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...

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Main Authors:	Emran, M. Shahe, Mookherjee, Dilip, Shilpi, Forhad, Uddin, M. Helal
Format:	Working Paper
Language:	English en_US
Published:	World Bank, Washington, DC 2016
Subjects:	marketing intermediary trader margin commodity prices market power double marginalization supplier credit credit rationing international prices passthrough edible oils
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

id	okr-10986-24826
recordtype	oai_dc
spelling	okr-10986-248262021-04-23T14:04:27Z Do Consumers Benefit from Supply Chain Intermediaries? : Evidence from a Policy Experiment in the Edible Oils Market in Bangladesh Emran, M. Shahe Mookherjee, Dilip Shilpi, Forhad Uddin, M. Helal marketing intermediary trader margin commodity prices market power double marginalization supplier credit credit rationing international prices passthrough edible oils 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. 2016-08-09T16:44:49Z 2016-08-09T16:44:49Z 2016-07 Working Paper 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 English en_US Policy Research Working Paper;No. 7745 CC BY 3.0 IGO http://creativecommons.org/licenses/by/3.0/igo/ World Bank World Bank, Washington, DC Publications & Research Publications & Research :: Policy Research Working Paper South Asia Bangladesh
repository_type	Digital Repository
institution_category	Foreign Institution
institution	Digital Repositories
building	World Bank Open Knowledge Repository
collection	World Bank
language	English en_US
topic	marketing intermediary trader margin commodity prices market power double marginalization supplier credit credit rationing international prices passthrough edible oils
spellingShingle	marketing intermediary trader margin commodity prices market power double marginalization supplier credit credit rationing international prices passthrough edible oils Emran, M. Shahe Mookherjee, Dilip Shilpi, Forhad Uddin, M. Helal Do Consumers Benefit from Supply Chain Intermediaries? : Evidence from a Policy Experiment in the Edible Oils Market in Bangladesh
geographic_facet	South Asia Bangladesh
relation	Policy Research Working Paper;No. 7745
description	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.
format	Working Paper
author	Emran, M. Shahe Mookherjee, Dilip Shilpi, Forhad Uddin, M. Helal
author_facet	Emran, M. Shahe Mookherjee, Dilip Shilpi, Forhad Uddin, M. Helal
author_sort	Emran, M. Shahe
title	Do Consumers Benefit from Supply Chain Intermediaries? : Evidence from a Policy Experiment in the Edible Oils Market in Bangladesh
title_short	Do Consumers Benefit from Supply Chain Intermediaries? : Evidence from a Policy Experiment in the Edible Oils Market in Bangladesh
title_full	Do Consumers Benefit from Supply Chain Intermediaries? : Evidence from a Policy Experiment in the Edible Oils Market in Bangladesh
title_fullStr	Do Consumers Benefit from Supply Chain Intermediaries? : Evidence from a Policy Experiment in the Edible Oils Market in Bangladesh
title_full_unstemmed	Do Consumers Benefit from Supply Chain Intermediaries? : Evidence from a Policy Experiment in the Edible Oils Market in Bangladesh
title_sort	do consumers benefit from supply chain intermediaries? : evidence from a policy experiment in the edible oils market in bangladesh
publisher	World Bank, Washington, DC
publishDate	2016
url	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
_version_	1764457750359703552

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

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