THE POLITICAL ECONOMY OF FOOD PRICE POLICY

The Political Economy of Food Price Policy in

BANGLADESH

Research Brief No. 14

April 2013

SELIM RAIHAN

Globalfoodpricehikesduring2007and2008resulted
in a sharp rise in staple food prices in Bangladesh,
whichinturnledtoasignificantriseinthenumberof
householdsfallingbelowthepovertyline.Onthepo
litical front, Bangladesh was run by an unelected and
undemocraticcivilcaretakergovernment,backedby
themilitary,whichremainedinpoweruntiltheendof
2008 and undertook several steps to contain price
hikes. Some of these policies and programs were
effective,andsomewerenot.

respondedtothesecrisesbysupplyingfoodforimme
diate relief and by helping to coordinate food aid
commitmentsanddeliveries.Atthesametime,aspart
of its pricestabilizationstrategy,the government en
couraged private sector imports, a policy that helped
avoidfoodshortages.

Rice is central in the consumption

basket.

Food security in Bangladesh is strongly linked to the

production, import, and price stability of rice.
Bangladesh is a net riceimporting country, but rice
importsinBangladeshhavetraditionallybeenerratic,
dependingondomesticproduction,whichisoftenaf
fected by natural calamities. Selfsufficiency in rice
production has long been a national objective. With
expanded cultivation ofhighyielding paddyvarieties,
theoncecriticaldependenceonimportshassubsided.

Bangladesh has been vulnerable to

human-caused and natural calamities
that threatened food security.
Since independence in 1971, Bangladesh has faced a
number of humancaused and natural calamities that
havethreatenedthefoodsecurityofpoorandmargin
alized people. These calamities include a famine in
1974, floods in 1987 and 1988, a cyclone in 1991, a
floodin1998,andacyclonein2007.Thegovernment

The government adopted various

policy measures in response to the
food price hike in 20072008.
Thegovernmentundertookanumberofinitiativesto
promote agricultural development. These included a
subsidyonfertilizer;arehabilitationprogramforpeo
pleaffectedbyfloodsandcyclones;endowmentfunds
for agricultural research and development; a subsidy
ondieselfuelforsmallandmarginalfarmers;cashin
centives for exporting agricultural products; rebates
on electricity bills forentrepreneursof agrobased in
dustries; reduced interest rates for loans for the pro
duction of pulses, oil seeds, and spices; and distribu
tion of agricultural and rural credit through state
owned commercial banks. Total operative tariffs on
rice and wheat were reduced to zero. The annual
renewal feefor valueadded tax(VAT) registration by
commercial importers was withdrawn. The govern
ment arranged distribution of food grains through
varioussafetynetprograms,strengtheneddistribution
ofriceandpulsestothepoorthroughBDRsDalBhat
program, and increased the coverage and amount of
individualgrantsundersocialsafetynetprograms.The
central bank expanded agricultural credit, facilitated
thedistributionofsubsidiesonagriculturalinputs,and
providedsoftloansfornewimportersoffooditems.

SelimRaihan,AssociateProfessor,DepartmentofEconomics,UniversityofDhaka,Bangladesh
TheauthorpreparedthisbriefasamemberofaresearchnetworkonthePoliticalEconomyofFoodPricePolicycoordinatedbyCornellUniversity,
UNUWIDER,andtheUniversityofCopenhagen.
Thecompletepaperandallotherpapersandbriefsrelatedtothisprojectareavailableat:
http://www.wider.unu.edu/research/currentprogramme/en_GB/PoliticalEconomyofFood/
Theresearchbriefscanalsobefoundat:http://www.foodpolicy.dyson.cornell.edu
TheprojectdirectorisPerPinstrupAndersenwhomaybecontactedatpp94@cornell.edu

The Political Economy of Food Price Policy in BANGLADESH

The central bank followed a moderately contrac
tionary monetary policy and intervened in foreign
exchange markets directly and indirectly to keep a
stableexchangerateagainsttheUSdollar.

However, many of the government's

actions were ineffective.

Thoughthegovernmentdecidedtointensifyinternal
procurement of food grains, in reality total procure
ment was much lower than targeted procurement.
Thisshortfallwasduetoproductionlossescausedby
naturaldisastersandthefactthatprevailingmarket
prices were higher than the governments procure
ment prices. The government was unable to meet
the shortfall in domestic procurement through
higherimportsfromtheworldmarketbecauseIndia
had banned rice exports in October 2007 and
because the world market price of rice was much
higher than the domestic price, which discouraged
privateimporters.

TheMinistryofCommerce(MoC)andtheMinistryof
Food and Disaster Management (MoFDM) were at
the center of discussions on the governments
response. The MoC formed a Price Monitoring Cell
(PMC), but, lacking required machinery, personnel,
and capacity, the PMC failed to exert any influence
over market prices. An attempt to empower the
Trading Corporation of Bangladesh (TCB), a public
agency organization under the MoC, as a market
playerduringthepricehikewasineffectiveowingto
lack of resources. The business community also
lobbiedthegovernmentagainstextendingtheTCBs
operations.

Though theMoC and MoFDM wereat the center of

the discussions, they had no direct power to influ
encedomesticmarketprices.TheMoChadnodirect

authoritytolowerimportdutiesonfooditems;ithad
torequestsuchadecisionbytheMinistryofFinance
(MoF).Also, increasing the staff and funding of the
TCBtoincreasethevolumeoffoodimportsrequired
theendorsementoftheMoF,whichwasnotstraight
forward. There were also important noneconomic
reasonsforthefoodpricehikeinthedomesticmar
ket, such as extortion and unofficial payments in
transportation,distribution,andmarketingchannels.
TheseproblemsrequiredactionfromtheMinistryof
Home.ThroughtheMinistryofHome,thecaretaker
government took a number of measures to combat
the noneconomic factors and droveactionsagainst
illegal and informal supply chains.Though some of
themeasuresagainstextortionwereeffective,many
of the actions against illegal and informal supply
chainswerecounterproductive.

The roles of other stakeholders were

limited.
The business community urged the central bank to
ensurethatadministrativepricesoffuel,utilities,and
fertilizersnotbeincreasedandthatgovernmentbor
rowingwouldbereduced.Theyopposedthecentral
banks tight monetary policy because it might raise
entrepreneurs cost of borrowing, curb enthusiasm
for investing in the formal economy, and slow eco
nomicgrowth.Thesecallsfromthebusinesscommu
nity did not lead the central bank to reverse its
monetarypolicystance,whichwassupportedbythe
International Monetary Fund. Civil society organiza
tions called for widening the scope of social safety
net programs. Newspapers published key news,
information,andanalysisandwerethemajormeans
for disseminating government decisions and policy
actions,aswellasthereactionsofstakeholders.

THE POLITICAL ECONOMY OF FOOD PRICE POLICY

ThismaterialisbasedonresearchfundedbythecoordinatingorganizationsandagrantfromtheBill&Melinda
GatesFoundation.Thefindingsandconclusions
containedwithinarethoseoftheauthorsand
donot necessarilyreflectpositionsorpolicies
oftheBill&MelindaGatesFoundation.

Selim Raihan