alexa It’s a foolish idea whose time is past - Daily Nation

It’s a foolish idea whose time is past

Wednesday June 23 2010

By JAINDI KISERO

Passing the essential goods price control Bill is mere populism by MPs. Granted, prices of essential goods have been skyrocketing unpredictably, but to imagine that this can be stopped by returning the country to the ancient regime of price controls is to engage in pure fantasy.

The crusade for the return to the era of the price control is not informed by a thorough analysis of the root causes of high food prices in Kenya. First, food prices have been rising simply because we have not been producing enough.

Second, there are cases where the prices have risen because of abuse of dominant market power – due to excessive profiteering by grain millers and trading cartels. Third, maize, wheat and sugar prices have increased because of inefficient production methods.

What MPs fail to appreciate is that when there is a major supply side problem, when you can’t produce enough and the president of the country now and again makes an international appeal for food aid, introducing price controls can only lead to economic disaster.

In our circumstances, price controls will only lead to more shortages, more parallel markets and artificially high demand for food.

Relocating

Have the MPs considered the trends towards economic integration in the region? East Africa will be a fully-fledged common market in a matter of days.

Comesa will have evolved into a fully-fledged customs union in a matter of months. By imposing price controls on cooking fat in the context of a fully-fledged common market that guarantees movement of labour and capital, manufacturers of the product will simply respond by relocating to Uganda, Tanzania or Rwanda.

If it costs Sh100 for a manufacturer to produce a kilogramme of cooking fat when the price set for it by the price controller is only Sh80, he will either stop producing the product or move operations to Uganda.

The price control MPs are fighting to introduce could precipitate massive job losses.