public procurement system shamim

8/3/2019 Public Procurement System Shamim

1/20

An Assignment

On

The Public Procurement System of Rice inBangladesh

Course No. & Title: AM 504; Agribusiness Marketing Research

Submitted By Submitted To

Id. No. 11 AEM-JJ02M

Reg. No. 33554

Session:2006-07

MS. In Agricultural Economics

(Agribusiness & Marketing)

Dr. Mohammad Jahangir Alam

Associate Professor

Department of Agribusiness and

Marketing

Bangladesh Agricultural University

BANGLADESH AGRICULTURAL UNIVERSITY

MYMENSINGH-2202

DATE OF SUBMISSION:31 DECEMBER,2011


2/20

PUBLIC PROCUREMENT SYSTEM OF RICE IN

BANGLADESH

Given problems for formulating the assignment are as follows:

Critically evaluate the public procurement system of rice in

Bangladesh along with a detailed literature review of domestic

procurement and rice price stability.

2. Suppose you are asked to conduct a research on the constraints of

rice procurement system in Bangladesh. Explain how you are going to

do that.

3. You are asked to investigate whether procurement price follows

market price at the time of procurement. Present your result and

interpretation. What are the policy recommendations?


3/20

PUBLIC PROCUREMENT SYSTEM OF RICE IN

BANGLADESH

INTRODUCTION

Bangladesh is an agro based country where rice is the staple food. Most of the food

security of Bangladesh depends on rice production. But it is seen in the recent

years that rice price is increasing very sharply. But actual benefit of the price rise

does not go to the farmers hand. But a large number of middlemen involved I the

value chain of rice get the large share of price rise. Due to the high cost of

production and lower returns from rice production compared to other crop

production, farmers are shifting to other crop production. As a result the food

security of Bangladesh has become vulnerable in the recent few years. To face this

situation government tries to take some initiative to build a food reserve for future.

Public procurement of rice is done for the purpose of food security and also to

support the farmers by ensuring a minimum price above its cost of production.


4/20

1.Rice Procurement and Price Stabilization

Review of the literature

A lot of works had been done on public procurement of rice and price stabilization

in Bangladesh. Now it is researched very widely mainly in the rice producing

countries.

Actually public procurement system is practiced by the government to support the

farmers and also to ensure food stock for food security of the country. To

determine the procurement price and market price a lot of literatures are

available.But it is not an easy task to ensure the price support of the farmers and

keeping the retail fresh rice price at a reasonable stage.

Some related literatures are given below by the alphabetic order.

Ahmed (1979) reported that procurement of rice by the Food Department from

domestic producers and the market has been a long-standing practice since theinitiation of the public food marketing system in Bangladesh. During the 1960s,

procurement by the government generally involved an involuntary delivery

of rice by large farmers at a fixed price

Ahmed (1992) reported that the government instituted Palli Rationing, whose brief

was to distribute subsidized food grain (at 25% subsidies) to "eligible households"

in rural areas. Unlike what it substituted, the PR was accepted as a priority

claimant on the distribution indent, and soon became the single most important

public distribution channel for rice. Significantly for rice prices, the PR was

extremely poorly targeted and "leaked" heavily.


5/20

Ahmed and Bernard(1988); Goletti and Farid (1993) made statement about the

effect of public procurement on harvest prices is about its net, independent effect,

while controlling for other variables that simultaneously impact on rice prices.

Because the degree of market integration, at once over seasons, space and form, is

increasing over time.

Chowdhury (1987) studied that the public procurement program could be

impacting upon harvest prices in the small number of surplus-generating districts

in the way envisaged by its backers without nation-wide harvest prices being able

to pick up the difference.

Chowdhury (1990);Golletti et al.(1992; Ahmed et al.(1993) found that changes

in private stocks are treated relative to two variables, both expectational. The first

is public rice stocks. It has been shown, separately, that public rice stocks are a

major determinant of rice future prices. The second is about changes in pre-harvest

private storages as a result a proxy for severity of future of expectation regarding

prospective harvest shortfall (as scarcity). This idea draws upon the anticipatory

price hypothesis (Working, 1958; Bouis, 1983) as applied to Bangladesh

(Montgomery 1983; Ravallion, 1987).

(Goletti 2000) studied that some researchers argue that public food stocks also

provide "political insurance," by making it possible for the Government to avoid

criticism for failing to tackle sharp swings in rice prices or to meet disaster relief

needs


6/20

Dorosh and Shahabuddin (2002) give the example of the four years preceding

their study, out of which, three witnessed excessively high procurement prices for

the boro season, resulting in elevated costs for the Government and windfall

profits for those fortunate enough to sell at the procurement centers. Since the

bulk of rice that is procured is bought from millers or other traders, any rents

would disproportionately benefit millers and traders (there are reports of

procurement centers refusing to buy from farmers and colluding with the millers

and middle men).

Osmani and Quasem(1990) reported that the consensus prevailing up until the

middle of 1980's was that the procurement program in Bangladesh did not fare

very successfully by the criterion that an intervention to ensure incentive prices

should at least hold them within a reasonable difference from the incentive price in

a year of good harvest.

Shahabuddin (1992) Rice procurement is significantly influenced in the by rice

production, and the extent of HYV adoption. Lagged adjustment in rice

procurement is pervasive.

Shahabuddin (1992; Ahmed et al. (1993) the determination of rice procurement

as endogenous to a process of the determination of price is grounded in a citable

theory, and has been reported by a number of authors.

Shahbuddin and Islam (1999) reported that the procurement would appear to be

largely controlled by the political elites, Union Parishad (UP) Chairpersons, UP

members and traders. The sellers' list is largely fake and a considerable number of

the sellers are fraudulent.


7/20

Public procurement system

Public procurement system is executed by the government appointed organizations

and personnel. Here the farmers are the seller and government is the buyer of rice

the procedure is as follows:

Government procures rice from the millers through its procurement centers located

in different areas of Bangladesh. There is an office in charge and other employees

in each procurement center. Upazilla Controller of Food (UCF) supervises the

procurement system in each district.

Governments target each procurement center on the basis of each procurement

capacity and national procurement target. Then the UCF called committee meeting

and listed the farmers and millers. Rice procurement target was distributed among

the agreement millers on the basis of their milling capacity. The agreement millers

are those millers who are already listed for selling rice to the procurement center.

Union Perished chairman gives the listed the farmers to the UCF for selling rice to

the procurement center. A farmer can sell minimum 70kg and maximum 5 tons

paddy to procurement center.

Procumbent channels are as follows:

Farmer Procurement Center

Farmer Faria Miller Procurement Centre

y Farmer Bepari Miller Procurement Centre Farmer Faria Bepari Miller Procurement Centre


8/20

(This portion is modified from an MS. Thesis)

Evaluation or public procurement of rice

Public procurement of rice is an essential government operation in Bangladesh. As

it is done for the price support to the farmers but it also serves as the buffer stock

of food of the country.

Many researchers have conducted research on this topics. But most of the case the

researcher found some mismanagement. Finally they have agreed that some basic

problems associated with this need to remove.

y Limitation of the government: excessive public sector imports,particularly in years of good harvests (even in some flood years), which

occupied warehouse space, severely restricting the ability to procure

during the next harvest.

y Mismanagement: Mismanagement of public procurement of rice is aremarkable problem. Sometimes the first aim to support the farmers does

not fulfill. The responsible agencies are not interested to do the work

properly, as why farmers remain deprived.

y Information gap: Procurement price are not announced to the farmers inthe right way. They do not get the announced price due to the corruption of

the responsible government personnel.

y Systematic problem: Government collect rice from the dealers whopurchased the rice directly from farmers. As the farmers are not in united


9/20

form so it is very usual to be deprived by the dealers. Dealers tell lie about

the procurement price to farmers and compel them to sell the rice at a

lower price.

y Obligation: due to the obligation of the purchase limit most of the littlefarmers do not sell rice directly to the government personnel. Many large

farmers also do not sell desired amount due to limitation.

y Low price: sometimes government procurement price does not give anybenefit to farmers. For example in recent few years the cost of production

is very high but procurement price sets at a lower price that is not enough

to support farmers indeed. This is because of poor market research by thegovernment.

y Political pressure: due to political interfere it is not possible to implementthe announced price. Political leaders purchase rice at a lower price from

the farmers and then they sell to the government. As a result the main aim

remains undone.

y Insufficient number of people are available to execute properly the procurement program. Moreover quantity of procurement fluctuates and

irregular procurement creates uncertainty among farmers.

y Bangladesh imports grain easily; the country finds it difficult to export ricewhen it has surpluses.

y Limited financial resources of the governmenty Institutional impediments to speedy purchase from and payment to small

sellers

y Collusion between traders and officials, which enables the traders tocapture the margins between the market price and the procurement price.


10/20

y Bad transport system is also constraint for which remote area procurementhampers.

y Road and transport system and availability of suitable transport are notavailable. So it before execution procurement program in remote areas

proper transport facilities should be developed.

2. The Constraints of Rice Procurement System In Bangladesh: AResearch Design

To conduct a research on the constraints of rice procurement system in Bangladesh

we have to follow some basic steps as below.

Problem formulation: As we have identified our research problem as the

constraints of public procurement of rice in Bangladesh so we need to give a title

of research. Then need to find out the objectives of the research study along with

detailed literature review.

Title: Our research title is given that the constraints of rice procurement system in

Bangladesh

Literature review: in this step the essential literature related to the research

problem.

Research design: as we have a good literature on this topic so we need to use

descriptive and causal research methodology.

Data collection method and forms: As there are various literatures on public

procurement but a limited literature on the constraints, so we have to collect


11/20

primary data along with the secondary sources data. For the purpose we need to

collect data from the government personnel and also with the other dealers,

middlemen and farmers who are the main target.

Open ended questionnaire will be used for the type of study. We need to know the

problems and also probable solution and other relevant information.

Design sample and collect data: In this step sampling design will be specified.

Who will be included into sample and the type of sampling will be used need to

determine.

To determine sample we need to classify the desired population according to the

research purpose. Sample may be collect by nonprobability sampling technique

and judgment sampling will be more appropriate.

By appointing well trained personnel data will be collected.

Data analyze and interpret: When all the data are in hand they need to preparefor analysis. First it should be justified all the data collected are relevant and

collected properly. By sequence data editing, data coding and data tabulation will

be done properly.

Next statistical tests will be applied to the data, these test should be anticipated

before data collection.

Findings of the study: Here we have found some basic constraints of rice

procurement in Bangladesh. These constraints are as follows:

y Lack of manpower: Public procurement mainly facing the lacking ofmanpower to operate the program successfully.


12/20

y Insufficient number of procurement centers: There is shortage ofadequate number of procurement centers.

y Poor Information dissemination: Government cant provide theprocurement price information in the right time to farmers and in the remote

areas.

y Systematic problem: Farmers have limited access in the collection center.So there is a possibility to make price discrimination. Sometimes announced

price is not enough to support the farmers.

y Demand and Supply maladjustment: public procurement authoritysometimes cant determine the real demand and supply situation. As a resultthere is a possibility of not fulfill the target.

y Political pressure: Local government bodies and political leaders alsocreate impediment to implement the procurement program properly for their

personal interests.

y Price is set after the panting season which does not reflect impact on theproduction area.

y Lack of adequate funding is also a constraint.y Corruption of the personnel involved with procurement system.y Business syndicate by the shadow of political parties is now the big

constraint to implement the procurement program.

Finally the obtained result will be disclosed and interpreted properly. The research

result will provide planning guideline to policy makers and other governmentofficials related to procurement to remove the constraints.


13/20

Report writing: when the research is completed then a report is made. This report

includes all kinds the methods used to conduct the study and various steps

including references from where secondary data were obtained, and also various

facts and figures.

3.PROCUREMENT PRICE FOLLOWS MARKET PRICEAT THE TIME OF PROCUREMENT

It is not an easy task to comment directly that procurement price follows market

price at the time of procurement or not. To make this comment we need to

investigate the market price and procurement price of different years.

Table: Trend in Growers and Procurement Prices During the Aman and Boro

Seasons

Year Aman Season Boro Season

Procure-

ment

Price

(Tk./md)

Growers

Price

(Tk./md)

Procure-

ment

Price

(Tk./md)

Growers

Price

(Tk./md)

1981/82 November

December

124

124

117

114

May

June

124

124

136

122

1982/83 November

December

135

135

131

137

May

June

135

135

140

140

1983/84 November

December

144

144

137

149

May

June

144

144

158

169

1984/85 November

December

165

165

187

184

May

June

165

165

149

147


14/20

1985/86 November

December

170

170

171

171

May

June

175

175

175

166

1986/87 November

December

175

175

181

178

May

June

200

200

189

189

1987/88 November

December

200

200

192

195

May

June

200

200

160

165

1988/89 November

December

210

210

203

202

May

June

210

210

193

190

1989/90 November

December

220

220

207

207

May

June

220

220

206

206

1990/91 November

December

220

220

241

241

May

June

240

240

230

230

1991/92 November

December

243

243

246

246

May

June

243

243

232

232

1992/93 November

December

223

223

191

191

May

June

223

223

164

164

1993/94 November

December

228

228

198

198

May

June

228

228

194

184

1994/95 November

December

265

265

279

279

May

June

265

265

244

244

1995/96 November

December

1999 November

272

272

480

286

286

580

May

June

May

272

272

480

211

211

495


15/20

Source: World Bank (1990), and the authors calculations for the recent period (1988/89

to 1995/96)

Note: 1 Mound = 37.324 kg

( This table has been collected from FMRSP Working Paper No. 13, Title: The

Domestic Rice Procurement Program in Bangladesh an Evaluation by Quazi

Shahabuddin and K.M. Nabiul islam ,September 1999)

Discussion: if we look on the above table that the farmers price and procurement

price do not follows each other.

If we consider the farmers price as market price than we will look that most of the

time procurement price is above the market price except few cases.

In recent few years market price was below procurement price. A group of market

syndicate controls the total market since recent few years. They jointly purchase

the rice from the farmers at a lower price and then sell to public procurement

program.

This syndicate compels the farmers to sell rice at a lower price. Moreover the most

of the farmers are very needy so they do not wait until the public procurement.

Another reason is lack of market information dissemination and bumper harvest.

Farmers cant determine the probable price when there is a bumper harvest occurs.

Comparison between market price and procurement price in recent years

Year Market price(tk/kg) Procurement price (tk/kg)2008 26 28

2009 24 25

2010 20 22

20011 21 23


16/20

Result and Interpretation: By analyzing all the relevant data and information it

can be said the procurement price is set above the market price. Actually

government support is more or less beneficial to the farmers. But due to various

systematic problems and constraints the aim of public procurement of rice

sometimes hampers badly.

Policy recommendation:

Public procurement of rice in Bangladesh is done for two important purposes. They

are

y To give support to the farmers by setting rice price above the productioncost.

y To maintain the buffer stock of food of the countryAnother aim is to maintain the price level by purchasing rice in bumper

production season and selling rice by OMS program in the low production

season.

But the aim of procurement sometimes may not fulfill due to some shortcomings

and constraints. Here I will suggest some policy to implement in public

procurement of rice.

Enhancing the capacity and collection center to collect the rice from theremote corner of the country at a lower cost.

Appoint more employees including marketing researcher to determine theactual cost of production, procurement cost and satisfactory procurement

price for the farmers.

Announce the procurement price during the planting season not in theharvesting season.


17/20

It is recommended that these two commodities are procured by two differentmeans as they serve two different purposes. Rice for PFDS should be

procured by competitive tender at centers of consumption. Paddy for price

support should be procured at centers of production. Thus a balance will be

maintained. As the quantum of tendered rice will increase eventually, the

paddy quantum will reduce in step.

Road and transport system and availability of suitable transport are notavailable. So it before execution procurement program in remote areas

proper transport facilities should be developed.

Export facility should be creating if there is a huge amount of surplus. In the near future, or right now, if the indications are right, the major

portion of procurement is taking the shape of a buffer stock. Management of

such a. stock is primarily different from a distribution or a current stock.

Long range storage without loss of quality is the first prerequisite.

Appropriate technical solution Lo this problems needs to be addressed.

Monitoring should be increased and properly done.Need to find out the corruption and impediments from local leaders should

be removing by enforcing by the government.


18/20

CONCLUSION

Public procurement system is the way of governmental necessities. But rice

procurement is done not only for government need but mainly it is done for giving

support to the farmers from price fall situation. Moreover it is also done for

maintaining the price stability of the country. As rice is our staple food so other

food grain also other commodities price also related with rice price. It is very

important for the government to maintain the farmers profitability and also

keeping the general price level of necessities in the range of common people. So to

maintain government popularity rice price is a very crucial topic. But in recent few

years procurement program is facing problems due to the business syndicate and

political pressure.

Moreover World Bank also creates pressure on the government to reduce subsidy

gradually from agriculture i.e. rice. Nevertheless Government should remove the

constraints of public procurement of rice for successful price policy and food

security.


19/20

REFERENCE

Bangladesh Bureau of Statistics (BBS). 1995-96. Household ExpenditureSurvey.

Basak,J.K.(2001)Impacts of Increasing Production Costs on Rice Price:

Implications for Food Security.

Chowdhury, Nuimuddin.1994. Causalities and cost effectiveness of Publicrice procurement In Bangladesh. International Food Policy Research

Institute. Bangladesh Food Policy Project. Funded by USAID under

Basic Order Agreement Contract No. DAN-411 1-B-00-9112-

00,Delivery Order No. 7.

Department of Agricultural Marketing (DAM), Ministry of Agriculture,Government of the People.s Republic of Bangladesh.

Foodgrain Stocks in Bangladesh. FMRSP Working Paper. FMRSP-IFPRI,Dhaka, Bangladesh.

Food Planning and Monitoring Unit (FPMU), Ministry of Food,Government of the

People.s Republic of Bangladesh. 1999. Database on Food SituationBangladesh.Dhaka, Bangladesh.

Monthly Statistical Bulletin Bangladesh. Economic report.Shahabuddin, Quazi. 1999. Nature and Extent of Fluctuations in Rice Prices

in Bangladesh. FMRSP Draft Report, Mimeo.


20/20

Shahabuddin, Quazi; Asaduzzaman, M; Edward Clay and SteveJones,(1999). Price Support,Domestic Procurement Programme and

Public Stock Management.

www.google.comwww.yahoo.com

public procurement system shamim

Documents