‘Price control - a political stunt’ | Sunday Observer

‘Price control - a political stunt’

A report on competition by the Advocata Institute says that fostering competition and improving productivity are the best forms of price control.

The report titled ‘Price Control in Sri Lanka: political theatre’ notes that price controls are of limited value in reducing prices of consumer goods. Such measures rather than benefiting consumers lead only to welfare losses, deterioration in product quality, reduction in investment and in the long term, higher prices.

“Price controls tend to have unintended outcomes such as low quality products entering the market,” Resident Fellow of Advocata and co-author of the ‘Price Controls in Sri Lanka’ Report Ravi Ratnasabapathy said.

The survey by Advocata and Breakthrough Business Intelligence over a 10-month period, which looked at retail prices as per the open market weekly average retail price on 13 groceries, showed that only milk powder was constantly sold at the controlled price throughout the entire period.

The report based on the survey among retailers in Colombo, Gampaha and Anuradhapura reveals that there is ambiguity among retailers about price controls.

While many are not aware of price controls the few who know it resort to tactics such as selling products at the controlled price only for a maximum of two months, to avoid raids by the Consumer Affairs Authority (CAA) inspectors.

Ironically, the findings show that neither the retailers nor the CAA (the guardian of consumer rights), posses a list of price controlled items.

The survey shows that 67 percent of retailers and 46 percent of wholesalers react to raids by the CAA by temporarily adjusting prices and revert to the old prices later.

Traders claim that paying fines for non compliance was more profitable than retailing goods at the controlled price. This is particularly true in the case of small tea and hopper sellers.

“Tea and hopper shops were subjected to arbitrary control in 2015 but it was rarely enforced and at best the controls are not effective, and at worst, works against small entrepreneur’s legitimate business resulting in more clandestine activity. We believe that price controls should be abolished,” Ratnasabapathy said.

The Report states that serious enforcement seems confined to items produced by multinationals or large corporate such as milk powder, cement and cooking gas which are administratively easier to police.

In contrast there only appears to be a token enforcement in the unorganized sector. Price controls come at the expense of consumer choice and quality.

‘In resorting to price controls the usual case is that producers resort to producing low quality goods to remain within the range of the controlled price,” Ratnasabapathy said. Price control or a Maximum Retail Price (MRP) on goods and services which is also called a ‘price ceiling’ is imposed to curb escalation of prices of goods for the benefit of consumers.

The Advocata Report shows that taxes such as the Special Commodity Levy and Cess play a major role in raising prices.

It notes that taxes and price controls do not go hand in hand in bringing down the cost of goods. Rather, creating the fiscal space for simplification of the tax system, having uniform rates and lowering taxes will help lower prices.

The Institute said that the price control enforced on bottled water would have the same outcome of capping prices at the expense. Price caps deny consumers the right to have a choice of prices and choose quality products.

“The bottled water sector comprises around 120 players and until price caps were enforced consumers had the choice to buy a 500ml bottle at either Rs. 45, Rs. 50 or Rs.80. Now the option to select according to quality preference has been denied,’ an official of Advocata said.

The CAA imposed a price control on bottled water on October 5.