Abstract
This study was conducted with the twin objectives of assessing the production and demand-supply aspects of rice (with special emphasis on aromatic rice) in Bangladesh. The production aspect emphasized production and production efficiency, mainly technical efficiency, with a view to understanding the determinants of efficiency that may help design rice production profitably with given technology and resource constraints and to providing future policy guidelines for researchers and public support services. The demand-supply aspect examined income and price elasticities of demand for aromatic rice to estimate demand-supply balances at present up to 2020, to guide production planning and policy formulation. The production side of the study used farm-level cross-section data collected from one of the intensive rice-growing areas of Dinajpur, while for demand estimation household level surveys on food consumption for both rural (from Dinajpur) and urban (from Dinajpur and Dhaka) areas were conducted. A series of analytical techniques, e.g., statistical and non-statistical probabilistic approaches to frontiers have been used to determine productivity and production efficiency. The total factor productivity index was used to examine the productivity differences among farms producing fine (aromatic and non-aromatic) and coarse rice varieties. The profit function has been used to estimate parameters affecting farm profitability. A sensitivity analysis was carried out to evaluate the sensitivity of profit to probable changes in price and yield. A complete demand system equation was applied to estimate elasticity of demand, which later was used to estimate aggregate demand for the country. The estimation of rice supply was done through simulation of area and yield response functions. The results obtained from productivity analysis showed that there exists an increasing returns to scale for each of aromatic, fine, and coarse rice production implying that there is further scope of increasing production through more intensive use of variable inputs. The total factor productivity analysis showed that farmers growing aromatic and fine rice varieties, respectively, incur 14% and 11% less cost per hectare compared with coarse rice farmers. Their yields were 54% and 38% lower than that of coarse rice. However, their production value differences were 15% and 33%, respectively. The high price premium for aromatic rice minimized the production value difference between aromatic and coarse rice. Hence, any breeding effort to increase per hectare yield of aromatic rice by 46% could shift the inter-spatial productivity difference between aromatic and coarse rice farmers. The target for shifting the yield potential of fine rice should be set at 28% to eliminate the productivity gap with coarse rice. The profitability analysis showed that the coarse rice cultivation in T. Aman season generated about 25% and 119% higher profit than the aromatic and fine rice varieties, respectively. In the profit sensitivity analysis with changing output price under two different situations, it was observed that there should at least be 13% and 45% price support for aromatic and fine rice farmers, respectively, to make these two crops competitive with coarse (modern) rice cultivation under a situation with-marketing risk. This support should be 26% and 61% under without-marketing risk situation. The profit sensitivity analysis on changing yield showed that the required yields for aromatic and fine rice were 1.8 t/ha and 3.1 t/ha under the with-marketing risk situation. The profitable yields for these two types of rice varieties should at least be 2.0 t/ha and 3.40 t/ha for the without-marketing risk situation. The application of the translog stochastic production frontier model gave the best fit for technical efficiency analysis. The estimated mean efficiency was 97% for aromatic, 98% for coarse, and 98% for fine rice farmers indicating that there is little scope of increasing yield without breaking the yield frontier through introduction of high yield potential varieties. The decomposition analysis of total cereal food expenditure showed that 4.0%, 23.3%, 65.2%, and 7.5% of total cereal food expenditure budget were spent for aromatic, fine, coarse rice, and wheat, respectively. The estimated expenditure (income) elasticities of demand for those types of cereals were 0.85, 0.79, 0.29, and 0.55. The expenditure elasticities of demand for aromatic and coarse rice were higher for rural households compared with urban households, while the expenditure elasticities of demand for fine rice and wheat were higher for urban households. The uncompensated and compensated own-price elasticities showed that the demand for coarse rice would fall by 7.7% with a 10% increase in its price and other factors remaining unchanged. The corresponding percentages for aromatic, fine rice, and wheat are 7.4%, 11.1%, and 4.6%, respectively. The estimates of uncompensated cross-price elasticities between coarse-to-fine rice showed that a 10% increase in absolute income associated with a 10% increase in real income due to fall in coarse rice price would increase the actual demand for fine rice by 4.6%. A 10% increase in absolute income accompanied by a 10% increase in real income due to fall in coarse rice price would increase the actual demand for aromatic rice and wheat by 7.4% and 4.6%, respectively. The supply-demand balances of aromatic rice as estimated under alternative assumptions showed that if the area of aromatic rice is not increased either by 5% of total rice area or 10% of total aman area, then the supply of aromatic rice will not exceed its demand at all three yield levels estimated. On the other hand, if the aromatic rice area increases to 10% of total rice area, then it will generate excess supply at all estimated yield levels. However, the supply-demand balances showed a decreasing trend over time indicating the need for a further breakthrough in the yield frontier by developing new varieties if the country wants to export its surplus production.