CARTEL AND SYNDICATE EFFECT ON RICE MILL AND VEGETABLES:

 

Agriculture sector contributed about 27 percent in the GDP with 14.38 percent AGDP shared by vegetables including potato (MOAD, 2017). Vegetable production and marketing is gradually emerging as an important sub-sector contributing to gross domestic product in Nepal. Vegetable production and marketing is main source of income for the people of various places in Nepal. However, the country is not able to harness available market for vegetables, and different factors at production and marketing levels hindering vegetable business. These vegetable marketers function in an oligopolistic market structure with a relatively large number of counterpart suppliers and buyers. These are organized groups and have their own associations while their upstream and downstream stakeholders in the supply chain do not have strong enough associations to offset their unruly behavior.

Cartels have infested the milled rice, fruits and vegetables, honey, meat and other subsectors in a big way making it difficult to control access to markets for farmers. A cartel model of oligopoly is a model that assumes that oligopolies act as if they were a monopoly and set a price to maximize profit. Generally cartel is understood as the arrangement among producers and suppliers of goods and services to control the production, sales and price so as to restrict competition and obtain monopoly or oligopoly in the market. Cartels may be overt or covert as the producers and suppliers of goods and services can have a tacit understanding or open agreement to fix the market price, allocate market, increase prices and decrease the quality of the goods and services. Such practices are generally considered as the worst forms of anti-competitive behavior and condemned by the laws of various countries .The ultimate effect of these anti-competitive practices is that the efficient firms lose to the inefficient firms or suppliers as there are no incentives for bringing down the cost and increasing the quality of goods and services. In such a situation of duopoly or oligopoly, all the firms within the cartel groups benefit by sharing the market without the need of improving efficiencies in production or supply.

Hence, the farmers are fetching low prices on their products on the one hand and the consumers are forced to pay higher prices at the other to the hefty benefit of those middlemen. Middlemen have been involved in hoarding agricultural produce in the past and in the process making it difficult for farmers to make money out of their hard work. A market survey done at the Kalimati Vegetable Market shows that the price paid by the consumers for some vegetable products are 10 times higher than the price paid by the middlemen to the farmers for the same vegetables. This shows the intensity of unfair trade practices, much to the chagrin of law enforcing authorities.

 Cartel groups in Nepal are found in other sectors as well. There are no organized (or wholesale) markets for the collection of cereals and sale of processed grains. Millers based in major rice producing districts directly sell their produce to wholesalers and retailers in their areas after processing. The price of milled rice in the Terai regional markets is determined by large local millers and traders. For example, there are tacit understanding and clandestine agreements among the importers and distributors of milled rice in order to fix price and control supply and raise the price particularly during the festive season. Not much association is found between the cost of production of rice and the market price, as price determination is governed by local large millers and traders in the regional Terai markets who determine the rice price considering the expected price in Kathmandu and the price of paddy in the bordering Indian markets. These large operators function in an oligopolistic market structure with a relatively large number of counterpart suppliers and buyers. The lack of backward and forward linkage markets can undermine trade flows, given the relatively small number of stakeholders controlling the trade of cereals.

Competition is the cornerstone of open and liberalized economy as the anti-competitive behavior of the enterprises, industries or traders take a toll on the economic performances of a country by promoting inefficient firms, producers and distributors and punishing the efficient ones. Perfect competition is an ideal situation that is hard to achieve in any economy. However, it should be the ultimate goal and direction to move forward which can be stepped upon by gradually building on the legal, institutional and human resources base for defying the anti-competitive behaviour. Reining the cartel requires comprehensive and concerted approaches from all stakeholders and the effectiveness of law enforcement agencies. The most important factor is the requisition of political will and commitment to establish a competitive and healthy market that could be the precursor to increased trade and foreign direct investment in the country. Many developing countries including Nepal are mired by the dilemma of politics protecting the cartels and syndicates as those who are engaged in anti-competitive practices dole out substantial money to the political parties and their leaders.

Cartels effects have made farmers to drive away from the commercially viable sub-sectors of agriculture. Groups of individuals who are out to make price control and earning quick benefit from low quality products compared to high quality goods must be dismantled under all costs. This must not be allowed to happen, as the country wants to see more investments in agriculture especially commercial vegetable and cereal production. Farmers must be allowed to make maximum earnings from their investment especially given increased production and rearing costs. The price of vegetable and rice should solely depend on demand and supply situation in the market. The government must ensure that these cartels and syndicates are dealt with immediately.