Is the new anti-hoarding law based on research?

The new law titled The Essential Articles (Price Control and Anti-Hoarding Act) appears to be broad, gives sweeping powers to the food department, and provides stiff penalties for offenders. It aims to stabilise food and rice markets and seems to be based on earlier, defunct laws. The question one must ask is whether, before resurrecting colonial-era dinosaurs, we did do our homework. Did we review how well those had worked earlier? Since those were abolished, are we now saying that was a mistake? As someone who has worked in the sector for many years and is the author of major, peer-reviewed articles on Bangladesh's rice market, I am inquisitive to know the basis upon which this law was formulated. Is this progress, or is it a regression?
We have said many times on many platforms that the rice market is competitive. Nevertheless, there are areas where interventions could improve efficiency, for example, finding ways to lower transport costs (begin switching to rail and waterways?) or stamping out highway tolls obtained through coercion by well-organised local goons working with local bigwigs who become especially active during the festive seasons.
One could also closely monitor the shelves of formal supermarkets and grocery stores (Modern Retail). These are relatively few, they display their prices, and they have a permanent business premise. These features enable them to be monitored regularly and efficiently, while the same is not true for the vast informal, wet markets where a similar approach would be foolish.
If we wish to get to the heart of the matter, we need to understand why markets get destabilised in the first place. As in any competitive market, this depends on either actual or expected/anticipated supply or actual demand or expected/anticipated demand. These may, in turn, have their origins within the country (floods, drought, cost of diesel and fertilisers) or production shortfalls in major exporting countries. Of course, demand-side factors can also spike prices, for example, during Ramzan or Eid, but these are predictable occurrences for which a degree of planning is undoubtedly possible.
The tricky part of the price formation process is understanding the role of expectations. The market is a vibrant, dynamic institution, and one of its main functions is to process information and allow traders to form expectations about future prices. The better the quality and flow of information to the market, the better the quality of expectations formed, which in turn helps traders determine how much they should stock and what prices they should charge. Better market information is also beneficial for ordinary buyers, who can then quickly check whether they are being cheated. This is the main reason why economists advocate better access to market information.
The central actor in the market is the radar, whose role is indispensable to the efficient functioning of the market in Bangladesh. He is a commission agent whose profits depend on turnover from bringing suppliers and buyers together to enable fast and safe transactions. If we wish to improve the efficiency of the market, it is the radar that we should be focusing on - it is the radar whose capacity should be strengthened. Unfortunately, this simple fact appears to have escaped everyone's notice. Instead, we point the finger at the radar every time prices rise!
Curiously, this law has been enacted at this moment in history when we see a general turmoil in food prices across the globe. Yet, in its wake, our policy response is to rehash archaic and moribund laws that never worked and will never work. Moreover, its consequences are unlikely to be savoury. I remember the old days when the food inspector regularly threatened traders with fines if they did not pay some comfort money. In other words, in addition to tolls to be paid to all kinds of dubious entities on the highways and crossroads of the country, our poor traders will now have to 'manage' hordes of babus and sahibs threatening them with life or at least 14 years..unless..
The other villain in the rice market now is the automatic rice miller. They have apparently formed a 'syndicate' or oligopoly whereby they are able to control or manipulate prices. This is not an implausible scenario. However, there are no studies substantiating the claim. In fact, what we need is an adequately devised, methodologically sound peer-reviewed study before blindly moving to enact laws. My impression is that the auto-rice sector does not have such great power. The country has around 18,000 rice mills, with about 600 automatic mills that may account for 40-45 per cent of the milled rice market. This does not look like an oligopoly-type situation unless one assumes that these 600 can closely coordinate their activities.
What is more likely is that the big mills, the small mills and other rice traders are reacting similarly in light of the currently available market information, given expectations of high or low prices in the future. The only difference is that the automatic rice millers/large traders can scale up their operations to the degree that other operators cannot match. Is this bad? If so, why?
Let us assume that the market expects food prices to rise in two months because of, say, Ramzan when demand usually goes up (counter-intuitive - people are supposed to eat less during Ramzan!). Traders and millers want to keep sufficient stocks to meet this demand. Now that the government intervenes and says, "Hey, look, you are hoarding to make money during Ramzan - how naughty of you" - so the traders stock only half of what they normally would. So now, when Ramzan comes, prices skyrocket as stocks are low. If traders had higher reserves, prices would not go up as much. In other words, the traders' and millers' actions actually stabilise the market. In their absence, prices would have been much higher.
Similarly, suppose traders/millers anticipate a production shortfall. In that case, they will want to quickly stock up or 'hoard' (how do you differentiate between stocks and hoards?), and by so doing, actually, help to stabilise supply and prices during periods of scarcity. Without their actions, the situation would be far worse.
Still, if we think the auto millers are the new bad guys in the market, stop patronising them and start supporting the semi-automatic, smaller-scale rice mills instead!
All these are basic Market 101 stuff - and there is no reason for me to believe that policymakers do not understand it. Yet, the reflex action is always to try and establish bureaucratic control over as great an economic space as possible. The new act is extensive in its orientation, desiring compliance even at the individual and family/household levels. We have a lot of confidence in our capacity to undertake such complex tasks that will entail decisions regarding prices by sub-regions or even districts, the ability to forecast price, supply and demand swings, and determine how much stocks should be held by households, traders, millers, retailers and so on.
As a market researcher, I find this deeply upsetting. Nevertheless, I wish the new Act the best of luck!
Dr K A S Murshid is an economist. He is also Chairman, Shabab Murshid Foundation and Former Director General, Bangladesh Institute of Development Studies (BIDS). [email protected]