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Do consumers benefit from supply chain intermediaries ? evidence from a policy experiment in the edible oils market in Bangladesh

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  • Emran,M. Shahe
  • Mookherjee,Dilip
  • Shilpi,Forhad J.
  • Uddin,M. Helal

Abstract

Commodity traders are often the focus of popular resentment. Food price hikes in 2007-2008 resulted in protests and food riots, and spurred governments to regulate traders. In March 2011, Government of Bangladesh banned delivery order traders in the edible oils market, citing cartelization, and replaced them with a dealer's network appointed by upstream refiners. The reform provides a natural experiment to test alternative models of marketing intermediaries. This paper develops three models and derives testable predictions about the effects of the reform on the intercept of the margin equation and pass-through of international price. Using wheat as a comparison commodity, a difference-of-difference analysis of high frequency price data shows that the reform led to (i) an increase in domestic prices and marketing margins, and (ii) a weakening of the pass-through of imported crude prices. The evidence is inconsistent with the standard double-marginalization-of-rents model wherein intermediaries exercise market power while providing no value-added services, or with a model where delivery order traders provide credit to wholesalers at below-market interest rates. The evidence supports a model where delivery order traders relax binding credit constraints faced by the wholesale traders.

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  • Emran,M. Shahe & Mookherjee,Dilip & Shilpi,Forhad J. & Uddin,M. Helal, 2016. "Do consumers benefit from supply chain intermediaries ? evidence from a policy experiment in the edible oils market in Bangladesh," Policy Research Working Paper Series 7745, The World Bank.
    • Handle: RePEc:wbk:wbrwps:7745
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    Cited by:

    1. Casaburi, Lorenzo & Reed, Tristan, 2017. "Competition in Agricultural Markets: An Experimental Approach," CEPR Discussion Papers 11985, C.E.P.R. Discussion Papers.
    2. Kamil Czwartkowski & Arkadiusz Wierzbic & Wojciech Golimowski, 2022. "Quality, Key Production Factors, and Consumption Volume of Niche Edible Oils Marketed in the European Union," Sustainability, MDPI, vol. 14(3), pages 1-17, February.

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    More about this item

    Keywords

    Food Security; Agricultural Trade; Trade and Agriculture;
    All these keywords.

    JEL classification:

    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • Q13 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Agricultural Markets and Marketing; Cooperatives; Agribusiness

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