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.
Comments
Post a Comment