Presentation on theme: "Structure, Conduct and Performance of the Rice Market and the Impact of Technological Changes in Milling Institution Institute of Agribusiness and Development."— Presentation transcript:
1Structure, Conduct and Performance of the Rice Market and the Impact of Technological Changes in MillingInstitutionInstitute of Agribusiness and Development Studies (IADS) BAU, MymensinghResearch TeamProfessor Dr. Shankar Kumar Raha- PIProfessor Dr. Md. Monjurul Alam – CIMd. Moniruzzaman – CIDr. M. A. Awal - CI
21 Background and Rationale of the Research Project There has been concern over the efficient marketing system of rice in Bangladeshdue to volatility of rice prices in domestic and international marketNegative impacts on farmers and consumersNo visible sign of any serious imperfection in rice market.Rapid technological changes in the rice milling.Impact of semi-automatic and automatic rice millsIncreased volatility of international grain markets and the govt. policy of rice exporting countries necessitate to assess the integration of domestic and international markets.
3Objectives of the Research Project 1. To provide evidence and provide new evidence on rice market structure, conduct and performance in Bangladesh andTo 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 milling2. To construct detail estimates of costs and margins for key agents along the rice marketing chain in Bangladesh andto analyze market integration between domestic and international markets.3. To suggest policy implications for improving market structure, conduct and performance.
4MethodologyThe study is 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
5Methodology (Contd.)AreaDistrictFariaBepariAratdar cum wholesalerMillerAratdarwholesalerWholesaler cum retailerRetailerImporterPaddyMilled riceKey agentsSurplusDinajpur1517132065811Rangpur1610374Naogaon27211Bogra2Sherpur32Comilla14DeficitKushtia25Sylhet9KhulnaDhakaNoakhali12ChittagongTotal39134112110302412966103
6Methodology (Contd.) (d) Market integration (a) Estimation of market concentration4 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 usingstandard formula (Kohls and Uhl, 2005)(d) Market integrationMarket integration was examined by applying co-integration method developed by Engle and GrangerData: monthly wholesale price from 1990 to 2011(domestic mkts).Data: monthly export price of rice from Thailand, Vietnam, and Eastern India converted into import parity price (2000 to 2011)
7Overview of the structure, conduct and performance of rice market in Bangladesh ResearcherYearFindingsFarruk, M.O.1970He 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 al1987The 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.
8Overview of the structure, conduct and performance of rice market in Bangladesh contd. Rahman, S.M.S.1998No collusion among the sellers and buyers were observed but the millers complained about aratdars’ collusive activity.Siddique, M.A.B.2010He found low level of concentration in the rice milling,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.
9The uses of mills were highly seasonal. Overview of the structure, conduct and performance of rice market in Bangladesh contd.Reardon et.al.2012The sampled small and automatic mills were started in 1998 while medium/semi-automatic rice mills were started in The mills doubled in capacity by 2009.Rice milling was becoming more concentrated in medium and large mills and technology was changing.The uses of mills were highly seasonal.The millers and wholesalers were selling branded and labeled bags to traders.
10Table1: Buyer concentration in paddy markets Structure, conduct and performance of paddy market in BangladeshTable1: Buyer concentration in paddy marketsName of the MarketMarket dayAverage number of buyersConcentration of Four –Firm (%)Birganj, DinajpurSunday, Wednesday40 -5085Abadpukur, Naogaon90-100Naimile Bazar, Bogra15 -2080Kalampur, DhakaThursday70-75Ambari, DinajpurFriday, Monday35- 5075Nalita Bari, SherpurSaturday, Tuesday70- 75Chandina, ComillaTuesday, Friday20-2566Shatibari Bazar, RangpurSaturday, Wednesday60Dhantara, DhakaMonday50-60
11Structure, conduct and performance of paddy market in Bangladesh Table 1: Buyer concentration in paddy markets contd.Fultala,KhulnaSunday, Wednesday45 -5058Trimohini, NaogaonSaturday, Tuesday40- 5057Sharua-Bottala Bazar ,Bogra40-5055Farmhat, Dinajpur70-8051Choudhurani, RangpurSunday, Thursday60- 7050Ailchara Bazar, KushtiaWednesday45Haris Choudhury Bazar, NoakhaliMonday, Friday50-6038Dhara Bazar, Mymensingh70 -8036Mirsharai, ChittagongMonday, Tuesday30-4035Kalirghat, Kazir Bazar, Sylhet No fixed day25-3032Halsa, KushtiaSaturday , Tuesday30
12Figure 1. Buyer concentration in paddy markets Structure, conduct and performance of paddy market in BangladeshFigure 1. Buyer concentration in paddy markets4 firm concentration (%)Markets
13Structure, conduct and performance of paddy market in Bangladesh 2. Entry barrierTable 2 : Problems for the new entrant as perceived by established tradersSl.No.ProblemsFariaBepariAratdar-cum-wholesalerIndexRank1Suitable site for shop0.709II0.7520.7792Shortage of rice supply0.628IV0.589V0.5523Insufficient capital0.932I0.9060.9134Government permission0.189VIII0.1880.1775Price fluctuation0.432VI0.372VII0.3756Competition among traders0.5880.6700.6417Bribery/ unofficial payment/ threats0.3820.3780.3848Business risk0.699III0.6820.684
14Structure, conduct and performance of paddy market in Bangladesh 3. Degree of product differentiation (paddy)No deliberate effort is made to make the paddy differentiated in the market.4. Distribution of market informationNo formal system exist for dissemination of market information.Paddy traders collect market information through their own effort.
15Structure, conduct and performance of paddy market in Bangladesh 5. Conduct at paddy marketTable 3: Price setting mechanisms during buying and selling paddyProcess/MechanismBuying priceSelling priceFariaBepariAratdar- cum-wholesalerBargaining between seller and buyer37(100.00)136(97.14)111(96.52)27(60.00)100(62.11)79(59.39)Set by seller4(2.86)3(2.618(17.78)30(18.63)36(27.07)Set by buyer5(11.11)14(8.70)9(6.77Predetermined1(0.87)17(10.56)(6.77)
16Structure, conduct and performance of paddy market in Bangladesh 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.From farmers’ perspective, paddy market is not running in favour of them.
17Market structure, conduct and performance of rice milling industry 1.1 Dimensions of market structure (4)Table 4. Seller concentration in rice mill industryMeasureSeller concentration in rice millsCR40.69 %CR202.16 %Entropy Index , (E)3.60 ,Log n =3.66Gini –Coefficient0.2431.2 Degree of product differentiationProduct differentiation is exist buy does not create anysignificant for competition
18Market structure, conduct and performance of rice milling industry contd. Table 5. Major problems for potential entrant as perceived by established millsSLNo.ProblemsAutomatic millSemi-auto millHusking millIndexRank1Suitable site for mill0.437V0.636I0.6142Shortage of paddy supply0.000-0.045VIII0.105VII3Shortage of supply of skilled manpower0.637II0.6270.548III4Non availability of huge capital0.487IV0.4270.4745Obtaining Govt. permission0.0620.1720.0946Lack of utilities (power supply, gas and water)0.6750.5720.5027Tough competition from established mill0.5250.4720.5578Non - availability of processing plant0.150VI0.2540.191
19Frequency of responses Market structure, conduct and performance of rice milling industry contd.Table 6. Reasons for exit from the marketReasonsAutomatic millsSemi- Automatic millsHusking millsFrequency of responsesIncurred a loss14 (87.5)22(91.67)55(78.57)Shift the location2(8.33)4(5.71)Shift to other business2(12.5)11(45.83)16(22.86)Conflict among the partners1 (1.43)Left for abroad4(25.0)3(12.50)Could not survive in the face of competition8 (50.0)19(79.17)49 (17.00)
202.1 Price Policies 2. Market conduct 2.2 Product Policy Market structure, conduct and performance of rice milling industry contd.2. Market conduct2.1 Price PoliciesSelling price of rice is set independentlyAutomatic 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.2.2 Product PolicyWith the changing of milling technology, millers are capable to process rice according their own choice and also to buyer’s choiceSometimes the millers supply rice with labeling as per direction of trader- buyers.2.3 Policies aimed at coercing rivalsNo evidence of predatory and/or exclusionary tactics adopted by the established firms in rice market.
213. Performance-Dimensions Figure 2. Capacity utilization of rice mills54.45Size of selling costProduct qualityProgressiveness of the industryEmployment positionDiscrimination by sex
22Impact of technological changes in rice milling Number of husking rice mills are shrinking and the businesses are shifted either to semi-automatic or to automatic rice mills.The demand for quality rice (brightness, polishing, free from foreign particulars and black rice) and higher price encouraged semi-automatic and automatic rice mill owners to use the new technologies.The bran of semi-automatic and automatic rice mills have good demand in the edible oil millsAutomatic rice mills have overcome the problem of rainy season and shortage of labour supply for processing of paddy.
23Table 7: Milling cost and profit by different types of rice mill Impact of technological changes in rice milling contd.Table 7: Milling cost and profit by different types of rice millType of rice millCost of paddy (Tk.)Milling cost (Tk./ton of rice)Totalcost(Tk.)Return (Tk.)Total returnProfit (Tk.)Whole rice recovery %RiceBy-productHusking2430026012690127000223029230232965.00Semi-Auto*2542729432837028500241430914254466.25Semi-Auto**2601634522946830000344833448398064.75Auto rice mill*25177256327740347833478573867.5Auto rice mill**2636130702943132000371235712628166.00*Without modern equipment**With modern equipment
24Table 8. Employment in different rice mills Type of rice millEmploymentLabour, Tk/ton of paddyStaff cost, Tk/ton of paddyLabour, man-hr/ ton of paddyLabour, man-days/yrStaff, man-hr/ton of paddyStaff, man-days/yrHusking40314714.1722326.951095Semi-Auto*16822749.13Semi-Auto**48321615.6730154.501460Auto rice mill*1001733.2031205.995840Auto rice mill**1161013.9559254.146205*Without modern equipment**With modern equipment
25Financial viability of the rice mills Type of millIRRNPV(‘000Tk.)at 10%BCR(at 10%)Husking rice mill18.45%4181.002Semi-auto rice mill25.23%103251.046Auto-rice mill32.54%1174711.063
26Aratdar-cum-wholesaler Faria Farmer Rice millerAratdar-cum-wholesalerFariaFarmerBepariPaddy processorRetailerWholesaler-cum-retailerWholesalerAratdarConsumerProcurement centreGovernment procurementFigure 3: Typical Marketing Channels of Paddy/ Rice in Bangladesh
27Table 10. Marketing margins of paddy/rice for different actors (for 1 quintal of rice /and equivalent amount of paddy)ActorsGross marketing marginMarketing costNet marketing marginAmount%Faria114.916.1466.176.9448.745.30Bepari111.005.9370.507.440.504.41Aratdar-cum-wholesaler93.675.0156.175.8937.504.08Rice mill849.98(524.10)*45.40430.38(417.46)*45.20419.60(106.64)*45.70Aratdar(Rice)27.811.497.810.8220.00**2.18Wholesaler216.0211.50145.1615.1970.867.71Wholesaler cum retailer261.5314.00144.9115.21116.6212.70Retailer196.5110.5031.903.35164.6217.92Total100953918.43*only from rice ** Commission
28Figure 4: Marketing margins of paddy/rice for different actors (for 1 quintal of rice /and equivalent amount of paddy)
29Share of different actors in gross marketing margin, marketing cost and net margin
30in 2010Map 6.1: Extent of rice surplus and deficit at district level in 2010
31Integration of Rice market ADF test shows that all the rice price series were non-stationary at level but stationary in their first differences. All the 12 districts rice markets found integratedDhaka market is significantly integrated to all regional markets of rice markets in Bangladesh due to having the facility of infrastructure and information technology, which closely connected the markets to each other.Price move in the unison in all the markets together. Central price policy making will be effective in rice market.Rice market of Bangladesh , Eastern India, Vietnam and Thailand found integrated also
32Suggested policy options Paddy marketStructure –Oligopsonistic and atomisticFormation of farmers’ marketing cooperative / groupDevelopment of market yard for paddy market as most of the paddy markets sit along and /on the roadProvision of credit facilities to paddy traders. The traders should have trading licenses.ConductCost of inputs in paddy production can be reduced through adopting cost reducing technologies and optimum utilization of machines.Arrangement to be made to disseminate paddy prices of different important markets through mobile phones.Display of buying prices of paddy on board by buyers Association / market committee on market.
33Suggested policy options contd. Rice millsStructureHusking mills should be modernized to semi-automatic/automatic rice mills. Profitable cases should be financedConductDevelopment and introduction of quality standard for rice in the marketThe rice bag should contain minimum information about the product (name of the mill, its location, date of processing, number of boiling, net weight, variety of rice, millgate price). Labeling on the bag of rice should be mandatoryNeeds investigation of the nutritional aspects of milled rice after extracting bran to ensure the quality of rice
34Suggested policy options contd. PerformanceEnsure regular and undisrupted power supply to rice millsMake available of spare parts at reasonable prices in markets Quality standard of the spare parts may be introducedContractual arrangements btw. rice growers and millersImprovement in processing technology should be encouraged through providing various services (credit facility, technical knowledge and necessary permission)Installation of Engleberg rice huller in the country should be bannedVocational training programme helps to produce qualified personnel for operating automatic rice mills
35Suggested policy options contd. Ensure optimum use of by-products such as husk, bran, broken rice, husk–ash.Wage discrimination by sex needs to be addressed.Arrangement of foreign visits particularly the rice exporting countries for the millers may help to change the attitudes to the business. FAO may sponsor such visits.Govt. should develop a complete and accurate data base on rice mills and market intermediaries.