The price of edible oil has recently increased in Bangladesh and causing worry among both consumers and the government. The edible oil price increase in the international market, the Ukraine war, and speculation about price increase during Ramadan have caused consumers to be concerned and subsequent panic buying. Government has taken different economic and administrative measures to curb the price hike by increasing supply, by reducing import duty and value added tax (VAT) as well as strengthening market monitoring including searching edible oil stock and taking anti-hoarding measures. In this process, a few traders were fined for storing couple of hundred of liters of edible oil and last week Police has arrested one retired agriculture extension officer for hoarding 512 liters of edible oil. Police reported that a case had been filed against him under the Special Power Act, 1974, which has provisions of rigorous punishment.

From a moral ground, hoarding of essential goods particularly food stuff is unacceptable and many countries have made strong anti-hoarding laws. The moral case against hoarding is based on notions of distributional equity-i.e., hoarding of goods raises price and thereby deprives poor people of essential commodities necessary for survival. While on moral grounds the stringent measures are justified, the economists, however, see hoarding as an outcome of market imperfection and suggest measures to improve market structure and efficiency to curb syndicate and curtails.

Hoarding is an old age problem. It can be traced back to 500 BC. Hoarding is the purchase and storage of large quantities of a commodity by a speculator in order to profit from future price increases. A hoarder is anyone who stores things in expectation of higher prices. The question arises, is hoarding always bad? Speculating and storing goods for higher prices is an economic activity like other economic activities. Many of us are involved in this type of economic activities e.g., in share market, real estate, storing gold, holding foreign currency in hand and even buying land in anticipation of getting higher prices when government acquires land for development work. Unfortunately, none of these are considered punishable offense even when thousands of people lost everything due to crash in the stock market due to manipulation by a few speculative economic agents. Although, hoarding has a negative connotation in society, it is also a part of business and that provides a means of hedging against future price fluctuations and individual consumption. Let's look at our agriculture and food market. Most of the agricultural products are associated with excess supply in the season and shortages in the off-season. Had speculators and hoarders not existed, there would have been a sharp drop in the prices of many agricultural products and both farmers and consumers could have suffered more. Storing and hoarding of fruits, vegetables, milk, and fish are critically important for smooth supply of the goods in the market. In agriculture sector, speculators and hoarders perform a useful market function.

While hoarder's action is guided by the self-interest and their morality could be questioned, one may ask, is greed always bad? The economic system that we are now living-in is based on the system of greed or self-interest. Adam Smith, the father of the modern economics, argue that the rational self-interest is the best way to thrive an economy. Self-interest is the main driver of profit, success, and name and fame. Because of self-interest people are motivated to work hard, increase productivity, and compete with others, which improves the society as a whole, which is known as the 'invisible hand'. Smith argues that the self-interested economic actors competing with each other create a self-constraining system, which regulates self-interest and produces economic growth and wellbeing of the society. Through such a mechanism, no individual actor or group of actors are allowed to take advantage for very long. Milton Friedman, the proponent of neo-liberal economic theory, the dominant economic approach of the present time goes even one step farther. Friedman in his book 'Free to Choose' not only argue for economic freedom of enterprises but also argue for making political reforms to make the institutions supportive towards free enterprises. Believers of free market economy think that if markets are allowed to work freely, prices will be automatically adjusted based on supply and demand.

Now, one may argue that hoarding of edible oil is different from other types of hoarding activities as it is a food item and hoarding may increase price and affecting the lives of the poor. Again, an obvious question arises, what is the market power of these small traders and hoarders, in monopolizing the market and influencing the prices. As we all know that edible oil market in Bangladesh is controlled by a few suppliers. When they make tacit collusion, they can influence and even manipulate the market price. Small traders or hoarders have limited market power to influence price. In fact, this type of small traders and hoarders are important in the market to curb the power of edible oil monopolies in the country in the long-run.

In Bangladesh, about 90% of edible oil comes from the external market, any change in the international market and disruption in supply-chain is likely to affect the domestic market. Administrative measures like checking stock, imposing fine, and arresting traders have a tremendous popular appeal and sometimes give short-term results. Despite their appeal and popularity, the effectiveness of such type of administrative measures to control price has remained questionable in the long-run. Moreover, administrative measures are not cost-free. Enforcement cost from government and compliance cost from the private sector is high and often create long-run inefficiency in the market as well as provide incentive for corruption and disincentive for investment in supply-chain.

In conclusion, historical experiences of Bangladesh and other developing countries suggest that administrative measures against anti-hoarding do not always bring desired outcome and they are not the first best solutions. In the long-term, these are often counter-productive, creating a disincentive for true economic agents who serve the market to ensure smooth supply of goods. Priority should, therefore, be given to economic measures as government has already reduced import duties and VAT. This will provide a clear signal to the hoarders that supply will shortly increase, and prices will fall. Imposing restrictions on storing food items and using administrative measures to control prices should be utilized with caution, sparingly, and only for a limited period so that private enterprises are not discouraged from investing in the edible oil sector. However, it is necessary keep eyes on large suppliers to regulate price-manipulating behavior. To reduce reliance on the external market, government may also take steps to expand domestic edible oil production in the long-run.

Dr. Golam Rasul is former Chief Economist at the International Centre for Integrated Mountain Development and former Civil Servant, Government of Bangladesh. He can be reached golam.grasul@gmail.com