Taming the unwieldy essentials' market
Syed Fattahul Alim | Friday, 11 July 2008
The prices of essential commodities have again shot up following the latest hike in fuel oil price effected by the government. The prices of essential commodities have again started the old cat and mouse game with the hapless common consumers in the middle and low income group. The essential commodities are as it were always looking for an excuse to climb further upwards along the price-ladder. Even on the very day that the fresh adjustment of the fuel price was made by the government, the prices gave another high jump, though the wholesalers and retailers were selling the essential commodities from their previous stock. In Bangladesh, the consumers in general have long adapted to this irrational behaviour of the market and the behaviour has not remained limited to the essential commodities market only. Food grains, edible oil, spices, medicines, construction materials, you name it, they are always on their marks to start their Olympic race for beating their all previous records.
By the book, the government has nothing to do about it on the ground that the rise and fall in the price curve in the marketplace follow the law of free market. So, under the ideal situation, it is goes against the spirit of this fundamental market principle to take any regulatory measure to control the market. However, it would be interesting to note here that the strangest element of our own price market is that it abhors the classical path of rise and fall, for it knows only one course here, which is 'rise, rise and rise and no fall, never!. The other day, finance adviser had pointed to the basic market principles, when he was dwelling on the issue of the further price escalation after the hike in oil price. That part of the argument is well understood and no enlightened person is going to contest it. But does the behaviour of price in Bangladesh market always follow the rule of the demand and supply? If, for example, the cost of transport was the jack that had given the latest upward push to the goods and services, then how is it that the prices shot up immediately after the government's declaration of new rate of fuel oil and other petroleum products? Does rationality work here? In fact, you only need to supply the excuse for the prices in Bangladesh market to give another jump to break its previous record. The law of demand and supply is of little value if one has to understand the behaviour of the prices of commodities in this part of the world. And it is exactly against this backdrop that one is tempted to argue against any textbook approach to the law of the market and the role, if any, of the government in containing it
The situation in Bangladesh does really call for a rather hands-on role of the government in response to the day-to-day development in the market. It is often the speculation, rumour, fear and greed rather than the classical formula of demand and supply that rules the marketplace in this part of the world. And any principle is the first casualty in case any opportunity is created to fleece the poor consumers here. So, the government has a role to protect the consumers and tame the unwieldy behaviour of the market operators. And, no amount of exhortation, invoking of the religious or humanistic values or any kind of persuasion on purely moral ground can move the heart of those who are behind the irrational behaviour of the market.
On this score, it would be interesting to note the problem the government is facing in its drive to purchase food grains from the market to replenish its stock in the state-owned depots. But the drive has come up against the same irrational forces that always prey on the poor consumer folk. Though the government had set a target of buying 1.50 million tons of food grain from the local market, it could not meet even fifty per cent of the target, even three moths after the drive had started last April. The problem so far as it could be learnt is that the rice mill owners, with whom the government had reached the agreement to supply the government with the food grains, are going back on their contracts. The main reason they say is that the buying price that the government had set at Tk 28 per kilogram of rice (though it was far above the government's purchase rate set last year at Tk 18 per Kg ) is not feasible at the moment, because the market price has already shot up. Moreover, there is net shortage of food grains supply in the market despite the bumper harvest of boro last season. But where has all the rice that the farmers produced gone within such a short time? The suggestion is that the farmers, especially, the medium and large ones are not wiling to sell their stock in the market. They may be saving against the rainy day or it may also be that they may sell some part of their stock at a later time. However, the most plausible reason for their holding on to their surplus stock is that they are frightened by the constant speculation that given the volatility of the food grains price in the international market and the apathy of the traditional rice exporting countries to sell their surplus stocks, the situation would create a food crisis globally.
Under the circumstances, there is little chance that Bangladesh will be able to address the problem of its own food shortage in the near future. And the fear is also not unsubstantiated. Take for example the Indian promise of selling half a million tons of rice to Bangladesh.
So far only one hundred thousand tons have reached our market. It is still not known when the rest four hundred thousand tons would be supplied to Bangladesh. The other no less worrying report is that so far there has been no further import of food grains by the private sector, for reasons not incomprehensible to those who are informed of the situation in the international market.
Under the circumstances, one should not be surprised if farmers, medium or small, become a bit conservative about their own stock of food grains. However, the rice mill owners' behaviour cannot be compared to that of the medium and big farmers. The argument of shortage apart, they are mainly driven by the motive of more profit. And they cannot also be asked to sell their food grains at a loss.
But then what would the government do if they try to make windfall gains taking advantage of the situation?
So, when the government is itself facing the resistance of the mill owners, it, unlike the hapless general public, cannot be expected to take it lying down. Small wonder, the Control of Essential Commodities Act, 1956 has already been invoked to regulate the rice mills in order that the government's essential commodities drive to meet its food grains procurement might go on unhindered.
Meanwhile, the government's Rice Procurement and Control Order 2008 would require the millers to procure licence from the government before they might buy paddy from the growers or the market as well sell rice in the market. The millers will lose their license and face punishment if they default on complying with the law. Some 1200 rice mill owners have already been deprived of their licences for their failure to comply.
So, the government takes the tough path when its own stakes are involved. In that case the argument of free market does not apply. Sometimes, similar provisions of the law, if applied judiciously, may also benefit the common consumers, especially when the market operators behave irrationally, regardless of public suffering.
By the book, the government has nothing to do about it on the ground that the rise and fall in the price curve in the marketplace follow the law of free market. So, under the ideal situation, it is goes against the spirit of this fundamental market principle to take any regulatory measure to control the market. However, it would be interesting to note here that the strangest element of our own price market is that it abhors the classical path of rise and fall, for it knows only one course here, which is 'rise, rise and rise and no fall, never!. The other day, finance adviser had pointed to the basic market principles, when he was dwelling on the issue of the further price escalation after the hike in oil price. That part of the argument is well understood and no enlightened person is going to contest it. But does the behaviour of price in Bangladesh market always follow the rule of the demand and supply? If, for example, the cost of transport was the jack that had given the latest upward push to the goods and services, then how is it that the prices shot up immediately after the government's declaration of new rate of fuel oil and other petroleum products? Does rationality work here? In fact, you only need to supply the excuse for the prices in Bangladesh market to give another jump to break its previous record. The law of demand and supply is of little value if one has to understand the behaviour of the prices of commodities in this part of the world. And it is exactly against this backdrop that one is tempted to argue against any textbook approach to the law of the market and the role, if any, of the government in containing it
The situation in Bangladesh does really call for a rather hands-on role of the government in response to the day-to-day development in the market. It is often the speculation, rumour, fear and greed rather than the classical formula of demand and supply that rules the marketplace in this part of the world. And any principle is the first casualty in case any opportunity is created to fleece the poor consumers here. So, the government has a role to protect the consumers and tame the unwieldy behaviour of the market operators. And, no amount of exhortation, invoking of the religious or humanistic values or any kind of persuasion on purely moral ground can move the heart of those who are behind the irrational behaviour of the market.
On this score, it would be interesting to note the problem the government is facing in its drive to purchase food grains from the market to replenish its stock in the state-owned depots. But the drive has come up against the same irrational forces that always prey on the poor consumer folk. Though the government had set a target of buying 1.50 million tons of food grain from the local market, it could not meet even fifty per cent of the target, even three moths after the drive had started last April. The problem so far as it could be learnt is that the rice mill owners, with whom the government had reached the agreement to supply the government with the food grains, are going back on their contracts. The main reason they say is that the buying price that the government had set at Tk 28 per kilogram of rice (though it was far above the government's purchase rate set last year at Tk 18 per Kg ) is not feasible at the moment, because the market price has already shot up. Moreover, there is net shortage of food grains supply in the market despite the bumper harvest of boro last season. But where has all the rice that the farmers produced gone within such a short time? The suggestion is that the farmers, especially, the medium and large ones are not wiling to sell their stock in the market. They may be saving against the rainy day or it may also be that they may sell some part of their stock at a later time. However, the most plausible reason for their holding on to their surplus stock is that they are frightened by the constant speculation that given the volatility of the food grains price in the international market and the apathy of the traditional rice exporting countries to sell their surplus stocks, the situation would create a food crisis globally.
Under the circumstances, there is little chance that Bangladesh will be able to address the problem of its own food shortage in the near future. And the fear is also not unsubstantiated. Take for example the Indian promise of selling half a million tons of rice to Bangladesh.
So far only one hundred thousand tons have reached our market. It is still not known when the rest four hundred thousand tons would be supplied to Bangladesh. The other no less worrying report is that so far there has been no further import of food grains by the private sector, for reasons not incomprehensible to those who are informed of the situation in the international market.
Under the circumstances, one should not be surprised if farmers, medium or small, become a bit conservative about their own stock of food grains. However, the rice mill owners' behaviour cannot be compared to that of the medium and big farmers. The argument of shortage apart, they are mainly driven by the motive of more profit. And they cannot also be asked to sell their food grains at a loss.
But then what would the government do if they try to make windfall gains taking advantage of the situation?
So, when the government is itself facing the resistance of the mill owners, it, unlike the hapless general public, cannot be expected to take it lying down. Small wonder, the Control of Essential Commodities Act, 1956 has already been invoked to regulate the rice mills in order that the government's essential commodities drive to meet its food grains procurement might go on unhindered.
Meanwhile, the government's Rice Procurement and Control Order 2008 would require the millers to procure licence from the government before they might buy paddy from the growers or the market as well sell rice in the market. The millers will lose their license and face punishment if they default on complying with the law. Some 1200 rice mill owners have already been deprived of their licences for their failure to comply.
So, the government takes the tough path when its own stakes are involved. In that case the argument of free market does not apply. Sometimes, similar provisions of the law, if applied judiciously, may also benefit the common consumers, especially when the market operators behave irrationally, regardless of public suffering.