Rationale
The
study will investigate the policy
options of the Bangladesh government in different price regimes
to ensure food security for the poor. Since the trade
liberalization in the early 1990s, private sector in Bangladesh
has played an important role in stabilizing price, particularly
that of rice. During devastating flood of 1998, the stabilizing
role played by the private imports (Ninno et el 2003) is a prime
example of this. It was mainly possible because import parity
price of rice was not exorbitantly high due to availability
enough surpluses in the world rice market. Current situation in
the world market is quite different. Rice price is experiencing
an upward trend at home and abroad. Existing high import parity
price has diminished the scope for the private sector to play
the same stabilizing role this time around.
In these
changed circumstances, we have to consider whether modification
or expansion of government intervention is desirable or not. GOB
mainly intervenes in the food market through the Public Food
Distribution System (PFDS). Since trade liberalization,
government role has considerably been diminished. The
contribution of PFDS ranged between 3-5% of the total food grain
availability for the last five/six years which is lower than
historical average (FPMU 2007). Of the total PFDS, for the last
few years, the portion targeted to the poor has been more than
80% of the total off-take; whereas in 2003/4 and 2004/5 the
percent fell to 55.2% and 63.1% respectively which coincided
with the suspension of Food For Education (FFE) program. Under
this regime of rising prices of rice, the objective of this
study is to analyze the costs and benefits of different policy
options like increased or decreased government role, maintaining
the status quo or modification in the current distribution
channels.
Objectives and expected outputs
One of the major objectives of this study is
to compare the impact of several policy options on the food
security of different income groups. In doing so, we would
address some important questions such as: when rice price
changes, is there a quantifiable measure which would tell us
how this price change affects different income groups, specially
vulnerable and hard core poor? Would expansion or modification
of government intervention positively affect food security of
the targeted groups? Would a more open trade regime enhance food
security?
In the process of answering these questions,
we expect to find a measure which would allow us to estimate the
impact of price level changes on the food security of household
of different income groups. We would also try to develop an
estimation framework that would enable us to assess the impact
of government intervention on the food market outcome through
both demand and supply functions and it will enable us to decide
whether more or less government intervention is necessary.
Methodology
We would begin with an overview of the
current rice market in Bangladesh. In terms of different
stakeholders, we explore what are the contribution of two major
institutions, government and private sector in influencing rice
price. We also review the historical changes in different
institutional structures and compare how the food security of
different income groups is affected by these varied
institutions. In current institutional structure, GOB has the
following major policy instruments: (a) provide food aid
directly to the poor (b) stabilize food price through market
mechanism and (c) import food grain directly or facilitate
private importers by removing trade barriers. The objective of
this policy is to mitigate the shocks in prices of food grains
important for the food security of the poor. When price level
increases, consumer choice basket goes through an adjustment
mechanism which might be a threat to the food security.
Government aim is to intervene into the market or directly in
the household so that poor consumers can maintain the original
level of food security. We would like to assess which of the
above mentioned policy instruments perform better.
Then we develop a dynamic open market model
of rice price determination. The data required for estimation is
available principally from Bangladesh Bank, Food Policy
Monitoring Unit of Government of Bangladesh, Department of
Agriculture and Marketing, and the Household Income and
Expenditure Surveys of different years published by Bangladesh
Bureau of Statistics. This model will help us to analyze
different demand or supply factors that might affect the rice
price. At the same time we would develop a reduced form model of
calorie-intake determination where the importance of rice price
as a determinant would be tested. Combining these two models, we
would investigate how current government intervention practices
and different institutional practices affect food security of
various income groups, either directly or indirectly through
changes in price level. These models would be primarily used to
produce simulation data by comparing different counterfactual
situations involving major policy instruments which are
mentioned above. We would visit selective area locations in
order to verify the results from our model. We expect this whole
exercise would allow us to better understand the policy
implications on household food security and eventually make
recommendations regarding modification and/or rescaling of
current government interventions under alternative price
regimes.
Collaborating Institution
