Price Support Practiced and Controlling Imported Goods by Using Quota and Tariff in Context of Bangladesh”

 “Price Support Practiced and Controlling Imported Goods by Using Quota and Tariff in Context of Bangladesh”

Table of Content

Introduction:

Most of the government around the world actively interferes in their agricultural market. In a developing country like Bangladesh, government regularly impose price control to keep the market price low for the local people and help farmer through price support to get the benefit out of it. Price support is the easiest way to accelerate farmers to meet the domestic consumption if they do not produce enough to serve domestic market. With this price support policy mostly individual farmers will be benefited. Price supports help farmers with lower or below-average incomes because these benefits are distributed considering sales quantity or sales volume. Price support is the efficient and equitable way to help farmers.

Government has two ways to restricted or control imported goods which are Quota and tariff. Government imposes quota restrictions on the specific number of goods imported into a country and that quota help local industries to grow big. And another way of controlling import goods is Tariff. Tariffs are tax or fees paid on imported goods. Imported Tariffs increase the price that consumers have to pay more for the good, which reducing the quantity demand from the consumer or market and it helps local producer to keep the price as is and grab the market. But this high tariff goes to governments which help to develop domestic industries. Quotas and Tariff are different, tariff which place taxes on imports and exports goods. Governments impose both quotas and tariffs as defensives actions to try to control trade between countries, but there are distinct differences between them. Quotas focus on limiting the quantities of a particular good a country imports or exports, whereas tariffs impose specific fees on those goods. Governments design tariffs to raise the overall cost to the producer or supplier seeking to sell goods within a country.

Price Support:

Price support is keeping the market price of a good higher than the competitive equilibrium level. It is also called by price control or subsidy. Moreover, it is also called an agreement set in order by the government, where the government agrees to purchase the surplus of at a minimum price. For example, if a price floor were set in place for agricultural wheat commodities, the government would be forced to purchase the resulting surplus from the wheat farmers and store or otherwise dispose of it.

Government Surplus under a Price Support:

[pic 1]

The amount that the government spends on the price support is equal to the size of the surplus (Q*PS-QD) times the agreed-upon price of the output (P*PS). So, outflow can be signified as the area of a rectangle with width (Q*PS-QD) and height P*PS. In this diagram, surplus is a measure of value that accumulates to various parties. Where the government takes in money counts as positive government surplus and where the government pays out money counts as negative government surplus.[pic 2]

An example of the Price Support practiced by the government of Bangladesh:

Wheat has become the 2nd most produced grain in Bangladesh next to rice. About 45 lakh tons of wheat a year is required to meet up the needs. Though the acreage and local wheat production have been increasing for the last couple of years as farmers have been receiving good prices and higher yields, it is not sufficient. Almost two-third of its annual requirement comes through import.

In 2016, the government decided to buy two lakh tons of wheat from the farmers to give price support to growers harvesting the grain. So, they bought wheat at BDT 28 per kilogram from April 10 to May 31. According to the Food Ministry, the price was 3.7% higher than the estimated cost of production of BDT 27 a kg.  According to the Food Minister Qamrul Islam, the grain production was 13.98 lakh tons instead of targeted 14 lakh tons due to natural calamities in that particular year (Qamrul, 2016). As the wheat farmers faced such a great loss, the government decided to purchase wheat directly from them for minimizing their losses. Foiz Ahamed (2016), director general of DG Food said, “We will buy the wheat from farmers. So, we hope they will be benefitted from our purchase.” Mohammad Ashraf Sarker, a farmer in Rajshahi district, said, “We will be benefitted from this decision. Now I can sell my produce at better prices.”

Effect of Price Support Program of Wheat in Bangladesh:

The Government of Bangladesh regularly intervene in the food market in order to help the domestic farmers. Most of the government support programs or tariffs are on rice and wheat. But this government interventions turned out to be very insignificant due to the low quantity of procurement (Alam & Jha, 2016). The example case described above also portrays similar scenario. We would find out the real scenario of the price support program as well as discuss the overall effect and outcome achieved through it.[pic 3]

The price support program was designed to help the marginal farmers who suffered due to natural calamity. The program increased the price of wheat to 28 Taka per kg where the wholesale price of wheat flour in the market was around Tk 20 per kg. While the production cost of wheat was around Tk 27 a kg. The low price on wheat flour is primarily due to high import at a lower cost. Local farmers are suffering a huge loss due to imports, but they are unable to cope with the demand as well. Wheat has a drastic low production after reaching the peak in 1998-1999. In year 2015-2016 only 1348 thousand Metric Ton of wheat was produced whereas 4700 thousand metric ton was imported. Import price are lower as one of the key exporter India subsidizes its wheat import and keeps the price low. Local farmers are reluctant to harvest wheat due to this reason. The price support given by the government intends to help these farmers and improve wheat production.

Due to large rate of import the price support program does not affect the local market price that much. The wholesale price and the retail price stayed similar. The government purchased the wheat at a higher price and supplied it at a much lower price through another program to targeted poor people. The government also supports the farmers through many other programs. One of the programs which is still in effect is helping farmers to buy new equipment by providing up to 30% of purchase cost. Other programs include providing free fertilizer, lower electricity bills, and free seeds.

Government controls on imported goods of Bangladesh using quota and tariff

Tariff: A tariff is a tax imposed by a government on goods and services imported from other countries that serves to increase the price and make imports less desirable, or at least less competitive, versus domestic goods and services. Tariffs are generally introduced as a means of restricting trade from particular countries or reducing the importation of specific types of goods and services.

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When imports are reduced, the domestic price is increases from 2 to 3. This can be achieved by a tariff T= 3-2. Trapezoid C is the gain to domestic producers. The loss of consumer is C+D+E+F. If a tariff is used, the government gains E, the revenue from the tariff.

In order to protect local mills from losses due to falling prices of the sweetener in the international market, The National Board of Revenue (NBR) imposed 20 percent Regulatory Duty (RD) on raw and refined sugar Thus, retail price of sugar is probably going to go up from the present level of Tk 40 each kilogram. The Regulatory Duty will be included the current particular Customs Duty on both the raw and refined sugar at Tk 2,000 and Tk 4,500 for each ton individually.

In the course of the last a few quarters, sugar costs proceeded with continued falling as supply outpaced request. World sugar prices fell to US$ 0.29 every kilogram in the April-June quarter of 2015 from $0.40 a kilogram year on year, as indicated by World Bank Commodities Price Data. Because of the droop, sugar can be purchased from the worldwide market at close or simply above Tk 30,000 every ton, which is much underneath the BSFIC’s production cost. The BSFIC chairman stated, Imposition of obligation will empower the legislature to log more income.