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Structure, Conduct and Performance of the Rice Market and the Impact of Technological Changes in Milling 1 Institution Institute of Agribusiness and Development.

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Presentation on theme: "Structure, Conduct and Performance of the Rice Market and the Impact of Technological Changes in Milling 1 Institution Institute of Agribusiness and Development."— Presentation transcript:

1 Structure, Conduct and Performance of the Rice Market and the Impact of Technological Changes in Milling 1 Institution Institute of Agribusiness and Development Studies (IADS) BAU, Mymensingh Research Team Professor Dr. Shankar Kumar Raha- PI Professor Dr. Md. Monjurul Alam – CI Md. Moniruzzaman – CI Dr. M. A. Awal - CI

2 Objectives of the Research Project 2 1. To provide evidence and provide new evidence on rice market structure, conduct and performance in Bangladesh and To analyze the impacts of technological changes in the rice milling sector on employment, financial viability of rice mills, market concentration, rice quality, and cost of milling 2. To construct detail estimates of costs and margins for key agents along the rice marketing chain in Bangladesh and to analyze market integration between domestic and international markets. 3. To suggest policy implications for improving market structure, conduct and performance.

3 Methodology 3 The study will be conducted by adopting the structure, conduct and performance approach (SCP). This technique was first formalized by Mason (1939) and his detailed case study approach was modified by Bain (1951). Market structureMarket conductMarket performance

4 Methodology (Contd.) 4 Area DistrictFariaBepari Aratdar cum wholesal er MillerAratdar Aratdar cum wholesale r wholesal er Wholesal er cum retailer RetailerImporter PaddyMilled rice Key agents Surplus Dinajpur 151713200 6 5811 Rangpur 01316103 7 3413 Naogaon 32721201 5 10011 Bogra 215680 2 07 Sherpur 0132154 0 828 Comilla 13320 0 10141 Deficit Kushtia 1627250 0 1748 Sylhet 07020 0 1195 Khulna 02726 4 893 Dhaka 0101216 0 105112 Noakhali 24520 0 12610 Chittagong 05220 0 205153 Total 3913411211030 24 129661035

5 Methodology (Contd.) 5 (a) Estimation of market concentration 4 firm concentration ratio, Entropy index, and Gini coefficient. (b) Financial viability of the mills was assessed by using NPV, IRR, BCR. (c) Calculation of marketing costs and margins was done by using standard formula (Kohls and Uhl, 2005) (d) Market integration Market integration was examined by applying co-integration method developed by Engle and Granger Data: monthly wholesale price from 1990 to 2011(domestic mkts ). Data: monthly export price of Thailand, Vietnam, and Eastern India converted into import parity price (1975 to 2011)

6 Overview of the structure, conduct and performance of rice market in Bangladesh 6 ResearcherYearFindings Farruk, M.O. 1970 He labeled the markets as oligopolistic as well as oligopsonistic but close observation of the functioning of this structure in the different markets did not support the prevalence of unethical market conduct. Islam et al1987 The net return to all the functionaries in the channels was low due to intense competition. Excessive profit of the functionaries was not found. Capacity utilization of the mills varied from 40% to 65% at the peak period and 20% to 48% in low volume months. Chowdhury, N. 1992The market was found atomistic on both sides. The aratdar- cum wholesalers were powerful in the rice market as they handled about 80% -90% of all rice. No excessive concentration was found in rice milling industry.

7 Rahman, S.M.S. 1998 No collusion among the sellers and buyers were observed but the millers complained about aratdars collusive activity. Siddique, M.A.B. 2010 He found low level of concentration in the rice milling, Identified a no. of requirements for the entry. The millers are price taker not price maker. Performance of the rice milling industry was not good in terms of capacity utilization. Maximum mills are running with decades old machines. Overview of the structure, conduct and performance of rice market in Bangladesh contd. 7

8 5.4.1Buyer concentration in paddy markets 8 Markets 4 firm concentration (%) Structure, conduct and performance of paddy market in Bangladesh

9 5.5 Conduct at paddy market -3 9 5.4.2 Entry barrier In fact there is no barrier except arrangement of requisite capital 5.4.3 Degree of product differentiation (paddy) No deliberate effort is made to make the paddy differentiated in the market. No formal system exist for dissemination of market information. Paddy traders collect market information through their own effort. 5.4.4 Distribution of market information Paddy market is operating smoothly throughout the country; Millers are getting paddy as much they need, though farmers are not getting reasonable price for their paddy. Farmers perspective, paddy market is not running in favour of them. 5.6 Performance of paddy market

10 Market structure, conduct and performance of rice milling industry 10 MeasureSeller concentration in rice mills CR 4 0.69 % Entropy Index, (E)3.60,Log n =3.66 Gini –Coefficient0.2436 5.7 Dimensions of market structure (4) 5.7.1 Seller concentration in rice mill industry Lack of utilities Skilled manpower Tough competition Lack of utilities Skilled manpower Tough competition Sufficient capital Suitable site Sufficient capital Suitable site 5.7.3 Entry barrier 5.7.2 Degree of product differentiation

11 5.8.1 Price Policies 11 Selling price of rice is set independently Automatic rice mill owners are in better position in negotiation for setting price. In the case of husking and semi-automatic mills buyers are more powerful. 5.8 Market conduct 5.8.2 Product Policy 5.8.3 Policies aimed at coercing rivals With the changing of milling technology, millers are capable to process rice according their own choice and also to buyers choice Sometimes the millers supply rice with labeling as per direction of trader- buyers. No evidence of predatory and/or exclusionary tactics adopted by the established firms in rice market.

12 5.9 Performance-Dimensions 12 Capacity utilization of rice mills Size of selling cost Product quality Progressiveness of the industry Employment position Discrimination by sex 54.45

13 Paddy Separator Colour sorter Rice shifter De-stoner Modern Rice mill Equipment Silky polisher Cone Polisher 13 Impact of technological changes in rice milling

14 Table 6.1: Milling cost and profit by different types of rice mill 14 *Without modern equipment **With modern equipment Type of rice mill cost of paddy (Tk.) Milling cost (Tk./ton of rice) Total cost (Tk.) Return (Tk.) Total return (Tk.) Profit (Tk.) Whole rice recovery % Rice By- product Husking2430026012690127000223029230232965 Semi- Auto*2542729432837028500241430914254466.25 Semi- Auto**2601634522946830000344833448398064.75 Auto rice mill*2517725632774030000347833478573867.5 Auto rice mill**2636130702943132000371235712628166 Impact of technological changes in rice milling

15 15 Type of rice mill Employment Labour, Tk/ton of paddy Staff cost, Tk/ton of paddy Labour, man-hr/ ton of paddy Labour, man- days/yr Staff, man- hr/ton of paddy Staff, man- days/yr Husking 403147 14.1722326.951095 Semi-Auto 403168 14.1722749.131095 Semi-Auto 483216 15.6730154.501460 Auto rice mill 100173 3.2031205.995840 Auto rice mill (with modern equipment) 1161013.9559254.146205 Table 6.2. Employment in different rice mills

16 16 Type of millIRR NPV(000Tk.) at 10% BCR (at 10%) Husking rice mill18.45%4181.002 Semi-auto rice mill25.23%103251.046 Auto-rice mill32.54%1174711.063 Financial viability of the rice mills

17 17 Rice miller Aratdar-cum-wholesalerFaria Farmer Bepari Aratdar-cum-wholesaler Paddy processor Retailer Wholesaler-cum-retailerWholesaler Aratdar Consumer Government procurement Procurement centre Figure 5.1: Typical Marketing Channels of Paddy/ Rice in Bangladesh

18 18 Marketing margins of paddy/rice for different actors (for 1 quintal of rice /and equivalent amount of paddy)

19 Share of different actors in gross marketing margin, marketing cost and net margin 19

20 20 Map 6.1: Extent of rice surplus and deficit at district level in 2010 in 2010

21 Integration of Rice market 21 All the 12 districts rice markets found integrated This study strongly supports marketing efficiency in the selected rice markets. The results of the strong forms of market integration indicate strong form of market integration in all the rice markets Govt. price policy of rice will be effective in rice market. Rice market of Bangladesh, Eastern India, Vietnam and Thailand found integrated The strong form of market integration does not support Eastern India-Thailand, Vietnam-Eastern India, Eastern India-Bangladesh and rest of markets support strong form of market integration.

22 Policy options 22 Formation of farmers marketing cooperative / group Dissemination of paddy prices of different important markets (by cell phone, display board at market places). Provision of credit facilities for the farmers and paddy traders. Husking mills should either be closed or modernized. Profitable cases should be financed. Labeling on the bag of rice should be mandatory.

23 23 Needs investigation of the nutritional aspects of milled rice after extracting bran to ensure the quality of rice. Ensure regular and undisrupted power supply to rice mills Vocational training programme helps to produce qualified personnel for operating automatic rice mills. Govt. should develop a complete and accurate data base on rice mills and market intermediaries Policy options contd.

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