Government backs-off price controls; opts for the market to decide

Industry Minister MIke Bimha

The news that the Minister of Industry, Commerce and Enterprise Development, Dr Mike Bimha, resorted to calling in bakers and other stakeholders to negotiate a price reduction in bread, may point to wrong economic policy intervention and long run under performance on the part of the Minister.

The negotiations and the consequent agreement for a price reduction amount to a price control measure. Price controls of this nature are economically considered ineffective, witness Zimbabwe sliding into past experiences.

A long run economic principle to resolving commodity price hikes is to increase supply of the commodity, rather than introduce price controls. The price hike itself suggests one or more of the following; inefficient production, artificial short supply of the commodity itself, a lack of competition in the supply of inputs in the production of the commodity such as labour, flour, yeast, kneading machines in the case of bread.

Further a price hike deriving from a collusion by the producers without justification suggests the existence of an uncompetitive monopolist cartel. The decision by the meeting to reduce the price of bread suggests that there was no justification for the price hike.

This in turn suggests that one or more of the drivers of price hikes may have been at work leading to the hike. The meeting and the consequent bread price reduction therefore served only to suppress price hikes – the hikes will most certainly be a menace in the near future.

This latter conclusion may especially be plausible if it is considered that only one of the bakers in Zimbabwe has more than 80% of the market share of bread – a cartel could surreptitiously be at work.

The long run solution to such price hikes is certainly not through negotiations such as the Minister called for. The Minister should immediately set in trend policies to increase competitive bread production and distribution in Zimbabwe.

A capital/loan facility should transparently be organised and availed to fit and proper, ambitious, passionate baker entrepreneurs. Such a facility should have production and capacity building turnaround times. Members of the Small Bakers Association of Zimbabwe could be considered some of the most fitting candidates.

This is a time for the Minister to call on the pension and insurance industries through the Insurance and Pension Commission (IPEC), the banking industry, among others, to extend equity pension/insurance funds investment policies to cover bakers. Such a facility should be supported by focused baker training courses and institutions – yes Minister, those kneading machines should be produced locally without excuse.

It should not take the Minister two (2) months to organise the capital/loan facility, to transparently identify at least twenty (20) fit and proper candidate producers.

The successful candidates should be subject to rigorous performance assessment to ensure that this policy intervention is successful. And a year should be enough for the Minister to realise kneading machine production, enough even for export to SADC countries for starters.

No more price control negotiations.