Formalin use and the law

The newspapers find a spark of optimism in the passage of a law restricting the indiscriminate use of formalin. But such naked eye observation often fails to distinguish between what can be achieved by imposing law and when it should be imposed and what can’t be achieved by simply imposing a law. The law suffers from a vital and dangerous limitation – the formalin problem can’t be solved by imposing law and dishonest behaviour in markets can’t be tamed since dishonesty itself has nothing to do with the problem. In the rest of the analysis, we would hammer on this point that imposing the contemplated law or Food Safety Act 2013 would be a great mistake.

 

LAW AND MARKET: First of all, the confusion should be cleared up on the view that formalin problem is mostly a problem of market structure and consumption pattern. In other words, it is not a problem of dishonesty of sellers of products who are supposed to deliberately mix formalin. That means, the solution of formalin problem should not come from the domain of law. We don’t need law at first hand and we can solve most of such formalin problems without being entangled with law making and enforcing. Whatever remains goes to the law and legislation department to make the thing perfect.

 

The situation is like controlling the stock market in which the stock market is given the full autonomy to perform well and whatever deviation occurs in market due to frenzied behaviour of investors goes to the law and legislation department to make a law that prevents pervert investors from imposing heavy cost on others. 

 

Trying to solve an economic problem merely by law, would be to cure the patient giving wrong medicine that eases the transition to death. It seems that we are only committed to blame sellers who mix formalin in products rather than ask: why do they use formalin? The commonly given explanation is that they use it to make the products spoil-resistant and to make them look better. To support this position, one must give a satisfactory explanation to the question why was in the past formalin problem not as severe as it is now? The answer to this ‘why’ will reveal the true explanation for the use of formalin in products.

 

AN EXACT ECONOMIC EXPLATION OF THE FORMALIN PROBLEM: As explained and asserted, formalin problem is mostly an economic problem that needs proper treatment from the economic angle not from the law and legislation. To develop an economic analysis, we first need to state the actual market structure of our country. For this purpose, we will analyze, for example, the fish market. Fish market is more or less atomistically competitive with a lot of small sellers and dealers. Moreover, we will concentrate on small or micro fish sellers in the Dhaka city. For simplicity, we will analyze a small fish seller who sells fish in a particular region carrying a small basket over his head. The explanation can be extended to any type of sellers of fish to other types of goods in which formalin is used and needn’t be confined to such a micro seller only. This fish seller depends wholly on the income receipt from selling fish and he needs a constant daily income to sustain himself.

 

With this preliminary information, we take that this seller expects to sell q0 number of fishes every day at the normal price p0. Therefore, his total sales revenue is p0q0 and he wants to get this normal revenue every day in a week. Here we consider time span on weekly basis. But he can sell q0 number of fish if he meets his desired number of customers every day so that his stock of fish is cleared every day. But he can’t meet his customer every day because his customers don’t buy fish everyday; they buy only once or twice in a week and eat rest of the week what is stored in refrigerators. But the seller needs to meet his customer to sell q0 quantity otherwise he would suffer from drastic economic loss or income loss. Let’s say given the situation, the seller estimate the probability of meeting his customer as in every week day except weekend or Friday and Saturday as μ and not meeting his customers is (1-μ). Now he calculates how much he needs to compensate using this probability estimate which is given in the box below:

 

 

Now if we plot Pb against μ, in the two dimensional graph with μ on the horizontal axis and Pb on the vertical axis, we find the following picture:

 

 

From the graph we see that as the value of μ decrease the value of Pb increases and vice versa. But when μ becomes one or μ=1, the Pb becomes equal to P0 or Pb=P0. Now the question is what does this discrete line tell us? The message is simple and that is market price will deviate from the ideal perfect market price even if the fish market is assumed to be perfectly competitive. Again the question is why does it deviate? The answer is that it deviates because fish consumption patter forces such outcome.  From the graph we see that as the value of μ becomes less than one, a downward sloping line is generated and when μ is one a horizontal line is generated and price remains fixed at perfect market price level. The downward sloping line is marked as the formalin use region and the horizontal line as the formalin usage region. The answer to this will be given in the next analysis. Now we are concerned with the derivation of an economic explanation of the formalin use. To derive such, we take two values of μ as μ0 and μ=1 and two values of Pb as Pb1 and Pb=P0. After calculating the change, we find the value ΔPb= Δ(1/ μ); that means price changes as the probability of meeting customer changes and this component is called the price incentive that encourages the formalin usage. It is now clear how we can measure the economic reason of formalin use. This is given in the box below:

 

 

 

The above graph shows whether formalin will be used or not depends on the value of μ. As μ increases, the use of formalin decreases and as it decreases the use of formalin increases. The derivation of the demand curve for the formalin will help us to derive the following results:  

This explanation shows why making and enacting law is not a satisfactory solution to the problem of formalin usage. It also shows why dishonesty of sellers is almost irrelevant in causing the widespread use of formalin in products. The lower use of formalin with the higher value of μ doesn’t anyway indicate that sellers have become more honest in dealing than before! Sellers are same; behavior is same; market is same; and the nature of the product is also same. Only the consumption pattern has changed at the high value of μ not the sellers themselves.

 If it is thought that proposed Food Safety law would reduce the use of formalin making our businessmen act as honest as platonic businessmen would do, then such thinking would be totally a blunder and the proposed law, if enacted and implemented, would teach us a drastic lesson that will lead to further economic complications while making the problem simply worse day by day.

 

FORMALIN PROBLEM IS A TIME BOUND DEMAND PROBLEM:  The proper cure of the formalin problem absolutely requires the understanding of time-bound demand problem – an almost unknown concept in economics. Here we shortly explain it and derive the proposed solution from it. In the above fish selling example, the fish seller doesn’t find the desired number of customers in every day of a week and he meets the most number of customers on the weekend. While his quantity of fish supply is fixed, the demand for his fish fluctuates around this fixed point over the week. This is shown in the figure below:

 

 

In the above figure, Supply (S) and Demand (D) are measured on the vertical axis and time on the horizontal axis which is weekly basis. Time (t2) measures the day in which the seller meets his desired number of customers so that his supply is totally sold in market and rest of the days he has less than desired number of customers. This picture shows that supply is fixed but the demand fluctuates around it. The interval of time in which demand falls much below the supply denoted by (Stn-2>Dtn-2) is the vulnerable region that encourages the use of formalin. Such fluctuating demand pattern is the core reason of the wide-spread use of formalin.

PROPOSED SOLUTIONS: We would propose three solutions and among these we choose the most relevant and practical solution that can contribute most to reduce the formalin use. Thus, the solutions are:

 

The above figures show three regimes of formalin use. In the first or high formalin use regime, the time interval during which supply exceeds demand or (Stn-2-Dtn-2) is relatively long. In moderate formalin use regime, the time interval is moderately long. Finally, in the low formalin use regime, the time interval is relatively short. That means as the time interval during which Stn-2>Dtn-2 reduces, the formalin use must reduce correspondingly. But reducing the time interval is extremely difficult because it represents the natural consumption preferences of consumers which can hardly be changed.  That implies that the value of μ will remain small. If one wants to understand why this solution is difficult to achieve, one must know what the implication of weekends or holidays in economics is. Otherwise, the treatment would be as cloudy as it may be.  Therefore, we discard this solution.

 

In the above figure, the consumption flow distribution for the village X and Motijeel area is shown. It shows that as time passes, consumption flow distribution of X decreases from the standard theoretical value and the consumption flow distribution for Motijeel area increases. If we measure these statistically, we would see high degree of skewness in distribution. The difference, GH, shows the extent of uneven distribution of consumption flow. Now if time bound demand accompanies this GH magnitude, the formalin problem would emerge as we have symbolized this as a vulnerable formalin use region.

Now the conclusion is that reducing the degree of centralization is often not a realistic solution partly because centralization happens due to the natural preferences of economic agents and partly due to the burden imposed on people in terms of relocations. Our view is that we don’t a fighter plane to kill a mosquito; rather a small mosquito bat will be more than enough. So, we tentatively reject this solution as well.

Therefore, the government rather than trying to punish businessmen without sufficient ground and economic reasons should try to help businessmen make easy transition to such market structure. One initiative would be encouraging businessmen to move to super-store or department-store based sales of those products. For this purpose, easy access to loan, easy availability to electricity, and others help in establishing such transition should be taken at hand.

If government, to stress again and again, chooses to take the other route, such as enacting a vacuous law of punishment, a horrifying situation will emerge in the future. The lesson is that one can’t cure market by imposing laws only; one need to treat market from the perspective of market not from law and legislation.

 

Md Jamal Hossain writes from the University of Denver, USA.

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