Supply and demand

Nov 27, 2023 News, The GHK Lall Column

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Hard truths…

Kaieteur News – Though disappointment usually follows when Excellency Ali speaks, I sheathe the hatchet and come with a hand extended to help him navigate his way around things that he should leave to others.  In trying earnestly, I believe, to address the issue of rising prices, the president ventured into waters that are a fathom too deep for him.  Take this gritty local condition of rising prices; and, of course, the linkage to the domestic cost-of-living monster.

According to His Excellency, “Basic theories are that if there is a drop in supply and demands (sic) has not decreased, then price increases so that is primarily the main issue that we have here” (“No end in sight for drop in prices for greens”, KN November 21).  Sorry sir; but yes and no, sir.  Somebody gave the president half of the story, and then left him to run with that double-edged sword into the public domain.  As Vice President Jagdeo would say, it is not as simple or as linear as that, in true economist style.  Indeed, a case could be made for a drop in supply, due to the prolonged dry spell.  The first challenge, however, is that prolonged dry spells are seasonal, as in yearly with few exceptions, and prices do increase; but not to the astronomical levels where they have soared, and for such a sustained period.  In fact, the argument could be made that the prices of many market items, such as greens and veggies, have been on an upward trend prior to the commencement of this season of bone-dry supply and price brittleness.

To repeat from basic economics, there is that inverse relation between supply and demand, which the president has right.  Generally speaking, when supply falls, prices rise.  But here is this vital piece that was conspicuously absent from Excellency Ali’s narrative, what he called “basic theories.”  When supply is constricted, and prices rise steeply in response, there comes a point when some buyers drop out of the market.  Put in cleaner lines, as prices increase and increase, demand levels cannot be maintained for the simple reason that more and more citizens in the available buying crowd do not have the money in hand to buy greens or veggies.  Money.  Buying power.  Enough money to spread for a basket of basic fruits of the land and vine.  And this leads to that condition that is called demand destruction.  The maagah supply beast starts to feed on itself.  May I say, demand saturation point is at work.  When demand starts to sag, and sag some more due to high prices that remain out of reach for many, and supply stays constant, then prices usually cannot remain at the levels that they were.  Supply could be adjusted to maintain steep prices, but only in the instance of manufactured and similar type goods.  Greens and vegetables are perishables, which means that that the faster they are shifted from seller to buyer the better, as they (perishables) only last so long, and they cannot be withheld beyond that period.  Let buyers take it from there.  What the president asserted, therefore, collides with this reality.

I recommend that President Ali consults with either his Saudi and other Middle eastern friends, or Mr. Alistair Routledge, for a comprehensive tutorial on supply curtailments (in these instances, a deliberate policy) and the impact on prices, and the impact of the latter on demand.

In daily life, gasoline prices give.  When Guyanese have to be content with buying less items, or bypassing many of them (due to being out of reach), then the demand pressures are not as intense, and prices should not remain at stubbornly high levels, as they have been.  With each new week, higher chart levels are encountered.  In the local environment, I think there is more than the dry weather at work, and the painful increases in the prices of numerous market items.  I urge thinking about local content, supply boats, catering companies mushrooming, and the connecting thread of bulk buying.  I offer this as another likely element in the supply-price correlations.

Thinking of this, the concern is how much this oil could be costing Guyanese.  “De massive ile trucks brukking up de roads, and Guyanese paying through tax dollars.  De ile knack out de fish, and Guyanese paying some more via higher prices and limited supply (again).  And de same ile now gobblin up de li’l greens and veggies, and Guyanese are, what else, paying through the nose yet again.  In aggregate, these are some of the other (invisible) aspects of the saga that is involved in supply and prices for foodstuffs.”

Here is a parting thought: this oil could be taking more from Guyanese than they are getting.  Two thousand dollars a month (25,000/12) is not turning out to be the great bargain that it seems.  In fairness, the other pieces of relief suspended momentarily, which if not there, would have made living in Guyana even more of a torment.  Thanks, Dr. President, but next time let all the supporting tendrils of the theories shakeout, please.

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• Generally speaking, Guyanese, KN November, President Ali, the president ventured

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