More marketing choices mean better livelihoods for poor paddy growers

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Improving Paddy Markets for Small-Scale Producers in Bangladesh: An Analytical Framework
Validated RNRRS Output. Home List by Audience List by Topic

In Bangladesh, poor paddy growers are benefiting from new credit schemes that give them access to better prices for their crops. In the past, it was difficult for small-scale paddy farmers to have a choice concerning when and where to sell. Markets controlled by local elites left these farmers trapped in a vicious circle of poverty, indebtedness and dependence on the wealthy and influential households in their communities. Better understanding of these problems made it possible to develop a series of institutional innovations that enhance crop marketing to the benefit of small-scale producers. These include inventory credit schemes, focused on the transaction costs that shape the structure of the paddy marketing system, and, in particular, the linkages between participants. This methodology is also applicable to many other marketable crops and livestock products.

Project Ref: CPH19:
Topic: 5. Rural Development Boosters: Improved Marketing, Processing & Storage
Lead Organisation: Natural Resources Institute (NRI), UK 
Source: Crop Post Harvest Programme


Contents:

Description
Validation
Current Situation
Environmental Impact
Annex

Description

Research Programmes:

Crop Post Harvest Programme

Relevant Research Projects:

R7496

The Institutional Partners were:

  • Natural Resources Institute – Mr Andrew Goodland, Mr Andrew Long; Dr. Barbara Adolph and Gideon Onumah (Lead contact:  tel:  44 16343263, email:  G.E.Onumah@gre.ac.uk;
  • Bangladesh Agricultural University (Mymensingh) – Dr W.M.H. Jaim;
  • Bangladesh Rice Research Institute (Gazipur) – Dr B.A.A. Mustafi, Dr M.D. Abdul Jabber and Ms. Rabeya Rowshan.


Research Outputs, Problems and Solutions:

The main output of this project was a methodology to identify marketing constraints faced by small-scale paddy producers, as well as formulating institutional innovations which could help address these constraints. The conceptual framework for analysis included the use of new institutional economics, with its central concept of transaction costs, married with the sustainable livelihoods framework. The research, undertaken by economists and anthropologists, focused on ascertaining the level of transaction costs in paddy markets; how these costs shape the structure of the marketing system, and, in particular, the linkages between participants.

The methodology proved useful not only in enabling the analysis of a commodity sector but also in providing a framework for exploring problems faced by small-scale paddy producers in Bangladesh, leading to the exploration of institutional innovations to address constraints,  reduce transaction costs and enhance crop marketing to the benefit of small-scale producers.  One of the main recommendations to emerge from the analysis was the development of inventory credit schemes.  An inventory credit scheme would address a) inefficiencies in the Government Procurement Scheme, including its failure to ensure stable prices for small-scale farmers due to corruption, levies, small volumes and long distances to the centres and, b) the lack of investment and working capital which, forces small-scale farmers to sell paddy soon after harvest, at a time when paddy prices are at their lowest, to repay debts, mainly incurred for input purchasing.


Types of Research Output:

Product Technology Service Process or Methodology Policy Other
X X


Major Commodities Involved:

Rice. This methodology is also applicable for many other marketable crops and livestock products.


Production Systems:

Semi-Arid High potential Hillsides Forest-Agriculture Peri-urban Land water Tropical moist forest Cross-cutting
X X X X X X X X


Farming Systems: 

Smallholder rainfed humid Irrigated Wetland rice based Smallholder rainfed highland Smallholder rainfed dry/cold Dualistic Coastal artisanal fishing
X X X X X X X


Potential for Added Value:

This project output can be clustered with a number of other RNRRS project outputs, including:  

Crop Protection Programme

Linking demand with supply of agricultural information: R8429/R8281- (B. Pound, Natural resources Institute, UK);

Crop Post Harvest Programme

Participatory market chain analysis R8182/R8418 – (A. Devaux CIP, Peru);

Farmer Access to Markets: R8275 – (A. Dorward, Imperial at Wye); R8274/R8498 (A. Agona, National Post harvest programme, Kawanda, Uganda);

Inventory Credit Schemes: R8113 (P. Kaumbutho, Kenya Network for Draught Animal Technology, Kenya); R6344/R7013/R7668 (G. Onumah, Natural Resources Institute, UK); R8114 (U. Kleih, Natural Resources Institute, UK)

Market Information Tools: R7151 – (N. Poole, Imperial College at Wye); R8250 (U. Kleih, Natural Resources Institute, (UK);  R7494 (J. Orchard, Natural Resources Institute, (UK);  R8422 L.T. Nsemwa & N. Lyimo, Uyole Agricultural Research Institute, Tanzania);

Natural Resources Systems Programme

Scaling up processes: (R7865, S. Gundel, Independent); (R8381, Huhu Hatibu, ASARECA, Kenya)


Validation

How the outputs were validated:

The outputs were validated through a number of ways:a)      The preparatory and field studies were undertaken by a team of specialists from both Bangladesh and UK, and applied the sustainable livelihoods approach together with aspects of new institutional economics theory. 

b)      The study was undertaken in three districts of Bangladesh, chosen to reflect diverse agro-ecological and sociological conditions – Bogra, Feni and Sunamganj. Bogra is a surplus producer with well-developed markets and infrastructure, Sunamganj is a moderate producer, with less developed markets and relatively poor infrastructure; and Feni, is politically unstable, a deficit paddy producing district with underdeveloped markets. The purpose of choosing such a mixture of districts was in order to accept or reject the following hypotheses which are assumed to affect markets, that:

         economic, political and social constraints prevent small-scale farmers from achieving better exchange rates for their paddy;

         inefficiencies in paddy markets result in lower producer prices;

         Government policies intended to support small-scale producers in marketing paddy fail in both design and implementation to support these farm households.

c)      The sampling of districts, villages, markets, and households was done by district extension officers and local officials, with assistance from the specialist team. The samples were selected first through purposive selection followed by a random sampling of the required number from the first sample. A total of 120 small-scale farmers (40 from each district) and 110 traders and rice millers were selected. Interviews were conducted in a series of qualitative interview techniques including farmer questionnaires, focus groups and key informant interviews. Previously undertaken quantitative surveys provided supporting information to the mainly qualitative work carried out in this project.

d)      Questions explored related to production, post-harvest and infrastructural constraints such as on-farm storage and losses, transport costs, consumption and marketing patterns, market interactions between participants, and government policies in the paddy and rice sector.

e)      A final project workshop was held, where project outputs were discussed and recommendations were finalised to form the final technical report with participation from research organisations, NGOs, government departments and universities.

Where the Outputs were Validated:            

This output was only validated in Bangladesh in the three districts mentioned above. There were two main surveys conducted with the same sample of paddy producers identified to interact with paddy and rice markets. The first survey used a questionnaire-based approach and was undertaken between March and April 2000. The questions in this first questionnaire were broad and exploratory. The second round of surveys were focused and aimed at further exploring some of the constraints and issues identified in the first survey. This survey was done in October and November 2000.

During this period, other surveys of traders and millers through key informant techniques were conducted.  The study showed differing roles of traders in the marketing chain according to their size, circumstances and location. The study also showed that paddy markets were different to hulled rice markets in that paddy rice was collected from a large number of producers while rice is distributed to a large number of consumers. Millers provided the pivotal point of the two products.

The interim and final reports generated significant interest from the Ministry of Agriculture, IFPRI Bangladesh, DFID Bangladesh and other researchers. The final report was circulated to relevant stakeholders including the ones listed above, and provided useful inputs to the PETRRA project.


Current Situation

Who are the Users?

The New Institutional Economics, with emphasis on the transaction costs approach, is being applied in analysing and understanding market constraints and in exploring institutional innovations that can improve market performance. This framework has widely been applied, for instance, by Imperial College London (Wye) in studies in Africa on domestic markets and export commodities.  The Natural Resources Institute also applied the methodology in examining opportunities for improving the marketing of both exported and locally-traded commodities in Africa and in Bangladesh. For example, as a result of this project output (R7496) and its findings, the Natural Resources Institute, with the same team, carried a follow up study entitled “Improving Access to Good Quality Agri-Inputs” using the same methodological approaches. The results of this study are discussed in section D16. Other development research institutions have applied the framework in analysing commodity markets and recommending options which have been incorporated in market development programmes or to specific projects to develop new market institutions. These include IFPRI, and the Institute of Economics (University of Copenhagen).

Where the outputs have been used:

Further to the “Improving Access to Good Quality Agri-Inputs” work mentioned in C12, in 2002 the Natural Resources Institute used the same methodologies to analyse marketing and transaction costs (Transaction Cost Analysis) for six key strategic commodities for Uganda, financed under the Plan for the Modernisation of Agriculture of the Ministry of Finance, Planning and Economic Development. The recommendations contributed to the implementation of actions to overcome constraints to marketing and processing efficiency and to improve farm-gate prices for smallholders leading to the attaining of the Poverty Eradication Action Plan. Other similar work include those by: Imperial College London at Wye: Competition and Coordination in Liberalised African Cotton Market Systems, Poulton et al., 2003; Poor country Agriculture: Analysis Prescription and Institutional Gaps, Kydd and Dorward, 2001; IFPRI – Market Institutions, Transaction costs, and Social Capital in the Ethiopian Grain Market, Gabre-Madhin, 2001.

Scale of Current Use:

The cases cited above indicate that the methodology has been widely used in market research circles.

Policy and Institutional Structures, and Key Components for Success:

The work by NRI and Wye College has led to subsequent work in Uganda and Tanzania where inventory credit schemes were identified as innovations to address market constraints and were adopted in other programmes such as the ongoing CFC funded Warehouse Receipt System (WRS) Projects in East and Southern Africa and the EU funded WRS in Uganda. Failure to incorporate recommendations in other programmes and projects lead to these innovations becoming just academic exercises.


Environmental Impact

Direct and Indirect Environmental Benefits:

Environmental aspects are not addressed by the project. For example, Adolph and Chancellor, 2006) state that “Few RNRRS rice projects had a primary focus on environmental sustainability”.

However, this methodology is a useful tool to help small and medium scale farmers to identify environmental damaging practices and able to address these practices. The project on “Improving Access to Good Quality Agri-Inputs” helped lead to the use of better quality inputs which are less harmful to the environment than those traditionally used.

Adverse Environmental Impacts:

None

Coping with the Effects of Climate Change, or Risk from Natural Disasters:

The outputs, if implemented could help to develop sustainable systems that enable producers to produce more efficiently and cope better with disasters. Policy makers should ensure that their interventions do not create market distortions with long term implications which may lead producers failing to cope.


Annex

References

Adolph, B. and Chancellor, T. (2006) Rice research in the DFID RNRRS programmes: Lessons learnt and implications for future research. Thematic summary for Research4Development. DFID. University of Greenwich, NRI

Bangladesh Rice Foundation (2005) BRF Mission – Website: http://www.ricefoundation-bd.org/

Crewe, E. and Young, J. (2002) Bridging research and policy: Context, evidence and links. Working Paper 173, Overseas Development Institute

Gabre-Madhin, E. (2001). Market Institutions, Transaction Costs and Social Capital in the Ethiopian Grain Market. IFPRI, Washington

Goodland, A. (2001a) Paddy marketing and rural livelihoods in Bangladesh. Final technical report. R7496 (ZB0202). NRI

Goodland, A. (2001b) Project completion summary sheet. Sheet prepared 20.7.01

Kydd, J., Dorward, A. (2001). The wahington Consensus on Poor Agriculture: Analysis, Prescription and Institutional Gaps. Development Policy Review. Blackwell Publishers, Oxford.

Natural Resources Institute (2002). Transaction Cost Analysis, Final Report. Prepared for the Plan for Modernisation of Agriculture. NRI and the International Institute of Tropical Agriculture

Poulton, C., Gobbon, P., Hanyani-Mlambo, B., Kydd, J., Maro, W., Nylandsted Larsen, M., Osorio, A., Tschirley, D. and Zulu, B. (2003). Competition and Coordination in Liberalised Cotton Market Systems. World Development, Volume 32, No. 3

Rowshan, R. (2001) Discussion paper: summary findings of the anthropological study in Goodland, A. (2001) Paddy marketing and rural livelihoods in Bangladesh. Final technical report. R7496 (ZB0202). NRI

Smith, G. (2005) Road to market. CPHP

Tickle, L. (2003) Putting theory into practice. Developments, the International Development Magazine, 23. DFID


Relevant Research Projects, with links to the
Research for Development (R4D) web site
and Technical Reports:

R4D Project Title Technical Report
R6344 Developing effective and efficient marketing and credit systems in semi-arid production systems
R7013 The role of warehousing in improving performance of agricultural markets, Phase II.
R7151 Overcoming information constraints: improving horticultural marketing and technical information flows to smallholders
R7494 Optimisation of horticulture research and uptake in India through the development of technical and management systems with public and private sector partners
R7496 Marketing constraints to increasing financial returns to small and medium scale rice paddy producers in Bangladesh
R7668 Impact and amelioration of sediment and agro-chemical pollution on Caribbean coastal waters
R7865 Scaling-up strategies for pilot research experiences – a comparative review
R8114 Improved food crops marketing though appropriate transport for poor farmers in Uganda
R8182 Strengthening technical innovation systems in potato-based agriculture in Bolivia: Bolivia Initiative
R8250 Decentralised market information service in Lira District, Uganda
R8275 Farmer Organisations for market access
R8381 Institutionalised scaling-up and uptake promotion of outputs from soil and water management research in East and Central Africa
R8418 Promotion and development of the participatory market chain approach (PMCA) in Uganda
R8422 Improving farmer and other stakeholders’ access to quality information and products for pre- and post- harvest maize systems management in the Southern Highlands of Tanzania.