Home ›› 24 Apr 2022 ›› Editorial
Price is the exchange value of products or services measured through money. Marginal utility, price sensitivity in demand measured through elasticity, and scarcity in relation to demand are some of the most important determinants of price. Marginal utility and scarcity are the push factors indicating a positive relationship between the price and the product. The well-known diamond water paradox illustrates the myth behind the higher price of diamonds and the affordable price of water. An elastic product with substitutes is less sensitive to price change and lukewarm consumer expenditures. An inelastic product such as onion, garlic, and salt has fewer substitutes.
Thus an abrupt price variation of an inelastic product makes a dent in the purchasing capacity of consumers as the price skyrockets. On the other hand, as the price drops drastically and the sale proceeds are below the production cost, the production plan and resources allocation nosedive in the long run. Thus an acceptable price from the viewpoint of producers and consumers is essential for a stable production level. Price is considered the most crucial variable in resource allocation. An erratic price variation in the downward direction could drastically curtail the production of a very essential product in the consumption baskets as illustrated in the celebrated cobweb model. The model resembling the spider's web manifest that a reasonable and stable price transpire a conducive environment on an acceptable level of production and consumption yielding a win-win situation for both the consumers and producers. The cobweb model works with two assumptions; (i) no substitutes for the product, and there is no foreign competition. Thus, the degree of the price fluctuation could have severe implications for the production and profit of the framers in the long run. When producers expect high prices to continue, they produce enough by bringing more land into the cultivation of the product and vice versa. The adaptive expectation asserts that producers form their expectations about what will happen in the future based on what has happened in the past. Price stabilization of an inelastic product is crucial in many farm products to guarantee producers' incomes and safeguard the consumer's real income. Policy planners in many economies regularly intervene in the market through quotas, subsidies, and tariffs to safeguard the interest of both producers and consumers by restoring prices to an optimum level and setting the range of price variation in a comfortable band to appease both the producers and consumers.
During the last couple of months, the destabilizing price variation of onion in Bangladesh cut both ways for the producers and consumers. Now is the heydays for consumers; onion price at the kitchen markets is sold at Tk.25 per kg, down from Tk.30-35 per Kg last week. "At Karwan Bazar local onions were selling at even lower prices. It was sold for Tk 20-22 per kg, whereas the price was 24-25 per kg a week ago. Market insiders say the price of onion has never been so low in the last couple of years. Indeed, liberal imports from India and the augmented supply through the Trading Corporation of Bangladesh attributed to this crash-dive in prices, hurting the interest of producers.
Now, look at the other side of the coin. The local onion was sold at Tk.80 per kg in the retail market. The imported Indian onion at Tk 50-60 in January, putting the low and middle-income people, already staggering from the Covid-19 fallout, under more financial pressure. Wholesalers in Karwan Bazar and several other markets were selling the local variety for Tk 70-75 a kg and the imported Indian onion for Tk 45-55 a kg. The plight of a representative middle-income earner is expressed this way, "For the last few months, my salary amount was exhausted by the 20th of each month. I need to borrow money to run my family for the rest 10 days. I cannot even buy medicine for my ailing parents." An employee with an income of Tk. 30,000 need to compromise with a price hike of daily essentials with quantity adjustment.
When domestic production is not sufficient to meet domestic demand, the deficit may be addressed through a pragmatic import strategy beneficial to both the producer and consumers with a tolerable margin of price variation in case of any emergency. The exporters should pursue a conciliatory policy to help the importing country manage the scarcity. Bangladesh is the biggest importer of onion from India, but the export ban in September 2020 by an abrupt policy change of the government of India surprised Bangladesh. Prime Minister Sheikh Hasina expressed frustration with the decision and Dhaka officially conveyed its "deep concern" over India's "abrupt" decision to ban the export. "I wish you had informed us before suddenly putting a halt in the export of onions. I had to tell my cook I have no other option but to have my food without onions. I would request India to please inform us beforehand while taking such an action. After all, we are neighbours."
This is not the first time India has placed such a ban on exports. A similar ban was placed in October 2019. At that time, Bangladesh also shared its "deep concern" with New Delhi.
The yearly demand for onion in Bangladesh is about 27 lakh tons. Considering the domestic production to the tune of 26 lakh tons, the yearly requirement will be to the tune of 34 lakh tons assuming 25 per cent of the produces gets wasted as a perishable products. Now there are silver linings in these statistics. If we can reach the production target of 34 lakh tonness, Bangladesh may attain an autarky position in onion. According to the Department of Agricultural Extension [DAE], the yearly production in 2020-21 is about 32.66 lakh tonness. Bangladesh is now ranked third in the world, surpassing the United States. Surprisingly, we are very close to self-sufficiency in onion production and consumption. The country experienced a shortfall in the near past and needed to import onion to the extent of five to six lakh tonnes.
Production was to the tune of 24-26 lakh tonnes in 2019-20. The DAE asserts that farmers are now cultivating a high-yield variety of Murikata onion, a ladder to reach self-sufficiency in terms of onion production, and believes Bangladesh needs not to import onions and that the home market will not get destabilized once Murikata is produced across Bangladesh. Its yield will come to around 20 tonnes per hectare.
The crux of the issue is in the modus operandi in both input and product marketing. Market syndication is the bane that devours all the positive gains in this complex syndrome. The government needs to focus also on the storage and the dubious connections between the wholesale and retail markets.
The writer is the Treasurer and a Professor at the School of Business and Economics, United International University. He may be contacted at obaidur@ eco.uiu.ac.bd
