Economic Regulation in Fiji
This is the second of a two-part series from the Fijian Competition and Consumer Commission continuing from part one which was published yesterday.
In doing so, FCCC helps ensure Fijians have access to electricity in their daily activities including producing goods or providing services to the general public.
Key Factors Influencing Prices
There are numerous ongoing challenges that arise when regulating the market. These challenges encompass issues such as removing some unnecessary restrictions and improving the design of others, measuring the effectiveness of decisions and impact on infrastructure provisions.
In addition, considering price fluctuation that occurs in the market where an increase in the cost may not be acceptable by consumers. Prices in regional markets for different products can be volatile due to the impact of factors and events unique to one market or all markets globally.
As such, focusing on the longer-term price trends in the relevant regional market for specific products is important in order to understand what is driving movements in the prices of specific products/services here in Fiji.
The figure below outlines some of the fundamental market drivers and other influences impacting the regional and global market prices, and ultimately the Fijian market prices, over time.
Supply shocks that disrupt production, such as natural disasters, or raise in production costs, such as high oil prices, can reduce the overall supply and lead to “cost-push” inflation, in which the motive for price increases comes from a disruption to supply.
The food and fuel inflation episodes of 2008 and 2011 are good examples which show the impact of international disruptions on the global economy.
A sharp rise in food and fuel prices were transmitted from country to country via trade. The poorer countries were generally hit harder than the advanced economies. In addition, political crisis is another crucial indicator influencing prices.
For instance, the trade sanctions imposed by United States of America (USA) on Iran led to unforeseen changes in global fuel prices. The shifting dynamics and political instability internationally make prices unpredictable affecting the overall economic activity and further reducing consumer confidence.
For an economy such as Fiji, with the low population size, does not allow for economies of scale to take place in our favour. Furthermore, as the international prices are quoted in $US, their price in Fijian dollar terms reflects movements in both the $US benchmark price as well as movements in the $US/$FJD exchange rate. This means that exchange rate movements can offset or magnify changes in international prices. Fluctuations in the exchange rate can also independently impact on the market prices for shipping and freight which are also quoted in $US value.
All of the factors above can have an influence in determining the final price that consumers pay and the role that each of these factors play can change over time. As a price regulator, it becomes essential for the FCCC to analyse these factors on the bearing of domestic prices.
The FCCC works towards removing volatility and keeping prices stable allowing people and businesses to plan and bring stability in consumer goods and consumer spending.
Regulated Industries and Determinants for Price Change
A consumer utilises various goods as part of its daily usage. This includes, but is not limited to, housing expenses, electricity, water, transportation, building materials and internet costs.
The FCCC exists to ensure that traders operate in a competitive manner ensuring that even in monopolistic industries prices are reflected as if the markets were competitive.
Considering the fuel sector, it is one of our biggest regular expenses and there is a need to keep a close watch on the price.
The fluctuation in Fuel and LPG product prices is also a common experience for Fiji, particularly given that Fiji is a price taker in the international market.
There is a close relationship between international Fuel and LPG prices and the Fijian wholesale and retail fuel and LPG prices. Fiji’s regional market for petroleum and LPG products is the Asia–Pacific market.
The Singapore prices are the key pricing benchmarks for Fiji because Singapore represents the competitive source of supply for Fiji.
As far as the LPG products are concerned, the FCCC has been tasked to determine and authorise the prices for LPG products in Fiji since 2012.
This has greatly benefited all Fijians as they get to enjoy reasonable prices compared to the pre-regulation period where the price for a 12kg Cylinder was as high as $54.00. In 2012, the FCCC conducted extensive investigations following concerns from members of the public regarding unreasonable LPG price hikes in Fiji.
The findings established that the Fijian LPG market was not adequately competitive and there were elements of anti-competitive conduct.
Hence, there was a need to step in and regulate the sector to make the product available to Fijians at competitive prices.
When it comes to other consumer goods such as food, hardware and pharmaceuticals, they are either imported or manufactured locally, while the raw materials are still imported.
Hence, shifts in global pricing impacts the price paid by Fijian consumers.
The FCCC undertakes price control to ensure that businesses do not exploit consumers. In such cases, the average mark-up ranges from 6 per cent to 8 per cent in contrast to non-regulated products. Furthermore, Information and Communication Technologies (ICT) are recognised as a pillar of any modern society, as no sector seems to work efficiently without them. For instance, if we take internet services, it happens to be part of majority people’s spending.
The FCCC through market monitoring has observed that presently the internet plan prices at the retail end has reduced compared to prices charged in previous years. In 2009, the FCCC stepped in to regulate the telecommunications sector which is a contributing factor for the reduction in prices over the years.
Hardware items such as timber, fasteners, electrical and plumbing products are also contributing factors for one’s expenditure. Therefore, the FCCC in order to safeguard consumers from unduly high prices for essential goods and services regulates such products.
Regulated markets such as the tariffs for electricity, wholesale cement and reinforcement steel rods have remained stagnant over the years, with prices remaining stable since 2013 and 2014.
This is with a view that the FCCC strives to identify efficient costs and set appropriate asset bases to ensure that regulated businesses are able to achieve an appropriate return on their investment as well as the Fijian consumers are being charged fair prices. Overall, the roles and functions undertaken by the FCCC strives to ensure that every Fijian is able to access key goods and services in the market place while the traders and service providers are able to acquire equitable returns.
The FCCC works towards ensuring that the benefits arising out of regulation are passed down to consumers and stakeholders alike. Next week: we take a look at consumer spending and costs associated with goods and services