Bangladesh: High production of food items leads to fall in price

As prices of onion and potato were high last year, farmers increased their cultivation this year. This has resulted in low prices, according to stakeholders on the ground. The price of eggs also fell, because farmers increased egg production in response to high egg prices last year.

The fall in prices of these food items is what economists would predict. High production (supply) is supposed to lead to low price, and low production is supposed to lead to a high price.

Last year, prices of these commodities were high, and government officers were quick to blame a “syndicate” (cartel). Producers denied that there was any syndicate, and argued that hot weather and flooding had reduced production and increased prices. The present low price makes it clear that prices do in fact respond to changes in supply.

In the first week of April, farmers in the Rajshahi region said high prices of these commodities last year encouraged them to increase production. They were hoping to increase their income, but the over-supply has lowered prices.

Aminul Islam (52), a retired sergeant of the army, leased an additional 10 bigha (each bigha equivalent to 33 decimals) this year for cultivating potato, onion and garlic in Bagatipara, Natore. He expected high prices like the previous year. “I cultivated onion on additional five bigha land but the price fell due to massive increase in supply.” He said he made profit of more than Tk 100,000 from growing onion on each bigha last year, but it is hard to make any profit this year. He hopes prices will increase.

Farmer Obaidul Islam (42) of Mohanpur, Rajshahi, doubled potato cultivation to five bigha land, like many other farmers of the region. “Production cost of potato stands at Tk 20-22 per kilogram depending on efficiency of the farmer, whereas selling price is far below that, even Tk 8 a kilogram in cases. Failing to find space in cold storages, many farmers have stockpiled potato in their backyards,” he said.

Farmer Alom Sheikh (70), of Bhimpara, Mohanpur, mentioned that last year the cost of production of potato was Tk11-12 per kg and they sold the produce at Tk30 per kg even during the harvesting. “Many of us sold potato for Tk50 a kg a few months later and such price worked as incentive to farmers to increase cultivation. As the price has fallen this year, the cultivation may decrease next year, unless the farmers get reasonable price in the coming days,” he cautioned.

Asked about why price rises and falls, other than production and supply, some of the farmers said thousands of farmers cannot bargain together when price decreases significantly due to production increase. The existence of syndicate in the market of farm produces is absurd, they insisted.

When prices rose significantly in October-November last year, Rushad Faridi, an assistant professor of Economics at Dhaka University, explained that as a result of reduction in supply of vegetables destroyed by floods, “prices were bound to rise” according to basic principles of economics. He then wrote in an article that the floods, following the heatwave since May, also affected poultry production, compounding the shortages and leading to inevitable price increase.

On the recent price fall of agricultural commodities, Kazi Zahin Hasan, director of Kazi Farms, observed that floods last years caused shortages of many commodities, resulting in high prices. “Last year’s high prices motivated farmers to produce more this year, causing the low prices seen at present. Today’s low prices will probably result in less production next year. Economists call this a cobweb cycle. Unfortunately, government agencies do not understand how supply and demand work. When prices were high, many government officers accused producers of eggs, onions and potatoes of forming syndicates. But if prices are controlled by syndicates, why have prices now fallen? Obviously because prices are actually controlled by supply and demand.”

The price of eggs also fell as supply has been higher than demand, said Saiful Islam (42), a layer farmer in Katakhali, Poba, in Rahshahi, who has 10,000 hens laying eggs. “Due to higher supply of winter vegetables and fish, and also lower demand of eggs during the Ramadan, the price of eggs has fallen, below the production cost.” As eggs cannot be stored, farmers must sell them even if the price is lower than cost, which might force some farmers to drop out.

Anowar Hossain (38), a supplier of eggs to wholesalers, at Moslemer Mor in Poba, supplies around 50,000 eggs per day as he noticed at least 25 per cent increase in egg production during the recent production cycles. “It has been challenging for the farmers to recover cost due to price fall,” he said.