Rice Price Fluctuation and an Approach to Price Stabilization in Bangladesh

Correction of the distorted structure of related prices and prevention of wide fluctuations in the level of commodity prices constitute twin challenges in agricultural price policies. While macroeconomic instruments are comprehensive sectoral analysis of prices relations, stock requirements, market integration, and various other factors that destabilize supply and demand. IFPRI’s initial analyses of price stabilization were limited to the issue of optimal stock of foodgrains. Thomas Pinckney’s work on stock policies in Kenya and Pakistan and Raj Krishna and Ajay Chhibber’s research on India have demonstrated how optimal stock policies can save scarce public resources so urgently required for economic development. This research by Ahmed and Andrew Bernard focuses less on optimal stock and more on a consistent framework and operational rules for stabilization of prices. It examines the factors that cause fluctuation in prices and develops a framework for containing annual and seasonal variation of prices within a bound. Although the research is conducted in the context of Bangladesh, the approach is applicable to other countries. IFPRI is currently involved in extending this research by applying it in Bangladesh through a collaborative arrangement with the Bangladesh Ministry of Food. Such a link between research and application will bring IFPRI’s research directly to bear on the policy needs of developing countries, improving both current policy and future research.