The problem arises from the fact that the biggest manipulator of prices and quantities in the country is the government itself. Ostensibly, the government is trying to ensure an adequate supply of essential food items at affordable prices to the poor. We applaud the goal, but disagree with the method. Attempting to impose controls on sugarcane prices and having a government entity that serves as the largest buyer of sugar in the country only creates opportunity for unscrupulous entities to try to game the system to their advantage. A better approach would be for the government to remove itself from the role of a market participant and instead focus on being a regulator. This approach has worked out quite well in the past. The government artificially tried to reduce sugar prices by fiat in 2010 and failed. However, when the Competition Commission of Pakistan simply tried to crack down on collusive activity between sugar mills, consumer prices went down and farmers got better prices for their crops. In short, rather than wasting resources on trying to be a benevolent monopolist, the government would make itself, consumers, and farmers much better off by simply controlling collusive activity.
Published in The Express Tribune, November 17th, 2013.
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Rarely does one get to see articles that are not devoid of common sense here.