As reported in numerous media sources, the Consumer Affairs Authority has imposed price controls on eggs by colour, after examining ‘costs’.
The CAA slammed a price control of Rs. 45 per brown egg and Rs. 43 per white egg. Such market interventions have failed numerous times over the past two years, the Advocata Institute stated in a media release.
Excerpts of the release:
“As highlighted by us through numerous policy outputs, the imposition of price controls to address equity concerns instead of undertaking the hard reforms needed to create competitive markets is counterintuitive.
Our experience over the past few months illustrated the adverse impact of price controls on the economy, which led to their reversal.
“This is because price controls create distortions such as shortages, rationing and the creation of a black market as well as substitution towards low-quality alternatives.
“Although governments often introduce price controls to protect the poorest consumers in society, they are very inefficient, as a means of redistribution. Often these subsidies are biased against the poor as they consume less of these goods than the rich.
“Further, sharp increases in prices could have negative consequences on low-income households in the short run. Ideally, such price increases should be made gradually so consumers can adjust to them or be able to shift to cheaper alternatives.”
The Advocata Institute calls for the immediate reversal of both policy decisions. The government has taken some steps to address the macroeconomic imbalances and highlighted a commitment to economic reforms. This needs to continue and be supported by a consensus for economic reforms. Market interventions in the form of price controls and import bans will dilute the impact of economic reforms and delay macroeconomic stabilisation.
Key points
* Advocata Institute calls for the immediate reversal of the import ban and price controls on eggs.
* The import ban may lead to the permanent closure of many businesses dependent on imported goods.
* The Government should move towards a more uniform tariff structure abolishing ‘para-tariffs’.
* Price controls have failed on numerous occasions and the current policy will only worsen shortages and lead to black markets and hoarding.
* Implementing policies that support the reform process is essential to macroeconomic stability. Policies counter to this can worsen macroeconomic stabilisation.