“If the government can control 25% of the market, the influence of large importers will be reduced”
As edible oil prices skyrocket and disappear from store shelves, The Business Standard spoke to Ghulam Rahman, chairman of consumer advocacy body Consumers Association Bangladesh (CAB), to understand the problem. to be resolved and the potential ways out of the crisis.
: Wholesalers as well as retail store owners have taken edible oil off the market in hopes of making more profit. Photo: Mohamed Minhaj Uddin
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:Wholesalers as well as retail store owners have taken edible oil off the market in hopes of making more profit. Photo: Mohamed Minhaj Uddin
The price of edible oil hit a record high of Tk 198 per liter of bottled soybean oil, while the price of a liter of bulk palm oil rose from Tk 130 to Tk 172. Interestingly, in the days leading up to Eid-ul-Fitr, bottled soybean oils of all brands have almost disappeared from store shelves across the country.
Commerce Minister Tipu Munshi on Monday accused the businessmen of creating an artificial shortage in the market by hoarding soybean oil. The Business Standard spoke to Ghulam Rahman, president of consumer rights group Consumers Association Bangladesh, to get his views on the rising price of edible oil and a few companies’ imports.
Only four major companies import 88% of edible oil into the country? Do you think these few companies have an influence on the rise in the price of oil?
It is an oligopolistic market. What happens in an oligopoly is that if a dominant firm decides to increase its profit margins, other firms follow suit. They can do this either in collusion or individually.
What is happening in our country in the edible oil market is that there is apparently a cartel between importers. And they manipulate the market based on this understanding.
They also have good relations with the government. As a result, they get government approval to raise prices. However, when they don’t like the government’s decision, they don’t listen to the government.
For example, the government has asked oil importers to maintain a steady supply and not raise the price of oil ahead of Eid. The government said it would consider raising oil prices after Eid. What happened? They created an oil crisis.
When a few oil refiners control the oil supply, different people manipulate the market in different ways. Then wholesalers as well as retail store owners pulled the edible oil from the market in hopes of more profit. At one point, some store owners told customers that if they wanted to buy oil, they had to buy something else with it.
On the other hand, some store owners told customers that they had run out of edible oil. Eventually, the unavailability of edible oil became acute.
And after Eid, edible oil importers set a price and submitted it to the government for approval. The government approved it. What does it mean? This means that they dictate terms. The role of government, if any, is marginal.
We have also observed such oligopolistic behavior in imports of sugar as well as in the case of other essential products. How to solve this problem ?
Yes. It’s the same formula. It is also an oligopolistic market.
I think we can accommodate the international trading chains that can import oil into Bangladesh. They will then become the big players, and the big fish will swallow the small fish, as they [existing oil importers] swallowed the little fish from the market.
Another way is for the government to enter the market directly. The government will have to set up refining and storage facilities. If the government can directly control 25% of the market, then the influence of large importers will be reduced.
Ghoulam Rahman. Illustration: TBS
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Ghoulam Rahman. Illustration: TBS
The government will have to import edible oil and set up refining and storage plants. They will have to develop a distribution network. The government can do this with the help of the state-owned Enterprise Trading Corporation of Bangladesh (TCB).
The Ministry of Food already buys, stores and distributes rice and paddy. The government can also let them do the same with edible oil. We followed the open market economy model. We will have to go back a little and approach a mixed economy model.
It is true that there is a risk of market inefficiency because our public companies are still incurring losses. However, the main reason for this loss is political influence. If public companies are professionally managed, there is no reason for them to become losing companies.
The large private companies in the country are not run by the owners. Businesses are run by professionals. Private companies make profits, but government entities do the opposite. This is because politicians have no stake in public companies and make decisions that help them achieve personal gain. As a result, public companies are losing money.
The government buys food grains like rice and paddy, so mill owners can’t raise the price as much. Rice mill owners cannot manipulate the market if the government warehouse has enough rice. When the amount of rice stored by the government decreases, mill owners try to manipulate the market. But they still can’t raise the price that much.
Do you think transportation costs in the country – which some say are made worse by the presence of extortion rackets – are having an impact on raising the price of basic necessities?
It goes without saying that the cost of a product ultimately rests on the shoulders of consumers. Due to the extortion that takes place on the highways, the cost of products increases dramatically. Traders do not want to suffer losses. As a result, the price of the product increases.
Traders may experience losses once, but they will not experience losses every day. The price of a product increases dramatically when the product arrives in Dhaka from various places in the country.
Can reducing taxes have an impact on product prices, at least in a critical situation like today?
It is not true that the tax exemption always benefits the final consumer. If the government can ensure that the final consumer will reap the benefits, then only the final consumer will have the opportunity to obtain the benefits.
Otherwise, businessmen absorb the profits in their profits. Edible oil is a shining example. The government has reduced the tax on imports of edible oils. The price of edible oil has not fallen. On the contrary, the price of oil has increased.
How can we get out of our current situation?
The government will have to increase its capacity and opt for a mixed economy model. The government will have to increase its ability to intervene directly in the market. It will take time. However, it is also important to note that the whole world is experiencing inflation. And we are also fighting against the impact of this global inflation. The United States, which once had an inflation rate of 1-2%, is now experiencing an inflation rate of 8.5%.
The government should take all necessary measures to control the rise in prices. If the price of gas, electricity and water increases, the price of basic necessities will increase further.