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Price stability: Homeopathy won’t work

M. Maniruzzaman
IN a similar article published in a couple of national dailies more than a year ago I made some suggestions for lowering prices. During that time the government changed commerce ministers several times, but things worsened instead of improving. Then, I had forecast that even a change of government wouldn't stop price hike unless some fundamental changes were made.
My suggestions for minimising the rate of price hike were:
(a) Re-introduction of the rationing system in the urban areas, especially for rice, wheat, edible oil and sugar.
(b) Re-introduction of modified rationing for the rural areas.
(c) Establishment of open haats in
taken some initiatives to establish open sales outlets in several parts of the city; with a few directly managed by the BDR and others privately operated with BDR protection and patronisation. This had been extremely helpful during the holy month of Ramadan, when further price increase was somehow minimised. But immediately after the Ramadan, prices rocketed again.
The business community blames excessive rainfall, floods, cyclone, international market, oil price, power cuts, and the like, for the price hike. They even compelled the government to stop actions on traffic rule violations like overloading. So, overloading is now established as a right at the risk of other vehicles and pedestri-
the international market and local crises like floods, while the media tended to say that despite the price hike abroad the government must keep prices low. The government at that time said that, besides the rise in prices, the people's income was also increasing, while the media accused politically patronised business syndicates.
A few politicians belonging to the past regimes might have had links with syndicates, but that alone was not possibly the main, or lone, cause of price hikes. Had it been so, the syndication should have been broken with the change of government and price hike should have fallen.
The past governments were also accused of extortion, which caused price hikes. Now, even with the
Prices: Reaching for the moon?
the city area.
(d) Enhancement of the coverage of the Social Safety Net assistance to the poor and vulnerable groups through VGD, VGF, TR, RMP and FFW.
(e) Support to farmers for increasing productivity and diversifyingagriculture.
The caretaker government has
ans, not to speak of quicker damage to the roads. They have also compelled the government to release "business leaders." But the consumers are still paying higher prices.
Now, what to do? Is there any way out? During the past regime, the government tended to blame
stopping, or at least reduction, of extortion or private tax the price hike has not halted. So, what is the real cause of continuing price hike?
Governments in the past, and even today, attempted to ease price hike by reducing import duty, VAT etc., but without any success. Students of economics know that
even if tax is increased part of the tax burden is borne by the seller and partly by the buyer, and the exact ratio of sharing tax burden depends on the demand and supply elasticity. Bangladesh is probably an exception where, even with the reduction of taxes, price level goes up, and, in the case of tax increase, the consumer bears not only the whole of the tax burden but several times more. Why this exception?
The causes of price hike Low and highly fluctuating local production: Although the bulk of the demand for rice, vegetables, fruits, fish, meat, eggs etc. is met by local consumption, we import a lot of those items, and prices go up during the lean period. The main source of import in the recent past was India, which supplied the items at reasonably low prices.
Cheap import from India over the last three and half decades contributed to loss of competitiveness and continuously decreasing production of many items, of which we had surplus in the past. We depend on India for anything and everything, and our production efficiency as well as total production of most commodities have fallen sharply, at least in proportion to the increasing population.
Too much dependence on import, particularly on one source of import, has made our economy too vulnerable to external shocks. The only way out is increasing local production through adopting appropriate technology, enhanced R&D and market linkage, and diversifying import sources.
The boom in Asian economy: In the past, we were able to import most essential commodities from India at low price as India had a lot to supply, not because of their high productivity but mainly because of lower purchasing power of Indian consumers. Now, with the economic boom in India and several other countries in the region, particularly China, demand in the producing countries has increased, while adverse weather and other conditions have reduced production.
To this is added oil price, which not only raised import price but
also has reduced availability. Now, we face difficulty in importing even at higher price since the potential import source has become too restrictive. Again, the way out is to increase local production and diversify import sources.
Too fast liberalisation: The international community compelled us to liberalise too fast, while our neighbours liberalised rather slowly. Because of the conditions tied to aid, we made our market very open, while our exports are restricted by too many tariff and non-tariff barriers. Our policymakers bowed down to almost any conditions to receive aid, although we need not depend that much on aid.
Our current account balance has been favourable for quite along time, and our foreign exchange reserve is continuously increasing (mainly because of increased export and remittance). We have, by now, acquired enough strength to bargain, both for better foreign exchange earning and for increasing the tax GNP ratio. In the past, we were nearly 100% dependent on foreign aid to finance annual development programs, but now, this dependency has come down to below 50 percent. Therefore, we need not surrender to external pressure, rather, we can be selective in accepting aid offers (sometimes we can reject aid offers if they go against out interests).
Because of pressure from donors, we stopped the rationing system, increased oil price and utility charges, inactivated the BADC and the TCB, and are now facing the consequences -- too high inflation. The same donors now blame us for our inability to curb inflation.
Organised sellers but unorganised buyers: From the FBCCI to street-side vendor the sellers are highly organized, and they can dictate prices. But the buyers are unorganised, so they must suffer and pay high prices. The way out is to create consumer cooperatives and other alternative marketing arrangements -- like rationing system, and public procurement and distribution through reactivat ingtheTCB.
The intermediaries of agricul-
tural commodities are organised while the fanners are disorganised: The way out is forming producers' cooperatives, supporting marketing in open haats in the city area, using technology for processing and storage, public procurement during harvest, and distribution in the deficit areas during lean periods.
Poor transport infrastructure and high transport cost: Typically, small traders cannot benefit from more economical bulk carrying, such as by lorry, rail wagon and barges. One special measure can contribute a lot to reducing the gap between the producer level price of fruits vegetable etc in the villages and the consumer level price in the city retail shops; the Bangladesh Railway can add five or six empty cargo wagons to carry the produce in trains operating on major routes like Dhaka -- Chittagong, Dhaka — Sylhet, Dhaka - Jamalpur, Dhaka -Lalmonir Haat, Dhaka — Dinajpur, Dhaka -- Rajshahi, Dhaka --Darsana and Dhaka - Keshoreganj.
This will allow rural beparis and farmer groups to take their goods to Dhaka markets at a cheap rate. The Railway may charge nominal freight, or even provide the service free of cost if the government subsidises it.
Market structure is too complicated with too many intermediaries: The classical economist Adam Smith's invisible hand is a myth rather than a reality. Theoretically, it optimises resource allocation, production, price level and wage level, and guarantees everybody's welfare, but only in a purely and perfectly competing market structure. But no market is perfectly competing and every market has some degree of imperfection.
Today, it is difficult to buy even one kg beans straight from the farmer in the village market. The market sheds constructed by the LGED are occupied by the traders, leaving no place for the fanner to sit and sell his produce. The traders grab his goods just on arrival and take them under their control. Even local buyers have to buy from the traders and not from the producers.
The traditional village haats, where any seller, including producer, and any buyer, including direct consumers, had freedom to
buy and sell have disappeared. Local Tahsil offices have leased out every inch of land to traders to establish permanent shops, legally or illegally. There is no open space for the producers and consumers.
Too many people enter business with little capital and too little volume of trade: All traders want to earn good income to fulfill increasing needs just by increasing prices. One of my acquaintances said that even one fish caught in the Lohalia river changes hands five to six times to reach a consumer in Patuakhali town only 5 kms away. Today, an average catch by a fisherman in each tide (six hours) has come down to one or two kg, and it reaches the consumer via a faria in the river ghat, a bepari in the village market, an aratdar in the town market, a paiker, and then the retailer.
Except the aratdar and the paiker, each intermediary handles little quantity, only a few kg each day, and with this he has to maintain his family. So, they take much higher prices in percentage term or per kg, although very little is earned per trader. Lack of employment opportunities has pushed many people to such petty trading, and too many traders are now exploiting the farmers and the consumers.
Poor post harvest handling, storage and processing: Vegetables, fruits etc cannot be kept fresh for even a couple of days. So, farmers have to sell them immediately at whatever price is offered. Typically, our farmers are too poor to market their produce in the higher order markets. Cold storage facilities have been developed for potatoes, but not for fruits, vegetables and tomatoes. Appropriate technological interventions are essential.
Storage and transport facilities for meat and fish; They are available (refrigerated van, ice box, cold store and refrigerator) but are not extensively used. Nobody wants to buy chicken meat, everybody wants to buy live chicken, which is costlier to transport and trade. So, the price paid must be high. Reliable halal meat marketing could be developed in the country, and that would bring down prices.
Market economy, but not without an efficient public sector: Market economy does not mean just the private sector, and no role for the public sector. After all, private sector business, or any investment, is meant for profit and not for public welfare. The role of the public sector is to create and maintain conditions of fair trade to ensure business as well as welfare, equity and sustainable development.
Lecturing and moral persuasion won't help much. Ensuring fair business requires an alternative public procurement and distribution system, such as rationing. Of course, public sector businesses often incur financial loss, but their success should rather be measured in terms of impact on market price, employment, economic growth, equity and sustainability. Financial sustainability could be one indicator, but definitely not the main one.
With this consideration, the time has come to reactivate the TCB, the BADC and other such organisations; to re-introduce the rationing system; to promote producer and consumer cooperatives; to help in establishing and managing alternative marketing arrangements (production, processing, storage and marketing) by the NGO sector, with definite goals and targets; helping fanners and other producers for enhanced production through R&D and technology support; and diversifying import sources.
All of this requires drastic measures, allopathic treatment and surgery -- like reintroducing rationing system, reactivating public procurement and distribution agencies like TCB. and BADC, and establishing alternative direct market linkage between producer and consumers, such as open-to-all no-tax free market in the cities linked to the villages -- and not homeopathy like BDR shops and "open market operation" of limited scale and coverage. Such drastic measures are unlikely to be appreciated by the so-called development partners, but we have to take our decisions defying their advice.
Or M. Maniruzzaman is an economist, anthropologist, freelance writer and development practitioner