Ramadan prices

[Yusuf Mansur]

Ramadan has become the favourite month for price gouging in Jordan. Such price behaviour is anomalous to the economic analysis of efficient markets and should not occur, which is why it has become customary for me to write about the topic of price hikes in Ramadan every year. Maybe I hope that someone will pay attention and stop the phenomenon from occurring.

According to the Department of Statistics, Jordan imports 87 per cent of the calories it consumes. In other words, the majority of the food one consumes in Jordan is made elsewhere. It is imported!

Furthermore, none of the popular items that are heavily consumed in Ramadan, such as sugar, rice, flour, nuts, pine nuts, walnuts and pistachios are produced in Jordan. At the same time, most of the meat, such as fish and lamb, are imported.

Locally produced chicken has significant competition from imported chicken, and while locally produced chicken should rise in price due to increases in the cost of electricity and fuel, imports should compete to bring the price down in the domestic market. Therefore, it stands to reason that importers/wholesalers would import larger quantities prior to the onset of the month to sell more during the month.

It is an established empirical fact that when someone imports larger quantities he receives discounts, sometimes huge. Some may say that the entire Muslim world tends to consume more during this month, hence the prices rise at the origin. However, this is a fallacy, importers could buy large quantities and store them ahead of time, and the discounts they receive will more than offset the cost of storage.

In the jargon of economics, the supply curve for such commodities for countries such as Jordan would be perfectly elastic — Jordanians can buy any amount from the world at the same price.

A more daring assessment would go as far as saying that the supply curve has a negative slope: the more Jordanians want to consume the lower the price.

In non-economic jargon, there is no need for prices to rise during Ramadan because the imported goods are available to us virtually in any quantity at the same or even lower prices — we do not make them, world capacity can more than can satisfy any increase in domestic demand. Hence, an increase in demand during the month should have no upwards impact on domestic prices.

Price hiking should be evidence of the existence of cartels in the Jordanian market, whereby a group of importers/wholesalers gathers in an informal organisation and jointly raises prices. Such a conspiracy can be easily proved and traced back to the source(s) by looking at old import and wholesale receipts. Here, the Competition Law should apply and cooperation with the Customs Department should facilitate the exercise, which should be easy and require little economic training.

This Ramadan is more special because it comes a few weeks after the government decided to increase the prices of fuel, electricity, water, cars, etc. Hence, monopolistic practices and the price hikes that happen during the month should be strongly combated.

The ministries of finance and of industry and trade should cooperate seriously in this regard. JordanTimes 10/7/2012