Plain tales from the rice trade: Indications of vertical integration in foodgrain markets in Bangladesh

Abstract

Through a series of case studies of the interactions between foodgrain traders and between traders and producers, this article questions the widespread belief that foodgrain markets in Bangladesh are characterised by low trading margins, no vertical integration and a general competitive health. The article indicates that merchant's capital plays two key roles in the market (i) in some areas of the country, the provision of merchant's credit deprives the poor producer of access to the market price for his or her output; (ii) working capital extended to subordinate traders may also enable a small group of large traders to influence prices. Further case studies of the interaction between traders and the state food distribution system indicate ways in which the private market may be able to frustrate or limit policies intended to regulate its operation. These insights suggest that the domination of merchant's capital may be one factor explaining low levels of productivity in the Bangladesh countryside. They also raise questions about the consequences of policies intended to increase the role of private trade in the economy.