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Flour, bread and economic growth

Sep 30, 2008 Letters

DEAR EDITOR,
Investment, growth and economic development become difficult in an environment where the free market system is not allowed to operate without interference.

Not too long ago, Guyana’s only flour mill, Namilco, was being denounced for daring to raise prices in the face of increasing world prices for wheat.

In response to this, the Government protected the consumer by opening the market to imported flour. There was dumping of foreign flour on the local market, however, and the strategy did work to keep prices down for a short period. Namilco’s monopoly was broken.

With continuing increases in world prices for wheat and rising prices for flour, the Government then decided to subsidize flour to the bakers and a small amount to the public.

What this meant was that some members of the public were able to buy flour at cheaper prices while the rest had to pay the full amount. While the cost of roti and bake had gone up for most people, the price of bread remained the same.

Now that the period of subsidy has come to an end and flour prices continue to climb, we are again seeing Namilco being denounced for not reducing prices. Despite the opening of the market to imported flour, we are again hearing that Namilco is a monopoly.

There are no restrictions on the importation of flour, yet you can find very little foreign flour on the market. The reason for that is very simple: Namilco’s price for flour is the cheapest in the region.

National Flour Mills of Trinidad & Tobago (NFM) announced in July that they are raising the price of flour to US$0.96 per kg for flour.

They also published a per kilogram price comparison in $US as follows: UK $1.21, USA $1.41, Canada $1.56, Jamaica $1.30, Grenada $1.38, Barbados $1.24, NFM (Trinidad) $0.96. NFM had left out Guyana in the comparison. Guyana’s price per kilogram to the public is US$0.79, the lowest without the subsidy.

How do you justify public vilification of Namilco, when it is selling flour at the cheapest price in the region?
The Government has made its position clear; it does not want to see the price of bread increased and is therefore doing its best to contain any increases.

To achieve this will mean that you cannot allow the free market to determine prices. This type of interference cannot build confidence in investors, nor will it allow for growth and development.

If the free market is allowed to operate, and assuming that people are rational beings, the following is likely to occur:

1. If the price of flour increases beyond a certain level, imports will become competitive.
Alternatively, the profitability of flour mills will be such that it will attract more investors in milling capacity.
Both events will result in increased supply and lower prices.

2. If the bakers increase the price of bread, the people will look to alternatives such as roti, bake, duff and ground provisions.

Less flour and bread will be consumed. Alternatively, the profitability of bakers will attract more investors in opening bakeries to increase the supply of bread, which should again result in lower prices.

Instead of interfering in the free market system, be prepared to manage or accelerate the changes that are likely to take place, such as:

1. Increase incentives for the growing of ground provisions and aggressively market farine as an alternative to flour. Both these strategies will increase employment locally and divert foreign currency to local investments.

2. Advertise for investors in flour milling capacity and have investment packages ready to offer.

3. Advertise for investors in bakeries and have investment packages ready to offer.

Once you start to manipulate the free market system, you are slowly moving back to a command and control economy. And we have been there before.

If anything, we should learn from what happened to the chicken industry and the price of chicken in this country.
Sase Shewnarain

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