Prise Rise of Essential Commodities
Prise Rise of Essential Commodities
Nepal’s economic future inevitably depends upon the growth of its agricultural sector. Out of 26. 4 million populations, nearly 80% of population is employed directly or indirectly in this field. Despite such a large population working in this field there has been food deficit which resulted into turning out Nepal a net importer from exporter, a big irony for a country like Nepal. We should put all our efforts to increase its supply by enhancing the productivity of the essential goods thus lowering our dependency on imports which accounts to 70% of our imports.
Besides increasing the supply it’s equally important to try to bring the stability in its market price. Citizens have been forced to pay higher price either in the name of low supply, increase of price in our neighboring country, or due to the cartelling and price collusion by few suppliers. Upward trend of price rise of these daily essential goods, has led several economists to apply their theories attempting to explain the pricing behavior in essential goods market. As shown in figure above we can see the price comparison of present market value with market price a month ago.
Different facts have been put forward by different groups showing their own reason and limitations behind the rise of price. * Commodities prices are controlled by whole sellers and big supplier oligopolist: There is a widespread belief that the prices are controlled solely by big supplier oligopolists in the market of essential goods. These suppliers go for price collusion and fix the price they like; they usually withheld the commodity stocks to bump the market price to earn much more than the normal profit during festival time.
The price of essential goods tends to go up in a synchronized pattern, which depicts that the price collusion must be occurring between suppliers. This results in jeopardizing the demand and supply based market system. Suppliers’ having the monopoly at fixing the price due to the fact that the consumers’ demand for these goods to be less sensitive to price change. These goods show price inelastic in nature. * Price increase in our neighboring country: Whenever there is slight movement in price of commodities in India, here in Nepal we witness its domino effect, but it’s not in proportionate manner, the price difference is quite dumbfounding.
As data reveal that whenever there is rise in price in India, price rise in Nepali market. About one third price variability here in Nepal, is determined by prices in India. It’s is more than proportionate and when there is price lowering in India, no similar trend is observed here in Nepal, price remains sticky. Why the price didn’t lower? Though the government has passed the anti-monopoly law its dysfunctional due to the government’s incapability to obliterate cartelling and syndicate system. * Low supply:
Whenever there is slackness in supply of goods, price is certain to rise, which is well explained by theory of demand and supply. Different factors are to blame for short supplies, such as, delayed monsoon and untimely rainfall last year. According to the Ministry of Agricultural Development, there was reduction in paddy production by 11. 3% this year, which was the main reason for rise in rice price this year. * Rise in Inflation: Accordingly the consumer price inflation has increased by 10. 1 per cent in the seven months (Mid-February 2013) of the current fiscal year compared to the same period last
Year. This is also a prominent factor for increase in price. Price increase in Nepalese commodity market largely depends upon the inflation of India, but as shown in graph, India faced food inflation which was lowest in three years. But still here in Nepal we saw no significant drop in market price. Thus this Year. This is also a prominent factor for increase in price. Price increase in Nepalese commodity market largely depends upon the inflation of India, but as shown in graph, India faced food inflation which was lowest in three years.
But still here in Nepal we saw no significant drop in market price. Thus this points finger over suppliers and their collusive practice. * Involvement of middlemen: Lack of proper market channel for the goods to arrive at the market has given space to the middlemen to grow. Politically backed middlemen and associations act both as monopsonists (only they purchase food from farmers), and monopolists (only they sell food to wholesalers), in result depriving farmers by getting them the fair market price and also burdening consumers with artificially inflated prices.
Frequent hike in fuel price and power shortage: First, due to the maximum hours loadsheeding, firms has been forced to depend on petroleum products (especially diesel, in which NOC claims to bear maximum loss and whose consumption more than doubled between 2007-08 and 2010-11) to lighten up their factories and working place. That will increase production cost and reduce competitiveness of Nepali goods in the National and international market. Nepal is already ranked as the least competitive economy in South Asia with the high cost of doing business.
According to Enterprise Survey (ES) 2009, lack of electricity is the second biggest obstacle to investment and is inflicting losses of 27 per cent of annual sales. Thus, consumers are paying more to goods than its worth. In the last four years total price rise was above 40% coupled with around 55% rise in food prices as directed by Central bank data. But no obvious similarity is seen between food price and food production, as in 2010/2011 there was 15% rise in food price as against 4. % rise in agricultural GDP.
The solution lies in hands of consumer and government. Consumers must be aware and unwilling to pay more. Similarly government should start close regular monitoring programme. According to the Black Marketing Act of Nepal, any vendors selling any product keeping a profit margin more than 20% are punishable by law. Similarly fair price shops should be opened. Tough and immediate action should be taken against anyone who tries to create artificial shortage by hoarding the necessities.
Subject: Supply and demand,
University/College: University of Chicago
Type of paper: Thesis/Dissertation Chapter
Date: 2 October 2016
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