Is anti-hoarding law a panacea for price control?

The Government of Bangladesh has approved a new anti-hoarding law in a Cabinet meeting on Monday last ( April 10, 2023) to prevent harmful activities in all stages of food production, supply and sales by imposing severe punishments. The law is referred to as the Production, Storage, Transfer, Transport, Supply, Distribution and Marketing of Foodstuffs (Prevention of Harmful Activities) Act 2023. This new law is prepared based on two earlier laws: the Food (Special Court) Act of 1956 and the Foodgrains Supply (Prevention of Prejudicial Activity) Ordinance of 1979. Although the law is not in the public sphere and much is not known about the law, under the proposed law keeping more than the amount of food set by the government, or defying any government regulation for stocking, will be considered a criminal offence. The majority of the offences relate to the production, storage, transfer, transportation, supply, marketing, and distribution of food grains such as paddy, rice, wheat, flour, and corn. The punishments have been proposed in accordance with the nature and gravity of the offences, ranging from three months to life term jail as well as with fine.

Bangladesh has been facing a volatile food market for the last one year. Price of essential commodities is increasing rapidly and general public is struggling to cope up with the high price of essential commodities. The government is taking different measures to reduce the price of essential commodities, especially food. The current anti-hoarding law is a part of these measures.

While the intention of the law is admirable, it is important to recognise that its effectiveness is dependent on a number of factors, including the capacity of the government to enforce the law fairly and efficiently, the level of market competition, and the nature and level of demand and supply of the commodities and their substitute goods. Many countries around the world, including Russia, China, India, Pakistan, Indonesia, Bangladesh, and the Philippines, have introduced anti-hoarding legislation to control pricing and prevent market manipulation, but with limited success in controlling price .

Despite the popularity of anti-hoarding laws, their effectiveness has remained questionable. While anti-hoarding laws may be effective in certain situations, especially in the short-term, in most cases, they fail to produce the desired results.

Implementation of anti-hoarding law is a quite challenging task because there are many ambiguities. It may be challenging to determine what constitutes ‘hoarding’ versus ‘reasonable storage’. Storage is an essential component of a smooth and efficient supply chain of a market. In agricultural markets, storage facilities play a critical role in maintaining a steady supply of goods throughout the year, as many agricultural products are seasonal. Storage facilities allow farmers and business enterprises to store agricultural products after harvest and sell during the lean season, which helps to avoid supply shortages during the lean season. This makes it challenging for the authorities to identify and prosecute the hoarders.

Because of the ambiguity, identifying and prosecuting the genuine hoarders is challenging and often, the innocent farmers or business enterprises face arbitrary enforcement and harsh punishment. Small farmers and small businesses, who lack political influence or connections, may face discrimination in the enforcement of the law.

Anti-hoarding laws often confer discretionary power and create opportunities for rent-seeking from concerned government agencies. This can serve as an incentive for business firms and individuals to bribe government officials or engage in other corrupt practices in order to obtain favourable treatment. The anti-trust laws are one of the examples of how such laws often become counter-productive because of the corrupt practices. In his book Porarthoporotar Orthoniti (Economics of Other-Minding, pages 20-21), Dr. Akbar Ali Khan, a former civil servant, provides a glaring example of how anti-trust laws can be counter-productive. When he was an SDO of a sub-district in East Pakistan in the 1960s, the military government increased the fee to Tk 150 to prevent mixing water with milk. However, the actual outcome was the opposite because, in order to avert a fine, the milkmen had to pay bribes to sanitary inspectors. To make up the extra money, they had to add more water to the milk.

Anti-hoarding laws frequently imposes additional burdens and compliance costs on farmers, processors, retailers and business enterprises given too much inspection and monitoring of business activities resulting into a long-term adverse impact on the business environment. It may also discourage investment in storage and processing in the agriculture sector, leading to reduced productivity and competitiveness. Storage facilities provide a means of storing agricultural products to meet future demand when supply is limited. Such facilities can also help to stabilise prices by allowing farmers to hold onto their produce until the market price is favourable.

Because of these challenges, anti-hoarding laws in many countries have failed to produce intended results. For instance, in Soviet Union, during the Soviet Era, the government imposed anti-hoarding laws that made storing large amounts of food or other essential goods illegal. This law, however, became ineffective in preventing hoarding, and even contributed to food shortages. Similarly, the Philippines government in 2014 imposed anti-hoarding laws on rice. The laws made it illegal to stockpile more than 100 bags of rice, but they became ineffective in controlling prices. In India, Pakistan and Bangladesh also anti-hoarding laws were imposed in different periods with limited or hardly any effect on price control. Even with the provision of the death penalty in the Special Powers Act of 1974, food hoarding could not be stopped in Bangladesh.

While the government’s intentions behind the anti-hoarding law are good, it needs to be implemented carefully and judiciously so that innocent farmers and business enterprises are not suffered. Before enacting anti-hoarding law, the government should carefully analyze the potential drawbacks and unintended consequences. Measures should also be taken to prevent corruption and rent-seeking behaviour of concerned agencies. It is important to remember that the anti-hoarding law is just one of the several measures in controlling prices; it is not a panacea. A more comprehensive approach and strategies may be needed to address the underlying causes of price hikes, such as through increasing investment in production and innovation in agriculture; developing agricultural infrastructure, including storage and processing facilities; and supporting farmers and businesses to maintain a healthy competitive business environment. Efforts will also be necessary to increase competition in agriculture and food markets in order to reduce the market power of a few producers and suppliers so that they are unable to manipulate the market. One strategy could be encouraging and supporting farmers to store food in their stock by providing easy access to loan for developing storage facilities. Farmers also need knowledge and information on temperature control, moisture control, pest control, and other factors that may affect the quality of stored crops.

Dr Golam Rasul is a Professor at the Department of Economics, International University of Business Agriculture and Technology (IUBAT) in Dhaka, Bangladesh. The views expressed in this paper are those of the author. [email protected]; [email protected]