‘If the govt can control 25% of the market, the influence of big importers will be reduced’

As edible oil prices skyrocket and disappear from the store shelves The Business Standard spokes with Ghulam Rahman, president of consumers rights body Consumers Association Bangladesh(CAB), to understand the issue at hand and potential ways out of the crisis

May 11, 2022, 11:00 am

Last modified: May 11, 2022, 12:30 pm

Wholesalers as well as retail shop owners withdrew edible oil from the market in the hope of more profit. Photo: Mohammad Minhaj Uddin

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Wholesalers as well as retail shop owners withdrew edible oil from the market in the hope of more profit. Photo: Mohammad Minhaj Uddin

The edible oil price has reached a record high of Tk198 a liter of bottled soybean oil while the price of a liter of loose palm oil has increased to Tk172 from Tk130. Interestingly, since a few days before Eid-ul-Fitr, bottled soybean oils of all brands nearly vanished from store shelves across the country.

Commerce Minister Tipu Munshi on Monday blamed businessmen for creating an artificial shortage in the market by hoarding soybean oil. The Business Standard spokes to Ghulam Rahman, president of consumers rights body Consumers Association Bangladesh, to know his perspective on the rising price of edible oil and imports by a few companies.

Only four major companies import 88% edible oil in the country? Do you think these few companies have an influence on the oil price hike?

It is an oligopolistic market. What happens in an oligopoly is that if any dominant company decides to increase its profit margins, other companies follow suit. They can do it either in collusion or they can do it individually.

What has been happening in our country in the edible oil market is that there is apparently an understanding among the importers. And they are manipulating the market based on that understanding.

They also maintain a good relationship with the government. As a result, they get approval from the government to raise the prices. However, when they do not like the government’s decision, they do not listen to the government.

For example, the government asked oil importers to keep the supply smooth and not to raise the price of oil before Eid. The government said that it would consider increasing the oil prices after Eid. What has happened? They have created an oil crisis.

When a few oil refiners control supply of oil, different people manipulate the market in different ways. Then wholesalers as well as retail shop owners withdrew edible oil from the market in the hope of more profit. At one point, some shop owners told customers that if they want to buy oil, they will have to buy something else with it.

On the other hand, some shop owners told customers that they have run out of edible oil. Ultimately, the non-availability of edible oil has become acute.

And after Eid, edible oil importers set a price and gave it to the government for approval. The government approved it. What does this mean? It means they are dictating terms. The role of the government, if any at all, is marginal.

We have also seen such oligopolistic behavior in sugar imports as well as in the case of other essentials. How can this be addressed?

Yes. It is the same formula. It is also an oligopolistic market.

I think we can welcome international business chains that can import oil to Bangladesh. They will then become the big players, and the big fish will swallow the small fish, the way they [existing oil importers] swallowed the small fish in the market.

Another way is that the government may enter the market directly. The government will have to set up refining and storage facilities. If the government can control 25% of the market directly, then the influence of the big importers will be reduced.

Ghulam Rahman. Illustration: TBS

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Ghulam Rahman.  Illustration: TBS

Ghulam Rahman. Illustration: TBS

The government will have to import edible oil and set up refinery plants and storage. They will have to develop a distribution network. The government can do it with the help of the state-run Enterprise Trading Corporation of Bangladesh (TCB).

The Ministry of Food already procures, stores and distributes rice and paddy. The government can let them do the same with edible oil too. We have been following the open market economy model. We will have to move back to some extent and approach a mixed economy model.

It is right that there is a risk of market inefficiency as our state-run enterprises are always incurring losses. However, the main reason behind such loss is political influence. If the government enterprises are run professionally, there is no reason for them to become losing enterprises.

Large private companies in the country are not run by the owners. The companies are run by professionals. Private companies are making profits, but government entities are doing the opposite. It is because politicians do not have any stake in state-run companies and take decisions that help them make personal gains. As a result, the state-run companies are losing money.

The government purchases food grains like rice and paddy, as a result mill owners cannot increase the price that much. Rice mill owners cannot manipulate the market if the government warehouse has a sufficient amount of rice. When the amount of rice decreases in government storage, mill owners try to manipulate the market. But they still cannot hike the price that much.

Do you think transportation costs in the country – which some allege is made worse by the presence of extortion rackets – has an impact on raising the price of essentials?

It goes without saying that the cost of a product ultimately falls on the consumers’ shoulders. Due to extortion taking place on the highways, the cost of the products increases manifold. Traders do not want to incur losses. As a result, the price of the product increases.

Traders can incur losses once, but they will not incur losses every day. The price of a product increases manifold when the product comes to Dhaka from various places in the country.

Can reducing taxes have an impact on prices of products, at least in a critical situation like now?

It is not correct that tax exemption always benefits the end consumer. If the government can ensure that the end consumer will reap the benefits, only then the end consumer will have the opportunity to get the benefits.

Otherwise, businessmen absorb the benefits in their profits. Edible oil is a shining example. The government has reduced the tax on edible oil imports. The price of edible oil has not gone down. Rather, the price of oil has increased.

How can we get out of our current predicament?

The government will have to increase its capacity and go for a mixed economy model. The government will have to increase capacity to intervene in the market directly. It will take time. However, it is also important to note the whole world is experiencing inflation. And we are also tackling the impact of this worldwide inflation. The United States, which used to have an inflation rate of 1-2%, is now experiencing an 8.5% inflation rate.

The government should take all-out measures to control the price hike. If the price of gas, electricity and water increases, the price of essentials will further rise.

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