Do Consumers Benefit from Supply Chain Intermediaries? Evidence from a Policy Experiment in the Edible Oils Market in Bangladesh

62 Pages Posted: 19 Jul 2016

See all articles by M. Shahe Emran

M. Shahe Emran

George Washington University - Department of Economics

Dilip Mookherjee

Boston University - Department of Economics

Forhad Shilpi

World Bank - Development Research Group (DECRG)

Md. Khayer Uddin

University of Dhaka - Department of Accounting & Information Systems; Faculty of Business Studies, University of Dhaka

Date Written: July 18, 2016

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.

Keywords: Food Security, Agricultural Trade, Trade and Agriculture

Suggested Citation

Emran, M. Shahe and Mookherjee, Dilip and Shilpi, Forhad and Uddin, Md. Khayer, Do Consumers Benefit from Supply Chain Intermediaries? Evidence from a Policy Experiment in the Edible Oils Market in Bangladesh (July 18, 2016). World Bank Policy Research Working Paper No. 7745. Available at SSRN: https://ssrn.com/abstract=2811393

M. Shahe Emran (Contact Author)

George Washington University - Department of Economics ( email )

2115 G Street NW
302 Monroe Hall
Washington, DC 20052
United States

Dilip Mookherjee

Boston University - Department of Economics ( email )

270 Bay State Road
Boston, MA 02215
United States
617-353-4392 (Phone)
617-353-4143 (Fax)

Forhad Shilpi

World Bank - Development Research Group (DECRG) ( email )

1818 H. Street, N.W.
MSN3-311
Washington, DC 20433
United States
202-458-7476 (Phone)
202-522-1151 (Fax)

Md. Khayer Uddin

University of Dhaka - Department of Accounting & Information Systems ( email )

Ramna, Dhaka, 1000
Bangladesh

Faculty of Business Studies, University of Dhaka ( email )

Bangladesh

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