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Does Collusion Exist in Bangladesh’s Commodity Markets?

Zahid Hussain's picture

Co-authored with FARRIA NAEEM

There is widespread belief among Bangladeshi media, civil society and think tanks that collusion exists in the supply chain of many essential commodities, and many blamed this for the price hike in the first half of 2008. Keeping prices low is a high priority for the government. It is therefore important to measure the presence of market collusion through empirical evidence and design appropriate policy responses to mitigate its impact on prices in order for the government to continue to meet its election promise.

Bangladesh is a net importer of major food items. In the absence of market influences and duties, domestic and international prices are expected to be similar. The convergence may not be exact due to transportation and taxation costs but price should follow similar trends as movements of international commodity prices do not of domestic and international markets do not often vary.

We examine and compare the co-mol prices of four essential food items (coarse rice, flour (atta), salt and soybean oil) over time to look for signs of market influences.

The co-relationship between domestic and international prices of the four essential food items is statistically significant with changes in domestic and international prices often corresponding with each other. However, this analysis does not capture recent changes in market structure and any distortions arising from it.

The divergence in the price of rice between the domestic and international market (Kolkata, India) coincides with the 2007 aman (rice) crop damage and India’s rice export bans imposed since January 2008 (Chart-1). 

The increasing difference in domestic flour prices observed between January 2007 and June 2008 corresponds to the wheat export ban by India in February 2007(Chart-2).

In recent months, there has been reason to suspect that the market structure of domestic salt and soybean oil industries have behaved in a non-competitive manner. Despite natural factors conducive for salt production and protection enjoyed by the salt industry (around 73 percent in 2008-2009), prices in the domestic market have been rising since June 2008 (Chart-3). Similarly the increasing difference between domestic and international soybean oil prices since July 2008 cannot be attributed to any significant change in either crop outlook or international trading environment (Chart-4).

With this evidence of market influences in salt and soybean oil, policy measures to increase competition by removing barriers to entry in these industries will help reduce market power of existing suppliers and their ability to collude and affect prices.

The Finance Minister’s statement of “We’ll try to enter new people in the syndicate so that the illegal syndicate cannot play with prices” hit the crux of the matter.

Coercive “anti-hoarding drives” do not work and often worsen the problem, as the caretaker government found out in 2007. The domestic prices of rice and flour seem to mainly hinge on domestic crop outlook as well as the international trading environment. Therefore policy measures to remove supply side constraints in the agriculture sector are essential for keeping the prices of these items at a tolerable level.

Comments

Submitted by Karen on
Hi Zahid and Farria, I was wondering if there are any other factors besides the food prices. Also, what would be some broad recommended policy changes to avoid this happening in the future? Does Bangladesh have a history with collusion? Thanks! -Karen

Submitted by Anonymous on
Bangladesh is known as democratic country But as per article ( section ) 70 of Bangladesh Constitution , only key person or party chief. can take decision none the else Second one is very age old or left over colonial laws and judicial system for ruling the people. Due to which billions of hard earned cash money of common people are spend in conducting these pending suits or litigation in the court which may not be settled even in life time nor have any certainty of any specific results Now the question- who are direct beneficiaries ? Contesting parties are compelled to spend money in addition to valuable times of their active life, year after year ARE THESE PRODUCTIVE ACTIVITIES ? If not why such colonial laws and legal system are not changes ? Peoples are in opinion that Bangladesh can not face the advancement of Science and Technology like other Asian Countries nearby Bangladesh Even Bangladesh will not be able to dream the face of digital world with existing colonial laws and legal system . But it is good for providing money to a group of people involved in conducting present legal process / system who have no rule in productive activities to change the face of poverty of the country . Third point which is most significant and important are the lack of accountability in every stage of life for people or Government Personal / Officials It will be wise to reform / replace the concerned ministry with expert of political sciences / social welfares and expert from relevant subjects of science and technology. like medicine , engineering , agricultural sciences , business and commerce etc ?

Submitted by Pakistani Classified on
Poverty is getting accused in South Asia. Many policies are working but all of these are not effective. There is need of strong policy that will be specifically directed toward poor. Thanks for raising such important issue and draw our attention towards this problem.

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