Ethiopia Sells Cooking Oil, Sugar to Correct ‘Market Failure’
Sugar, cooking oil and other items disappeared from store shelves in January, after Ethiopia imposed price ceilings on 18 basic commodities. The controls were ordered about the time food riots in Tunisia triggered the political unrest that spread across North Africa and the Middle East.
Local media hailed state intervention in the market as a bold move to help cash-strapped consumers cope with soaring global food prices.
But shop owners rebelled. They complained the ceilings were too low to allow them a fair profit, and refused to sell at what they said was a loss.
When price-controlled items became scarce, the government accused suppliers of creating artificial shortages. Prime Minister Meles Zenawi last month announced that the market had effectively failed. He said the government would bypass retailers and sell directly to consumers until the business community accepted the lower prices.
“We plan to flood the market to overcome artificial shortages that have been created through inefficiencies in the market system. This includes artificial shortages in edible oil and sugar. We intend to import lots of edible oil and sugar and flood the market to ensure it is stabilized,” Zenawi said.
Ethiopia’s Trade and Industry Ministry was assigned the job of setting fair prices and profits for controlled items.
Efrem Woldesellassie, head of the ministry’s regulatory affairs department, says a government survey determined that the market failure was due to excessive profits charged by wholesalers and retailers. He said the ministry decided to limit profits to 4-6 percent on sugar and cooking oil.
“These people. They used to get big profits, even without paying any tax to the government, but this time they got a profit [of] 6 percent for sugar, 4 percent for palm oil. To my understanding, covering all costs, this profit margin is sufficient for them to survive,” Woldesellassie said.
Efrem says price controls and government sales outlets are a temporary measure until the market stabilizes. But market economists and business people argue any state interference in the buyer-seller relationship is ultimately counterproductive.
Ethiopian Chamber of Commerce President Eyessus Work Zafu says the price ceilings are another step in a long-term trend in Ethiopia toward greater state control over the economy.
“The government is becoming more and more preponderant in the economy in recent years, more than even 10 years ago. The long-term solution is not working on the assumption that government alone could bring about the balanced and rapid sustainable econ growth and development. It cannot. That paradigm has been tried for many years and failed.” Eyessus said.
Eyessus says he sees great danger in the state’s increasing tendency, when economic policies don’t work, to demonize the private sector.
“When the first price control measures were announced, we started reading in the paper a very serious malignant hate campaign, letters, articles in the papers, and many have been engaged in widening the split between consumers and merchants or business people. [The] government will have to take the initiative to normalize things, because if the government does not, the differences will widen, and the ultimate consequences could be serious,” Eyessus said.
Economists also question whether the price caps are helping to keep down rising costs. The government statistics agency reports an inflation rate of 14 percent in February, the first full month the caps were in effect.
And when the controls are inevitably removed, experts say prices are bound to jump to where they would have been anyway.
People waiting to purchase cooking oil and sugar this week wondered whether, given the rapid rise of global prices, Ethiopia might again see the day when local governments distribute food, as they did during the Communist era.