High production and transport costs behind runaway food inflation

High production and transportation costs, limited bargaining power due to market structure inefficiency, seasonal supply, price fluctuations and limited market access for producers are triggering food inflation, according to a study by the Dhaka Chamber of Commerce and Industry (DCCI).

The organisation for businesspeople revealed the findings during a seminar titled "Food Inflation: An Analysis on Price Dynamics of Essential Commodities" on its premises yesterday.

Food inflation in the country has remained above 10 percent since April this year.

Meanwhile, overall inflation has hovered above 9 percent since March 2023, although Bangladesh Bank has been raising the policy rate, meaning that at which it lends money to commercial banks, to curb demand and control inflation.

In May 2022, the policy rate stood at just 5 percent. It has been raised 10 times since and currently stands at 9.50 percent.

The DCCI study recommended strengthening the supply chain by reducing intermediaries and importing essential food items that are in short supply due to imbalances between production and demand.

It also suggested implementing a tracking system for cash memos of local and imported food items, and providing subsidies for key agricultural inputs like fertiliser, oil, and electricity to lower production costs.

AKM Asaduzzaman Patwary, executive secretary (research and development, policy advocacy department) of the DCCI, presented the findings.

It claimed that hikes in the prices of most local products came about at the producer's stage due to increasing cost of living of farmers.

The products include coarse and fine rice, onion, potato, lentil, green and red chilli, turmeric, ginger, garlic and Rui fish.

In the case of imported products, like onion, ginger, lentil, sugar, milk powder and red chilli, it found that price hikes occur at the wholesale and retail levels.

The rate of price hike is moderate, largely confined to single digits, although the maximum is 21 percent, it said.

The study also recommended providing businesses with easier access to finance and investment in technology and research.

It also sought to empower agricultural marketing departments to perform regular audits. Building up market infrastructure is also required, it said.

The study found that an increase in production costs had been affecting producers of coarse rice, broiler chicken, beef, and egg.

Meanwhile, low supply is a common issue that influences the prices of onion, ginger, garlic, and red amaranth.

Inefficient market mechanisms are evident in the trade of broiler chicken, beef, and green and red chilli, it said, adding that high transportation costs significantly impact prices of beef, Rui fish, lentil, salt, and turmeric.

Ashraf Ahmed, president of the DCCI, said there was a large difference between the prices that producers were getting and those that consumers were paying.

Producers were also not getting reasonable prices due to the presence of intermediaries, he added.

Sometimes, indirect costs also contribute to an increase in prices, he added.

"If we can reduce the input costs in the storage, transportation and processing stages, prices may come down," he said.

He also underscored the importance of proper supply and demand data collection and data analytics and assessment to get a perfect policy guideline.

The DCCI president also requested a "tariff calendar" so that importers can bring products at low rates during off seasons.

Sayera Younus, executive director (research) of Bangladesh Bank, said reining in inflation was the central bank's top priority.

She added that inflation had not cooled despite tweaks to the policy rate in recent times, as it was being caused by non-economic factors.

A few other factors like international market dynamics, exchange rate volatility, and an increase in import costs are also responsible for inflation, she added.

Younus opined that strong monitoring was needed to control price fluctuations.

Saifuddin Ahmed, joint secretary to the trade support measures wing at the Ministry of Commerce, said accurate market data analysis was crucial for formulating appropriate policy guidelines.

"We have to conduct research to find out the actual demand, supply, production capacity, seasonal demand, variation, etc," he said.

Swajan Hayder, deputy director of the Bangladesh Bureau of Statistics, said the gap between supply and demand sometimes causes price hikes.

He also said there should be a separate study on the impact of transportation costs on spiralling prices.

Md Moshiul Alam, joint chief of the Bangladesh Trade and Tariff Commission, said the government has recently reduced the duty on raw sugar imports.

He added that imports need to be carried out in a planned manner.