Research Note AN EVALUATION OF GOVERNMENT RICE PROCUREMENT ...ageconsearch.umn.edu/bitstream/200710/2/Resear_03 Vol-XXVI.pdf · AN EVALUATION OF GOVERNMENT RICE PROCUREMENT PROGRAMME

Bangladesh J. Agric. Econs XXVI, 1 & 2(2003) 111-126

Research Note AN EVALUATION OF GOVERNMENT RICE PROCUREMENT

PROGRAMME IN SELECTED AREAS OF BANGLADESH

S. A. Sabur Hasneen Jahan M. Selim Reza*

ABSTRACT

Government Boro procurement programme was evaluated with the help of primary data collected from different upazilas under Bogra and Naogaon districts during 2001. Additionally, secondary data were obtained from different sources. Farmers and millers directly sold paddy and rice respectively to the procurement centre. Faria and Bepari did not sell paddy or rice directly to the procurement centre but they formed a complex channel in procurement of rice in the study areas. Large differences were observed between procurement price and market price and procurement price and cost of production in different years. The highest difference between procurement price and market price was observed in the month of May for paddy and June for rice. Positive relationship was observed between the percentage of marketed surplus procured and market price of paddy. Small farmers sold the highest proportion of their surplus to the procurement centre compared with large farmers. The cost of selling paddy to procurement centre was more than double as much as the cost involved in selling paddy in the market. Majority of millers were not satisfied with the size of quota received for Boro rice. The factors such as marketed surplus, experience, education, metalled road and distance of procurement centre were found to influence the participation of farmers in procurement programme. The major reasons for not selling paddy to the procurement centre by farmers were lengthy procedure, loss of time and high transportation cost.

I. INTRODUCTION Economic development in Bangladesh cannot be achieved unless there is a breakthrough in the agricultural sector. This sector employs about 62 per cent of labour force and contributes 23.47 percent to Gross Domestic Product (GDP) in 2002-03 (GOB, 2004). Agricultural sector of this country is largely dominated by paddy production. It is very unlikely in Bangladesh that a farmer is involved in agricultural activities without cultivating paddy. Bangladesh ranks fourth in terms of production among the paddy producing countries in the world after China, India and Indonesia (FAO, 2002 p. 77). The government of Bangladesh is consistently pursuing policies to attain food self sufficiency and also to improve the farmers' economic condition. The present food gain production in Bangladesh is sufficient to meet its domestic requirement. In the year 2002-03, the production of food grains was 268.70 lakh tons. In the face of more food grain production *The authors are respectively Professor, Department of Cooperation & Marketing, Assistant Professor, Department Agricultural Economics and Ex-Postgraduate Student, Bangladesh Agricultural University, Mymensingh.

112 The Bangladesh Journal of Agricultural Economics market price has been distorted and the farmers are getting low price for paddy. On the other hand, paddy production is becoming less profitable due to increased cost of production resulted from withdrawal of subsidies from modern inputs. Now, the government of Bangladesh has adopted paddy or rice procurement programme as an important tool to provide price incentive to the farmers. Among three varieties of paddy, Boro has an important role in achieving foodgrain self-sufficiency in the country. The area under Boro paddy cultivation has increased by 2.6 per cent and production by 4.5 per cent per annum during 1988-99. On the other hand, area under Aus and Aman decreased by 0.5 per cent and 4.5 per cent and production by 3.9 per cent and 1.2 per cent respectively (BBS, 2000, p.127). Thus in terms of both areas cultivated and production only Boro showed positive growth rates during the same period. Foodgrain procurement programme has a fairly long history in the region now comprising Bangladesh. For a long time, the primary objective of the procurement programme has been to secure enough food grains to feed the Public Food Distribution System (PFDS). Since 1975, however, price support became an important objective, although feeding PFDS remained an important concern. The price support programme has itself involved in two phases. Initially, the idea was to guarantee a floor price, which was announced just before the harvesting season. More recently, the whole system has been geared up towards guaranteeing an incentive price. The procurement price is now consciously related to cost of producing HYV foodgrain and is announced before the sowing season. It is said that the present procurement programme is not effective to provide incentive to the farmers. A recent study (Shahabuddin & Islam, 1999) on rice procurement programme showed that participation of farmers, especially the small and medium farmers was negligible and procurement appeared to be largely controlled by political elites. Therefore, this study is an attempt to evaluate the government Boro procurement programme with special emphasis on comparison between procurement price and market price and also participation of farmers and other different stakeholders. This study may be helpful to examine the effectiveness of the procurement programme and to find out its problems at least in the study area.

II. METHODOLOGY

Bogra and Naogaon districts were purposively selected because of the fact that these two districts are the leading Boro producing area of Bangladesh. On the basis of higher concentration of Boro paddy production, Sherpur and Gabtali upazilas under Bogra and Mahadebpur and Sadar Upazilas under Naogaon district were purposively selected for this study. In the selected four upazilas, Sherpur, Gabtali, Naogaon sadar and Mtazihat procurement centres were purposively selected. Farmers, traders and millers were chosen from around maximum of 10 kilometers of these procurement centres. Besides, Officers in Charge of the procurement centres and Upazila Controller of Food from four upazilas were interviewed. Thus, thirty six farmers (participants and non-participants), sixteen traders, twenty millers and eight officials were chosen for this study. Out of thirty six farmers, 12

An Evaluation of Government Rice Procurement 113 were small, 17 were medium and 7 were large farmers. Five sets of survey schedules were used for collecting information. Two sets of schedules were used for the farmers; one for the farmers who sold paddy to the procurement centre and another for those who did not sell paddy to the procurement centre. For traders, millers and officials separate schedules were used for collecting information. In addition to primary data secondary data were collected from different sources. Primary data were collected during the months of July and August 2001 and secondary data covered the period from 1989 to 2000.

III. PROCUREMENT SYSTEM Government Procurement Procedure Government procures paddy from the farmers and rice from the millers through its procurement centres located in different areas of Bangladesh. There is an Officer in Charge (OC) and other employees in each procurement centre. Upazila Controllers of Food (UCF) supervises the procurement system of each upazila and District Controller of Food (DCF) supervises the procurement system of each district. Government fixes procurement target for each procurement centre on the basis of procurement centres' capacity and national procurement target. Then the UCF calls on a committee meeting and listed the farmers and millers. Rice procurement target is distributed among the agreed upon millers on the basis of their milling capacity. The agreed upon millers are those millers who are already listed for selling rice to the procurement centre. Union Parishad chairman provides the lists of farmers to the UCF for selling paddy to the procurement centre. A farmer can sell minimum of 70 kg and maximum of 5 tones paddy to procurement centre. Procurement Channel The growers sell their paddy mainly to the middlemen in the post harvest season. Middlemen involved in the trading of paddy are of different categories. They are commonly known as Kutial, Barkiwala, Faria, Bepari and miller. But the Kutial and Barkiwala were not involved in the procurement channel. The suppliers to the procurement centre are either farmers or the millers. The common procurement channels from growers to the procurement centre are shown in Figure 1. Boro procurement channel starts from farmers who sell paddy to Faria or Bepari in the market or at the farmyard. Sometimes they sell directly to the millers and also to the procurement centre. The seasonal Farias buy paddy from village, but regular Farias operated in the market. They sell paddy mainly to the Beparis and millers. Beparis are licensed traders who sell paddy mainly to the millers. Millers purchase paddy from farmers, Farias, Beparis or procurement centres and sell to the procurement centre after processing at their mills. Procurement centres collect paddy from farmers and rice from millers and supply paddy to the millers to process paddy into rice. It supplies rice for Public Food Distribution System (PFDS). In the case of PFDS, government supplies rice to the people through different programme such as Vulnerable Group Feeding (VGF), Food For Work (FFW), Food For

1n Evaluation of Government Rice Procurement 117 Different Markets During 2001 For this section data were collected by field survey from different markets and are presented in table 1. The lowest and highest differences between procurement price and market price of paddy were found at Naogaon and Gabtali upazilas respectively. The average difference of procurement price and market price of paddy for all upazilas was found 221.25 Tk/quintal. On the other hand, the highest difference between procurement price and market price of rice was found at Mahadebpur upazila and the lowest at Sherpur upazila. The average difference for all upazila was found 86.25 Tk./quintal. If rice price is converted into paddy equivalent price, it is found that rice price difference was much lower than paddy price difference. That means farmers were more benefited in selling paddy to the procurement centres than millers who sold rice to the centre. The percentage of total marketed surplus of paddy procured (20%) was the highest in Naogaon and the lowest (4%) in Mahadebpur. Gabtali's procurement percentage was also lower than all other areas except Mahadebpur. On the other hand, market price of paddy was the highest in Naogaon and the lowest in Gabtali. This indicates positive relationship between market price and procurement percentage. Thus, the study reveals that procurement programme to some extent exerted upward pressure on market price of paddy in the study area. Table 1. Procurement price, market price of paddy and rice and quantity of paddy procured in different upazilas during 2001.

Market price (Tk./cuintal)

Procurement price (Tk./quintal)

Difference (Tk./quintal)

Paddy procured (MT)

Upazila

Paddy Rice Paddy Rice Paddy Rice Sherpur 605 1225 825 1300 220 75 1200

(6.67) Gabtali 590 1220 825 1300 235 80 378

(5.18) Naogaon sadar

617 1207 825 1300 208 93 1532 (20.15)

Mahadepur 603 1203 825 1300 222 97 823 (3.69)

Average 603.75 1213.75 825 1300 221.25 86.2 5

983 (7.13)

Source: Market price reported by farmers. Figures in the parentheses are percentages of total marketed surplus.

V. PROCUREMENT PRICE AND COST OF PRODUCTION Table 2 shows the difference between procurement prices and cost of production of Boro paddy from 1991 to 2000. In 1997 the difference was the highest (Tk. 117 per quintal). However, it was negative in 1994. That means farmers were benefited much in 1997 by selling paddy to the procurement centre. On the other hand, the farmers incurred loss for selling paddy to the procurement centre in 1994. The large variation of difference between

118 The Bangladesh Journal of Agricultural Economics procurement price and cost of production indicates that cost of production was not considered in fixing procurement price in different years. Table 2. Difference between procurement price and cost of Boro production.

( Tk. / quintal) Year Procurement price Cost of production Difference 1991 643.00 554.46 88.54 1992 656.00 609.60 46.40 1993 602.83 - - 1994 616.23 621.00 -4.77 1995 715.00 - - 1996 735.00 700.00 35.00 1997 735.00 618.00 117.00 1998 700.00 661.00 39.00 1999 760.00 725.00 35.00 2000 825.00 700.00 75.00 Source: Different research work and GOB

VI. FARMERS' SALE AND COST INVOLVED IN SELLING PADDY TO PROCUREMENT CENTRE

Sale of Paddy

Table 3 presents location-wise percentage of total sale of paddy by different groups of farmers. The highest 40 percent of marketed surplus was found to sell in the market, followed by 33 percent sold to procurement centre by all farmers. They disposed of about 14 percent to mill and 13 percent at homestead. The proportion of paddy sold at homestead was the highest (15%) for medium farmers and the lowest (10%) for small farmers. The large farmers sold highest proportion of paddy to the mill because the millers purchased larger amount of paddy at a time. On the contrary, the percentage of total sale in procurement centre decreased with the increase in farm size. That means the small farmers sold the highest percentage of their surplus to the procurement centre compared with other groups of farmers. Table 3. Location-wise paddy sold by different categories of farmers. (% of total sale) Farmers' categories

Homestead Market Mill Procurement centre

Small 10.12 29.00 6.34 54.54

Medium 15.40 32.10 13.40 39.10

Large 13.35 47.10 15.75 23.80

All 13.45 40.14 13.68 32.73

An Evaluation of Government Rice Procurement 119 Selling Cost

The main cost was the transportation cost to sell paddy to procurement centre. The other cost items were packaging, Koyal charge, loading and unloading and illegal payment to the procurement officials. This cost in Sherpur upazila was the highest of Tk. 29.30 per quintal because of higher transportation cost and illegal payment in Sherpur and the lowest for Mahadebpur upazila (Table 4). Table 4. Farmers cost of selling paddy to procurement centre by upazila

(Tk./quintal) Average cost of selling paddy to procurement centre Upazila

Transportati on cost

Bag Employees, labour and

Koyal

Miscellaneous Total

Sherpur Sherpur

11.25 3.62 11.76 2.68 29.30 Gabtali 9.38 2.92 7.90 1.34 21.54 Noagaon Sadar 12.05 3.59 8.46 1.21 25.31 Mahadebpur 7.90 2.28 7.77 2.68 20.62 All 10.15 3.11 8.97 1.98 24.21

The difference between cost of selling paddy in the market and procurement centre is an important factor to evaluate the government procurement programme. Table 5 shows that the cost of selling paddy to procurement centre was more than double as much as the cost involved in selling paddy in the market. The causes of these differences were: i) the farmers have to pay some illegal amount to the procurement centres' employees and ii) the distance of farmers' house from procurement centre was higher than that from the market. At Sherpur upazila, this difference was the highest (Tk. 17.09) and at Naogaon sadar upazila that was the lowest (Tk. 8.44). For all cases, the difference was Tk. 12.38. Farmers were discouraged to sell paddy to the procurement centre due to this high difference in cost. Table 5. Comparison between costs of selling paddy in market and at procurement centre by upazila

(Tk./quintal) Upazila Cost of selling paddy

in the market Cost of selling paddy in

procurement centre Difference

Sherpur 12.21 29.30 17.09 Gabtali 8.71 21.54 12.83 Naogaon sadar 16.87 25.31 8.44 Mahadebpur 9.51 20.63 11.12 All 11.84 24.21 12.38

120 The Bangladesh Journal of Agricultural Economics

VII. MILLERS' COST AND RETURN OF SUPPLYING RICE TO PROCUREMENT CENTRE.

Millers play an important role in the government procurement programme. They purchase paddy from farmers and traders, convert them into rice at their mills and finally sell rice to the procurement centre as per fixed quota allotted to them. They are also engaged in crushing procurement centres' paddy. The average quota received and quantities supplied to the procurement centre were 51 metric tons and 48 metric tons respectively. Sixty five percent of millers were not satisfied in receiving quota allotted to them. It is observed from Table 6 that the net profit per quintal of paddy was estimated at Tk. 304.81 which was about 29.18 per cent of the price received. Processing cost of paddy was higher than any other cost of supplying rice to the procurement centre. Cost of managing quota (Tk. 14.01 per quintal) was the highest among the procurement related cost. The net return from selling rice to the procurement centre by millers was higher than that of selling in the market in the case of all upazilas. The difference was found to be the highest at Sherpur upazila and lowest at Naogaon sadar upazila (Table 7). Table 6. Cost of and return for supplying rice to procurement centre

(Tk./ quintal)

Items Cost Purchase price of paddy 670.31 Carrying cost of paddy to mill gate 26.04 Processing cost of paddy to rice 51.56 Cost of managing quota 14.01 Other payment at food office 8.71 Transportation cost of rice 6.03 Koyal charge 3.35 Cost of extra rice 10.04 Other cost 3.35 Total cost 793.40 Gains from by product 53.57 Price received from rice obtained from one quintal of paddy 1044.64 Net profit . 304.81 Table 7 . Comparison between net returns from selling rice to the procurement centre and in the market.

(Tk./ quintal) Upazila Net return from

selling at procurement centre

Net return from selling in the market

Difference

Sherpur 342.00 198.83 143.17 Gabtali 295.45 183.48 111.27 Naogaon sadar 277.23 204.51 72.72 Mahadebpur 304.61 189.96 114.65 All 304.81 194.20 110.61

122 The Bangladesh Journal of Agricultural Economics Here 'L' called logit, is linear not only in Xi but also in parameters βi. βi, the slope, measure the average change in logit 'L' for unit change in the explanatory variable Xi. The intercept βo is the value of log odds in favour of the event when Xi is zero. Marketed surplus, distance of procurement centre, experience of the farmers in selling to procurement centre, education of the farmers and nature of roads are the variables was hypothesized to be affecting the decisions of the farmers to participate in the procurement programme i.e. to sell paddy to the procurement centres. The extent of bearing these explanatory variables on the probability of being a participating farmer is shown by the estimated logit functions in table 8. The individual estimated parameters are to be interpreted with care, because the independent variables in the estimated model are the logarithm of the odds, not the actual probability. For example, in the present case Pi represents the probability of participating farmers in procurement programme and 1- Pi represents the probability of non-participating farmers. In total sample of the present study, since the number of participating farmers were 13 and number of non-participating farmers 23, therefore, the probability of participating and non participating farmers were taken as 0.36 and 0.64 respectively. The sign of co-efficient of the explanatory variables are more important than level of significance. Although only one variable i.e., experience is found significant, but all the coefficients of the explanatory variables possess expected sign. For all variables probability at mean value was estimated. If the marketed surplus increases by one quintal, the Table 8. Maximum likelihood estimates of logit function Explanatory variables Coefficient Probability at mean Marketed surplus of the farmer (quintal) 0.004

(0.009) 0.0844

Distance of the procurement centre (km) -0.472 (0.348)

0.0126

Experience of the farmer in procurement (year) 1.592* (0.636)

0.5014

Education of the farmer (Primary = 0, SSC and above = 1)

0.116 (1.431)

0.0739

Nature of roads (Kutcha = 0, Pucca = 1)

0.282 (1.192)

0.0793

- 2 log likelihood value Cox and Snell R2 Neglkerke R2 Sample size (Participant + non-participant)

19.022 0.541 0.742

36 (13+23)

Figures within parentheses denote the standard errors of the coefficient. * Significant at 5 per cent level. probability of being participant of farmers will increase by 8.44 per cent. If the distance of procurement centre increases by one kilometer, the probability of being participated farmers decreases by 1.26 per cent. It is evident from this study that 92 percent of participating

An Evaluation of Government Rice Procurement 123 farmers were residing within 4 km. Increment of one-year experience increases 50 per cent probability of being participating farmers. If the education level of farmers goes above primary level, the probability of being participation increases by 7.39 per cent. Also pucca roads increase the probability of being participation of farmer (7.93 per cent). Over 90 percent of participating farmers used either metalled or herringbone roads for transporting paddy to procurement centre. Among all the variables, the experience of the farmers strongly and significantly influences the farmers to participate in procurement programme i.e., to sell paddy to the procurement centres. Attempt has been made to identify the reasons for not selling paddy by farmers to the procurement centre. Lengthy procedure (20%), loss of time (16%), high transportation cost (14%) and refusal of procurement committee (12%) were the major reasons for not selling paddy to the procurement centre. Other important reasons were late start of procurement, delayed payment and cheating in weight. The study identified four types of irregularities in choosing farmers for selling paddy to procurement centre by local authority. Those are: repeated refusal (31%), political biasness (28%), taking bribes (8%) and nepotism (6%).

IX. CONCLUSIONS

Procurement centres collect paddy from farmers and rice from the millers who purchase paddy mainly from the traders as well as from procurement centre. Procurement price was not fixed based on market price as well as cost of production because large differences were observed between procurement price and market price and procurement price and cost of production in different years in the study area. Therefore, in order to provide incentive to the farmers, procurement price should be fixed on the basis of market price and cost of production as well. The greatest difference between procurement price and market price was observed in the month of May for paddy and June for rice. This indicates that farmers will be more benefited if large-scale procurement of Boro paddy starts from May. It is found that difference between procurement price and market price of rice was much lower than that of paddy. That means farmers were more benefited in selling paddy to the procurement centre than millers who sold rice to the centre. Positive relationship was observed between the percentage of marketed surplus procured and market price of paddy in the study areas. Thus the study reveals that procurement programme to some extent exerted upward pressure on market price of paddy in the study area. It is found that small farmers sold the highest proportion of their surplus to the procurement centre compared with other group of farmers. The cost of selling paddy to procurement centre was more than double as much as the cost involved in selling paddy in the

An Evaluation of Government Rice Procurement 125

APPENDICES Appendix Table 1. Monthly Market Price and Procurement Price of Paddy in Naogaon during 1991 to 2000.

Market Price (Tk./100kg.) Year

April May June July August

Procurement Price

(Tk./ 100kg. )

1991 554 559 606 670 678 643 1992 605 599 659 674 659 556 1993 402 410 352 407 430 603 1994 576 567 600 626 727 616 1995 650 643 671 731 772 715 1996 485 483 578 595 599 735 1997 560 538 507 531 575 735 1998 705 680 720 769 826 700 1999 725 625 701 744 720 760 2000 605 670 670 687 701 825 Appendix Table 2. Monthly Market Price of Paddy in Bogra during 1991 to 2000. Year April May June July August

1991 569 534 598 664 651 1992 625 603 639 631 650 1993 450 425 390 375 426 1994 560 525 569 634 665 1995 695 633 675 735 770 1996 534 553 621 580 582 1997 500 475 471 511 521 1998 575 546 625 697 769 1999 660 607 670 691 758 2000 610 584 633 618 587 Appendix Table 3. Average Monthly Market Prices and Procurement Prices of Paddy in Different Areas during 1991 to 2000.

(Tk./l00k .)

Item April May June July August

Procurement price 688.80 688.80 688.80 688.80 688.80

Naogaon market price 586.70 577.40 606.40 643.40 668.70

Bogra market price 577.80 548.50 589.10 613.60 637.90

126 The Bangladesh Journal of Agricultural Economics Appendix Table 4. Average Monthly Market Prices and Procurement Prices of Rice in Different Areas during 1991 to 2000.

(Tk./100kg.) Item April May June July August

Procurement price 1102.10 1102.10 1102.10 1102.10 1102.10

Naogaon market price 1089.60 1055.20 1023.10 1050.90 1099.70

Bogra market price 1103.10 1068.00 1060.10 1070.70 1101.80