47 11.32 Basmati 25.08 27.63 28.37 34.40 34.40 35.21 India exports to Bangladesh ('000 MT est.)
Non-basmati 116.8 1160.7 150.1 383.5 416.2 2213.1 Basmati 0.1 0.7 0.0 0.3 0.3 1.4 Total 116.9 1161.4 150.2 383.8 416.5 2214.5 Ratio India exports/
Bangladesh imports (Total rice)
35.1% 75.6% 83.4% 75.3% 81.7% 69.8%
aData shown are for April±March ®scal years.Source: Calculated from CMIE (1999a,b) and FPMU.
this number can be approximated using the values of basmati and non-basmati rice exports to Bangladesh and the average prices of total
Indian exports of these two types of rice. 14The
quantity of India's rice exports to Bangladesh in 1998±99, thus calculated, is only 2.215 mn MTs, 958,000 MTs (30.2%) less than the Bangladesh customs ®gures. The data for 1997± 98 are similar: the calculated volume of India's rice exports to Bangladesh is 384,000 MTs, 24.7% less than the ®gure from Bangladesh customs. Note that the Taka average price of exports used here (11.3 Tk/kg in 1998±99), is not unreasonably high given a wholesale price in Dhaka of 14±14.5 Tk/kg for coarse rice and an estimated 2.0±2.5 Tk/kg marketing margin between Indian land ports and Dhaka whole-sale.
Using a lower average export price raises the calculated volume of exports. For example, evaluated at the average wholesale price of Perimal rice in Delhi, calculated rice exports from India rise to 417,000 MTs and 2.372 mn MTs in 1997±98 and 1998±99, respectively, 19.3% and 26.2% below the Bangladesh ®gures for these years.
One possible explanation for the discrepan-cies in the data is that other commodities which faced import duties were falsely declared as rice, for which the import duty was zero. For example, in June 1999 the import duty was 37.5% for cement, most fresh fruit and spices, 25% for sugar and 5% for Single Super Phos-phate (SSP) fertilizer and mustard seeds (Government of Bangladesh, 1999a,b). Capital ¯ight from Bangladesh might also provide part of the explanation, as Bangladesh importers might have overinvoiced the imports, enabling excess payments to counterparts in India. Of course, it is possible that there are simply reporting mistakes in one or both countries,
involving double-counting of imports in
Bangladesh or under-counting of exports in India. A perfect match between the data of the two countries would in any case be almost impossible because of likely dierences in reporting periods. There are substantial dier-ences between Bangladesh import and Indian export data for total trade as well. India's total export ®gure for 1997±98 is higher, not lower, than Bangladesh total import ®gure of 47.2 billion Tk by 13.5 billion Tk (28.7%), though the two sources are not strictly comparable because of a dierence in ®scal years. The major discrepancy is in trade of manufactured goods, for which Indian data are more than
eight times higher than the Bangladesh data (26.0 billion Tk compared with 3.0 billion Tk). (CMIE, 1999a; Government of Bangladesh, 1999a,b).
(f) Rice availability and market prices in Bangladesh
Examination of calculated rice availability and movements in market prices in Bangladesh give another indication of the volume of rice imports from India in recent years (Table 6). In 1996±97, the most recent Bangladesh ®scal year in which private imports were negligible (only 35,000 MTs), net supply (calculated as the sum of net production, net government distribution (o-take less domestic procurement), and private imports, assuming no change in private stocks), was 17.259 mn MTs. Using the 1996± 97 level of per capita consumption and the real price of rice as a base, per capita demand of rice in each period is calculated using the percent-age change in the real price of rice and an assumed own-price elasticity of demand of rice
of)0.15.15Then, using the level of population
in each period, total rice consumption is esti-mated. Finally, the dierence between net supply and the calculated demand is reported as the implicit private stock change.
Thus, for example, real prices of coarse rice (national average) in the December±April
period following the 1996±97amanrice harvest
averaged 9.57 Tk/kg, 0.63% higher than the average real price for 1996±97. Assuming an own-price elasticity of demand for rice of 0.15, per capita consumption of rice fell by 0.09%. Total demand for the period is estimated at 7.155 mn MTs, resulting in an implicit private stock change of 1.61 mn MTs between the start of December 1996 and the end of April 1997. This estimated stock change can be considered a normal change in private stocks for this period given the seasonality of production and prices.
Similar calculations for the December 1997± April 1999 period (consisting of a full year of harvests, plus the ¯ood-damaged December
1998amancrop), suggest that in response to the
change in private stocks of this magnitude seems highly unlikely given that the periods are de®ned to end just before major harvests.
Three other major factors might account for
this large discrepancy between calculated
demand and net supply: overestimate of
production, overestimate of imports and
underestimate of consumption. Since produc-tion is the largest single determinant of the supply and the implicit stock change, a rather small percentage change in production esti-mates could account for the dierence between net supply and estimated demand. For exam-ple, a 9.1% overestimation of total net rice production of the four rice harvests from December 1997 to April 1999 of 23.53 mn MTs (net of 10% for seed, feed and wastage), would account for the entire excess implicit stock change. Similarly, the 1.083 mn MTs total discrepancy between Bangladesh import and
Indian export data reported in Table 5 is equal to about half (55.5%) of the excess implicit stock change.
Plausible changes in the slope of the demand curve, as measured by the own-price elasticity of demand, have a smaller eect on the calcu-lations of implicit stock change. A less
price-responsive (more price-inelastic) demand
implies a smaller reduction in demand follow-ing the large price increases, and thus a smaller implicit stock increase. But, even with an own-price elasticity of demand of zero (as compared
to )0.15 used in Table 7), the excess implicit
stock change is still 923,000 MTs 16.
In principle other factors could aect the calculations of implicit stock change including demand factors such as shifts in income or crossprice eects. But given that the own-price elasticity of rice appears to be rather small, and that little widespread per capita income growth
Table 6. Estimated rice demand and implicit private stock change, 1996±97 to 1998±99a
1996±97 1996±97 1997 1997±98 1997±98 1998 1998 1998±99 Total
year
Aman Boro,Aus Aman Aman
(Est.) (mn MTs, unless otherwise noted)
Rice Production 18.884 9.550 9.334 8.850 8.000 9.595 8.700 7.700
Aman 9.550 9.550 0.000 8.850 0.000 0.000 0.000 7.700
Boro 7.460 0.000 7.460 0.000 0.000 7.979 7.300 0.000
Aus 1.874 0.000 1.874 0.000 0.000 1.616 1.400 0.000 Losses, seed, etc.
(10%)
1.888 0.955 0.933 0.885 0.800 0.960 0.870 0.770 Net production 16.996 8.595 8.401 7.965 7.200 8.636 7.830 6.930 Dom Proc (Dec±
Apr)/(May±Nov)
0.444 0.201 0.243 0.040 0.100 0.322 0.304 0.057 Otake from
govern-ment stocks
0.672 0.365 0.307 0.299 0.337 0.365 0.315 0.170 Private imports 0.035 0.004 0.031 0.758 1.092 1.285 0.851 1.472 Supply less private
stock change
17.259 7.155 10.118 6.999 6.999 9.877 9.877 7.039 Demand 17.259 7.155 10.118 6.999 6.999 9.877 9.877 7.039 Implicit private stock
changeb
0.000 1.608 )1.623 1.983 1.530 0.087 )1.185 1.476
Stock change rela-tive to 1996±97c
0.000 0.000 0.375 3.152 1.709 )0.132
Price of rice (Tk/kg) 9.678 9.572 9.754 12.982 12.982 13.240 13.240 14.402 Real price (Tk/kg)
(1996±97 prices)
9.512 9.572 9.453 12.356 12.356 12.362 12.362 13.236 Per capita demand
(kg/period)
70.443 58.648 82.261 56.444 56.444 79.017 79.017 55.865 Change in per capita
demand
0.00% )0.09% 0.09% )3.85% )3.85% )3.85% )3.85% )4.83%
aSource: Author's calculations.
bAlso includes possible overestimates of production and imports, and underestimates of consumption. c
Equals the dierence between the implicit stock change in the season speci®ed with the implicit stock change in the same season in 1996±97.
own-price elasticity of rice demand
1996±97 1996±97 1997 1997±98 1998 1998 1998±99 1998±99 Total Total year Aman Boro,aus Aman Boro,aus Boro,aus Aman Aman
Dec±Nov Dec±Apr May±Nov Dec±Apr May±Nov Jun±Nov Dec±Apr Dec±May Dec 97±Apr 99 (million metric tons)
Elasticity0.0
Implicit private stock changeb
0.000 1.601 )1.613 1.703 )0.309 )1.581 1.119 0.000 2.512
Stock change relative to 1996±97c
0.000 0.000 0.102 1.304 )0.482 0.923
Elasticity)0.1
Implicit private stock changeb
0.000 1.606 )1.619 1.891 )0.044 )1.315 1.359 0.000 3.206
Stock change relative to 1996±97c
0.000 0.000 0.285 1.576 )0.247 1.614
Elasticity)0.15
Implicit private stock changeb
0.000 1.608 )1.623 1.983 0.087 )1.185 1.476 0.000 3.546
Stock change relative to 1996±97c
0.000 0.000 0.375 1.709 )0.132 1.953
Elasticity)0.2
Implicit private stock changeb
0.000 1.610 )1.626 2.074 0.215 )1.057 1.592 0.000 3.881
Stock change relative to 1996±97c
0.000 0.000 0.464 1.841 )0.018 2.286
aSource: Author's calculations. b
Also includes possible overestimates of production and imports, and underestimates of consumption.
cEquals the dierence between the implicit stock change in the season speci®ed with the implicit stock change in the same season in 1996±97.
TRADE
LIBERALIZA
TION
AND
NATION
AL
FOOD
SECURITY
was likely in this period that included two major rice production shortfalls and a major ¯ood, signi®cant positive income eects on demand seem unlikely. Similarly, given the low crossprice eects of other prices on rice consumption (owing to the large budget share of rice), crossprice eects are likely also to be negligible.
The above calculations strongly suggest that
total supply has been overestimated for
December 1997±May 1999. An overestimate of Bangladesh rice imports is insucient in itself to explain the large implicit stock change (assuming these imports were at least as large as stated in the India export data). Nonetheless, an overestimate of imports could account as much as about half of the dierence between net supply and estimated rice demand.
4. BANGLADESH NATIONAL FOOD SECURITY: IMPLICATIONS OF TRADE
WITH INDIA
(a) Market prices in the absence of private sector trade
Though the quantity of private sector imports from India is uncertain, it is clear that this trade substantially augmented Bangladesh rice supplies in 1997±98 and 1998±99. One measure of the impact of this trade on national food security in Bangladesh is to compare actual prices and imports with estimates of prices and imports in the absence of private sector imports from India. Given the average wholesale price of coarse rice in Dhaka of 13.3 Tk/kg in 1998±99, rice imports from December 1997 to November 1998 were 2.043 mn MTs (according to the Bangladesh customs data). Had rice imports from India not been available, the next lowest cost source for private
import-ers would have been Thailand, 17for which the
import parity price of 15% broken rice in Dhaka in the same period was 16.1 Tk/kg. Given the 20.9% increase in import parity price, estimated rice demand would fall by between 3.2% and 6.3%, assuming an own-price
elas-ticity of rice demand of )0.15 to)0.3. In this
case, rice imports would decline by
approxi-mately 500,000±1 mn MTs.18
If private sector imports were unavailable (or banned) from any source, then, with no change in government imports, total supply would have been 12.1% less (apart from private stock changes) and rice prices could have risen by 40±
60%, to an average of between 18.7 and 21.3
Tk/kg.19 Such an increase in the rice price
level would likely have been unacceptable to the Government of Bangladesh and public sector imports would have been increased. But public sector imports of a magnitude equal to private sector ¯ows would have been highly unlikely.
During the 1998 calendar year alone, private sector imports, mainly from India, reached 2.26 mn MTs. Government imports and subsidized sales of this magnitude were simply not feasi-ble. Had the government of Bangladesh imported this grain itself, the average cost of the imported rice delivered to local delivery points would have been approximately 14.9± 15.9 Tk/kg, 1.0±2.0 Tk/kg above the private sector import costs, due to additional market-ing costs totalmarket-ing US$50±100 million. More-over, if the government received a net price of 11.5 Tk/kg (equal to the Open Market Sales price of 12.0 Tk/kg less 0.5 Tk/kg OMS dealer's commission), the total unit subsidy would have been 3.4±4.4 Tk/kg, and the total ®scal cost would have been US$160±210 million.
(b) Competitiveness of the private sector import trade in Bangladesh
In spite of the potentially high costs of massive government imports, such expenditures might be deemed necessary if there was evi-dence that private traders were manipulating the market. One indication that the rice market was competitive in Bangladesh was that the margin between wholesale prices in Dhaka and
India remained relatively low and stable.20
Data from letters from both 1994±95 and 1998 suggest that a large number of traders partici-pated in rice imports, another indication of a
competitive market.21
Letter of credit data from 1994±95, indicate that most of the rice imported from India came in small lots. The average size of the 1,251 shipments of rice in 1994±95 was only 707 MTs. From January to mid-September 1998, the average lot size was even smaller, only 268.7 MTs per letter of credit for the 3,291 letters of credit issued. Moreover, these letters of credit were opened by 793 dierent traders, with an average amount of imports per trader of only 1115.3 MTs of rice. The largest 10 traders (in terms of total imports) imported 142,369 tons, 16% of the total. Given this broad participation in the rice import trade, and the small share of the largest suppliers, it appears that there has
been little scope for individuals or a small group of traders to signi®cantly aect market prices by restricting market supply (Dorosh, 1999).
Private sector imports from Thailand are likely, however, to involve far fewer traders because of economies of scale in sea shipments. Whereas, crossborder trade involves shipments of approximately 10 MTs per truck or 70 MTs per railway wagon (generally grouped together in a rack of 24 wagons carrying about 1,600 MTs), typical ocean shipments involve 10,000± 15,000 MTs of rice. Thus, instead of hundreds of participating traders, it is likely that only the larger traders would be able to ®nance these large shipments. Of course, competition is still possible even if the number of importers is only
®ve or 10, but the risk of collusion is high. 22
(c) The reliability of the Indian rice market
Fortunately for Bangladesh, market supplies of rice in India in 1998±99 were plentiful.
Production of the kharif rice crop was 70 mn
MTs, only about 2.6% below the 1997±98 bumper crop. Moreover, Food Corporation of India rice stocks on October 1, 1998 were quite high (8.7 mn MTs), nearly 3 mn MTs above the buer stock norm of 6 mn MTs for that date. Wheat stocks were even higher: 15.8 mn MTs on September 1, 1998.
Large-scale private imports from India were
possible in 1998±99 because with large
government stocks of foodgrain and a good rice harvest, the Government of India was willing to allow exports. Had stocks and/or production been lower, an export quota or even an export ban could have been imposed. One important factor, then, is the probability that both Bangladesh and India will have poor rice harvests in the same year.
As shown in Table 8, from 1971±72 to 1998± 99, total production of rice in Bangladesh fell below 5% or more below trend in only four years: 1971±72, 1972±73, 1994±95 and 1998±99. India's production has been more variable over the period as a whole, with six years below trend: 1974±75, 1976±77, 1979±80, 1982±83 1986±87 and 1987±88. But, from 1988±89 to 1998±99, in no year did India's annual rice production fall more than 5% below trend.
One reason for the greater stability in
Bangladesh annual production is that theboro
harvest, coming only after about ®ve months of
theamanharvest, acts as a natural stabilizer of
domestic production. Poor aman harvests are
often followed immediately by good boro
harvests due to greater price incentives for production, enhanced government extension and input supply eorts, and a desire on the part of farmers to build up own-stocks of rice.
Table 8. Seasonal rice production in Bangladesh and India and percentage deviation from trend, 1981±1999a
Year Bangladesh India
Amanprod Percentage deviation
Total prod Percentage deviation
Kharif
prod
Percentage deviation
Total prod Percentage deviation (000 MT) (000 MT) (000 MT) (000 MT)
1980±81 7,962 5.72 13,880 2.67 50,090 3.11 53,630 0.67 1981±82 7,208 )5.70 13,629 )1.62 49,245 )1.58 53,250 )3.25
1982±83 7,603 )1.97 14,215 0.19 42,697 )17.08 47,120 )17.04
1983±84 7,937 0.88 14,509 )0.09 55,052 3.96 60,100 2.62
1984±85 7,931 )0.61 14,623 )1.58 53,782 )1.16 58,340 )3.30
1985±86 8,540 5.54 15,038 )1.01 59,392 6.31 63,830 2.80
1986±87 8,267 0.77 15,406 )0.78 53,561 )6.57 60,560 )5.16
1987±88 7,689 )7.54 15,413 )2.83 49,049 )16.56 56,860 )13.35
1988±89 6,857 )18.64 15,544 )4.02 63,376 5.20 70,490 4.61
1989±90 9,202 7.75 17,856 8.02 65,878 6.77 73,570 6.40 1990±91 9,167 5.95 17,852 5.85 66,317 5.00 74,290 4.77 1991±92 9,269 5.76 18,252 6.12 66,368 2.71 74,680 2.76 1992±93 9,680 9.05 18,341 4.60 65,243 )1.26 72,868 )2.11
1993±94 9.419 4.79 18,041 0.96 70,724 4.72 80,298 5.38 1994±95 8,504 )6.56 16,833 )7.53 72,603 5.23 81,814 4.94
1995±96 8,790 )4.59 17,687 )4.59 67,879 )3.65 76,975 )3.45
1996±97 9,552 2.43 18,883 0.05 71,415 )0.68 81,312 )0.22
1997±98 8,850 )6.22 18,850 )1.86 72,500 )1.18 83,500 0.29
1998±99 7,736 )18.99 19,905 1.86 71,840 )3.99 84,740 )0.33
a
Comparing only aman production in
Bangladesh with kharif production in India
gives a somewhat dierent story. From 1980±81
to 1998±99, production ofamanin Bangladesh
fell below trend in four years: 1981±82, 1987± 88, 1988±89 and 1998±99, but in these latter two
years, amanproduction was 17.44% (1988±89)
and 18.33% (1998±99) below trend. India also
experienced three years of substantial kharif
rice production shortfalls below trend in the
1980s, 1982±83 ()17.40%), 1986±87 ()6.49%)
and 1987±88 ()16.41%). In only one year of the
19 year period since 1980±81, did both India
and Bangladesh have a badaman/kharifcrop in
the same year (1986±87). Since that year,
India'skharifrice production has been above or
only slightly below trend, and in the two most
recent years of very low aman harvests in
Bangladesh (1988±89 and 1998±99), India's
kharifproduction was 5.50% above and 3.49% below trend. Overall, the correlation coecient of the error terms of linear time-trend regres-sions of rice production are 0.34 (for
Bangla-desh aman and India kharif) and 0.30 (for
Bangladesh and India total production). Past trends are of course not a perfect predictor of the future. But the lack of corre-lation between poor Indian harvests and poor Bangladesh harvests has an agronomic basis.
India's kharifrice production is spread over a
much wider area than Bangladesh aman rice
production, so weather eects are likely to vary
more across India'skharifrice producing zone,
reducing the risk of weather-related failure to the entire crop. In particular, high rainfall or excessive snow melt in the Himalayas that cause ¯ooding in Bangladesh and parts of eastern India do not necessarily correlate with
poor weather in other regions of India.23
In spite of the low correlation of production shortfalls, it is nonetheless prudent for the Bangladesh government to be prepared for such an occurrence. In such a situation, rice imports would likely have to come mainly from Thailand at somewhat higher cost than imports from India, fewer private traders will be involved, and shipping schedules and problems at Chittagong port might hinder the smooth arrivals of rice imports.
5. IMPLICATIONS FOR BANGLADESH FOODPOLICY
Private food imports have made a major contribution to national food security in
Bangladesh since the liberalization of the rice trade in early 1994. Following major produc-tion shortfalls in late 1998 and again in the second half of 1999, Bangladesh domestic rice prices rose rapidly to levels equal to import parity with India, providing the ®nancial incentives for several million metric tons of rice
imports. By encouraging this trade, the
Government of Bangladesh was able to
augment domestic rice supplies quickly and stabilize market prices.
Several key aspects of private sector imports from India enabled them to make this large contribution to national food security in Bangladesh in 1998 and 1999. First, India's good harvests and ample rice stocks made large-scale exports not only possible, but also actually welcome for India. Second, the private sector trade was competitive, involving many hundreds of traders importing small quantities of rice. Third, the Government of Bangladesh gave the private sector clear signals that it supported this trade, removing all taris and surcharges on rice imports and instructing customs ocials to expedite clearance of rice imports, particularly following the ¯oods in mid-1999. Finally, Bangladesh had ample foreign exchange reserves and access to lending to pay for rice imports (unlike during the 1974 famine when shortages of foreign exchange severely constrained the government's ability to import).
These factors may not necessarily be in place if major shortfalls in Bangladesh production occur in the future. Though historical evidence suggests a low correlation of Indian and Bangladesh rice harvests, it is possible that both countries could suer shortfalls in the same year. Moreover, public food grain stocks in India are not likely to be substantially above target levels, as they have generally been in the late 1990s. If imports from India are not available, then Thailand becomes the likely next lowest cost of supply for Bangladesh importers, implying a higher import parity price and a sharp reduction in the number of importers participating in the trade. Govern-ment support of the private import trade, though still necessary, might not be as forth-coming.
Moreover, the success of private rice imports in stabilizing prices and augmenting supplies in recent years in no way implies that less atten-tion should be devoted to encouraging
domes-tic production through appropriate price
incentives and public investments, ensuring
supplies of inputs, and agricultural research and extension. Chronic food de®cits, if a result of a stagnant agriculture and rural economy, might be supplied by private sector imports, but would likely be accompanied by increas-ingly large segments of the population living in poverty and without access to sucient food.
The large expansion of rice trade between India and Bangladesh is also a reminder of the far-reaching consequences of macroeconomic and trade policy reforms. India's exchange rate depreciation was a major factor in making Indian rice competitive in Bangladesh rice markets. The trade liberalizations in both countries were likewise necessary for large-scale trade to take place. For Bangladesh, a substantial appreciation of the real exchange rate, caused by domestic in¯ation in excess of the rate of nominal exchange rate
deprecia-tion,24 could make Bangladesh a consistent
importer of rice, as the import parity price of rice falls and sets a low ceiling on domestic
prices. In the absence of osetting trade policy (import taris), the resulting low real prices of agricultural goods could result in slow agri-cultural and rural economic growth.
Nonetheless, the most important lesson from the Bangladesh experience with private sector rice imports in recent years is that trade liber-alization can enhance national food security.
By providing a low-cost, rapid-response
mechanism to increase domestic supply and stabilize prices, the trade liberalization in Bangladesh helped to ensure availability of food grain and stabilize prices. Combined with targeted public distribution programs that enhanced the access to food by the poor, private sector imports helped prevent a food crisis and saved government resources for
future productive investments. Though
increased food security may not be a primary objective of trade liberalization, the Bangla-desh experience shows that the two can in fact be compatible.
NOTES
1. Boro rice in Bangladesh, in contrast to aman, is almost always irrigated, most commonly through the use of tube wells. Fertilizer use, the share of land planted to high yielding varieties (HYVs), and crop yields are all higher inborothan foramanoraus(the usually rain-fed rice crop immediately following boro, harvested in Bangladesh in July and August). For further details on cropping patterns, see Ahmedet al. (2000).
2. Local tenders have also been used in recent years, particularly when ®xed-price procurement has failed to meet government targets.
3. India's non-basmati exports in the mid-1990s were discounted 20% (about $60/MT) relative to Thai export prices. (World Bank, 1996, p. 91).
4. See Abdullah and Shahabuddin (1997) for a discus-sion of the fertilizer crisis of 1995.
5. After the poor aman harvest in 1994±95, the Bangladesh government attempted to import 800,000 MTs of rice through open tenders in February 1995. But, contract problems involving speci®cation and inspection contributed to delayed import arrivals, and subsequent increases in world rice prices made the export sales less attractive to exporters. As a result, only 350,000 MTs of rice had arrived within eight months, with ®nal deliveries not arriving until April 1996.
6. In fact, prices during this period even fell below export parity so that, in principle, Bangladeshi rice exports would have been competitive with Indian exports in the world market. As discussed in Rahman (1998), however, lack of established market links and appropriate grading standards prevented exports from taking place.
7. For example, wholesale prices of coarse rice in Dhaka, rose by 30.2% between October and the end of December, 1997, from 9.45 to 12.30 Taka/kg.
8. With the onset of thebororice harvest in May, the national average wholesale price of coarse HYV rice fell from a peak of 14.2 Tk/kg in April to 12.0 Tk/kg in June and private imports slowed to 59,000 MTs in June. 9. As discussed below, the extremely high ®gures for recorded rice imports in early 1999 may overstate actual rice imports. It is possible that other commodities were imported using false invoices to avoid import taris and other surcharges.
11. In Figure 1, a marketing margin of 2 Tk/kg is used to calculate the West Bengal import parity prices shown for July 1993 to September 1997.
12. Note that Figure 1 shows that domestic prices were 0.5±2.0 Tk below import parity prices of rice originating from Delhi from May to August 1998, yet private sector imports continued. The main explanation is that rice exports during this period originated mainly from West Bengal'srabi(boro) crop, where prices are generally 1.5± 2.0 Tk/kg less than Delhi prices during this season (as evidenced in the data from 1996 and 1997).
13. The data are presented according to India's April± March ®scal year in order to permit direct comparison. 14. Non-basmati rice accounted for 99.8% of the value of rice exports to Bangladesh in 1998±99 (CMIE, 1999a). 15. Based on time-series estimates by Dorosh (1999). Sensitivity analysis with respect to this and other parameters is presented below.
16. A more elastic own-price elasticity of demand (closer to the cross-section estimate of 0.56 by Goletti, 1993), would imply an even larger reduction in consumer demand as a result of the price increase, and a combination of even fewer imports, a greater production loss and/or a greater stock buildup.
17. Bangladesh consumes mostly parboiled rice. (In the parboiling process, the paddy is ®rst boiled and then milled.) The other major Asian exporter, Vietnam, sold only white (non-parboiled) rice in this period.
18. This calculation assumes no problems with supply of imports from Thailand, an issue discussed below.
19. In the absence of private sector imports, domestic supply would have been 14.839 mn MTs, a 12.1% reduction in per capita supplies relative to the actual estimated levels. Assuming an elasticity of demand of
)0.2 to)0.3, prices would need to rise by 12.1/0.3 (40%)
to 12.1/0.2 (60%) to equilibrate market supply and demand.
20. As indicated in Figure 1, the marketing margin for shipment of rice by truck increased by approximately 1.1 Tk/kg in November 1998 due to new weight restrictions on the size of truck loads in both India and Bangladesh. 21. Survey evidence suggests that most of the small-scale importers were not involved in the domestic rice trade prior to 1998, and sold the imported rice to local wholesalers very soon after taking delivery (Murshid, 1999).
22. One safeguard against collusion is to encourage international grain companies to participate in the import trade as well.
23. See Osmani (1998) for a discussion of structural factors and policies in¯uencing the likelihood of contin-ued rice export surpluses in India.
24. In the late 1990s, Bangladesh carried out a managed ¯oat exchange rate policy, allowing the nomi-nal exchange rate to depreciate gradually.
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