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ECONOMICS IA FOR IB ( ALL 3 COMMENTARIES) IB GRADE : 7
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Commentary 1Title of the article: SUPPLY UNCERTAINTY PUSHES UP RICE PRICE
Source of the article: The Business Standard
https://tbsnews.net/economy/supply-uncertainty-pushes-rice-price-195
433
Date the article was published: 2nd February 2021
Date the commentary was written: 14th April 2021
Word count of the commentary: 764 words
Unit of the syllabus to which the article relates: Microeconomics
Key concept being used: Government Intervention
, Article 1:
"A number of importers and millers have taken it as an opportunity to make quick bucks, leading
to another rise in the prices of the staple"Prices of rice have once again begun to shoot up owing
to a shortage in supply. A nexus between big rice mill owners and importers and hoarders is
believed to be behind the making of the crisis.The staple food has experienced a hike between
Tk250 and Tk300 per sack weighing 50kg in prices over the last one week. Rice prices witnessed
a record increase of up to Tk500 per 50-kg sack amid the pandemic last year.Later, the staple
grain market somewhat cooled down after the government allowed its private import, cutting duty
on its imports to 25% from the existing 62.5% in December 2020. Duty was again slashed to 10%
with no satisfactory impact on soaring rice prices, rice traders said.According to the Directorate
General of Food, on 6 and 10 January, the food ministry allowed 320 companies to import 6.76
lakh tonnes of rice in two phases. However, only 1 lakh tonnes of rice have been imported in the
last 25 days as importers are allowed to import a certain amount subject to approval by the food
ministry – not at their own discretion. A number of importers and millers have taken it as an
opportunity to make quick bucks, leading to another rise in the prices of the staple, sources said.
Md Harun-ur-Rashid, deputy director (internal procurement) of the food directorate, told The
Business Standard that the food directorate has so far imported about 1 lakh tonnes of rice, both
publicly and privately. Some 177 companies have till now taken permission from the food ministry
to import 6.76 lakh tonnes of rice. The process is underway to import the amount of rice needed.
Rice prices declined slightly after its imports, he said, expressing the hope that if imports increase
further, prices will also come down. Rice traders said despite the rice import, the market is
heading towards volatility because of the price hike of rice in the world market coupled with an
inadequate supply of paddy and rice at the domestic level. Besides, the opportunities that the
government has provided for the import of rice privately are limited to certain organizations, they
added. Shanto Dasgupta, a rice trader and former president of the Chattogram Rice Mill Owners'
Association, said only the commerce ministry-permitted organizations are allowed to import rice.
That is why rice has not yet been imported in the country as per demand. Traders complained
that a syndicate of importers and big mill owners has increased rice prices.Moreover, middlemen,
who bought paddy at higher prices at the beginning of the Aman harvesting season, are not
releasing their stocks because of falling rice prices, he added. As a result, prices of rice have
begun to rise again, the business leader thinks. Traders said the Balam variety of parboiled rice
,imported from India now sells at Tk2,450 per sack, with a Tk150 increase over last week. Prices
of Beti Atap (sun-dried) that came from the same country have risen to Tk2,000-Tk2,050 from
Tk1,800-Tk1,850 when its import began. Traders at Chaktai and Pahartali wholesale markets in
the port city said in the wake of the government's decision to import rice in the first week of
January, prices of parboiled Miniket rice in the country dropped by Tk200 to Tk2,350-Tk2,400.
Besides, each sack of Swarna rice was on sale at Tk2,150 with a price drop of Tk150-Tk200,
Guti-Swarna at Tk2,000 with a Tk100 price cut, and Jirashail at Tk2,850 after a Tk50 price drop.
However, prices of all these rice varieties went up by Tk250-Tk300 per sack again over the last
week. In mid-January, prices of sun-dried rice fell by up to Tk100 as a result of the import. But
now, the prices have gone back to their previous levels. At present, Beti Atap is being sold at
Tk2,400-Tk2,700, Miniket Atap at Tk2,600-Tk2,700 and Paijam Atap at Tk2,200-2,400 at the
wholesale markets.Prices of Chinigura rice have long remained static at Tk3,800-Tk4,700 per
sack without any changes in its prices. Katari (parboiled) is being sold at Tk1,400 per 25-kg sack.
According to the Directorate General of Food, on 1 July 2019, the government had a food stock
of 16.74 lakh tonnes, while the stock was 11.88 lakh tonnes in July 2020. However, as of 25
January 2021, the government has a stock of 7.4 lakh tonnes of food grains. Of the amount, there
are 5.48 lakh tonnes of rice and 1.56 lakh tonnes of wheat. Apart from imports, the government
has also continued its paddy and rice procurement drive. A total of 51,026 tonnes of paddy and
rice have been collected as of 25 January this year during the ongoing Aman procurement drive
that started on 7 November 2020. The government had a target of procuring 10 lakh tonnes of
paddy and rice during the Aman season. According to industry insiders, food stocks in the
country have declined. The internal procurement drive is also not going as per target. Although
the government has made the opportunity to import rice to address this crisis available, the import
process has been suspended since January 13 because of complexity over the HS code, they
added. ***
, Commentary 1:
This article discusses how the price of rice, a staple grain in Bangladesh, has risen as a result of
the pandemic. The price of rice has begun to rise significantly because of a shortage of rice in the
market caused by floods. The economic concept that encompasses this article is government
intervention. Rice has an inelastic demand because it is a necessity, so even though the price of
rice increased significantly, the demand for rice did not change significantly. Rice is a staple
product in a Bengali household, no meal is complete without rice.Inelastic demand occurs when
there is a less-than-proportionate change in quantity demanded for a change in price. The effect
of a decrease in supply on the price is depicted in figure 1 below. The price rises from P1 to P2
as the supply curve shifts left from Supply 1 to Supply 2. As there is a scarcity of this necessary
product on the market, the price has risen. This is because the demand of rice is price inelastic,
the demand curve is steeper, and even though the price of rice has increased significantly, the
quantity demanded has changed less than proportionally.
Figure 1: Inelastic Demand of Rice
, As consumers were exploited by the high price of rice, the government decided to intervene in
the market and make this staple grain available to low-income households. If the government
decides to lower the import tax, it will change and increase the supply of rice in the market,
allowing lower-income households to purchase this staple product at a lower price. Import tax is
a tax levied on goods imported into the country from another country. Previously, the
government imposed a high import tax on rice in order to discourage importers from bringing in
rice, thereby protecting domestic farmers and allowing all rice produced in the country to be sold
at a fair price. Later, due to the change in the rice market, the government reduced the import
tax so that firms would be encouraged to import rice and fill the market shortage. However, they
only granted the grant to a limited number of companies in order for them to import rice. This is
because if all importers and traders begin to import rice, there will be an excess supply of rice in
the market, putting domestic farmers out of business as rice prices fall dramatically. Each
importer who brings in rice is subject to a quota. Quota is a government imposed trade
restriction that limits the number of goods a country can import during a certain period.
In the figure 2 below we can see the impact of a fall in the import tax charged on rice. We can
clearly see that the price will drop as the supply of rice increases in the market. The supply
curve shifts rightwards from S to S1 and the price drops from P to P1. There is a shift in the
supply curve as tax is a non price determinant that is changing the supply of rice.
Figure 2: Effect of the fall in import prices on rice
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