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.
This subsidized trade ended in late 2007, however, when India’s domestic market supply situation changed, international cereal prices rose, and India cut off exports to Bangladesh to protect its own domestic market. Because of these problems with rice trade, Bangladesh policymakers and civil society no longer perceive India and the international market as reliable suppliers and thus call for increased stocks. This analysis suggests that an additional 300,000 tons (in addition to approximately 700,000 tons of net rice off-take that actually occurred) would have been sufficient to stabilize prices in the postmonsoon (aman) season from November 2007 to April 2008. These calculations suggest that ready availability of approximately 1.0 million tons of rice through drawdown of public stocks or imports would enable Bangladesh to handle similar disruptions in the future, provided that private imports can supplement supplies as in 2007/08 (or about 2.0 million tons otherwise). The medium-term solution to maintaining real rice prices at moderate levels and helping ensure household food security, however, continues to be investments in agriculture to increase production and raise rural real incomes.