Bangladesh: Is there a potato syndicate, or a potato shortage?

The price of any commodity produced on farms generally falls during harvest time because of excess supply in the market. But the price of potato went up immediately after the recent harvest. It was alleged that a "syndicate" (cartel) had created an artificial price increase.

However, potato farmers, traders and agriculture researchers say that the farm gate price of potatoes (the price at which farmers sell)  increased quickly this year because of a shortfall in potato output caused by adverse weather. Falling yield increased enhanced cost of production. In the days before the harvest, the stock of potatoes from the previous year’s harvest had dwindled, and supply was low.

Those who have a deep understanding of the potato market rule out the possibility of price manipulation by any cartel. They argue that there are so many players in the potato market that it is simply impossible to form a cartel, because potatoes are grown by over one lakh farmers and traded by thousands of traders. Some commodities like wheat and soybeans are imported by only a few companies, but that is not true of potatoes.

"How will a syndicate be formed in the potato market and who will do it? Almost 3,000 farmers and traders have preserved over 610,000 bags of potato in our cold storage which has capacity to contain 650,000 bags," said Mohammad Ibrahim, manager at Dewan Ice and Cold Storage in Munshiganj, one of the largest cold storages. He added that owners of cold storage avoid potato trading, because they want to  avoid ’conflict of interest’ with the traders who are using their cold storage.

He pointed out that some farmers and traders have already started selling potatoes stored in cold storage almost two months earlier than they usually do.  "We haven’t witnessed in recent past that potato is sold from the storage so early." He said that traders were already being offered a high price, which is normally expected later in the year. On 31 May, potatoes were being sold at Tk 2,200 a sack containing 50 kilograms, or Tk 44 per kilogram at the gate of the cold storage shed.

Farmers, traders and cold storage managers of Munshiganj, a major potato-growing district, said the production of potatoes is less this year. They pointed out that around 25 per cent of the space inside the cold storage remained empty. "We got slightly over two lakh sacks of potato compared to the capacity of 2.25 lakh bags in our storage. The farmers mostly sold their potatoes, while traders are waiting to for a better price," said Monoranjon Saha, manager at Nippon Cold Storage in Ponchasar area of Munshiganj.

The data of the Department of Agriculture Extension (DAE, under the Ministry of Agriculture) suggest that the country produced 10.9 million tonnes of potato as against a target of 11.6 million tonnes this year. On the other hand, the Department of Agricultural Marketing (another agency of the same ministry), estimated the demand for potato at 9.5 million tonnes this year. If 10.9 million tonnes were actually produced, the country is supposed to have 1.4 million tonnes of surplus potatoes (production in excess of the demand).

However, estimates at the field level and by market players show the demand at 9.0 million tonnes and the actual production of potato at 7.0 million tonnes, which would indicate a shortage of 2 million tonnes (production less than demand).

Expressing difference of opinion with unofficial estimates, DAE Director General Badal Chandra Biswas said, "There may be a very little gap between projected production and demand. Certainly the production is much higher than the demand. The price hike is caused by unethical traders."

There are around 360 cold storages operational in the country with capacity to stock 4.3 million tonnes of potato but farmers and traders have preserved only about three million tonnes of potato, according to Bangladesh Cold Storage Association.

The association’s President Mostafa Azad Chowdhury mentioned that a lack of accuracy in official data is giving wrong signal to the high-ups, resulting in confusion in the market. "Given the cost of production and other costs in the value chain, it is hardly likely that the retail price of a kg potato would be kept below Tk 50," he said.

Robu Bepari (50), a potato grower in Romzan Beg area of Munshiganj municipality, harvested 1200 sacks of potato cultivating six acres of land this year, compared to 1600 sacks he produced the previous year from similar area and was yet to sell a single sack of potato. "I could have got a better yield, had weather been good. My production cost  also increased to Tk 27 a kg this year, compared toTk 18 last year. That’s why I am waiting for a better price to make up for higher production cost," he said.

The area of potato cultivation decreased and so did the output per hectare this year, according to President of Welfare Association of Munshiganj District Potato Growers and Traders Deloar Hossain. "Because of inclement weather during potato cultivation, the farmers struggled and the country saw around 30 per cent shortage in potato production," he added.

Dr Jahangir Alam Khan, an agronomist and Professor at Global Village University, explained that there is a gap between production and demand of potato. "If production and supply remain normal, there is no scope to manipulate the price in any way. To bring stability in the potato market, production needs to be raised and farmers be provided with fair price," he said.

Economic theory tells us that markets with a large number of sellers are competitive markets, in which no one can control the price. In a competitive market, the price is high when supply is less than demand, and the price is low when the supply is more than demand. As potatoes appear to be a competitive market, it is likely that the high price indicates a shortage.