Does SO system impact prices of essentials?

Some think that the existing supply order (SO) system is one of the reasons for the spike in the prices of essential goods such as sugar and edible oil simply because prices increase each time the document changes hands.

Others allege that big corporations sell SOs to favoured wholesalers, giving them the scope to drive up prices artificially.

However, wholesalers beg to differ, pointing to the fact that their profit margins are minimal. Since the number of SO-holders is high, it also reduces the scope for syndication, they say.

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Ghulam Rahman, president of the Consumers Association of Bangladesh, told The Daily Star that prices of goods rose at least to some extent each time an SO changes hands.

He added that SO traders rarely incur losses, explaining that they only sell an order at a lower price than they had paid if they fear that the rate would fall in the international market.

In either case, the possibility that the price remains unchanged during the trade of an SO is very low.

Abul Hashem, president of the Bangladesh Sugar Traders' Association, denied that the informal trade had anything to do with price hikes and said a very limited number of SOs change hands. He added that their profit margins were minimal.

"How will consumers get the supply of products if wholesalers don't divvy up the trade?" he questioned, adding that refiners don't sell in meagre quantities.

Hashem further explained that costs would be much higher if all wholesalers were required to collect goods from millers and store them in their warehouses.

To save on rent for storage, they trade SOs while goods remain at local refineries.

Prof MA Taslim, a former chairman of the department of economics at the University of Dhaka, said wholesalers of SOs invest huge funds and take massive risks.

Usually, the prices of products are lower when acquired through the SO system compared to purchasing them at the mill gate. This is because products are traded in bulk amounts under the SO system, he added.

On the other hand, trading is centred around select goods such as sugar and edible oil. However, syndicates usually form in the cases of products such as rice, chicken, vegetables, or eggs, which are all produced locally.

"The problem is not related to the SO system; it lies elsewhere. The government should work on identifying that area," the economist added.

On the condition of anonymity, a wholesaler in Khatunganj, one of Bangladesh's largest wholesale hubs for essentials, said if SO documents of a certain product were confined to a few traders, they could form a syndicate and increase prices.

In the past, the document was traded only among wholesalers. Now an SO passes through many hands. Hence, there is a low chance of manipulation, he added.

Khondaker Golam Moazzem, research director of the Centre for Policy Dialogue, said when a single businessman is in control of a supply chain, it is natural that he or she dominate the market.

"The government should pay attention to the commodity market so that it can't be controlled by a handful of businessmen."

A top official of an oil refinery said the SO system helps overall business since wholesalers pour in funds in advance, extending financial support to refineries.

Traders are investing funds to make a profit, so SO trading is not inherently wrong. Moreover, the nature of the SO business is different from the delivery order (DO) system.

"Now, they are not making huge profits from the trading of SOs. So, its impact on price hikes is minimal," he said.

Prof Helal Uddin, a professor of economics at the University of Dhaka, said a common perception that prevailed among people was that price hikes are caused by SO trading.

"If a large group dominates prices, the government should definitely detect it. However, prices rise and fall in the market mainly owing to speculation."

He said if a foreign government takes a step that can impact the prices of goods, it can lead to rampant speculation.

"Under such a scenario, goods that may be affected are hoarded for several days. On the other hand, consumers are desperate to buy the goods as they speculate about further price increases. Ultimately, it creates a crisis in the market and raises prices. So, the problem does not lie with the SO business."

Helal recommended ensuring adequate imports of goods when prices are low on the international market so that the supply is abundant in Bangladesh.

"It will reduce abnormal price hikes. Moreover, the government should reduce duties on some essential goods to curb speculation."