Wed, Sep 05, 2012 - Page 8 News List

Not all price increases are storm- induced

By Joseph Chang 張家春

When the latest typhoon hit the nation, it forced up the prices of vegetables and the public saw, once again, government officials making a show of inspecting the prices being charged by retail outlets. I say “making a show” because this is basically what it was, given that the real effects — major price increases — unfolded anyway.

Typhoon Tembin did not cause serious damage to any vegetable-producing regions, but prices went up all the same. It is time, then, to start looking for shortcomings in the system.

In addition to the general psychological conditioning that says vegetable prices must increase following a typhoon, the real reason this is happening is because of manipulation by middlemen.

Over the past few years, systems providing for the transportation and sale of agricultural products have gone through many major changes. In the past, deals that took place in wholesale markets in the regions where the produce was consumed accounted for more than 70 percent of the total volume of transactions. However, the volume in many areas has dropped in recent years, and such transactions now only account for about 50 percent of the total volume.

Reference prices for agricultural products can no longer be determined simply by looking at the prices being charged at wholesale markets in the areas where the produce is being consumed. Often the promotional prices — and even the regular prices — of vegetables being sold in supermarkets and hypermarkets may be cheaper than the prices at wholesale markets.

This is a reflection of the fact that many types of produce are no longer being jointly transported to and sold at wholesale markets — the method commonly employed in the past — but are instead increasingly being produced on a contract basis.

Such contract production transactions are not a part of the wholesale market transaction mechanism and that means that when a typhoon hits — even if it does not damage crops — all consumers can do is stand by helplessly and watch as middlemen increase their resale prices. Over time, this behavior hurts the interests of consumers and producers, while middlemen cream off big, fat profits.

Government policy must take care of the needs of both consumers and producers, although this may seem to be a difficult goal to achieve. To that end, I would like to make the following recommendations:

First, producers need to be given access to adequate information so that they can negotiate with middlemen using shared knowledge. Second, a sound system of guarantees must be established and an environment must be created that allows the reselling of contracts to help minimize the risk of breach of contract. And third, producers should be given timely disaster insurance assistance so as to minimize the amount of risk they are exposed to.

These are the only ways to address and improve the price differences resulting from the transportation and sales systems and to reduce an unreasonable distribution risk.

Joseph Chang is an associate professor in the Department of Labor Relations and Human Resources at the Chinese Culture University.

Translated by Drew Cameron

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