Suppliers pushing prices up?
Sunday, 14 March 2010
Zahid Hossain and Farria Naeem
Keeping the prices low ought to be a priority area for the government. It is, therefore, important for it to continually monitor the market to design its policy responses to keep the prices where they should be. After all no government should be oblivious of its election pledges.
Bangladesh has to import food grains and cooking oils. The domestic and international prices cannot move in opposite directions.
Some differences could result due to transportation and taxation costs. That would be acceptable. But the price trends could not be as wide apart as they now are. This is what is not at all acceptable.
A scrutiny of the prices of coarse rice, flour, salt and soybean oil over the recent months would give reasons for worry.
In recent months, there have been reasons to believe that the domestic salt and soybean oil markets were far from competitive. Despite the protection enjoyed by the salt industry, around 73 per cent in 2008-2009, the prices have been steadily rising since June 2008. The industry has no dearth of raw materials, which it obtains from natural sources. Similarly, the widening gap between the domestic and international soybean oil prices, since July 2008, cannot at all be justified. Of course, there has been no significant change in either crop outlook or the international trading environment.
No evidence suggests there could be a negative impact on the domestic salt and soybean oil market. It was for the government policy to increase competition. It could remove the barriers to improve the supply side if that is the problem. Otherwise, it ought to look for the grey area benefitting the profiteer.
The Finance Minister pin-pointed the problem when he said, "We'll try to push new people into the syndicates so that they cannot play with prices" hit the crux of the matter.
Coercive "anti-hoarding drives" do not always work, rather they often worsen the problem. The caretaker government found it out in 2007. The flour prices seem to hinge considerably on domestic output as well as the international trading environment. Therefore policy measures to remove supply side constraints are essential for keeping the prices of these items at tolerable levels.
Keeping the prices low ought to be a priority area for the government. It is, therefore, important for it to continually monitor the market to design its policy responses to keep the prices where they should be. After all no government should be oblivious of its election pledges.
Bangladesh has to import food grains and cooking oils. The domestic and international prices cannot move in opposite directions.
Some differences could result due to transportation and taxation costs. That would be acceptable. But the price trends could not be as wide apart as they now are. This is what is not at all acceptable.
A scrutiny of the prices of coarse rice, flour, salt and soybean oil over the recent months would give reasons for worry.
In recent months, there have been reasons to believe that the domestic salt and soybean oil markets were far from competitive. Despite the protection enjoyed by the salt industry, around 73 per cent in 2008-2009, the prices have been steadily rising since June 2008. The industry has no dearth of raw materials, which it obtains from natural sources. Similarly, the widening gap between the domestic and international soybean oil prices, since July 2008, cannot at all be justified. Of course, there has been no significant change in either crop outlook or the international trading environment.
No evidence suggests there could be a negative impact on the domestic salt and soybean oil market. It was for the government policy to increase competition. It could remove the barriers to improve the supply side if that is the problem. Otherwise, it ought to look for the grey area benefitting the profiteer.
The Finance Minister pin-pointed the problem when he said, "We'll try to push new people into the syndicates so that they cannot play with prices" hit the crux of the matter.
Coercive "anti-hoarding drives" do not always work, rather they often worsen the problem. The caretaker government found it out in 2007. The flour prices seem to hinge considerably on domestic output as well as the international trading environment. Therefore policy measures to remove supply side constraints are essential for keeping the prices of these items at tolerable levels.