From the Perspective of CPD and Consumer Association of Bangladesh (CAB)

What CAB President has to say

Consumers are the ones that are being most directly affected by the continued rise in the prices of essential commodities in Bangladesh. Quazi Faruque, General Secretary, Consumer Association of Bangladesh (CAB), observes there is inadequate supply of goods in the market and one of the main reasons for that is businesspeople are frightened to do business in the current situation. According to him, most of those that deal in essential commodities do not want to run their business at a low profit margin; they seek to make irrational profit. Since under the present circumstances, making irrational profit is difficult and more accountability of the businesspeople is needed many businesspeople are simply doing less business now.

At the same time Faruque believes that other factors such as the rise in the prices of goods in the international market and devaluation of Taka against the dollar have contributed to the price hike in Bangladesh. And consumer behaviour is no less responsible. "Consumers are also liable for the current situation. Why do they stick to the same products for their needs? They should consume those goods that cost less and reduce intake of those that are expensive. The price of potatoes has increased while that of papayas has relatively decreased. So eat papayas instead of potatoes. We saw this pattern of behaviour at the time of Ayub Khan [President of West and East Pakistan Regime in the sixties]. Before we had taken rice 3 times a day but when wheat came to us we started to take Ruti [home-made bread] in the morning instead of rice. We should be ready for changing food habits."

In the national budget for the fiscal year 2007-08 there is a provision for zero tax on some imported essential goods, but as Faruque points it out, tax is not the only reason for increase in prices. There are many factors involved and the problems cannot be solved by the Government alone. "Syndication, channels among intermediaries, Arothdars [hoarders] and Farias [middlemen] are the main problems in the market." A CAB-conducted survey shows that Pui Shak (a kind of edible plant), which sells for 1 taka at Shibpur, Norshingdi (80 km away from Dhaka), costs 10 taka in the kitchen markets of Dhaka. Faruque estimates intermediaries and retailers are taking 233.33% of the price from the consumers. He further observes that sometimes the difference between the wholesale market price at Norshingdi and that at Kawran bazaar is 336.29%. "This means 100-taka vegetable of Norshingdi wholesale market is sold for taka 336 in Dhaka!"

Suggestions

According to Faruque, government should take the following steps to come out of the present crisis:

• Farmers' Cooperatives at the rural level should be established. This will enable easy movement of products to consumers by the original grower.

• Effective measures should be taken by the government to reduce the number of intermediaries so that both farmers and consumers are benefited.

• Government should provide farmers with healthy seeds, fertilizers, pesticides, and modern agro instruments and agro credit.

• To motivate farmers, government should ensure that they get proper prices.

• BADC & TCB are needed to run more actively.

CPD Director enunciates his views

The commodity market in Bangladesh is already hot for its customers, drawing experts to the table for deliberations. Professor Mustafizur Rahman, Director, Center for Policy Dialogue (CPD), says, "Acceleration of the inflation rate is one of the major concerns," adding that in the past the country's economy was able to achieve 5 plus percent growth rate with low inflation rate, "which was one of our major successes."

Inflation has been on the rise in recent years; particularly food inflation has jumped from just 4% to a double digit, according to Mustafiz. "One main reason for this is obviously the fact that the domestic price of essential goods tends to be fixed at import parity price, which means that the import price influences our domestic price." He further observes, over the past few months- especially since 2006-the price of essential commodities has risen significantly in the global market. And there are a number of reasons for this. For example, the price of rice has increased because there are inadequate supplies of rice in the international market (according to an FAO estimate) while the price of wheat has risen because of alternative use of wheat.

Changes in the policies of exporting countries can also lead to a price hike, says Mustafiz India is a major country for Bangladesh to import some essential commodities from and so if the price in the Indian market increases, the market in Bangladesh is affected. Recently, India has banned export of some essential items, which has created a negative impact on the import prices.

Cost-push inflation in the domestic economy is also to blame for the current situation, m intains Mustafiz. The prices of inputs such as fuel and fertilizer have gone substantially. This has driven the cost of production of essential goods in the country. But perhaps the most noticeable reason is the difference between import price and retail price and that between the farm-gate price and the retail price. In most cases the retail price is extraordinarily high. In this connection Mustafiz mentions a study undertaken by CPD, which shows that the intermediaries are the main beneficiaries of such businesses taking the huge chunk of the profit. "We need to investigate why this is so-whether there is any syndication. Often the major part of such business is carried out by a small number of importers which allows for a certain oligopolistic behavior in the market."

Fear is another factor. Since the current Care Taker Government came to power, observes Mustafiz, investment in the market has been low and imports have fallen, creating shortage of supply of essential commodities in the market.

How to get over the problems

"There is no easy solution to inflation; there are hard choices to be made; there are hard policies to be made," says Mustafiz. He believes the first task of the government is to come to the aid of the low-income group by initiating various programmes, such as creating employment for them. However he acknowledges that the government has already taken a few such programmes. For example, BDR has opened shops and TCB is selling some essential products such as rice and wheat, both organizations providing some daily necessities at subsidized price. Although these initiatives have drawn criticism from some corners, Mustafiz personally believes the steps are good as a short-term solution.

Referring to inflation, the CPD director says inflation is a monetary phenomenon and to deal with it contractionary monetary policy may be needed at one stage when there is there is enough credit in the market-enough credit for the entrepreneur and importer. But at the moment investment and import have gone down and so raising the interest rate will not solve the problems. "We have been passing through a difficult time; there has been a flood; there has been massive destruction of agricultural products such as paddy. We need to provide credit and seeds for crops like Amon (a rice variety) and also ensure regular fertilizer supply."

With Ramadan approaching it is generally feared that with the demand for essential commodities rising, their prices will rise as well. "There is this concept of anticipatory inflation-people are thinking prices will go up and this is a self-fulfilling prophecy-that is people are ready to buy commodities at higher price," observes Mustafiz suggesting before Ramadan steps should be taken to increase import of those items demand for which is expected to go up during the Ramadan.