Don’t blame middlemen for price increases
CHANGES in food prices, both big and small, never fail to attract media attention. At times of low prices, farmers just cut supply to prop up prices.
When the price of chicken dipped, excess chickens were sacrificed to stop further price drops. Consumers naturally welcome low prices. But too low a price is not sustainable because of unreasonable margins for food producers.
The bigger problem is when prices spike. Unlike cutting supply, increasing supply to stop rising prices is not that straightforward. The current high food prices are mainly driven by a shortage in supply.
The supply shortfall can be due to lower local production, a logistics bottleneck, labour problems and, not to mention, high costs of inputs, such as raw materials and other agronomic inputs. As always, whenever there is a price hike, we are quick to blame the middlemen. It is time for a rethink.
Middlemen have an important function in a food supply chain. They provide the link between food producers and consumers. They operate much like any other business, always on the lookout for opportunities to maximise returns. Managing risks to mitigate losses is also in their culture.
So when they see a mismatch between supply and demand, they will resort to the necessary strategy to profit, which is true for any business. When they see a supply shortfall, a hike in price would naturally follow. As a business entity, they would make the best of the situation.
Let us not blame the middlemen for the food price dilemma we are in. We should instead look at the root cause of the problem. Clearly, it lies in the big gap that exists between the supply and demand of food items.
Few would dispute the fact that the pandemic has a hand in the disruption of food supply all over the world. We are aware that the pandemic has disturbed the normal logistics chain that global food supply relies on. During the pandemic, demand for food slowed down. And much of the world’s logistics infrastructure became dormant.
The workforce also had to be scaled down. Therefore, as soon as there were some signs of recovery from the pandemic and the consequent spike in food demand, getting the logistics up and running was a massive challenge. We saw how the badly disrupted oil truck logistics in the United Kingdom led to a spike in the price of petrol there.
Market experts tell us that price control is not the best way to moderate food prices. Literally, all developed economies do not practise price control. All prices move in line with supply and demand. Even speculators study changes in supply and demand before they act.
Instead of enforcing price control, it would be better for the authorities to closely monitor the changes in supply and demand in the market. Whenever the gap is seen to be widening, immediate action should be taken to boost
supply. If the weakening of supply is due to a labour shortage, then the necessary workforce should be brought in.
There is evidence that much of the current shortage is due to the curbs on the entry of foreign labour due to the movement restrictions. If the supply boost requires importation, the necessary import mechanism should be set in motion immediately.
What is happening now is there is too much focus on controlling prices, ignoring the developments in the supply line. In fact, nowadays, with artificial intelligence and big data analytics, the monitoring of supply can be automated.
Through such monitoring, any
imbalance in supply and demand should automatically set in motion the necessary corrective actions. Unless we address the root cause of the price dilemma by diligently monitoring the supplyand-demand gap, we will never have a lasting solution to the problem.
Every now and again, the problem will recur, especially during festive seasons when demand spikes. Instead of monitoring prices, we should monitor hoarding, which also disrupt supply.
So the answer lies in efficient supply management.