Floods, price hike and hoarding
Thursday, 9 August 2007
Shahiduzzaman Khan
Devastating floods are now raging through the country. It is natural that during the floods and post-flood period, prices of essential commodities shoot up and hoarders stock these items to create artificial crisis for netting windfall profits.
In order to offset such trend, the government is actively thinking of promulgating an anti-hoarding act through an ordinance. The caretaker government, after assuming power on January 11, conducted frequent drives against the hoarders and finalised an anti-hoarding act in March this year through a series of consultations with the stakeholders.
A report published in the FE this week suggested that although the move against hoarders was taken a long ago, its implementation was halted for some time. Promulgation of an anti-hoarding act was also delayed. But the advisers of the government are now eager to see the promulgation of the anti-hoarding ordinance for the convenience of the people, as market seemed unmanageable amid galloping commodity prices.
The commerce ministry is expected to approve the ordinance shortly, and after that, it would go for vetting by the law ministry. The time for stocking most of the essential nine items under purview is expected to be shortened. The nine essential items are paddy, rice, wheat, sugar, edible oils, lentils, onions, powdered milk and milk-based products, and baby foods.
The stocking timeframe for the nine items has been decided earlier at three levels -- import, wholesale, and retailing. For onions, the time limit for storing at the import level is 45 days, 30 days for wholesale and 15 days for retailer's level. The timings for other eight items are three months at import level, two months for wholesalers and one month for retailers. However, this timeframe may be shortened due to devastating floods.
As the trend suggests, the prices of essential commodities in the country are unlikely to come down in the remaining months of the year, due to shortfall in the domestic production, ongoing floods, macro-economic scenario and regional and global inflationary trends.
In view of the global production and price scenario, regional inflationary trend and national macro-economic situation correlate. It is thus reckoned that there is little prospect for the consumer price index (CPI) to come down perceptively in the coming months. Economists suggested that the government should take short-term measures such as increasing import of some items, continuing open market sales of rice and ensuring uninterrupted supply of such agro-products from the farms to the consumers in the wake of the flood.
Although the government took a number of measures to stabilise the prices, the experts expressed the fear that such pro-active steps might get partly neutralised by the recent price-hike of fuel oils, and power tariff hike. They said that the presence of restrictive business practices such as syndication and hoarding and other disruptive actions such as deliberate supply shortages were also matters of concern.
In a recent review of price spiral of essentials, the finance adviser blamed international price hike of necessities as being responsible for high domestic prices. Indeed, international market price is, to a great extent, responsible for domestic inflation, but that does not explain the whole situation. No one should ignore other domestic factors, some of which created by the actions of the government, in this connection
There is no denying that the hoarding by businesses has been widely blamed by many as being the main culprit behind the current price hike. Indeed, hoarding makes perfect economic sense to businesses and that is why they build up stocks to make larger profits. To address such a situation, the government should quickly replenish supply shortage by importing or releasing some essential items from its stock and restore confidence of small businesses. No doubt, stabilising market supply would put pressure on the government's budget and foreign reserves. But not doing so now may keep the government busy in chasing the tail of the inflation later.
Meanwhile, the Bangladesh Rifles (BDR) has prepared a draft Consumer Protection Act-2007 which is awaiting the Chief Adviser's nod. The draft outlines the definitions of 'syndication' and hoarding. Formation of a national consumer-rights protection department was suggested in the draft. In case any consumer is cheated by any businessman or institution, he or she may lodge complaints with the director general of the department for necessary actions.
The draft also suggested formation of a national consumers-rights protection council. The functions of the council are to advise the director general for protecting the consumers rights, elicit public opinion and help the government in policy formulation. This is, no doubt, a good move. But such move might suffer due to lack of motivation on the part of the officials responsible for protecting the consumers' rights.
The government must realise that domestic demand-induced price hike, ahead of the month of Ramadan, may exacerbate inflation. As such, the supply-side situation must quickly be brought under control. Black-marketing of food products may emerge following their shortages. The government needs to keep a vigil on the price situation and monitor it regularly. Black-marketing and hoarding activities must be adequately checked before they go beyond the tolerable limits of the commonman. The government along with the joint forces must help restore confidence among the businessmen so that they can operate normally within the laws of the land.
szkhan@thefinancialexpress-bd.com
Devastating floods are now raging through the country. It is natural that during the floods and post-flood period, prices of essential commodities shoot up and hoarders stock these items to create artificial crisis for netting windfall profits.
In order to offset such trend, the government is actively thinking of promulgating an anti-hoarding act through an ordinance. The caretaker government, after assuming power on January 11, conducted frequent drives against the hoarders and finalised an anti-hoarding act in March this year through a series of consultations with the stakeholders.
A report published in the FE this week suggested that although the move against hoarders was taken a long ago, its implementation was halted for some time. Promulgation of an anti-hoarding act was also delayed. But the advisers of the government are now eager to see the promulgation of the anti-hoarding ordinance for the convenience of the people, as market seemed unmanageable amid galloping commodity prices.
The commerce ministry is expected to approve the ordinance shortly, and after that, it would go for vetting by the law ministry. The time for stocking most of the essential nine items under purview is expected to be shortened. The nine essential items are paddy, rice, wheat, sugar, edible oils, lentils, onions, powdered milk and milk-based products, and baby foods.
The stocking timeframe for the nine items has been decided earlier at three levels -- import, wholesale, and retailing. For onions, the time limit for storing at the import level is 45 days, 30 days for wholesale and 15 days for retailer's level. The timings for other eight items are three months at import level, two months for wholesalers and one month for retailers. However, this timeframe may be shortened due to devastating floods.
As the trend suggests, the prices of essential commodities in the country are unlikely to come down in the remaining months of the year, due to shortfall in the domestic production, ongoing floods, macro-economic scenario and regional and global inflationary trends.
In view of the global production and price scenario, regional inflationary trend and national macro-economic situation correlate. It is thus reckoned that there is little prospect for the consumer price index (CPI) to come down perceptively in the coming months. Economists suggested that the government should take short-term measures such as increasing import of some items, continuing open market sales of rice and ensuring uninterrupted supply of such agro-products from the farms to the consumers in the wake of the flood.
Although the government took a number of measures to stabilise the prices, the experts expressed the fear that such pro-active steps might get partly neutralised by the recent price-hike of fuel oils, and power tariff hike. They said that the presence of restrictive business practices such as syndication and hoarding and other disruptive actions such as deliberate supply shortages were also matters of concern.
In a recent review of price spiral of essentials, the finance adviser blamed international price hike of necessities as being responsible for high domestic prices. Indeed, international market price is, to a great extent, responsible for domestic inflation, but that does not explain the whole situation. No one should ignore other domestic factors, some of which created by the actions of the government, in this connection
There is no denying that the hoarding by businesses has been widely blamed by many as being the main culprit behind the current price hike. Indeed, hoarding makes perfect economic sense to businesses and that is why they build up stocks to make larger profits. To address such a situation, the government should quickly replenish supply shortage by importing or releasing some essential items from its stock and restore confidence of small businesses. No doubt, stabilising market supply would put pressure on the government's budget and foreign reserves. But not doing so now may keep the government busy in chasing the tail of the inflation later.
Meanwhile, the Bangladesh Rifles (BDR) has prepared a draft Consumer Protection Act-2007 which is awaiting the Chief Adviser's nod. The draft outlines the definitions of 'syndication' and hoarding. Formation of a national consumer-rights protection department was suggested in the draft. In case any consumer is cheated by any businessman or institution, he or she may lodge complaints with the director general of the department for necessary actions.
The draft also suggested formation of a national consumers-rights protection council. The functions of the council are to advise the director general for protecting the consumers rights, elicit public opinion and help the government in policy formulation. This is, no doubt, a good move. But such move might suffer due to lack of motivation on the part of the officials responsible for protecting the consumers' rights.
The government must realise that domestic demand-induced price hike, ahead of the month of Ramadan, may exacerbate inflation. As such, the supply-side situation must quickly be brought under control. Black-marketing of food products may emerge following their shortages. The government needs to keep a vigil on the price situation and monitor it regularly. Black-marketing and hoarding activities must be adequately checked before they go beyond the tolerable limits of the commonman. The government along with the joint forces must help restore confidence among the businessmen so that they can operate normally within the laws of the land.
szkhan@thefinancialexpress-bd.com