High profit motive of traders and consumers
Sunday, 28 September 2008
The prices of most commodities, including food items, in the international market were rising uncontrollably until recently. The rise in commodity prices was so fast and steep that importing countries, mainly developing ones, found it difficult to cope with it, despite their best efforts. The rate of inflation was soaring, with food prices reaching all-time high. Many poor economies in Asia, Africa and the Caribbean witnessed food riots. The unabated hike in the prices of fuel oils made the situation worse. Actually, the prices of cereals, edible and fuel oils and many other commodities reached record highs, hitting the poor economies across the globe really hard. The commodity price situation in the global market has been easing for the past few months and prices of cereals, edible oils, steel products and fuel oils have been falling primarily because of an economic slowdown in emerging economies, including China and India.
The price situation in Bangladesh also came under serious strain and stress for more than past one and a half years. The prices of essential commodities at the retail level went up between 50 and 120 per cent during that period, notwithstanding market intervention, albeit on a limited scale, by the government. Obviously, the poor and low income people had their backs pushed to the wall because of the soaring prices. The price-hike has also eroded the gains achieved in areas of poverty reduction for the last one and a half decades. Because of the food inflation, many people, who had managed to come out of the poverty line earlier, have fallen into the poverty-trap again. However, there is every reason for an improvement in the price situation in Bangladesh since the prices of most commodities are declining in the global market. But, unfortunately, the easing of the commodity prices internationally has, until now, left virtually no or little effect on the prices of commodities at the consumers' level. And a recent government report has confirmed it.
The quarterly 'Food Situation' report prepared by the food and disaster management ministry for April-June period said the difference in prices between wholesale and retail levels has widened in the recent time. It said the decline in prices at the wholesale level following the global commodity price trend is ignored by the retailers, leading to higher profit margins by the retail traders. However, it is not only the retailers, the importers and wholesalers, too, have not brought down the prices of commodities in line with the international market. For instance, the prices of edible oils have declined substantially for the last couple of months. The local importers and refiners of the same items, however, continued to sell their items at previous prices for sometime on the plea of higher import costs. However, they have later brought down the prices of the item to some extent. But that decline in prices is not adequately enforced by the retailers.
Some market experts and economists tend to blame the government for its failure to monitor the market properly. But what difference on a substantiative level would that make if the government monitors the market properly? Will the traders do their business fairly and shun the habit of making unreasonable profits? How can the government stop profiteering by traders keeping the principles of free market economy in place? The commerce ministry, reportedly, is now drafting a competition policy, which, according to some experts, might help address the price issue. But will it really help? Or, should the government think about making intervention in the market in a big way? The world's most powerful market economy has recently set the example of massive market intervention following an unprecedented turmoil in its financial market. No system seems perfect. Yet the government with the help of the private sector must find out a solution to the problem created by high-profit motive of a section of businessmen.
The price situation in Bangladesh also came under serious strain and stress for more than past one and a half years. The prices of essential commodities at the retail level went up between 50 and 120 per cent during that period, notwithstanding market intervention, albeit on a limited scale, by the government. Obviously, the poor and low income people had their backs pushed to the wall because of the soaring prices. The price-hike has also eroded the gains achieved in areas of poverty reduction for the last one and a half decades. Because of the food inflation, many people, who had managed to come out of the poverty line earlier, have fallen into the poverty-trap again. However, there is every reason for an improvement in the price situation in Bangladesh since the prices of most commodities are declining in the global market. But, unfortunately, the easing of the commodity prices internationally has, until now, left virtually no or little effect on the prices of commodities at the consumers' level. And a recent government report has confirmed it.
The quarterly 'Food Situation' report prepared by the food and disaster management ministry for April-June period said the difference in prices between wholesale and retail levels has widened in the recent time. It said the decline in prices at the wholesale level following the global commodity price trend is ignored by the retailers, leading to higher profit margins by the retail traders. However, it is not only the retailers, the importers and wholesalers, too, have not brought down the prices of commodities in line with the international market. For instance, the prices of edible oils have declined substantially for the last couple of months. The local importers and refiners of the same items, however, continued to sell their items at previous prices for sometime on the plea of higher import costs. However, they have later brought down the prices of the item to some extent. But that decline in prices is not adequately enforced by the retailers.
Some market experts and economists tend to blame the government for its failure to monitor the market properly. But what difference on a substantiative level would that make if the government monitors the market properly? Will the traders do their business fairly and shun the habit of making unreasonable profits? How can the government stop profiteering by traders keeping the principles of free market economy in place? The commerce ministry, reportedly, is now drafting a competition policy, which, according to some experts, might help address the price issue. But will it really help? Or, should the government think about making intervention in the market in a big way? The world's most powerful market economy has recently set the example of massive market intervention following an unprecedented turmoil in its financial market. No system seems perfect. Yet the government with the help of the private sector must find out a solution to the problem created by high-profit motive of a section of businessmen.