Integrated Food Policy Research Program (IFPRP)

Private investments in modern food storage: An economic feasibility analysis for private investments in modern food storage and potential public sector roles in promoting such investments

Unprecedented growth in rice production in Bangladesh over the last four decades has outpaced the capacity of post-harvest operations, resulting in substantial grain losses. While production technology has changed dramatically over time, there has been relatively little private investment in transforming storage capacity in the country. This paper explores the lack of widespread private investment in improved grain storage and examines the potential for public support to stimulate greater private sector investment in modern storage. We calculate the returns to investment in bulk grain silos and hermetic cocoons that could upgrade warehouse storage, and calculate the grain loss that conversion to those technologies would prevent. We then assess the public support that would be required to trigger private investment in modern storage systems. Our analysis shows that storage in jute bags in warehouses or homes outperforms the modern technologies in terms of financial returns at observed prices. Our analysis further shows that given the observed price changes during the harvest and post-harvest periods from 2008 to 2018, cocoon and silo storage as well as conventional warehouse storage were unprofitable in most years and on average overall. Although seasonal variation in market prices for paddy is sometimes pronounced, the pattern of the variation is not sufficiently large or consistent to make paddy storage reliably profitable. Conventional warehouse storage implied an average loss of BDT 2,877/MT/season over the 20 seasons considered. Use of modern storage methods would have implied average losses of BDT 3,200/MT/season to BDT 4,950/MT/season, depending on technology used. These results imply that a public sector co-investment on the order of BDT 300/MT would be required to trigger a shift from conventional to modern storage by traders or millers. This shift would imply a reduction in grain loss of 30kg to 80kg per MT stored for a public cost of BDT 3.75 to BDT 10.00 per kilogram of loss avoided. To make it profitable for intermediaries to provide commercial storage services to farmers who currently store on-farm would require a much larger co-investment of about BDT 3,200/MT stored, implying BDT 40 to BDT 106 per kilogram of loss avoided. Removal of import tariffs on storage technologies or realization of a price premium for silo-stored or hermetically stored grain could be sufficient to encourage millers to adopt modern storage, but would be inadequate to trigger increased off-farm storage as an independent activity. There is anecdotal evidence of a price premium for paddy that has been stored using improved technology. Existence of such a premium could significantly reduce public support needed to trigger private investment in improved storage.

Effectiveness of current and alternative procurement modalities: An evaluation of the effectiveness of current and potential alternative grain procurement modalities, and development of a framework for stock turnover

This report has been prepared as one of the deliverables of the Bangladesh Integrated Food Policy Research Program (BIFPRP) implemented by the Ministry of Food, Government of Bangladesh under a World Investment for Modernizing Food Storages Facilities in the country. The key arguments and recommendations drawn up for the report are based on both quantitative and qualitative data. Food and agricultural policies have historically played a crucial role in triggering growth in many developing countries. While there were debates, public procurement and distribution of food are widely accepted as a “second best” solutions for countries characterized by markets and institutional failures. However, Bangladesh has done remarkably well in adjusting to changing realities and the country is now widely recognized for its agricultural policy reforms. But there is still room for further improvement and efficiency gains for which two broad sets of recommendation can be considered:
1) Pricing and procurement targets - Pricing in Bangladesh continues to be based on the average cost of production but with the application of satellite imageries, app-based small area estimation, the procurement price estimates can be improved substantially. Also, the current procurement target determination formula misses out on some key aspects of production, marketing, and macroeconomic parameters. The quota for each upazila is based on total production and milling capacities but it also needs to consider the net surplus to calculate how much could be procured in each Upazilas.
2) Alternative procurement modalities
a) The report recommends changing this modality to Delivered to Destination Warehouse (DDW) through the open tendering method and undertaking pilots and learning from experiences to enhance efficiency can be important.
b) Linking smallholders to markets through product aggregation has received renewed attention globally. Available data suggests that Bangladesh’s public procurement has thus far not managed to effectively integrate small farmers to its procurement system. To scale up nationally, we believe that more innovation in technology and a new institutional set up will be necessary.
c) Implementing Delivered Duty Paid Modality on a pilot basis where the seller assumes all responsibilities and costs for delivering the goods to the named place of destination.
d) Piloting Deficiency Payment Method as an effective method to provide both income and price to farmers of a wide range of agricultural commodities. Two key instruments of implementing this method would be Marketing Assistance Loan (MAL) and the Loan Deficiency Payment (LDP), which are tools available to the farmers. A recent report by the NITI Aayog of India also makes a strong case for this procurement modality and we also argue in favor of undertaking this pilot.

Implementation of paddy drying technology: Introducing small/medium paddy dryers in remote areas

Grain drying has become increasingly challenging for the Bangladesh food system as postharvest innovations have not kept pace with production growth and an increasing volume of grain is harvested during wet or foggy periods, when conventional open-air drying is problematic. This activity sought to build capacity for mechanical dryer service provision by small-scale entrepreneurs and to demonstrate a model for providing mobile grain drying services through entrepreneurs using a locally manufactured small-scale dryer. In coordination with Ministry of Food officials, the project selected 20 farmers to train as mechanized drying service providers, provided them with use of small-scale mobile batch dryers, and deployed them in rural areas from which Local Supply Depots (LSDs) source grain. The service providers were active in Bogura and Rangpur Districts in late May 2023, during the closing phases of the Boro harvest season. The pilot revealed nuances of the costs of operation and indicated potential for viable business activities, especially in areas where open-air drying is relatively costly or inadequately available. Additionally, a scoping visit to Naogaon District revealed significant interest in mechanized drying services. The findings suggest a value to additional observation of the service providers to document capacity utilization over an Aman season and a full Boro season. Such observations would allow confirmation about parameters related to annual capacity utilization which are important determinants of business viability

Foresight for food markets: Developing and implementing market forecasting methods/models

The “Foresight for Food Markets: Developing and Implementing Market Forecasting Methods/Models with Hands-on Training at the FPMU” is an element of Integrated Food Policy Research Program (IFPRP). Originally signed in 2016 between the Government of Bangladesh (GoB) and the Joint Venture (JV) comprising the International Food Policy Research Institute (IFPRI), the Bangladesh Institute of the Development Studies (BIDS), and the University of Illinois, IFPRP was extended and modified in subsequent periods. The most recent updated contract between the GoB and the JV was signed in mid-2022. Deliverable 4.3, Foresight for Food Markets: Developing and Implementing Market Forecasting Methods/Models with Hands-on Training at the FPMU is one of the new deliverables included in the updated contract. Rising prices of essential commodities affect consumer welfare and pose a serious challenge to the Government of Bangladesh. Knowing prices of essentials in advance would allow the government to take necessary measures to restrain the extent of price increases or to mitigate effects of rising prices; such measures could include provisions of direct distributions of rice and wheat through social safety net programs or of subsidized open market sales on the one hand and engaging in direct imports of essentials or easing import restrictions for the private sector, on the other. Because price fluctuations are a feature of a free market, there is a persistent need for the government to be able to project consumer prices in advance. Accordingly, it is important that in addition to receiving estimates prepared by external experts, the government has the ability to obtain its own price projections; the government should have the estimates when it needs them and for commodities for which such information is needed. Against this backdrop, IFPRP is providing hands-on training on price projection techniques to officials from the Food Planning and Monitoring Unit (FPMU), the Directorate General of Food (DG Food), and the Ministry of Food (MoFood). It is envisioned that trained officials from the DG Food, the Ministry of Food, and mostly from the FPMU will produce price projection estimates on their own with IFPRP personnel helping a consultative capacity.

Feasibility of nationwide warehouse receipt system: An assessment of the potential for a nationwide warehouse receipt system and recommendation for the requisite legal and regulatory framework

Warehouse receipts systems (WRS) have been used to tackle multiple challenges faced by farmers. In the absence of adequate collateral and consequent credit constraints, a WRS enables the use of inventory as collateral for loans, thus removing a key constraint farmers face. With growing digital reach, electronic based Negotiable Warehouse Receipts (e-NWR) that can be swapped, exchanged and traded and can assist in deepening financial markets while maintaining the integrity of the system. While e-NWRS can potentially address farmer level constraints, they can also be viewed from a larger policy perspective as a system that aids government plans for food security and manage public procurement operations better and more nimbly; it can also play a key role for enhancing the efficiency and food quality and safety along value chains by enabling mid-stream players like traders and importers to manage these chains better. This report seeks to inform the policy process around e-NWRS by focusing on the potential of Ware house Receipt Financing, more broadly, in the agricultural development of Bangladesh. To do this we review global evidence as well as evidence closer to home, within South Asia, to understand the pre-conditions and prerequisites for a successful system.

Diagnostic study of DG Food: An assessment of DG Food’s current mandates, performance, and capacity gaps, and a remedial program to strengthen the agency

This study conducts an assessment of the current mandates, performance, and capacity gaps of the Directorate General of Food (DG Food) and suggests remedies to strengthen the agency. Formed originally as the Supply Department in undivided Bengal under British rule in the early 1940s, the organization was named the Directorate General of Food by the provincial government of East Pakistan in 1956. Upon the independence of Bangladesh in 1971, DG Food became a part of the Ministry of Food and Civil Supplies and was later renamed as the Directorate General of Food in 1975. The last major reorganization of the agency took place in 1984. The current mandates and organogram are from 1984. As the custodian of the Public Food Distribution System (PFDS), DG Food plays an important role for the Government of Bangladesh (GoB). Under the Social Safety Net Programs (SSNP) of the GoB, DG Food ensures food security for vulnerable populations. In its sprawling countrywide network of 650-plus traditional warehouses, DG Food has an effective storage capacity of 1.9 million tons. In recent years, DG Food has procured and distributed approximately 3.0 million tons of foodgrains per year. A very large organization, DG Food has a sanctioned workforce of over 13,000 officers and employees, and an annual budget of approximately 1.5 billion U.S. dollars.

Assessing the impact of rice price stabilization policies in Bangladesh: Results from a stochastic spatial equilibrium model

Rice plays a central role in the diet in Bangladesh and as a source of income for farmers. Although Bangladesh has largely liberalized international trade in rice, it maintains a public food distribution system to stablize prices, distributing an average of 2 million tons of rice per year at a cost of almost US$ 800 million per year. This study explores whether alternative policies could achieve similar stabilization at a lower cost. It uses a stochastic spatial-equilibrium model of rice markets to simulate monthly prices in eight regions of the country. Stochastic shocks are used to simulate fluctuations in regional production, replicating historical patterns at the region-season level, as well as inter-regional correlation in production shocks. It also simulates fluctuation in world rice prices, mimicking the mean, variance, and serial correlation of historical wholesale prices of rice in Delhi. Public procurement and distribution follow historic averages by month and region. Private storage is represented by a simplified version of rational expectations models, in which net storage is a non-linear function of availability in the previous month.

One set of simulations tests alternative levels of distribution, finding that cutting distribution to 1 million tons would have minimal effects on the level of rice price stability. Another set of simulations tested different import tariff levels, including the baseline rate of 25%1. We find that lower tariffs result in both lower rice prices and less price instability, as world rice prices tend to be more stable than local prices. Simulating a buffer stock with different price bands shows that a narrow band can achieve high price stability but at a high fiscal cost. A 20 T/kg (USD 0.26/kg) price band generates similar price stabilization at a lower cost compared to current policy. However, it is difficult to set the “right” purchase and sale price, and many simulations result in exhausting reserves or reaching warehouse capacity. An adaptive buffer stock, in which the price is adjusted as the stock runs too low or too high, solves some of these problems. In general, the study finds that current procurement and distribution patterns do not match well with the regional and monthly patterns of surplus and deficit, possibly reflecting multiple and conflicting goals of the public food distribution system.

Safety and quality of food (rice and wheat) distributed through Public Food Distribution System (PFDS) in Bangladesh: Results from laboratory tests for selected contaminants

Food safety is an umbrella term that encompasses many facets of handling, preparation and storage of food to prevent illness and injury. Included under the umbrella are chemical, microphysical and microbiological aspects of food safety. This study was undertaken to enhance food-risk surveillance and guarantee food safety for the beneficiaries of food aid recipients. It involved a comprehensive assessment of grains at storage facilities of the Government of Bangladesh (GoB)’s Public Food Distribution System (PFDS) for potential risks. The following issues were addressed: (1) Whether the quality of the stored grains meets the requisite global standards set for aflatoxins, arsenic, mold and moisture contents; (2) Critical aspects contributing to grain quality loss as well as assessing the magnitude of the problem; and (3) Establishing remedial actions aimed at minimizing quality loss and largely improving food safety in the overall distribution system. For this research, Local Supply Depots (LSDs) were chosen as primary study sites. Essentially, the research combined data generated from laboratory tests conducted on grain samples, as well as data compiled through a nationally representative survey of public warehouses. To avoid representation bias, a systematic random sampling method was used to select the LSDs to be reported in the study. This ensured an impartial assessment in terms of the food security status of the location and operational size. The findings from this study suggests that grain stored in PFDS do not largely contain any major contaminants (aflatoxins, arsenic and mold) at levels exceeding the maximum allowable limits to pose serious threat to public health. Despite that moisture itself is not a contaminant, excessive moisture content as detected in few cases has implication for mold growth in grain if stored for an extended period of time. Finally, the recommendations outlined in this study for remedial actions are aimed at satisfying most of the stringent standards set under the Food Safety Act as well as ensuring high quality in longer term grain storage.

Per capita rice consumption in Bangladesh: Available estimates and IFPRI’s validation survey results

Accuracy of rice consumption estimates varies considerably, depending on the data source and survey techniques. Therefore, the report first compiles estimates of per capita daily consumption available from different published and unpublished sources. The accrued data were compared in conjunction with the ones found from a small validation survey conducted by the IFPRI-led JV in the summer of 2018. The methodology of the validation survey drew on strategies adopted by other nationally representative surveys, specifically the Household Income and Expenditure Survey (HIES) conducted by the Bangladesh Bureau of Statistics (BBS), and IFPRI’s own Bangladesh Integrated Household Survey (BIHS). Simultaneously, it employed a two-step approach for critically assessing the original survey instruments in contrast to the current consumption behaviors with rapid appraisal. The validation survey established pertinent findings related to changes in the per capita consumption assessments when new elements were incorporated. Addition of new hypotheses based on the consumption of rice and rice products outside the home provides a spin on the per capita consumption estimates generated by the validation survey. Overall, the review, assessment of alternative estimates, and results of this validation survey seek to aid the construction of significant strategic policy decisions related to the demand-supply balance of rice in the country.

Public food grain storage facilities in Bangladesh: An assessment of functionality, repair needs, and alternative usage

Based on an extensive survey, this study assesses the current conditions of all three types of government owned warehouses: the silos, Central Storage Depots (CSDs), and Local Supply Depots (LSDs). Using a large team of civil engineers as enumerators, a detailed set of information is generated about the functionality, repair needs, as well as alternative uses of all public warehousing facilities. The data generated from the survey fed into the production of a user-friendly GIS database that encompasses the mapping of all storage facilities, along with functionality indicators and summary statistics from the survey. The comprehensive repair estimates generated in the course of this study, along with its supplementary GIS tool, can serve as important inputs to strategic policy decisions related to the public food grain storage system in the country.

Private sector rice stocks in Bangladesh: Estimated levels and determinants

This paper focuses on the role of private stocks in the Bangladesh foodgrain economy, and presents estimates of the quantities of private stocks in Bangladesh based on data on household-level monthly stocks 1of paddy and rice from the Bangladesh Integrated Household Survey (BIHS), 2010-11 and 2013-14 and other sources.

Proceedings on the review and early results workshop: Centre on integrated rural development for Asia and the Pacific (CIRDAP)

Holding a review and early results workshop event was proposed by the project office during a meeting in late February of 2017. The two primary objectives of the workshop event were to (a) disseminate information about the progress of IFPRP’s activities and (b) receive feedback and inquiries regarding said activities. Another objective of the workshop was to give a space for members of every attending institution (both government and private) to communicate and share information with one another. The Center for Integrated Rural Development for the Asia and Pacific (CIRDAP) was identified as an ideal venue for the event.