Which one holds sway, syndicate or market concentration?

People's expectations from this interim government veritably know no bounds, in a feel-good ambiance. Since they had failed to speak freely during the unseated Sheikh Hasina government, now their expectations run sky-high from this neutral administration. But they haven't so far seen fulfilled their expectation for a reduction in their cost of living fuelled by higher inflationary pressure. Why so warrants an in-depth analysis of marketing structure which perennially remains informal and prone to manipulation through syndication.

For a longstanding inflationary burden, continuing for nearly last two years, people are now struggling to manage higher spending on food account. The lion's share of their income is going for purchasing food and other essential items. The inflationary pressure began to build up during the Sheikh Hasina government as the market was not functioning properly for a lack of governance and market manipulation by some pampered business magnets. Analysts say the market system was not functioning properly as the government-businessman nexus was one of the reasons behind it. So, all necessary measures for bringing the prices of essential items down have become a key priority at this moment.

The post-uprising interim government has already tightened the monitory policy, taken austerity in public spending, refrained from taking up fresh development projects and rather opted for cutting costs of the existing ones, and slashed or withdrawn the import duty on some very essential commodities. But these belt-tightening fiscal measures are not working to tame the inflation. The point-to-point inflation has still been above the double-digit trajectory over the last few months.

The market had been heating up over the last few years, especially under the Covid-19 impact. The Russia-Ukraine and Middle-eastern tensions aggravated the volatility in the global food and energy markets. That wave has also reached up to Bangladesh. Nevertheless, the last autocratic regime patronized the market manipulation, resulting in a higher inflationary pressure on the consumers in Bangladesh. A group of beneficiaries as cronies were created with the support of state power during the Sheikh Hasina regime. Governance became fragile, smooth marketing or demand-supply management broke down, some nexus of money-makers formed. All these factors have affected Bangladesh's smooth and formal marketing system over the years. The nation is still bearing the brunt of bane stemming from cronyism.

Researchers, consumer- protection organisations, analysts and even the government are blaming market manipulation by some businessmen through syndication for price spikes. The critics are also blaming rent-seeking middlemen and extortion on the supply chain for the high prices. Analysts are of the view that entrenched dishonesty and mismanagement in the marketing system have also prompted the consumer price index (CPI) to heat up.

Meanwhile, the interim government has already passed three months but could do little to protect consumer rights through cooling down the prices of the essential commodities. Some analysts have opined that the last Sheikh Hasina government bowed to the market manipulators as many businessmen became parliament and cabinet members. According to them, a long history of dishonesty and mismanagement has emboldened market oligopoly. A syndicate of importers, bankers, revenue officers controlled everything, especially in the case of import of goods. Outside the vicious circle or syndicate no one can import the goods. Many believe corrupt and delinquent advisers of the previous dictatorial government and some dishonest businessmen were involved.

Some analysts opine that the prices of essential commodities are not decreasing as the Directorate of National Consumer Rights Protection (DNCRP) and the Bangladesh Competition Commission (BCC) have not used their maximum power for protection of the consumers' rights.

A section of analysts, however, say that market syndication is not virtually possible in Bangladesh as there are thousands of wholesalers and retailers of different products across the country. In terms of market size, Bangladesh is a big market where it is literally difficult to control the price.

Another section of people believes that informal market structure in Bangladesh is the key reason behind the higher prices of commodities. Their opinion is that the agents who supply products from farming level to the consumers do not have business-identification number or trade licence. As such, all the government agencies fail to monitor the market and manage it properly. So, the prices of the essentials are becoming volatile.

Besides, the demand- and- supply mismanagement also impacts prices on the market. A group of people think that the media could have role in price hike. When the media broadcast news on the price of essential commodities, panic is created among the consumers, resulting in an artificial crisis.

Now we have to think whether the typical reasons like syndication, market manipulation, demand-supply gap, extortion, and fragile governance are only the reasons or there are some other issues involved here. We have to think in-depth.

Actually, Bangladesh's market system is becoming more and more centralized due to the development of communications systems and an unprecedented improvement in information technology. This market concentration can directly contribute to the increase in commodity prices either through the creation of syndicates or out-of-syndicate maneuverings. As a result, an ineffective policy by engaging all efforts to abolish market syndicates, responsible for increasing commodity prices, may instead help to boost market commodity prices.

From the above discussion, it is evident that a lack of adequate knowledge about the actual market structure and actual behaviour of the market in Bangladesh has encouraged a propaganda on the "market syndication". The existence of bazaar syndicates demands a proper investigation by the agencies concerned of the government. But prior to that investigation, we cannot go for conclusion about the existence of market syndication. Not only that, apart from the existence of market syndicate, if we can identify the factors that are mainly responsible for the increase in commodity prices, effective steps can be taken to control commodity prices.

From the statement of the advisers of the interim government, it is understood that the government is considering the matter of bringing the prices of goods under control very seriously. But the question is whether the government will be able to control this continuous rise in commodity prices. How realistic is the government's assumption that market prices are controlled by one or more syndicates, just like common people. Because, many analysts have already expressed doubts about the concept of market syndications. In this context, we have to think in-depth on "How successful will be the government in controlling market prices by eliminating market syndicates?"

It is very important to find answers to some questions in order to take effective measures to control commodity prices. First of all, what is actually meant by market syndicate in the conventional concept of Bangladesh? Do market syndicates really exist, and if so, does the scope and control of these syndicates span the entire market? Can market syndicates actually affect market prices? Is it possible to identify all the elements that are playing a supporting role behind the formation of the market syndicate? How can those components be reduced in effectiveness if identified?

A preliminary analysis shows that the steps being taken by the government are similar to the steps taken since the British regime. Among the activities undertaken by the government, some are withdrawal of or reduction in import duty to reduce the price of imported goods, fixing the price of goods, raiding market frequently, forming market price- monitoring committees and task-forces in different districts or upazilas etc. These measures have not worked effectively in the past few decades. Besides, the laws through which the government tries to keep the prices at a tolerable level are also very old and largely regulatory.

Two important laws passed in the last few decades are the Consumer Rights Protection Act 2009 and the Competition Act 2012. The clauses mentioned in the existing laws are helpful in promoting welfare by increasing competition. But even if there is a law, as the weakness of law enforcement is very noticeable, the benefits of the law are not getting to the common people.

Moreover, the unprecedented development of communications systems and the widespread use of information technology in the last few decades have led to the continuous concentration of the consumer goods market in Bangladesh. The difference between the marginal market price across Bangladesh and the average market price in Dhaka has been decreasing continuously, coming down to almost zero.

We have analysed the data obtained from BBS and found that the average annual price of certain food items in the whole of Bangladesh for the financial year 2006-2007 was about 10-to 30-percent lower than the average annual price in Dhaka city during the same period. But a decade later in 2017-2018, this difference came down to below 10 per cent. In some cases, the average price of goods in Dhaka is lower than in the rest of the country, and in most cases, the average price of goods is the same or slightly different than that in the rest of the country.

It can be easily noticed from the above-set chart that the price difference between Dhaka and the whole of Bangladesh has gradually decreased over the span of a decade. Today, this distinction appears to have been largely eliminated. In other words, the commodity market in Bangladesh is becoming increasingly concentrated. With the concentration of the market, several advantages are created, such as - market efficiency increases, information exchange becomes easier, product quality, quantity and supply system become consistent etc. Centralized market systems require brokers and intermediaries and market makers such as banks and other financial institutions. As a result, the market system becomes deeper and more complex.

A centralized market system has a larger number of players than a decentralized market system, such as Investors, Traders, Financial Institutions, Capital Providers, and Government. In these cases, it is not possible for the government or the government institutions in the regulatory role to control the product price without fully absorbing this complex market system.

Among the biggest challenges of a centralized market system are rapid or frequent changes of hands and manipulation of product prices. Moreover, centralized market systems can play a significant role in reducing competition. Centralized markets on the one hand help to increase the efficiency of the markets and on the other it can lead to consumer distress. In all these cases, monopoly or oligopoly may be created in the market, which the government or regulatory body should be very careful about.

Several features and disadvantages of the centralized market system have already begun to be manifest. According to the Finance and Commerce Adviser, a product in one caravan market is exchanged four times before reaching the retailer. The same was echoed in the voice of a student coordinator. In his Facebook post, he wrote the eggs were swapped four times at Caravan Bazaar while still in the truck. And thus the price of the product keeps increasing. This rapid exchange of goods has been made possible by the modernization of banking services and the introduction of mobile banking systems. As a result of changing hands of goods, the price of the goods at the retail level increases.

Price manipulation is artificially raising or lowering the price of a product. A few middlemen in the market band together and start buying a particular product, creating an artificial shortage of that product in the market for a few days. Due to this artificial crisis, the prices of products on the market tend to increase. Similarly, when it is time to produce or harvest a commodity, the middlemen band together and refrain from buying the commodity. As a result, oversupply and lack of storage lead to a decline in product prices. As the market system becomes more centralized, brokers or these intermediaries tend to collude among themselves. As a result, consumer A is harassed by artificially increasing the price of the product and producer is harassed by reducing the price of the product.

Various features of the modern centralized market system are also gradually emerging in the domestic markets, such as contract farming, futures sales etc. Moreover, various large corporate firms are involved in the business of production and marketing of agricultural products. As a result, the market system has become complex. In such a complex market system, government action needs to be well-thought-out.

But the biggest obstacle in the way of well-thought-out and integrated measures is the market structure of Bangladesh. Due to this informal market structure, on the one hand, the government cannot take any effective measures and on the other, the middlemen can set the price as they wish by taking advantage of this market structure. Formal market system means that all the agents working from the production of the product to reaching the consumer are registered with the government and all will have a business- identification number. No unregistered business can trade in this market system. But when no registration is required to do business, informal market systems arise.

In a formal market system, government watchdogs can scrutinize transactions at every stage of the market. Who has stockpiled what amount of goods, who has imported or sold what amount of goods, at what price-all the information is with the government. But there is no opportunity for this in the market management of Bangladesh. No government agency can monitor any market transactions and therefore cannot impose regulation.

Although there is debate among market analysts as to whether syndicates exist or not, and there are various differences of opinion on the definition of this market syndicate, it can be said that primarily middlemen try to conspire influencing market prices. And attempts to consolidate into a centralized market system created by the development of transportation and communications systems, and the increased use of information technology have multiplied it.

Writers are honorary fellows of a Dhaka-based think-tank, the Knowledge-to-Wisdom (K2W) Communications and Research)

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