Bangladesh’s Rice Price Hike – Amartya Sen’s Explanation For The Bengal Famine

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There’s a certain amount of head scratching from our friends at the Dhaka Tribune over the current rise in the price of rice in Bangladesh. There’s no particular shortage of rice in the country, it’s not – wildly at least – wrongly distributed, there’s not been a crop failure, we seem to just have one of those vagaries of markets. Or, what is more likely, politics is driving the price of rice up. The mechanism is as with Amartya Sen’s explanation of the Bengal Famine, a small worry and an initial price movement compound themselves into moving the entire market upwards. Fortunately, we’re not going to see a replay of those grim years, this too shall pass.

The thing is we’ve all noted that there’s just been an election in Bangladesh. Restraints on who could stand, where and how, have been somewhat, umm, restrictive. There was reasonable fear that the post-election period would be marked by protests, possibly even significant violence. So, logically enough, there was a certain amount of stocking up.

There’s an old thing said about the American market for petrol, gasoline, that I want to believe but I’m not quite sure I should. Sounds believable at least – that the storage capacity of all cars in the United States, the volume of their gas tanks, is greater than the entire wholesale storage capacity in the country. If everyone went out to fill up their cars right now then the gas stations would run dry, the distribution depots, everyone would just have to wait until the refineries had processed some more crude oil.

The rice market is a little like this. It isn’t true that the stuff is harvested then it sits in the distribution system until it’s eaten. Sure, the country has two crops a year, three in some places. But rice is processed before it is eaten, it is “milled”. To us wheat eaters we might think this is like making flour for bread but it’s not quite that. It’s more like separating the wheat from the chaff. But still, that’s where the choke point in the system is. It’s entirely possible to have wheat in the silos but a run on flour would mean that the flour millers were the constriction of gaining more bread. There can be rice available unhulled and if there’s a run on milled rice then it’s the millers that are the constriction upon supply.

Combine that with worries over post election violence and:

What is causing the latest rice price hike?

Well, it’s those two things, fears and millers:

Rice millers and wholesalers across the country are cashing in on the prediction of a serious political instability in the country that many feared would follow the December 30 general election. The crisis never happened, but they have gone ahead and hiked riceprices at consumer level. Both parties hold each other responsible for the latest upward trend in rice prices as happened before, the Dhaka Tribune learnt after speaking with several mill owners and wholesalers. Interestingly enough, all millers, importers and wholesalers admitted that there was adequate production, stock and supply of rice in the country.

Well, no, they didn’t force the price up. Those fears led to stocking up:

“The prices soared after wholesalers, mainly in Dhaka and Chittagong, started buying rice in large quantities after the news of price hike spread,” he told the Dhaka Tribune.

The initial price rise led to greater buying to beat further price rises, which themselves drove up prices. Don’t forget, we’ve not got months of rice prepared – we’ve got months of rice to prepare, the millers being the restriction upon the rate at which this can be done.

All of which is pretty much Amartya Sen’s reason for that Bengal Famine. There wasn’t particularly a shortage of rice. There was a panic that there could be. Thus stockpiling and soaring prices. Fortunately, here and now, the millers do have plenty of unhulled to work upon and as that travels through to market the prices will sink back.

Markets work very well indeed but no one ever insists they’re perfect, only better than the alternatives.