Bangladesh rice trade and price stabilization: Implications of the 2007/08 experience for public stocks

The extent to which Bangladesh should rely on imports for rice price stabilization is a contentious policy issue. This issue was underscored in the wake of the 2007–08 world food crisis, during which international rice prices skyrocketed and rice import supplies from India were disrupted. For more than a dozen years, from 1994 to 2007, private-sector rice imports made a major contribution to price stabilization and food security in Bangladesh, adding to domestic supplies following production shortfalls. In particular, following massive floods in 1998, private-sector imports sourced from wholesale rice markets in India contributed more than 2 million tons to rice supply in Bangladesh. Subsequently, between 2003 and mid-2007, Bangladesh prices were particularly stable. This paper presents econometric evidence that trade with India was a determining factor in this price stability. In particular, the authors show that in this period, Bangladesh domestic wholesale prices were co-integrated with import parity prices of subsidized below-poverty-line rice from India’s public stocks. Import flows in these years generated an estimated total of 1.0 to 1.6 billion US dollars in consumer surplus for Bangladesh households but reduced producer surplus by a similar amount.