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:
Structure, Conduct and Performance of the Rice Market and the Impact of Technological Changes in Milling 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 1
1 Background and Rationale of the Research Project There has been concern over the efficient marketing system of rice in Bangladesh due to volatility of rice prices in domestic and international market Negative impacts on farmers and consumers No visible sign of any serious imperfection in rice market. Rapid technological changes in the rice milling. Impact of semi-automatic and automatic rice mills Increased volatility of international grain markets and the govt. policy of rice exporting countries necessitate to assess the integration of domestic and international markets. 2
Objectives of the Research Project 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 The 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 4
Methodology (Contd.) Area DistrictFariaBepari Aratdar cum wholesal er MillerAratdar Aratdar cum wholesale r wholesal er Wholesal er cum retailer RetailerImporter PaddyMilled rice Key agents Surplus Dinajpur Rangpur Naogaon Bogra Sherpur Comilla Deficit Kushtia Sylhet Khulna Dhaka Noakhali Chittagong Total
Methodology (Contd.) (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 rice from Thailand, Vietnam, and Eastern India converted into import parity price (2000 to 2011) 6
Overview of the structure, conduct and performance of rice market in Bangladesh ResearcherYearFindings Farruk, M.O 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 No collusion among the sellers and buyers were observed but the millers complained about aratdars collusive activity. Siddique, M.A.B He 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. Overview of the structure, conduct and performance of rice market in Bangladesh contd. 8
9 Reardon et.al The sampled small and automatic mills were started in 1998 while medium/semi-automatic rice mills were started in The mills doubled in capacity by 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.
Table1: Buyer concentration in paddy markets Name of the MarketMarket day Average number of buyers Concentration of Four –Firm (%) Birganj, DinajpurSunday, Wednesday Abadpukur, NaogaonSunday, Wednesday Naimile Bazar, BograSunday, Wednesday Kalampur, DhakaThursday Ambari, DinajpurFriday, Monday Nalita Bari, SherpurSaturday, Tuesday Chandina, ComillaTuesday, Friday Shatibari Bazar, RangpurSaturday, Wednesday Dhantara, DhakaMonday Structure, conduct and performance of paddy market in Bangladesh
Fultala,KhulnaSunday, Wednesday Trimohini, NaogaonSaturday, Tuesday Sharua-Bottala Bazar,BograSunday, Wednesday Farmhat, DinajpurSaturday, Tuesday Choudhurani, RangpurSunday, Thursday Ailchara Bazar, KushtiaWednesday Haris Choudhury Bazar, NoakhaliMonday, Friday Dhara Bazar, MymensinghMonday, Friday Mirsharai, ChittagongMonday, Tuesday Kalirghat, Kazir Bazar, Sylhet No fixed day Halsa, KushtiaSaturday, Tuesday Table 1: Buyer concentration in paddy markets contd. 11 Structure, conduct and performance of paddy market in Bangladesh
Figure 1. Buyer concentration in paddy markets Markets 4 firm concentration (%) Structure, conduct and performance of paddy market in Bangladesh 12
2. Entry barrier Sl. No. ProblemsFariaBepari Aratdar-cum- wholesaler IndexRankIndexRankIndexRank 1Suitable site for shop0.709II0.752II0.779II 2Shortage of rice supply0.628IV0.589V0.552V 3Insufficient capital0.932I0.906I0.913I 4Government permission0.189VIII0.188VIII0.177VIII 5Price fluctuation0.432VI0.372VII0.375VII 6Competition among traders0.588V0.670IV0.641IV 7 Bribery/ unofficial payment/ threats 0.382VII0.378VI0.384VI 8Business risk0.699III0.682III0.684III Table 2 : Problems for the new entrant as perceived by established traders 13 Structure, 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. No formal system exist for dissemination of market information. Paddy traders collect market information through their own effort. 4. Distribution of market information 14 Structure, conduct and performance of paddy market in Bangladesh
Process/ Mechanism Buying priceSelling price FariaBepari Aratdar- cum- wholesaler FariaBepari Aratdar- cum- wholesaler Bargaining between seller and buyer 37 (100.00) 136 (97.14) 111 (96.52) 27 (60.00) 100 (62.11) 79 (59.39) Set by seller 0 4 (2.86) 3 ( (17.78) 30 (18.63) 36 (27.07) Set by buyer0 5 (11.11) 14 (8.70) 9 (6.77 Predetermined 00 1 (0.87) 5 (11.11) 17 (10.56) 9 (6.77) Table 3: Price setting mechanisms during buying and selling paddy 5. Conduct at paddy market 15 Structure, 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. 6. Performance of paddy market 16 Structure, conduct and performance of paddy market in Bangladesh
Market structure, conduct and performance of rice milling industry MeasureSeller concentration in rice mills CR % CR % Entropy Index, (E)3.60,Log n =3.66 Gini –Coefficient Dimensions of market structure (4) Table 4. Seller concentration in rice mill industry Degree of product differentiation Product differentiation is exist buy does not create any significant for competition
SL No. ProblemsAutomatic millSemi-auto millHusking mill IndexRankIndexRankIndexRank 1Suitable site for mill0.437V0.636I0.614I 2Shortage of paddy supply VIII0.105VII 3 Shortage of supply of skilled manpower 0.637II0.627II0.548III 4Non availability of huge capital0.487IV0.427V0.474V 5Obtaining Govt. permission0.062VII0.172VII0.094VIII 6 Lack of utilities (power supply, gas and water) 0.675I0.572III0.502IV 7 Tough competition from established mill 0.525III0.472IV0.557II 8Non - availability of processing plant 0.150VI0.254VI0.191VI Table 5. Major problems for potential entrant as perceived by established mills 18 Market structure, conduct and performance of rice milling industry contd.
ReasonsAutomati c mills Semi- Automatic mills Husking mills Frequency of responses Incurred a loss14 (87.5)22(91.67)55(78.57) Shift the location02(8.33)4(5.71) Shift to other business2(12.5)11(45.83)16(22.86) Conflict among the partners02(8.33)1 (1.43) Left for abroad4(25.0)3(12.50)0 Could not survive in the face of competition 8 (50.0)19(79.17)49 (17.00) Table 6. Reasons for exit from the market 19 Market structure, conduct and performance of rice milling industry contd.
2.1 Price Policies 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. 2. Market conduct 2.2 Product Policy 2.3 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. 20 Market structure, conduct and performance of rice milling industry contd.
3. Performance-Dimensions Figure 2. Capacity utilization of rice mills Size of selling cost Product quality Progressiveness of the industry Employment position Discrimination by sex
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 mills Automatic rice mills have overcome the problem of rainy season and shortage of labour supply for processing of paddy. Impact of technological changes in rice milling 22
Table 7 : Milling cost and profit by different types of rice mill *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 Husking Semi- Auto* Semi- Auto** Auto rice mill* Auto rice mill** Impact of technological changes in rice milling contd. 23
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 Semi-Auto* Semi- Auto** Auto rice mill* Auto rice mill** Table 8. Employment in different rice mills 24 *Without modern equipment **With modern equipment
Type of millIRR NPV(000Tk.) at 10% BCR (at 10%) Husking rice mill 18.45% Semi-auto rice mill 25.23% Auto-rice mill32.54% Financial viability of the rice mills 25
Rice miller Aratdar-cum-wholesalerFaria Farmer Bepari Aratdar-cum-wholesaler Paddy processor Retailer Wholesaler-cum-retailerWholesaler Aratdar Consumer Government procurement Procurement centre Figure 3: Typical Marketing Channels of Paddy/ Rice in Bangladesh 26
ActorsGross marketing margin Marketing costNet marketing margin Amount% % % Faria Bepari Aratdar-cum- wholesaler Rice mill (524.10)* (417.46)* (106.64)* Aratdar(Rice) ** 2.18 Wholesaler Wholesaler cum retailer Retailer Total Table 10. Marketing margins of paddy/rice for different actors (for 1 quintal of rice /and equivalent amount of paddy) *only from rice ** Commission 27
Figure 4: Marketing margins of paddy/rice for different actors (for 1 quintal of rice /and equivalent amount of paddy) 28
Share of different actors in gross marketing margin, marketing cost and net margin 29
Map 6.1: Extent of rice surplus and deficit at district level in 2010 in
Integration 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 integrated Dhaka 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 31
Suggested policy options Paddy market Structure –Oligopsonistic and atomistic Formation of farmers marketing cooperative / group Development of market yard for paddy market as most of the paddy markets sit along and /on the road Provision of credit facilities to paddy traders. The traders should have trading licenses. Conduct Cost 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. 32
Rice mills Structure Husking mills should be modernized to semi-automatic/automatic rice mills. Profitable cases should be financed Conduct Development and introduction of quality standard for rice in the market The 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 mandatory Needs investigation of the nutritional aspects of milled rice after extracting bran to ensure the quality of rice 33 Suggested policy options contd.
Performance Ensure regular and undisrupted power supply to rice mills Make available of spare parts at reasonable prices in markets Quality standard of the spare parts may be introduced Contractual arrangements btw. rice growers and millers Improvement 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 banned Vocational training programme helps to produce qualified personnel for operating automatic rice mills Suggested policy options contd. 34
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. 35 Suggested policy options contd.