It’s not the syndicates, stupid

Posted in economics by jrahman on August 27, 2009

Prices are skyrocketing, the Trade Minister is a failure, government is incompetent, corrupt businessmen are holding the nation to a ransom — that’s the sense one gets from glancing through the newspapers, or watching the Deshi channels.  The thing is, this whole narrative based on an obsession with ‘syndicates’ — unscrupulous businessmen in cahoots with corrupt politicians — is at most a minor, side story.  Much of the price rises we are seeing are likely to be explained by simple interactions of supply and demand.  

And while the media is busy hunting syndicates, talk show pundits are castigating the Trade Minister, and the Trade Minister is busy trying to preach the businessmen to ‘not make excessive profit’, no one is talking about the real danger: monsoon is about to fail across South and South East Asia, and there is a real danger of skyrocketing rice prices in 2010.

Take onion prices.  Here is monthly onion price from 1995 to 2008.  Onion prices go up every autumn-winter, and then fall by summer.  Plus, during Ramadan (red bars), prices are slightly higher.  When Ramadan is in autumn-winter, onion prices seem to skyrocket. 

onion prices

Syndicate?  Tarique rahman / army / Awami corruption?  Seems to me simple supply and demand is far more likely.  And it’s not just onion.  It makes perfect sense that prices of iftaar items will rise during Ramadan.  Not just in Bangladesh, but across the Muslim world.   Demand rises, supply remains same, prices rise — it’s the same reason why gas prices rise during the summer vacation driving season in the West.

Incidentally, onion is selling for 25 taka a kg this Ramadan, not terribly out of line from the past Ramadans.  So don’t believe everything you hear about Awami syndicates.

Not that AL deserves any sympathy.  AL is reaping what it sowed (excuse the pun).  Its election campaign relied heavily on busting syndicates to keep prices low.  As I’ve been arguing for nearly two years, populist political rhetoric it may be, but on its own, syndicate busting or other law-and-order approach to food security will likely to prove useless at best, or even downright counterproductive (see here). 

 And while everyone is hai hai about iftaar prices, I haven’t seen any commentary on rice prices.  India is in the midst of a drought, and the monsoon is failing in Indonesia, Thailand and Vietnam.  In 2007, rice prices spiked because india imposed an export ban.  If this happens again, you can forget 10 taka kg rice. 

We should be very worried about rice prices.  Ensuring a functioning global market in food products should be a priority in our foreign policy.  Bangladesh should explore an Asian agreement on rice trade that stops counterproductive export bans.  And the government should start thinking about stockpiling, social safety nets, and other measures that will be needed when rice prices return to sky.

Instead of chasing syndicates, our Ministers and talking heads will serve the public better by thinking about rice prices.

Update: Food price inflation in the year to June 2009 was 0.3 per cent, the lowest rate since 2000 (when the series begins).

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  1. […] (More at Mukti) […]

  2. […] is coming, which means onion is about to become expensive.  You want to have that peyaju for iftaar, but worry about having no money for the solid serving […]

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