Egypt price controls not being implemented

Ahram Hebdo, Marwa Hussein, Thursday 3 Oct 2013

Retailers complain recently introduced price controls on fruits and vegetables don’t take into account volatile nature of Egyptian agriculture

(Photo: Bassam Al-Zoghby)

Recently introduced price controls on fruits and vegetables have been met with scepticism by retails and consumers alike.

The government introduced the controls on 27 September. Every Thursday, a committee of officials from the supply and agriculture ministries, and vendors' representatives fix prices for the next week.

However, the system is not being uniformly enforced. Moreover, there appears to be a lack of inspectors in many areas. 

In a small market in Cairo's Imbaba, the price of many commodities is higher than those determined by the government. 

A kilo of potatoes sells for between LE6 and LE7 against the LE4.75 to LE5.25 specified by the government. A kilo of onions sells for LE4 against LE3 to LE3.5, and so on.

"We felt a change after the decision: prices have gone up," says Soha, a customer at the market.

"We get expensive prices from wholesale merchants, so if the government wants to control prices, it should control them from wholesalers," say Souad, who has a small shop in the market. 

According to merchants, wholesale prices are higher than the retail prices set by the government for certain products.

"In addition, we pay transportation and other costs, but the main problem is that much is unsellable," says another market trader.

In the first pricing list published by the government, prices were around LE0.5 per kilogram for most vegetables. For example, a kilo of tomatoes is set at a range of LE1.5 to LE2, the price of beans ranges from LE4.5 to LE5.

Supply Minister Mohamed Abou-Shady said if price indicators were not followed, he would impose mandatory prices. 

The minister responsible for investigating supply crimes says offenders could be fined up to LE2000 and sentenced to between one and five years in jail for ignoring the price controls.

Merchants say the ministerial decision was inappropriate. "Because of their volatile nature it is difficult to fix the price of fruit and veg," says Ahmad Shiha, head of the importers division at Cairo's Chamber of Commerce. 

"For example, in a bag of zucchini, there are different qualities and one is obliged to sell some at very low prices. Often a part of our goods is damaged. If the government insists on fixing prices, I'm not going to continue," says a farmer who sells his products on a piece of cloth on the floor.

Before being bought by consumers, fruits and vegetables make a long trip during which they pass through many hands: farmer, broker, wholesaler and retailer. In some cases, smaller wholesalers act as distributors, while some street vendors buy their goods from the closest retail market. 

Street vendors are the most vulnerable sector: they buy their goods at already high prices and their profit margins are narrow. While a salesman in an upscale neighborhood imposes very different prices.

In the wholesale market in 6 October City, one finds farmers coming to sell their goods, retailers who come to buy, and wholesalers. 

Almost all those interviewed by Al-Ahram's Hebdo, whether wholesalers or retailers, are against the pricing mechanism.

"Prices are high because the cost of production is high; fertiliser prices have become too expensive. Prices of agricultural labour have risen. If the government wants to lower prices, it should support farmers," insists a merchant whose remarks were approved of by colleagues and farmers present. 

"If in a given season, tomatoes are in excess, the farmers sell at a price below the cost of production, they will have no choice," says one of them. 

Another man who listens to the discussion confirms this. "Old tomatoes are sold to Koshari restaurants (a popular meal in Egypt) at low prices. Other firmer tomatoes are normally more expensive, this is how we make money. One price is not possible."

In fact, vegetable prices depend mainly on supply and demand even more than production costs. 

"A heat wave or an unsatisfactory harvest can change the prices of some commodities overnight," says Ahmad Shiha.

If wholesalers do not believe in price controls, they are not, however, interested in fighting against them as they are not the ones to be penalised.

"It is us who will be penalised," says a nearby retailer. "We risk prison while wholesalers make the greatest profits."

Another retailer says: "Retail merchants are greedy, and that is the problem." 

"I bought my potatoes from a wholesaler at LE5.5 per kilo, how can I sell them at the same price? In addition, I will bear the transportation costs and pay rent of LE2000 (almost $300) a month," says another retailer. 

The government, however, does not intend to change the fundamental market mechanisms. The decision only affects retail merchants, not farmers, businesses or wholesale merchants. The government mainly blames retailers for recent price hikes. 

"Retail merchants have exaggerated the prices," says Mahmoud Diab, a supply ministry spokesperson. "The recent increase is unjustifiable. We cannot let consumers fall prey to traders."

In fact, inflation in food prices year-on-year in August reached 14 percent versus a general inflation rate of 10.9 percent. 

But how can the government monitor millions of small traders, most of whom work in the informal economy, to ensure that they apply the prices? For many experts, it is almost impossible. 

Traders and experts believe that if the government tries to apply the decision strictly, a parallel market will be created. 

"Prices of fruits and vegetables vary considerably depending on the quality, delivery distance and merchant fees," notes Ahmad Shiha.

A seller in a store has higher expenses than a street vendor, he adds. The margin fixed by the government is too narrow. 

The ministerial decision does not solve the fundamental problem of agriculture, namely the significant increase in production costs due to the liberalisation of rents, and rising fertiliser prices over the past two decades.

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