Do Consumers Benefit from Supply Chain Intermediaries? : Evidence from a Policy Experiment in the Edible Oils Market in Bangladesh
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 th...
| Main Authors: | , , , |
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| Language: | English en_US |
| Published: |
World Bank, Washington, DC
2016
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| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/en/2016/07/26578630/consumers-benefit-supply-chain-intermediaries-evidence-policy-experiment-edible-oils-market-bangladesh http://hdl.handle.net/10986/24826 |
| Summary: | 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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