The Food Grains Market in The New Millennium: International Linkages

Trade liberalisation policies pursued during the last two decades have effectively integrated Bangladesh into the world economy. A consequence of this integration is that the prices of tradable commodities such as food grains are greatly influenced by the movements of the world prices. The latter is influenced by the global supply and demand factors. Thus, the prices in individual domestic markets depend less on their own supply-demand balances; instead, they depend mostly on the global balances. A heightened awareness of the business community about the global market and quick flow of information have ensured that global developments are transmitted to the local market quickly. This implies that the reasons for price increases in the domestic market cannot be explained without an understanding of the reasons for price increases in the international market. This has major implications for the effectiveness of domestic policies, which are not always fully understood. Domestic prices of cereals are determined to a large extent by the same factors that determine international prices. One of the ways Bangladesh could push domestic prices below international prices would be holding large stocks of cereals, which could be sold in times of shortages at subsidised prices to ease supply shortages. If Bangladesh were to become a food surplus country, then domestic prices could be held below international prices by imposing export bans or export taxes or by giving subsidies.