James Paul & The People’s Blog

Published in The Nation Nov 22, 2007

Price controls always sounds like the easy solution to high prices and in a period of rising prices they always seem to be the first option. Price Controls seem to suggest the provision of immediate relief from frequent price increases, people likes certainty when it comes to food prices. However, as we all know it is never so simple and price controls can sometimes complicate and make things even more difficult.

At the moment Barbados is experiencing a round of inflation where prices of goods and services are rising in the face of increases in the price of goods and services worldwide. Some countries would experience more rapid rates of inflation than others and countries should seek to adopt strategies which cushion the impact of international commodity price movements. One of these is to maintain some productive capacity in relation to those commodities which are consumed by citizens of the country. Our failure over the years to take adequate steps to maintain and develop our productive sectors and our infatuation with an economy based on services have brought us to where we are today. The services led economy is a misguided notion. In the environment we are in today price controls are ineffectual because control over the productive sectors do not exist, The important consideration here is where we are in respect of the commodity chains of the goods that we consume.

The commodity chain starts at the farm gate or for that matter the factory and ends at the premises of the retailer and what is often not appreciated is the fact that labour accounts for a relatively small percentage of the retail price of the commodity. The further we are along the commodity chain the more costs are incurred in delivering the item to the consumer at a reasonable cost. In countries classified as net food importing countries such as Barbados it means that we are heavily influenced by international movements in prices. Furthermore, international distribution chains owe us nothing in this regard and a relatively small market like Barbados’ usually attracts high prices because of the high price per unit to service such small low volume destinations.

Price controls prejudices one economic sector against another and represents a superficial attempt to control prices especially in the current environment of rising international food prices. The fact that these food price increases are also shrouded in political intrigue does not help because rational thought seems to betray us and emotionalism takes over. The fact that in a period of inflation the commodities market seems to be the most noticeable represents the reason why food security needs to be given more prominence in terms of national development planning.

The discussion about the need for price controls need not take place if there was a strong food security regime in Barbados. A strong food security regime requires a commitment to the production of minimum quantities of commodities required for the maintenance of good nutrition among the general population. This would therefore involve the allocation of resources to facilitate the production of the commodities required by committing a certain percentage of budgeted expenditures on the part of government. Hence, specific production targets would have to be established that local food producers would be expected to meet.

There are some who would say that this level of state intervention in the production process is unnecessary, however, the willingness to consider price controls is an admission that the free market system for allocation of goods and services has failed. This is because the price mechanism does not address certain social prerequisites such as the fact that the distribution of resources among the population is uneven and all of us are differently endowed. In addition, society needs to ensure that the factors of production that are available to it are utilised to benefit all citizens and there are socially disadvantaged groups in society that are not served by the operation of free markets. It is therefore incumbent upon the state to provide the necessary resources to ensure that the food security interests of the wider population are not compromised. These are the issues that need to be addressed in the current environment not the implementation of price controls which would only create further problems

Posted on July 27th, 2008 by jamesd
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Published in The Nation Centre Page, Nov 13, 2007

Can we compete internationally or are the odds stacked against us?

The current thinking behind modern competitiveness theories lies in neo liberal economic theory which embraces the view that markets left to regulate themselves represent the most efficient way to allocate economic resources. The objective is to allocate resources in the most efficient manner that would provide great benefits in the form of profits to the owners of the resources. Competition in such an environment benefits the owners of capital which in a globalised world poses tremendous challenges for small island states like Barbados. These states are characterised by low resource capacity and wealth concentration in the hands of a few. There is an over reliance on foreign investment rather than local capital and ingenuity to drive the economy.

It is believed that firms in this environment must be allowed to function freely; in fact the firm becomes the centre and major beneficiary of economic policy. These firms are powerful business units and comprise partially the private sector in addition they exercise inordinate influence, this characteristic reveals the fundamental weakness of the neo liberal approach to economic development. In addition, in any discussion about the ability of countries to be competitive in a free trade environment, the question must always be asked. Who are the competitors? Is it the state or the firm or for that matter the private sector, the answer to the question reveals the idiosyncrasies that seem to be a part of modern intellectual thinking. There are those willing to venture into areas of intellectual thought that are not grounded in any firm philosophical perspectives. In fact these approaches lack any moral grounding and do not recognise any underlying social responsibility by firms to those most vulnerable sections of society.

Much of modern competitive theory gives preeminence to the firm and consequently does not answer the need for a more development oriented approach to resolving the difficult economic issues facing developing countries. Very often firms in developing countries are dominated by a minority with a high incidence of interlocking directorships. This makes mockery of the idea of competitiveness; in addition, these firms have international relationships guaranteeing themselves pivotal positions to exploit market liberalization. In addition, there international connections allow them to strategically position themselves to take advantage of new opportunities, leaving crumbs fro the rest.

Businesses in developing countries must be encouraged through a more development oriented economic policy to create and/or establish viable and sustainable commercial relationships along the various product chains. This would assist in preventing the underdeveloped countries like Barbados from being swamped by products originating from the metropolitan countries. The continued insistence by more developed countries that tariffs be lowered is merely to facilitate market penetration. This process of trade liberalization through tariff reduction results in the undermining of the productive sectors. This occurs because the commodity chains for the distribution of locally produced goods are undeveloped and needs to undergo a major overhaul if they are to survive in a globalised environment.

It is the stated objective of Barbados to achieve developed country status by the year 2020; however, it is fallacious to believe that just stating the view would result in the productive sectors being able to survive. Our states are compromising our national sovereignty yielding to the neo liberal agenda. The facts speak for themselves competition is merely a buzz word with very little substance when looking at its track record in the developing world. The odds are stacked against us.

Posted on July 27th, 2008 by jamesd
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Published in the Business Authority - Feb23, 2007

Local agricultural products have always had a tremendous difficulty in penetrating the domestic market for a number of reasons some relate to the manner in which the current domestic supply chain from farm to table is organised, the current perception of consumers as it relates to local agricultural products and the tremendous cost advantages that imported products has over locally produced agricultural products. The perception that locally produced agricultural products is on a level playing field as it relates to imported food commodities is a matter of perception which because of the socio economic relationships in the society condemns it to being a myth. Market access therefore has to be a problem in the current environment.

A mere stroll through the aisles of our supermarkets and our major retail stores tell the story, in that one sees a high percentage of imported foods as against locally produced agricultural products. Many times the critics do not appreciate that developed countries have reached a much more developed stage in their industrial superstructure which gives products in these countries a significant competitive advantage. In addition, the entrenched commercial interests develop relationships with businesses in our domestic markets which prejudice local producers of agricultural products. In fact our business relationships seem to be successfully tied to businesses in the developed countries rather than in our communities. Hence, accounting for the significant advantage that imported commodities enjoy over locally produced agricultural commodities in terms of market access.

The lack of significant food processing operations also constitutes a significant disadvantage. This is a direct result of the unwillingness of domestic investors to invest in any serious food processing activity. The examples are few and far between and in any cases there are no great benefits for locally produced agricultural products, since these enterprises buy a ration of “expensive locally produced goods” and cheap imported agricultural commodities. It is clear that in such an environment where commercial relationships are so outward looking there would be tremendous difficulties in developing the commercial relationships that would facilitate market access.

There is constant reference to the fact that local agricultural production exists behind high protective barriers however, this is little consolation to a local producer since the overseas producer enjoys certain economies. These economies include purchasing, finance and technical economies. In addition, in developed countries a much more comprehensive agricultural policy strategy is employed to ensure the survival of agriculture. For instance, many of these countries ensure significant tracts of land are preserved for agriculture; hence the kind of speculation that currently encompasses agricultural properties is reduced. It must be mentioned that even in these countries that follow these policies this has not solved the problem entirely since concern is being expressed over the rising costs of agricultural properties.

The important point to note however is the fact that agriculture in the developed countries enjoys a range of subsidies which reduces the cost of production of commodities. In addition, the impact on the unit cost is significant since the there are both direct and indirect. A startling fact to note is that the beneficiaries are usually large farming operations who are able to take advantage of these subsidies. In addition, the size of these operations compared to ours is mind boggling at best. Market access therefore is the problem since there are too many factors impacting negatively on the ability of local producers’ to secure adequate and sufficient market access.

It is only where there is a determined and conscious effort on the part of farmers, wholesalers and retailers to ensure that locally produced agricultural commodities are provided with shelf space that progress is made. Unfortunately, evidence of such initiatives is few and far between. This must also involve a determined effort on the part of the farming community to ensure that better farming systems are embraced which would ensure a more reliable supply to the consumer.

Posted on July 19th, 2008 by jamesd
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