Introduction:

Rice production is a critical part of the national economy in Bangladesh. As the principal food crop of Bangladesh, rice production contributes to a significant percentage of the country’s GDP. There are different types of rice produced throughout different seasons of the year and the demand for rice is inelastic to the changes in price. Auto Rice Mills collect rice from the farmers, process it, and distribute them to the market. To set up a business model for an Auto Rice Mill, we have to consider the following factors that affect the elasticity of demand for rice in Bangladesh:

Availability and closeness of substitute:

Rice is a highly available commodity as it is harvested and sold in all areas of the country. Corn and wheat are close substitutes for rice. Although, a price increase of rice does not motivate regular consumers to go for the substitutes. There are two common reasons why consumers do not move towards substitute products that are:
i) Substitute products are more expensive and the price of corn & wheat also increases when there is an increase in the price of rice.
ii) Consumption of rice is the national culture and people are habituated to having rice at least two times a day.

Percentage of consumer’s budget:

Consumers usually keep a provision for rice when preparing a budget for the monthly food expenses. If price increases, many low-income consumers switch to low prices rice but the quantity of consumption remains unchanged. An auto rice mill produces different types of rice that vary in quality and taste. Different types of rice are produced in different seasons of the year and auto rice mill operators buy rice in bulk for mass processing and selling to the customers throughout all seasons. This is how they maintain the supply and demand of rice for all types of customers.

Positioning the good:

Rice is perceived to be the necessity of everyday life in Bangladesh. An auto rice mill sells its goods to big traders. Small businesses then buy rice from the rice traders and sell it to the consumers. Due to the heavy demand for rice in the country, sellers place rice on display in the shops or superstores.

Is rice a necessity or a luxury?

In the context of Bangladesh, rice is a necessity which means even though the prices of rice have increased a few hundred times over the past two decades, demand and consumption remained unchanged. People in villages celebrate the end of harvesting seasons by arranging festivals. The government also provides subsidies and incentives to the farmers who produce rice and other commodities.

How many functions of use does rice have?

People mainly consume boiled rice as their primary food in Bangladesh. Rice can also be used to make bread, cakes, etc.

Conclusion:

Considering the above factors that affect the elasticity of demand for rice, an auto rice mill is an ideal choice as a business that is inelastic in demand. To be able to successfully operate an auto rice mill, one should know when farmers are harvesting rice and how climate can affect the harvesting process.

Since there is a small window of time to collect rice from farmers, the auto rice mill needs to purchase all rice produced at once for the season and process them for future sales.

Natural disasters such as floods or hurricanes which are common in Bangladesh can disrupt the production of rice. Prices of rice tend to increase in years when there is a significant natural disaster. During that time, scarcity arises due to a shortage of supply and the price goes up. As there is a significant portion of the population of the nation is still under the poverty line, the government tries to keep the price increase of rice in check so that everyone can afford it by providing farmers compensations and importing rice from neighboring counties.