The market for eggs has recently come under close scrutiny because of the high price of eggs as well as the volatility of egg prices. This scribe knows the owners of an egg company, call it X. The scribe tried to understand their side of the issue.
There are two questions to be addressed; first whether X has manipulated the egg market for its profit and secondly whether the egg market is capable of manipulation by other actors? This article will consider only the possibility of X manipulating the egg market. As the issue concerns the public we will try to provide an exposition in as simple language as possible.
1. If prices and quantities are what they should be under normal circumstances, then manipulation should not be an issue.
2. If prices are to be manipulated, this has to be done through restriction of supply. If 40 million eggs are expected every day, and 40 million eggs appear on the market, then any change in price has to be due to changes in demand.
We can now get down to specifics. The numbers chosen are for simplicity but meant to be based on reality.
3. How can X restrict supply? This has to be done by offering fewer eggs than they possess to the dealers who come to the auctions. Suppose the current supply of X is 5 per cent of the total market sales of 40 million eggs, or about two million eggs. If X restrict 50 per cent of their total, this will mean 1,000,000 less eggs in a market of 40 million. Will this action profit X?
4. Suppose the restriction of X by 1,000,000 succeeds. This will of course raise the price. Suppose the new price goes from 100 to 105. Previously selling 2 million eggs at 100, X is now selling 1 million eggs at 105. Its total revenue has reduced, its costs have stayed the same. How has it gained? [the market price will have to rise to 200 for X just to break even]
5. By engaging in the above restriction, X has raised the market price to 105, say. All the other traders in the market will gladly accept the higher price. All of them will make more money. So this tactic by X succeeds in impoverishing itself and enriching its competitors. Is this really how successful businesses run?
6. If there are faults in the above analysis, it will be useful to have them exposed point by point. Eggs are an important part of everyday nutrition for most Bangladeshis. Clarity on this issue is desirable and it is hoped that an open discussion is the best way to achieve clarity.
7. If points one through 5 are acceptable, this only shows the improbability of X manipulating the market under current conditions. If storage technology changes, if communication modes change, if industry structure alters, other results are possible. It is up to the analysts and the public to stay aware.
8. Having talked to several people about the egg market, I am surprised to find that the failure rate among our acquaintances exceeded 50 per cent. This is a difficult market. Since it is important for nutrition, one should step lightly and carefully in passing judgment on it.
9. It is possible that the effects of manipulation, such as inexplicably high prices, can be visible without any individual having the power to manipulate the market. This is particularly an issue for storable goods, such as rice, but storage of eggs is not prevalent today.
10. An examination of the egg industry, it’s conditions of production, marketing and sale require a separate article. Nor should one apply results for eggs to such markets as onions.
11. Nothing above precludes the existence of manipulation somewhere in the market. All that the above argument purports to show is that X is an unlikely source for such manipulation.
Professor Salim Rashid is Emeritus, University of Illinois.
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