Bangladesh University of Professionals

Course Name: Microeconomics

Course Code: ALD 1204

A Term Paper on Assessing the Microeconomics

Impact of Weather on Rice Production in
Bangladesh
Submitted by
Name Roll
Saba Anila 23221508034
Ibna Jubaer Shuvo 23221508036
Lamia Tasnim 232215080780
Tanvir Ahmed 23221508106

Submitted to

Kazi Asequl Areefin

Assistant Professor
Department of Business Administration in Finance & Banking
Bangladesh University of Professionals

Date of Submission: 3 June, 2024

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 Acknowledgement
We would like to express our sincere gratitude for your guidance, continuous support, and
constructive feedback throughout the process of writing the paper titled ‘Assessing the
Microeconomics Impact of Weather on Rice Production in Bangladesh’. Your
insightful feedback and constructive criticism significantly enhanced the quality of our
work. Also, your expertise has greatly enhanced the quality of the study. We sincerely hope
you will continue to assist us in the future.

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Letter of Transmittal

June 3, 2023
To
Kazi Asequl Areefin
Lecturer
Department of Business Administration in Finance & Banking
Faculty of Business Studies
Bangladesh University of Professionals
Subject: Acceptance of Term Paper

Dear Sir,
We hereby submit our paper titled ‘Assessing the Microeconomics Impact of Weather on Rice
Production in Bangladesh’. This paper explores the critical relationship between weather
variability and rice production, highlighting the profound economic implications for farmers
and the broader rural economy.
We sincerely hope that you will find the report informative and insightful. Thank you for your
time and consideration.

Sincerely,
Saba Anila-23221508034
Ibna Jubaer Shuvo-23221508036
Lamia Tasnim-232215080780
Tanvir Ahmed-23221508106

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Table of Contents
Executive Summary ............................................................................................................... 1
Chapter 1 .............................................................................................................................. 2
Introduction .......................................................................................................................... 2
1.1 Background of the study ............................................................................................... 2
1.2 Objective of the Study: .................................................................................................. 2
1.4 Methodology ................................................................................................................. 3
1.5 Limitation of the Study ................................................................................................. 3
Chapter 2. ............................................................................................................................. 4
Literature review ................................................................................................................... 4
Chapter 3 .............................................................................................................................. 6
Methodology .......................................................................................................................... 6
3.1 Data Collection ............................................................................................................. 6
3.2 Analytical Framework .................................................................................................. 6
3.3 Supply Curve Analysis: ................................................................................................. 6
3.4 Demand Curve Analysis: ............................................................................................... 6
3.5 Data Analysis ................................................................................................................ 7
Chapter 4. ............................................................................................................................. 8
Findings and Results .............................................................................................................. 8
Weather Impact on Supply and Demand of Rice.................................................................. 8
Impact on the Substitute ................................................................................................... 11
Consumer Surplus............................................................................................................ 12
Producer Surplus ............................................................................................................. 13
Government Policy ........................................................................................................... 15
Chapter 5 ............................................................................................................................ 19
Recommendation ................................................................................................................. 19
Chapter 6 ........................................................................................................................... 20
Conclusion........................................................................................................................... 20
References ........................................................................................................................... 21

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Executive Summary

This paper examines the impact of weather conditions on rice production, focusing on how
fluctuations affect supply and demand dynamics, consumer and producer welfare, and government
intervention policies. Through the analysis of secondary data, key findings emerge regarding the
intricate relationship between weather patterns and rice market equilibrium.

Weather variations directly influence rice supply, leading to shifts in the supply curve and
subsequent changes in equilibrium price and quantity. Additionally, adverse weather conditions
prompt consumers to seek alternative grains, altering demand patterns and market behavior.
Consequently, consumer and producer surpluses fluctuate, with reduced supply potentially
elevating prices and affecting market welfare.

Government intervention, such as price floor and ceiling policies, aims to stabilize rice markets
during weather-induced crises. However, the effectiveness of these measures depends on the
severity and duration of weather impacts.

In conclusion, understanding the impact of weather on rice production is essential for devising
resilient strategies to mitigate risks and ensure food security. By fostering collaboration among
stakeholders and implementing adaptive measures, the rice industry can navigate the challenges
posed by unpredictable weather patterns and promote sustainable development.

Keyword: Supply, demand, rice, weather, Bangladesh

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 Chapter 1

Introduction
1.1 Background of the study

The term paper was prepared as part of an academic requirement for a course called
“Microeconomics" in our undergraduate program at Bangladesh University of Professionals. This
task has been assigned by Kazi Ashequl Arefin, Assistant Professor at Bangladesh University of
Professionals. As a part of this course, we were assigned to prepare a term paper on “Impact of
Weather in the Production of Rice in a Microeconomic Scale”.

1.2 Objective of the Study:

Objective of the study shed light on the impact of adverse weather in the demand and supply of
rice in Bangladesh.
● Analyzing supply and demand curve of rice
● Analyzing the equilibrium point of price.
● Analyzing consumer and producer surplus.
● Analyzing cost of production.
● Analyzing the government policy.

1.3 Significance of the Study

The significance of this study lies in its potential to provide insights into how adverse weather
conditions affect rice production in Bangladesh. Understanding these impacts is crucial for
consumers, farmers and stakeholders to make informed decisions that can mitigate negative
outcomes and enhance productivity. The findings of this study can contribute to developing
strategies for sustainable rice production and food security in the face of climate variability.

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1.4 Methodology

The study utilizes a combination of secondary data to analyze the microeconomic impacts of
weather on rice production. The analysis includes graphical representations of supply and demand
curves, equilibrium points, and economic surpluses. Various economic models and theories
relevant to microeconomics were applied to interpret the data and derive conclusions.

1.5 Limitation of the Study

While this study aims to provide a comprehensive study, it is subject subject to a certain limitation:
Data Availability: The study is based on available data, which may be outdated, limited, or
incomplete. This could affect the accuracy and reliability of the devastating findings.
Short-Term Focus: The study primarily focuses on the short-term microeconomic effects of
weather on rice production. Long-term effects may differ as elasticity and other economic factors
can change over time.
Geographical Scope: The study is confined to specific regions in Bangladesh, which may not
fully represent the diverse climatic and economic conditions across the entire country.
Model Assumptions: The economic models used in the analysis are based on certain assumptions
that may not fully capture the complexities of real-world scenarios.

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 Chapter 2.

Literature review

Bangladesh is an agricultural country, with its economy still heavily dependent on the yearly
production of various crops. However, crop production is decreasing due to some unusual negative
weather patterns. Climate variability and vulnerabilities are growing concerns globally (Ruksana
Haque Rimi, 2009). The climate in Bangladesh is changing and becoming more unpredictable each
year (Ruksana Haque Rimi, 2009). In recent years, several extreme weather disasters have partially
or completely damaged regional crop production (Md. Ruhul Amin, 2015).

There were many ways to address climate change and variability. Climate change, which continues
to occur, leads to an increase in global surface temperatures. This results in more frequent and
severe extreme weather events, such as cyclones, unfortunate floods, and unexpected droughts.
Climate change also negatively affects water quality due to soil erosion, deforestation, and
increased salinity from rising sea levels. Consequently, it reduces optimal farm productivity and
increases pest and disease attacks on crops (Rubaiya, 2016). Despite advancements in crop
productivity, rising global temperatures will impact crop yield stability and market prices (Master
et al., 2010).

Some researchers also show that droughts and severe heat drastically reduced national cereal
production by 9–10%, while their analysis could not find an effect from floods and extreme cold
on national data (Fraser, Crops and climate change: progress, trends, and challenges in simulating
impacts and informing adaptation, 2009). By analyzing elemental processes, they discovered that
production losses due to droughts were linked to reductions in both cultivated area and yields,
while severe heat mainly decreased cereal yields. Additionally, recent droughts caused
approximately 7% greater production declines, with 8–11% more in developed countries compared
to developing ones (Md Torikul Islam, 2017). The primary goal of the proposed work is to compare

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weather changes with crop production levels and obtain accurate results using various
methodologies.

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 Chapter 3

Methodology

3.1 Data Collection

To study the impact of weather on the microeconomics of agriculture in Bangladesh, we primarily

used secondary data sourced from reputable publications, including reports from the Bangladesh
Meteorological Department, the Ministry of Agriculture, and other relevant governmental and non-
governmental organizations. We collected historical data on weather patterns, crop production
levels, and market prices to ensure a thorough analysis.

3.2 Analytical Framework

This research utilized the supply and demand curve model to understand how weather variability
affects agricultural output. The curves served as tools to visualize and quantify the impact of
weather conditions on the agricultural markets in Bangladesh.

3.3 Supply Curve Analysis:

Factors: We examined weather variables such as temperature, rainfall, and extreme weather events
(droughts, floods, cyclones) to assess their impact on the supply side of agriculture.
Adjustments: The supply curve was adjusted based on historical data to reflect changes in
production levels due to favorable or unfavorable weather conditions.

3.4 Demand Curve Analysis:

Factors: Consumer behavior, price elasticity for agricultural products, and market trends were
considered.

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Adjustments: The demand curve was adjusted to account for changes in demand due to weather-
induced variations in crop availability and quality.

3.5 Data Analysis

Supply and Demand Equilibrium: By plotting the adjusted supply and demand curves, we
identified the equilibrium price and quantity under different weather scenarios. This visualization
helped in understanding the shifts in market dynamics due to weather changes.

Normal Weather Conditions: Baseline scenario using historical average weather data.
Adverse Weather Conditions: Scenarios involving extreme weather events such as prolonged
droughts or severe floods.

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 Chapter 4.

Findings and Results

Weather Impact on Supply and Demand of Rice

Rice is Bangladesh's primary crop and staple food, dominating agricultural production,
employment, nutritional intake, and contributing substantially to national income. Bangladesh
ranks as the third-largest producer of rice globally, reaching about 39.1 million tonnes in 2023.
But sometimes due to typical weather the production of rice is hampered. The price increases
rapidly.

Supply and Demand Dynamics

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Initial Equilibrium (S1 and D1)

Supply Curve (S1): Represents the initial supply of rice under normal weather conditions.
Demand Curve (D1): Shows the initial demand for rice.
Equilibrium Point: The intersection of S1 and D1 determines the initial equilibrium price and
quantity.

Shift in Supply Curve (S2)

Impact of Adverse Weather: Adverse weather conditions such as droughts, floods, and cyclones
lead to a leftward shift in the supply curve from S1 to S2.
Reduced Supply: The new supply curve (S2) indicates a reduction in the quantity of rice available
at each price level due to weather-induced production losses.

Shift in Demand Curve (D2)

Impact of Weather on Demand: Weather variability affects not only supply but also the demand
for rice. For instance, during adverse weather conditions, the demand may increase due to concerns
about future scarcity, causing a rightward shift in the demand curve from D1 to D2.

New Equilibrium

Intersection of S2 and D2: The new equilibrium point is determined by the intersection of the
adjusted supply curve (S2) and the adjusted demand curve (D2).
Higher Prices: The new equilibrium price is significantly higher, reflecting the increased scarcity
of rice and heightened demand during adverse weather conditions.

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Microeconomic Impact

Inelastic Demand: The demand for rice is relatively inelastic, meaning that consumers are not
highly responsive to price changes due to rice being a staple food. Thus, even with higher prices,
the quantity demanded does not significantly decrease.

Exponential Price Rise: Due to the inelastic nature of demand, the reduction in supply leads to
an exponential rise in the price of rice.
Economic Stress: The higher prices impose economic stress on households, particularly those
with lower incomes, exacerbating food security issues in Bangladesh.

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 Impact on the Substitute

Weather conditions can significantly affect the demand for substitutes of rice, such as wheat,
maize, and potatoes. This section examines how adverse weather conditions impacting rice
production influence the demand for these substitutes.
Impact on Demand for Substitute

Adverse weather conditions like droughts, floods, and cyclones can lead to a decrease in rice
production. This reduction in supply causes the supply curve for rice to shift to the left resulting
in higher prices for rice. As rice becomes more expensive, consumers are likely to shift their
consumption to substitutes. It increases their demand. The demand curve for substitutes like wheat,
maize, and potatoes will shift to the right as consumers look for more affordable alternatives.

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 Consumer Surplus

Consumer surplus means a buyer’s willingness to pay minus the amount the buyer actually pay
Consumer surplus is calculated as the area between the demand curve and the price level, up to the
equilibrium quantity. It measures the benefit buyers get from a good as the buyers themselves
perceive it. Consumer surplus defines the ability of the consumer, price, and quantity demand for
a certain product. Consumer surplus is closely related to the demand curve of a product, in a way,
the demand schedule is derived from the willingness to pay of the possible buyers. Hence, if the
consumer surplus of a product is low it means there are few buyers to bid for it meaning that higher
price it will decrease the demand, vice-versa, if the consumer surplus is higher means that for that
price more consumer will be willing to pay for the product increasing the demand.

Initial Consumer Surplus Calculation

Using the initial demand curve 𝐷1 and supply curve 𝑆1, let's assume the following equilibrium
values:
Initial equilibrium price ( 𝑃1) = 50 BDT/kg
Initial equilibrium quantity ( 𝑄1) = 1000 kg
The consumer surplus is the area of the triangle formed by the demand curve, the price axis, and a
vertical line at 𝑄1.
Initial Consumer Surplus = 1/2 × ( 𝑄1 ) × ( 𝑊𝑇𝑃 − 𝑃1 )
Where WTP is the maximum willingness to pay, assumed to be 100 BDT/kg.
Initial Consumer Surplus = 1/2 × 1000 × ( 100 − 50 ) = 1/2 × 1000 × 50 = 25,000 BDT
New Consumer Surplus Calculation

With adverse weather shifting the demand curve to 𝐷2 and supply curve to 𝑆2, assume the new
equilibrium values:

New equilibrium price ( 𝑃2) = 80BDT/kg

New equilibrium quantity ( 𝑄2) = 800 kg
New Consumer Surplus = 1/2 × ( 𝑄2 ) × ( 𝑊𝑇𝑃 − 𝑃2 )

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New Consumer Surplus = 1/2 × 800 × ( 100 − 80 ) = 1/2 × 800 × 20 = 8,000 BDT

Producer Surplus
Producer surplus is the amount a seller is paid for a good minus the seller’s cost. Producer surplus
is the area between the supply curve and the price level, up to the equilibrium quantity. It is mainly
the marginal profit seller generate from their business. Just as consumer surplus is related to the
demand curve, producer surplus is related to supply curve. In a market a seller is paid amount
minus the cost is higher means that the seller making profit. If that margin in higher in a regular
market then it will increase the supply of the market; sellers will produce more hoping that they
will be rewarded higher. The whole scenario shown below.

Initial Producer Surplus Calculation

Using the initial supply curve 𝑆1:
Initial Producer Surplus = 1/2 × ( 𝑄1 ) × ( 𝑃1 − 𝑀𝐶 )
Where MC (marginal cost) is assumed to be 20 BDT/kg.
Initial Producer Surplus = 1/2 × 1000 × ( 50 − 20 ) = 1/2 × 1000 × 30 = 15,000
New Producer Surplus Calculation
With the new supply curve S2:
New Producer Surplus = 1/2 × 800 × ( 80 − 20 ) = 1/2 × 800 × 60 = 24000

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In our case, often in the rice market consumer’s willingness to pay gets relatively higher. Thereby,
it leads to a lower consumer surplus. The market loses it stability. Sometime local vendors store
rice with higher price, resulting making the price higher than equilibrium price and making it
unaffordable with that they take control of the supply of the rice because then the product only
stored to some selective vendors. On the other hand, when rice producers can generate more
profits, it induces them to get into the market more and produce more rice, as a result, this
phenomenon leads to a supply surge in the market, and it follows the more the supply is, the lesser
the cost of the product is. So with both consumer surplus and producer surplus lead to price cut
off.

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 Government Policy

Price control measures implemented by governments often aim to address perceived inequities
within the market, typically benefiting either consumers or producers. Consumers tend to view
prices as excessively high relative to the value they receive, while producers often believe prices
are too low. Governments employ two primary methods to regulate market prices: price ceilings
and price floors.

Price Ceiling: In Bangladesh, price ceilings are often enacted in response to consumer
complaints or advocacy efforts. These ceilings establish a maximum price at which a product can
be sold, with the intention of safeguarding consumers from facing unattainable prices for essential
goods.

A price ceiling can either be non-binding or binding. When non-binding, it does not affect the
market equilibrium. But binding affects the market. It creates a shortage in the market.

When the adverse weather reduced the supply of rice, the price of rice started to rise exponentially.
To tackle the situation, the government imposes a price ceiling so that everyone can get food. But
this policy leads to the shortage of rice. As rice is an inelastic product, the demand stays the same.

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Here, S1 represents the supply in the normal weather condition. But in adverse weather conditions
we see a left side shift in the supply curve. So the equilibrium price rises. But the government tries
to impose a price ceiling so that the price remains at the previous equilibrium point. That leads to
a shortage of rice in the market.

Price Floor in Bangladesh

When the government is influenced by the persuasions and pleas of sellers, it leads to the
implementation of a price floor. Price floors are minimum prices set by the government for certain
commodities and services that are believed to be sold in an unfair market at prices too low, thereby
necessitating assistance for producers. Price floors only pose an issue when set above the
equilibrium price, as they have no effect if set below the market-clearing price. If set above the
market price, a surplus or excess supply may occur.

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A price floor represents the legal minimum at which a good can be sold, resulting in two possible
outcomes:
- Not binding
- Binding

Not Binding
A price floor that is not binding has no impact. For instance, if the equilibrium price is 3 BDT, and
the government imposes a price floor of 2 BDT per unit, it does not affect market dynamics as the
equilibrium price is already above the floor. Market forces naturally drive the economy to
equilibrium, rendering the price floor ineffective.

Binding:
Conversely, a binding price floor does impact the market. For example, if the equilibrium price is
3 BDT, and the government imposes a price floor of 4 BDT per unit, the floor becomes a binding
constraint because the equilibrium price is below it. This scenario disrupts market equilibrium and
creates a surplus.

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In good weather conditions, farmers produce more rice, leading to an increase in supply.
Consequently, the supply curve shifts to the right, resulting in a reduction in rice prices. This price
drop can cause financial losses for farmers. To mitigate these losses, the government imposes a
price floor. By setting a minimum price above the equilibrium price, the government ensures that
farmers receive a higher income for their produce than what the market would naturally offer.
However, while this intervention aims to protect farmers' incomes, it can also lead to excess supply
or surplus, as the higher price may reduce consumer demand, causing unsold stock to accumulate.
This situation necessitates careful management to balance the interests of farmers and market
efficiency.

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 Chapter 5

Recommendation

1. Enhanced Weather Monitoring and Forecasting: Invest in advanced weather monitoring and
forecasting systems to provide timely and accurate information to farmers. This can help farmers
make informed decisions about planting and harvesting, reducing the adverse impacts of
unexpected weather events.

2. Diversification of Crop Production: Encourage farmers to diversify their crop production to

reduce reliance on rice. Diversification can mitigate the economic risks associated with weather-
induced fluctuations in rice production and improve food security by including other staples like
wheat, maize, and potatoes.

3. Improved Agricultural Practices: Promote the adoption of climate-resilient agricultural

practices and technologies, such as drought-resistant rice varieties, improved irrigation systems,
and sustainable land management practices. These measures can enhance productivity and reduce
vulnerability to adverse weather conditions.

4. Government Policy Adjustments: Implement more flexible and adaptive government policies
regarding price controls. For instance, establishing variable price ceilings and floors that adjust
based on market conditions and weather forecasts can help stabilize the market without creating
shortages or surpluses.

5. Insurance Schemes for Farmers: Develop and expand agricultural insurance schemes to
protect farmers against losses due to adverse weather conditions. Insurance can provide financial
stability and encourage farmers to invest in more productive but riskier agricultural practices.

6. Public Awareness and Education: Conduct awareness programs to educate farmers and
consumers about the impacts of weather on rice production and the importance of adopting
adaptive measures. Enhanced knowledge can lead to better preparedness and more effective
responses to weather variability.

7. Research and Development: Invest in research and development to innovate and improve rice
cultivation techniques and develop new rice varieties that are more resistant to climate change.
Collaboration between governmental, non-governmental, and international research institutions
can drive these advancements.

By implementing these recommendations, stakeholders in Bangladesh's rice production sector can

better navigate the challenges posed by weather variability, ensuring more stable and sustainable
agricultural and economic outcomes.

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 Chapter 6

Conclusion
This study investigates the microeconomic impact of weather on rice production in Bangladesh,
an essential aspect of the country's agriculture. The analysis reveals that weather variability,
including adverse conditions like droughts, floods, and cyclones, has a substantial impact on rice
supply and demand dynamics. Specifically, unfavorable weather conditions reduce rice supply,
shift supply curves leftward, and increase equilibrium prices. This leads to higher consumer prices
and economic stress, particularly affecting lower-income households.

The findings highlight the inelastic nature of rice demand, where price increases due to reduced
supply do not significantly diminish consumption, exacerbating the price impact on consumers.
Conversely, favorable weather conditions can lead to an oversupply, reducing prices and
potentially harming farmers' incomes. Government interventions, such as price ceilings and floors,
play a critical role in stabilizing the rice market. However, these measures can lead to market
shortages or surpluses, necessitating careful implementation and management.

In terms of economic welfare, the study reveals that adverse weather reduces consumer surplus
significantly, while producer surplus can either increase or decrease based on the nature of price
adjustments and government policies. Understanding these dynamics is vital for stakeholders to
develop resilient strategies that mitigate the negative impacts of weather variability on rice
production.

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 References

Fraser A. J., Ewert F., Arnold S., Simelton E., & Fraser E. (2009). "Crops and climate change:
progress, trends, and challenges in simulating impacts and informing adaptation." Journal
of Experimental Botany, 60(10), 2775–2789.

Master, G., P. Baker, & J. Flood. (2010). "Climate Change and Agriculture Commodities." Centre
for Agriculture and Bioscience International (CABI), 1–40.

Md. Ruhul Amin, Junbiao Zhang, and Mingmei Yang. (2015). "Effects of Climate Change on the
Yield and Cropping Area of Major Food Crops: A Case of Bangladesh." Sustainability, 7, 898-
915.

Md Torikul Islam, & Melissa Nursey-Bray. (2017). "Adaptation to climate change in agriculture
in Bangladesh: the role of formal institutions." Environmental Management, 200, 347-358.

Rubaiya, B. M. (2016). "Yield Gap Analysis of Field Crops to Ensure Food Security of
Bangladesh." Master of Bio-resource thesis submitted to the Graduate School of Life and
Environmental Sciences, the University of Tsukuba in Japan.

Ruksana Haque Rimi, Syed Hafizur Rahman, Sk. Ghulam Hussain. (2009). "Trend Analysis of
Climate Change and Investigation on Its Probable Impacts on Rice Production at Satkhira,
Bangladesh." Pakistan Journal of Meteorology, 6(11), 37-50.

কৃষি মন্ত্রণালয়. (2019). Moa.gov.bd. https://moa.gov.bd/

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