On the surface, imposing regulations to control prices is a good decision, at a time when traders started trying to set prices of their own accord. At least, that is what the Government said when it imposed these new regulations. However, there is a problem as to whether the Government paid any attention to the plethora of outcomes that would result from price controls, besides giving some kind of relief to consumers.
The part most people, and the authorities, seem to have overlooked is that the prices of goods are not just matters that affects consumers; it affects those on the other end of the supply-demand process, i.e. importers, manufacturers, distributors, and traders, who also have to deal with the Government-imposed price control regulations. Therefore, supply is as much of a concern as prices.
In economics, imposing regulations is usually a measure aimed at maintaining and improving the quality of goods and services efficiency, among other purposes. When imposing regulations to control prices, a number of other factors need to be taken into account to ensure that a particular price control means a better situation for both the seller and the buyer. The most important consideration among them is whether the traders can continue to sell goods, or goods of the same quality, for that price.
When a price control is imposed, which basically means that the seller is bound to provide a certain good or service at a Government-declared price, the main, if not only, concern of sellers will be adhering to those regulations. Consequently, this undermines other aspects of providing goods or services, such as maintaining and improving the quality and ensuring an uninterrupted supply. Essentially, the manufacturers, importers, and sellers would be compelled to maintain the price with no regard to its quality, or even to decrease the previous quality, which can reverse the improvements that have been taking place so far.
The risk of the loss of quality is just one aspect of this issue. The availability of goods can also be affected when those importing, manufacturing, or selling goods are compelled to adhere to strict price regulations, mainly due to the risk of losses.
When the Government sets prices, its priority is affordability by the public, and not prices that ensure the profit margins maintained by those providing the goods. The truth is, a lot of businesses are already suffering losses due to the disruption triggered by the pandemic, and they are not in a position to suffer losses any further. This, in turn, has a high likelihood of taking place, as importers, manufacturers, and sellers cut down on the supply or worse, provide substandard goods.
This is a serious possibility the Government should pay attention to, as the private sector is a major stakeholder in the process of providing goods, especially food items. Even though State-run institutions might not mind running on losses, it is not an option the private sector can afford to accommodate. Sri Lanka should learn from how Laugfs Gas, the country’s leading privately owned liquefied petroleum gas (LPG) provider, halted the importation and distribution of LPG when the authorities turned down requests for price hikes.
Imposing new regulations is not the only step the Government took. In addition to price control measures, the authorities took measures to raid warehouses where rice and sugar stocks had been hoarded in tonnes. Though it is reported that they were paid some amount for the confiscated rice and sugar, there is no record of them being fined. However, the authorities publicised these raids via the media to show their achievements to the public, which in turn may have the effect of discouraging those planning to invest in Sri Lanka’s food industry, which makes it not a mere internal issue.
This crisis has a great potential to lead to several other issues – such as a black market being created, and those in possession of stocks of price-controlled goods tending to hide what they have for sale at a time when they can make profits – which are, of course, going to be detrimental to consumers. In that sense, blanket price controls imposed without dialogue with those providing essentials can, in fact, be counterproductive, and lead to an actual, bigger food shortage.
When the authorities are going to learn from myopic, temporary measures is a question we all have. However, the country cannot wait until such time that it happens, because the food shortage and food price crisis are everyday issues for every citizen.
Economic management, not market controls
09 Sep 2021
Economic management, not market controls
09 Sep 2021
On the surface, imposing regulations to control prices is a good decision, at a time when traders started trying to set prices of their own accord. At least, that is what the Government said when it imposed these new regulations. However, there is a problem as to whether the Government paid any attention to the plethora of outcomes that would result from price controls, besides giving some kind of relief to consumers.
The part most people, and the authorities, seem to have overlooked is that the prices of goods are not just matters that affects consumers; it affects those on the other end of the supply-demand process, i.e. importers, manufacturers, distributors, and traders, who also have to deal with the Government-imposed price control regulations. Therefore, supply is as much of a concern as prices.
In economics, imposing regulations is usually a measure aimed at maintaining and improving the quality of goods and services efficiency, among other purposes. When imposing regulations to control prices, a number of other factors need to be taken into account to ensure that a particular price control means a better situation for both the seller and the buyer. The most important consideration among them is whether the traders can continue to sell goods, or goods of the same quality, for that price.
When a price control is imposed, which basically means that the seller is bound to provide a certain good or service at a Government-declared price, the main, if not only, concern of sellers will be adhering to those regulations. Consequently, this undermines other aspects of providing goods or services, such as maintaining and improving the quality and ensuring an uninterrupted supply. Essentially, the manufacturers, importers, and sellers would be compelled to maintain the price with no regard to its quality, or even to decrease the previous quality, which can reverse the improvements that have been taking place so far.
The risk of the loss of quality is just one aspect of this issue. The availability of goods can also be affected when those importing, manufacturing, or selling goods are compelled to adhere to strict price regulations, mainly due to the risk of losses.
When the Government sets prices, its priority is affordability by the public, and not prices that ensure the profit margins maintained by those providing the goods. The truth is, a lot of businesses are already suffering losses due to the disruption triggered by the pandemic, and they are not in a position to suffer losses any further. This, in turn, has a high likelihood of taking place, as importers, manufacturers, and sellers cut down on the supply or worse, provide substandard goods.
This is a serious possibility the Government should pay attention to, as the private sector is a major stakeholder in the process of providing goods, especially food items. Even though State-run institutions might not mind running on losses, it is not an option the private sector can afford to accommodate. Sri Lanka should learn from how Laugfs Gas, the country’s leading privately owned liquefied petroleum gas (LPG) provider, halted the importation and distribution of LPG when the authorities turned down requests for price hikes.
Imposing new regulations is not the only step the Government took. In addition to price control measures, the authorities took measures to raid warehouses where rice and sugar stocks had been hoarded in tonnes. Though it is reported that they were paid some amount for the confiscated rice and sugar, there is no record of them being fined. However, the authorities publicised these raids via the media to show their achievements to the public, which in turn may have the effect of discouraging those planning to invest in Sri Lanka’s food industry, which makes it not a mere internal issue.
This crisis has a great potential to lead to several other issues – such as a black market being created, and those in possession of stocks of price-controlled goods tending to hide what they have for sale at a time when they can make profits – which are, of course, going to be detrimental to consumers. In that sense, blanket price controls imposed without dialogue with those providing essentials can, in fact, be counterproductive, and lead to an actual, bigger food shortage.
When the authorities are going to learn from myopic, temporary measures is a question we all have. However, the country cannot wait until such time that it happens, because the food shortage and food price crisis are everyday issues for every citizen.
Kapruka
Discover Kapruka, the leading online shopping platform in Sri Lanka, where you can conveniently send Gifts and Flowers to your loved ones for any event. Explore a wide range of popular Shopping Categories on Kapruka, including Toys, Groceries, Electronics, Birthday Cakes, Fruits, Chocolates, Automobile, Mother and Baby Products, Clothing, and Fashion. Additionally, Kapruka offers unique online services like Money Remittance, Astrology, Medicine Delivery, and access to over 700 Top Brands. Also If you’re interested in selling with Kapruka, Partner Central by Kapruka is the best solution to start with. Moreover, through Kapruka Global Shop, you can also enjoy the convenience of purchasing products from renowned platforms like Amazon and eBay and have them delivered to Sri Lanka.Send love straight to their heart this Valentine's with our thoughtful gifts!
Discover Kapruka, the leading online shopping platform in Sri Lanka, where you can conveniently send Gifts and Flowers to your loved ones for any event. Explore a wide range of popular Shopping Categories on Kapruka, including Toys, Groceries, Electronics, Birthday Cakes, Fruits, Chocolates, Automobile, Mother and Baby Products, Clothing, and Fashion. Additionally, Kapruka offers unique online services like Money Remittance, Astrology, Medicine Delivery, and access to over 700 Top Brands. Also If you’re interested in selling with Kapruka, Partner Central by Kapruka is the best solution to start with. Moreover, through Kapruka Global Shop, you can also enjoy the convenience of purchasing products from renowned platforms like Amazon and eBay and have them delivered to Sri Lanka.Send love straight to their heart this Valentine's with our thoughtful gifts!