Local market unresponsive to global price falls
Thursday, 20 November 2008
Shahiduzzaman Khan
When world commodity prices are continuing to fall under the impact of recession in recent days, consumers in Bangladesh fail to reap any benefit as the local market remains unresponsive to the global situation.
According to reports published in the media last week, there is hardly any reflection of drastic fall in domestic prices of commodities, ranging from wheat to gold, though instant adjustments of local prices to those of imported items, -- particularly when the same particularly go up in the international market -- are otherwise experienced by the consumers. The prices have not come down now in the local market in line with those of the international market.
Meanwhile, importers are somewhat jittery now due to risk factor amid fall in commodity prices. The government is under some pressure to take the role of importer and maintain smooth supply of essential items in the domestic market.
Prices of rice, wheat, edible oil, fuel oils and metals like gold and steel, experienced drastic fall in the international market during the past several months. Edible oil prices fell by more than 60 per cent, steel, by 45 per cent, wheat, milk and crude oil, by 40 per cent, rice, by 30 per cent and gold, by 20 per cent. Except for palm oil, retail prices of no other goods have come down proportionately.
While there is no dearth of excuses particularly on the part of those who call the shots in the import trade, for their inability to lower prices, consumers -- hard-pressed by months of soaring prices of everything they buy -- find the government rather helpless. The pledges of the functionaries of the government to monitor prices and keep those in check have, thus, proved hollow. The price-hike in the international market is always cited by the government as the reason when there is a price spiral in local market. But it is taking now no stance at a time when domestic prices remain at a high level despite the fall in related prices in the global market. This is a mismatch.
A recent media report showed coarse flour (non-packed and packed) was retailing between Tk 31 and Tk 35 per kilogram, showing a fall of only 10 per cent as against more than 40 per cent in the international market. In the international market, wheat was trading for $200-$230 per tonne last week against $450 to $550 three months back. Although imported wheat meets more than 80 per cent of the domestic flour demand, flour prices in the local market did not come down proportionately in line with that in the international market. The prices of metals like aluminium, copper and nickel have also declined in the international market by about 40 per cent and are expected to fall further, according global market survey.
Some would, however, still like to note that there is a time-lag involved here, meaning the gap between the opening of an import letter of credit (LC) and the arrival of goods thereof. But this reason should equally apply in the opposite case, too. This does not happen in this country. Importers do instantly effect hikes in the prices of their goods whenever their international prices go up, without considering the fact that their import consignments had arrived before any marked upsurge in prices thereof in the global market.
As for supplies of rice, it is to be noted that Bangladesh imports not more than 10 per cent of its rice demand. But the local market responded crazily to an abrupt increase in rice prices in international market few months back. Rice prices had then increased by around 50 per cent within weeks before the bumper production of Boro paddy in July. The international market of rice is now cool, but the prices in the local market are still high. Prices of coarse rice vary between Tk 30 and Tk 32 per kilogram that showed only a 10 per cent fall in three months.
The International Monetary Fund (IMF) in a recent report also expressed frustration as Bangladeshi rice consumers remained deprived of local bumper production and falling prices in the international market. The price of bulk powdered milk in the international market fell to around $2600 per tonne last week from $4000 per tonne just three months back. But the prices of packed milk brands in Bangladesh are almost unchanged. The situation, however, started changing recently when their demand fell drastically following the 'reported' detection of melamine in some brands of milk, mainly baby cereal.
The price-falls at sources are not properly reflected at consumers' end due to, among other factors, the interference of middlemen at different stages. A section of wholesalers and 'fariahs' are playing foul. On its part, government also keeps prices of fuel oils high, despite significant fall in oil prices in the international market. This is frustrating for the users.
Many people are inclined to believe that the prices of most imported commodities are kept high in a planned way frustrating the consumers. A section of importers having large stocks and holds in markets might remain behind the mechanism to keep the prices high, despite their sharp fall in the international market.
However, the marked decline in commodity prices in international markets has made local banks quite cautious about financing commodity imports, although the price fall is expected to ease inflation. Bankers fear if this trend continues for several months, their liquidity position, loan portfolio and profit margin will be adversely impacted as the importers may fall behind in loan repayment. A number of importers are delaying release of their imported goods and as such, banks are not getting their money back. The situation has made the bankers alert. Many of them slowed down financing commodity imports, preferring to keep liquidity in their vaults to any adventurous lending under the given circumstances.
Meanwhile, uncertainty in the global financial system has led to a cautious forecast by the Bangladesh Bank (BB) about this year's GDP growth. The BB quarterly projected a GDP growth rate ranging from 6.2 per cent to 6.5 per cent although the government estimated the growth in the budget for 2008-09 at 6.5 per cent. The Bangladesh's economy grew 6.2 per cent in fiscal 2007-08, despite the political turmoil and erosion in business confidence.
Some concerned circles are of the view that the prices are not coming down in the local markets due to the supply-side constraints of the commodities. The poor market structure should be blamed for the consumers not getting the benefit of price-fall in international markets. Importers should get their confidence back and the government should provide incentives to them. New importers should be encouraged to open LCs and supply the same to the local market at prices that match those in the global market. The market mechanism calls for a 'benign intervention' by the government to let the market forces work for the benefit of the consumers at large.
szkhan@thefinancialexpress-bd.com
When world commodity prices are continuing to fall under the impact of recession in recent days, consumers in Bangladesh fail to reap any benefit as the local market remains unresponsive to the global situation.
According to reports published in the media last week, there is hardly any reflection of drastic fall in domestic prices of commodities, ranging from wheat to gold, though instant adjustments of local prices to those of imported items, -- particularly when the same particularly go up in the international market -- are otherwise experienced by the consumers. The prices have not come down now in the local market in line with those of the international market.
Meanwhile, importers are somewhat jittery now due to risk factor amid fall in commodity prices. The government is under some pressure to take the role of importer and maintain smooth supply of essential items in the domestic market.
Prices of rice, wheat, edible oil, fuel oils and metals like gold and steel, experienced drastic fall in the international market during the past several months. Edible oil prices fell by more than 60 per cent, steel, by 45 per cent, wheat, milk and crude oil, by 40 per cent, rice, by 30 per cent and gold, by 20 per cent. Except for palm oil, retail prices of no other goods have come down proportionately.
While there is no dearth of excuses particularly on the part of those who call the shots in the import trade, for their inability to lower prices, consumers -- hard-pressed by months of soaring prices of everything they buy -- find the government rather helpless. The pledges of the functionaries of the government to monitor prices and keep those in check have, thus, proved hollow. The price-hike in the international market is always cited by the government as the reason when there is a price spiral in local market. But it is taking now no stance at a time when domestic prices remain at a high level despite the fall in related prices in the global market. This is a mismatch.
A recent media report showed coarse flour (non-packed and packed) was retailing between Tk 31 and Tk 35 per kilogram, showing a fall of only 10 per cent as against more than 40 per cent in the international market. In the international market, wheat was trading for $200-$230 per tonne last week against $450 to $550 three months back. Although imported wheat meets more than 80 per cent of the domestic flour demand, flour prices in the local market did not come down proportionately in line with that in the international market. The prices of metals like aluminium, copper and nickel have also declined in the international market by about 40 per cent and are expected to fall further, according global market survey.
Some would, however, still like to note that there is a time-lag involved here, meaning the gap between the opening of an import letter of credit (LC) and the arrival of goods thereof. But this reason should equally apply in the opposite case, too. This does not happen in this country. Importers do instantly effect hikes in the prices of their goods whenever their international prices go up, without considering the fact that their import consignments had arrived before any marked upsurge in prices thereof in the global market.
As for supplies of rice, it is to be noted that Bangladesh imports not more than 10 per cent of its rice demand. But the local market responded crazily to an abrupt increase in rice prices in international market few months back. Rice prices had then increased by around 50 per cent within weeks before the bumper production of Boro paddy in July. The international market of rice is now cool, but the prices in the local market are still high. Prices of coarse rice vary between Tk 30 and Tk 32 per kilogram that showed only a 10 per cent fall in three months.
The International Monetary Fund (IMF) in a recent report also expressed frustration as Bangladeshi rice consumers remained deprived of local bumper production and falling prices in the international market. The price of bulk powdered milk in the international market fell to around $2600 per tonne last week from $4000 per tonne just three months back. But the prices of packed milk brands in Bangladesh are almost unchanged. The situation, however, started changing recently when their demand fell drastically following the 'reported' detection of melamine in some brands of milk, mainly baby cereal.
The price-falls at sources are not properly reflected at consumers' end due to, among other factors, the interference of middlemen at different stages. A section of wholesalers and 'fariahs' are playing foul. On its part, government also keeps prices of fuel oils high, despite significant fall in oil prices in the international market. This is frustrating for the users.
Many people are inclined to believe that the prices of most imported commodities are kept high in a planned way frustrating the consumers. A section of importers having large stocks and holds in markets might remain behind the mechanism to keep the prices high, despite their sharp fall in the international market.
However, the marked decline in commodity prices in international markets has made local banks quite cautious about financing commodity imports, although the price fall is expected to ease inflation. Bankers fear if this trend continues for several months, their liquidity position, loan portfolio and profit margin will be adversely impacted as the importers may fall behind in loan repayment. A number of importers are delaying release of their imported goods and as such, banks are not getting their money back. The situation has made the bankers alert. Many of them slowed down financing commodity imports, preferring to keep liquidity in their vaults to any adventurous lending under the given circumstances.
Meanwhile, uncertainty in the global financial system has led to a cautious forecast by the Bangladesh Bank (BB) about this year's GDP growth. The BB quarterly projected a GDP growth rate ranging from 6.2 per cent to 6.5 per cent although the government estimated the growth in the budget for 2008-09 at 6.5 per cent. The Bangladesh's economy grew 6.2 per cent in fiscal 2007-08, despite the political turmoil and erosion in business confidence.
Some concerned circles are of the view that the prices are not coming down in the local markets due to the supply-side constraints of the commodities. The poor market structure should be blamed for the consumers not getting the benefit of price-fall in international markets. Importers should get their confidence back and the government should provide incentives to them. New importers should be encouraged to open LCs and supply the same to the local market at prices that match those in the global market. The market mechanism calls for a 'benign intervention' by the government to let the market forces work for the benefit of the consumers at large.
szkhan@thefinancialexpress-bd.com