The myth of market Syndication

Asjadul Kibira

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That 'syndicates' are behind unusual rise in prices of essential commodities is more of a popular perception. Even policymakers often blame a section of traders for creating syndicates that have hitherto remained beyond the reach of the long hand of the law. Whether syndicates exist or not is a matter of investigation by the relevant authorities but the fact remains that consumers are paying through their noses for most of the daily necessities.

In the national parliament in the last week of June, the commerce minister himself also expressed his frustration. Expressing his helplessness over the price situation, he argued that actions against the market manipulators might deepen the crisis further. He said the syndicate is formed by big groups who do a lot of business together and that the government can send them to jail and fine them for market manipulation. But, he feared, it would be difficult for the government to deal with the sudden crisis and so his ministry is trying to stay within the rules through discussions. He said all this in the face of severe opposition criticism in parliament for his failure to control price hike of essential commodities.

The frank admission made by the commerce minister regarding such market syndication is alarming for obvious reasons. He is not alone-- some other ministers and policymakers have also blamed the so-called syndicate for unstable market situation and persistent price hike of some products. Different news media and consumer-right groups also believe that a vicious syndicate in the market is active behind the rising prices of daily necessities. Newspapers and electronic media frequently use the term 'market syndicate' while making reports on the situation of prices of essentials.

Market syndicate is a popular term in Bangladesh nowadays. It usually refers to a cohesive group of a few big importers and traders who control the supply of various commodities and items and set prices of these products at high levels to earn excessive profits within a short period of time. The syndicate takes advantage of regulatory weakness to carry out unethical activities like price-fixing, hoarding, and artificial shortages. The number of such syndicate, according to consumer-right groups, could be many. For instance, a report prepared by the Bangladesh Competition Commission (BCC) claimed that there are over 1,500 active syndicates operating in various sectors, including the one dealing in food items.

In economic literature, there is no mention of this kind of market syndicate. Instead, the economic theory of market usually mentions oligopoly which seems similar to so-called market syndicate. According to economic theory, oligopoly is a type of market 'wherein a small number of producers work to restrict output and/or fix prices so they can achieve above-normal market returns.' Firms in an oligopoly usually set prices, either collectively which is known as a cartel, or under the leadership of one big firm. These firms or companies do not take prices from the existing market, thus defying the competitive nature of the market. Profit margins are thus higher than they would be in a more competitive market. So, theoretically, the suspected syndication in the country's commodities market is somehow similar to oligopoly and cartel mentioned in the economic literature.

Also, financial literature mentions syndicate as 'a temporary alliance of businesses that join together to manage a large transaction, which would be difficult, or impossible, to effect individually.' There are different types of syndicates, such as underwriting syndicates, banking syndicates, and insurance syndicates. Obviously, these syndicates are different from the perceived market syndicates in Bangladesh.

The question is who are behind the formation of syndicates in the market? If it is known to all that the syndicates are controlling and manipulating the market and prices and also causing sufferings to thousands of consumers, then why does not government identify them and take them to task? Are these syndicates so powerful, as mentioned by the commerce minister, that they can easily disrupt the supply chain?

It seems that lack of understanding about the market structure and market behaviour in the real world fuels the propaganda on market syndicate. In a market of millions of consumers and thousands of sellers, it is not easy to form a cartel and dictate prices of commodities. No doubt that a few big importers have control over a large portion of imports of different commodities. Allegation is there that they do not permit more players into the import stage to break their cartel or syndicate. It is the economies of scale that actually prevent others to enter and compete with the big players who already have advantages on bulk imports. It will require a huge investment for any firm to enter the market and compete. Oligopolistic behaviour among the importers cannot be ruled out entirely, however.

And these big importers have developed a long and widespread supply chain over the years to supply the imported commodities to wholesale and even retail levels. There are also many big wholesale outlets from where thousands of retailers procure the commodities. Some alleged that the big wholesalers also form syndicate to keep the price level artificially high. In reality, it is difficult to form a cartel or syndicate as everyone needs to sell the products to retain some profit in a competitive environment. Price fixation is possible for a few products and on a few occasions only.

Besides mismatch in supply and demand, there are some other factors behind the abnormal price hike that needs to be taken into consideration. Illegal toll taking in various stages is a well-known problem that needs to be addressed. It is alleged that a section of political leaders and activists having nexus with law-enforcing agency are behind the illegal toll taking. Besides disruption caused to supply chain, the rent-seeking behaviour is also responsible for price instability.

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