Prices, consumers, businessmen, government and affirmative action
Saturday, 22 September 2007
M. A. Rouf Chowdhury
THE principle challenge facing Bangladesh today is the escalating prices of essentials be it rice, wheat, daal, edible oil, chola, onions, brinjals, green chillies, other vegetables, beef, mutton, in fact almost everything. Almost 90 per cent of our people are affected by it, 50 per cent of us very severely.
There continues to be a lot of debate on the causes, but very little concerted action to remedy the situation. Some limited action is being taken, like monitoring prices through law enforcing agencies, opening a handful of fair-price shops (in fact, where more than 0.2 million shops are involved in selling essentials, the plan to operate only 200 fair price shops i.e. I in every 1,000 shops is very inadequate), and subsidised sale of a limited quantity of rice. These are no doubt noble gestures but can have only symbolic value and very limited impact. There seems to be little effort at addressing the core issue itself Regrettably, we seem almost ready to surrender, to philosophically accept that there is little that can be done, except indulging in a 'blame-game'.
I differ and differ emphatically. I firmly believe that there is a serious crisis, and that a lot can be done to remedy it. I believe the time to do so is now. Even seven days may be late. Those of you who agree, please skip the next few paragraphs of analysis and explanations, and go straight to Section IV - Action Plan. We owe it to our fellow citizens, specially the most vulnerable among us, to protect them from escalating prices; and now with the onset of Ramadhan it will be almost sinful for us not to take immediate action.
Most of the debate surrounding the escalating prices centre around two major themes: rise in international prices and businessmen's syndicates. Most explanations are of the genre of "one size fits all" -- rather like a kind of blanket explanation for all essentials. This is the main reason for the current misperception. In order to get to the root of the causes, we need to desegregate the essentials, preferably into three distinct groups:
(i) Mostly import dependent : wheat, chola, edible oil, milk powder etc.,
(ii) Partly import dependent rice, lentils, onions, spices, etc.
(iii) Mostly locally produced rice, vegetables, green chillies, beef, etc.
Upon desegregation, we need to analyse them in the context of rising international prices of commodities; available supply and supply in the pipeline; damage done by the recent floods to local production and also the local transport infrastructure; the disruptions in the supply chain through the breaking up of hats/bazars and many shops, as well as stringent application (and sometimes even mis-application) of anti-hoarding laws, bank regulations, etc. which had become virtually extinct; and existence/impact of business syndicates. Major individual causes are analysed hereunder:
We import a very large part of our essential foods. International prices of these commodities continue to rise, and we have no control over them. But we can compare the level and extent to which the international prices have risen and use it as a benchmark to monitor if our businessmen are making too much profit. So it is indeed possible to know reasonably accurately how much of the local price rise in imported essentials is really due to rises in international prices and how much is due to excessive profit making. No detailed study appears to have been made in this respect. The CPD study does not address this issue too well, particularly in the current context, as the largest international price rises have taken place after that report. Nor does it address in adequate details all the intricacies involved in the import and related processes. An immediate study to be completed in the shortest possible time, is thus, a must.
The issue of supply available locally, and more importantly the supply in the 'pipeline' is critical specially in view of the fact that import has been failing in quantitative terms over the last two to three quarters. The Bangladesh Bank statistics which estimates imports in value terms is becoming increasingly misleading as the international prices of essentials continue to rise. The main reason for falling imports is the fear among importers mostly generated by the bank questions on money source, transaction records and similar NBR questions. The situation is more alarming in the district towns and with small importers who import essential commodities mostly from India, Nepal, etc. There is thus a serious danger of supply shortfalls becoming a bigger threat than rise in prices. If the supply situation does not improve, there will be further pressure on prices. Assurances given by the Chief Adviser and the Chief of Army Staff in the 5th September meeting with business leaders at the Radisson will, I believe, go a long way in allaying a large part of this fear. The government should ensure these assurances are implemented as soon as possible.
While rise in international prices may in part explain the rise in prices of 'mostly imported' and 'partly imported' essentials, they do not offer any satisfactory explanation of rise in prices of those 'mainly locally produced.' Pressures on the prices of these essentials have been building up for some time due to repeated increases in fuel prices (mainly diesel affecting irrigation and transportation costs), poor distribution of fertilisers and agri-loans, all of which contributed to increase in costs. However, the dramatic rise in prices of vegetables, green chillies, rice, beef, etc. were caused by the flood which in the first round destroyed a large part of vegetables and 'aush' (rice) and in the second round again affected them specially the 'ropa-aman' (rice). In addition, the floods have caused disruptions to transport infrastructures as well. Urgent steps need to be taken to repair them.
The damages to the supply chain in the economy caused by the demolition/removal of local hats/bazars/shops during the initial period of the emergency, the seizure of warehouses and enforcement of other almost extinct laws caused disruptions to the economy that put pressure on prices. Although these actions have virtually stopped, disruptions caused by them remain to be fully repaired. Steps being taken to do so need to be expedited.
According to the Oxford Dictionary the word syndicate means "combination of individuals or business to promote a common interest". Most universities, including Dhaka University, have syndicates. They serve a noble purpose. Most large loans are offered by a syndicate of banks. They serve a laudable purpose. Why then do we seek to find only evil purposes when businesses combine to promote a common interest, if they do so at all. Does this stem from our deep-rooted suspicion of businesses in general. If so, it is a pity.
A large segment of our experts perhaps genuinely believe that all price increases are caused by business syndicates. This begs the question how do they manage to operate these syndicates in a liberalised economy, such as ours. There are no regulatory controls on imports, anyone can import any quantity of a commodity. There are no restrictions. It is never easy, if at all possible, to operate syndicates in such an environment, as new importers will enter the market if they see others making exorbitant profits. So much for import syndicates. The rise in price of green chillies, brinjals, etc. are also assigned to some form of syndication. Where there are tens of thousands of local producers and thousands of whole-sellers and where individual values involved are minuscule the 'syndicate' concept does seem very far fetched. In these particular cases, it would be indulging in 'conspiracy theories' if we see every 'morich wala' or 'bagun wala' as a syndicator. While I do not rule out the existence of syndicates altogether, I would want to see some convincing empirical evidence and more cogent reasoning to become a convert to the 'syndicate theory.'
I do, however, believe that we have too few importers supplying the bulk of our imports of essential commodities. We should, in stages, increase the number of importers and ensure that no one importer controls more than five per cent of a particular market segment to ensure better competitive practices.
Consumers have a very important role to play in determining market prices. In a perfect market, they represent the demand side of the equation. Even in an imperfect market, such as ours, they can (and should) have very significant influence on price. Consumer psychology or panic buying is one of the root causes behind sudden price rises at the beginning of every Ramadhan. If brinjals become unreasonably expensive, surely we may decide not to buy it. We need to strengthen our 'Consumer Association' and immediately give effect to the 'Consumer Act' which has been doing the rounds in two successive parliaments. In the current crisis the consumers must be firm and withstand all price pressures from suppliers. They do have a very important role to play in resolving the current crisis.
Businessmen have both a duty and a responsibility to help us all in the present crisis. They must import more food as importers. And as importers, whole-sellers, stockists, transporters and retailers, in fact all businesses up and down the entire supply chain, must make minimal profits.
The government has to be pro-active rather than reactive. Our government can use its financial, fiscal, regulatory and participatory tools : it can reduce interest rates, bank's margin needs, taxes and VAT, ban/allow imports and exports, procure locally and become an importer itself, and subsidise where needed. In the current context, it should immediately ban export of vegetables; itself locally procure from importers as well as import rice, wheat, dal, etc., and offer them through OMS at subsidised rates to the low income groups and as much as possible free to the most vulnerable groups. How effectively it can accomplish these objectives in the immediate future is a matter of serious concern for all of us. Our experience tells us that our bureaucracy works too slowly, and delays in decision making may make many of these steps redundant. Thus a high powered price (and supply) commission needs to be formed immediately to undertake these tasks effectively.
I believe the next 100 days will be critical. Consumers, businessmen and the government will have to work together, cohesively to overcome this crisis.
Action Plan:
The present situation demands concerted action from all segments of society. The need of the hour is to form a high powered "Price Commission" within three to seven days and charge it with the responsibility of ensuring price and supply stability. The Commission should be empowered to take decisions and implement them. In short, it should have 'teeth'. Ideally it should consist of eight members chaired by the Chief Adviser with a business leader (with knowledge of economics) as the deputy chairman, along with three more members each from the public and private sector as under:
Public Sector: Director General, BDR, Secretary, Commerce, and Chairman, NBR.
Private Sector : Businessman (with import interest), commercial banker, Consumer Association of Bangladesh.
The Committee so formed should start work immediately and formulate a TOR (terms of reference), short term plan for the next 100 days, aiming to create an impact within this Ramadhan, and longer term plan for one year or more. Initially, it should deal mainly with the current crisis involving essential foods. The range of its activities may be subsequently enlarged to include all consumer goods and other items as needed.
The writer who is B.A. (Hons) & M.A., (Oxon), is Director, FBCCI, and prefers to be known as a life-long student of economics
THE principle challenge facing Bangladesh today is the escalating prices of essentials be it rice, wheat, daal, edible oil, chola, onions, brinjals, green chillies, other vegetables, beef, mutton, in fact almost everything. Almost 90 per cent of our people are affected by it, 50 per cent of us very severely.
There continues to be a lot of debate on the causes, but very little concerted action to remedy the situation. Some limited action is being taken, like monitoring prices through law enforcing agencies, opening a handful of fair-price shops (in fact, where more than 0.2 million shops are involved in selling essentials, the plan to operate only 200 fair price shops i.e. I in every 1,000 shops is very inadequate), and subsidised sale of a limited quantity of rice. These are no doubt noble gestures but can have only symbolic value and very limited impact. There seems to be little effort at addressing the core issue itself Regrettably, we seem almost ready to surrender, to philosophically accept that there is little that can be done, except indulging in a 'blame-game'.
I differ and differ emphatically. I firmly believe that there is a serious crisis, and that a lot can be done to remedy it. I believe the time to do so is now. Even seven days may be late. Those of you who agree, please skip the next few paragraphs of analysis and explanations, and go straight to Section IV - Action Plan. We owe it to our fellow citizens, specially the most vulnerable among us, to protect them from escalating prices; and now with the onset of Ramadhan it will be almost sinful for us not to take immediate action.
Most of the debate surrounding the escalating prices centre around two major themes: rise in international prices and businessmen's syndicates. Most explanations are of the genre of "one size fits all" -- rather like a kind of blanket explanation for all essentials. This is the main reason for the current misperception. In order to get to the root of the causes, we need to desegregate the essentials, preferably into three distinct groups:
(i) Mostly import dependent : wheat, chola, edible oil, milk powder etc.,
(ii) Partly import dependent rice, lentils, onions, spices, etc.
(iii) Mostly locally produced rice, vegetables, green chillies, beef, etc.
Upon desegregation, we need to analyse them in the context of rising international prices of commodities; available supply and supply in the pipeline; damage done by the recent floods to local production and also the local transport infrastructure; the disruptions in the supply chain through the breaking up of hats/bazars and many shops, as well as stringent application (and sometimes even mis-application) of anti-hoarding laws, bank regulations, etc. which had become virtually extinct; and existence/impact of business syndicates. Major individual causes are analysed hereunder:
We import a very large part of our essential foods. International prices of these commodities continue to rise, and we have no control over them. But we can compare the level and extent to which the international prices have risen and use it as a benchmark to monitor if our businessmen are making too much profit. So it is indeed possible to know reasonably accurately how much of the local price rise in imported essentials is really due to rises in international prices and how much is due to excessive profit making. No detailed study appears to have been made in this respect. The CPD study does not address this issue too well, particularly in the current context, as the largest international price rises have taken place after that report. Nor does it address in adequate details all the intricacies involved in the import and related processes. An immediate study to be completed in the shortest possible time, is thus, a must.
The issue of supply available locally, and more importantly the supply in the 'pipeline' is critical specially in view of the fact that import has been failing in quantitative terms over the last two to three quarters. The Bangladesh Bank statistics which estimates imports in value terms is becoming increasingly misleading as the international prices of essentials continue to rise. The main reason for falling imports is the fear among importers mostly generated by the bank questions on money source, transaction records and similar NBR questions. The situation is more alarming in the district towns and with small importers who import essential commodities mostly from India, Nepal, etc. There is thus a serious danger of supply shortfalls becoming a bigger threat than rise in prices. If the supply situation does not improve, there will be further pressure on prices. Assurances given by the Chief Adviser and the Chief of Army Staff in the 5th September meeting with business leaders at the Radisson will, I believe, go a long way in allaying a large part of this fear. The government should ensure these assurances are implemented as soon as possible.
While rise in international prices may in part explain the rise in prices of 'mostly imported' and 'partly imported' essentials, they do not offer any satisfactory explanation of rise in prices of those 'mainly locally produced.' Pressures on the prices of these essentials have been building up for some time due to repeated increases in fuel prices (mainly diesel affecting irrigation and transportation costs), poor distribution of fertilisers and agri-loans, all of which contributed to increase in costs. However, the dramatic rise in prices of vegetables, green chillies, rice, beef, etc. were caused by the flood which in the first round destroyed a large part of vegetables and 'aush' (rice) and in the second round again affected them specially the 'ropa-aman' (rice). In addition, the floods have caused disruptions to transport infrastructures as well. Urgent steps need to be taken to repair them.
The damages to the supply chain in the economy caused by the demolition/removal of local hats/bazars/shops during the initial period of the emergency, the seizure of warehouses and enforcement of other almost extinct laws caused disruptions to the economy that put pressure on prices. Although these actions have virtually stopped, disruptions caused by them remain to be fully repaired. Steps being taken to do so need to be expedited.
According to the Oxford Dictionary the word syndicate means "combination of individuals or business to promote a common interest". Most universities, including Dhaka University, have syndicates. They serve a noble purpose. Most large loans are offered by a syndicate of banks. They serve a laudable purpose. Why then do we seek to find only evil purposes when businesses combine to promote a common interest, if they do so at all. Does this stem from our deep-rooted suspicion of businesses in general. If so, it is a pity.
A large segment of our experts perhaps genuinely believe that all price increases are caused by business syndicates. This begs the question how do they manage to operate these syndicates in a liberalised economy, such as ours. There are no regulatory controls on imports, anyone can import any quantity of a commodity. There are no restrictions. It is never easy, if at all possible, to operate syndicates in such an environment, as new importers will enter the market if they see others making exorbitant profits. So much for import syndicates. The rise in price of green chillies, brinjals, etc. are also assigned to some form of syndication. Where there are tens of thousands of local producers and thousands of whole-sellers and where individual values involved are minuscule the 'syndicate' concept does seem very far fetched. In these particular cases, it would be indulging in 'conspiracy theories' if we see every 'morich wala' or 'bagun wala' as a syndicator. While I do not rule out the existence of syndicates altogether, I would want to see some convincing empirical evidence and more cogent reasoning to become a convert to the 'syndicate theory.'
I do, however, believe that we have too few importers supplying the bulk of our imports of essential commodities. We should, in stages, increase the number of importers and ensure that no one importer controls more than five per cent of a particular market segment to ensure better competitive practices.
Consumers have a very important role to play in determining market prices. In a perfect market, they represent the demand side of the equation. Even in an imperfect market, such as ours, they can (and should) have very significant influence on price. Consumer psychology or panic buying is one of the root causes behind sudden price rises at the beginning of every Ramadhan. If brinjals become unreasonably expensive, surely we may decide not to buy it. We need to strengthen our 'Consumer Association' and immediately give effect to the 'Consumer Act' which has been doing the rounds in two successive parliaments. In the current crisis the consumers must be firm and withstand all price pressures from suppliers. They do have a very important role to play in resolving the current crisis.
Businessmen have both a duty and a responsibility to help us all in the present crisis. They must import more food as importers. And as importers, whole-sellers, stockists, transporters and retailers, in fact all businesses up and down the entire supply chain, must make minimal profits.
The government has to be pro-active rather than reactive. Our government can use its financial, fiscal, regulatory and participatory tools : it can reduce interest rates, bank's margin needs, taxes and VAT, ban/allow imports and exports, procure locally and become an importer itself, and subsidise where needed. In the current context, it should immediately ban export of vegetables; itself locally procure from importers as well as import rice, wheat, dal, etc., and offer them through OMS at subsidised rates to the low income groups and as much as possible free to the most vulnerable groups. How effectively it can accomplish these objectives in the immediate future is a matter of serious concern for all of us. Our experience tells us that our bureaucracy works too slowly, and delays in decision making may make many of these steps redundant. Thus a high powered price (and supply) commission needs to be formed immediately to undertake these tasks effectively.
I believe the next 100 days will be critical. Consumers, businessmen and the government will have to work together, cohesively to overcome this crisis.
Action Plan:
The present situation demands concerted action from all segments of society. The need of the hour is to form a high powered "Price Commission" within three to seven days and charge it with the responsibility of ensuring price and supply stability. The Commission should be empowered to take decisions and implement them. In short, it should have 'teeth'. Ideally it should consist of eight members chaired by the Chief Adviser with a business leader (with knowledge of economics) as the deputy chairman, along with three more members each from the public and private sector as under:
Public Sector: Director General, BDR, Secretary, Commerce, and Chairman, NBR.
Private Sector : Businessman (with import interest), commercial banker, Consumer Association of Bangladesh.
The Committee so formed should start work immediately and formulate a TOR (terms of reference), short term plan for the next 100 days, aiming to create an impact within this Ramadhan, and longer term plan for one year or more. Initially, it should deal mainly with the current crisis involving essential foods. The range of its activities may be subsequently enlarged to include all consumer goods and other items as needed.
The writer who is B.A. (Hons) & M.A., (Oxon), is Director, FBCCI, and prefers to be known as a life-long student of economics