Fixing prices by government fiat does not work



The Federal Executive Council recently constituted among itself a “Food Security Task Force’’ to address the rising prices of consumables. “Government is quite concerned about the rising cost of food items and the fact that more often than not even when these products are available, if it does reach the market, they are sold at very exorbitant prices,” said Alhaji Lai Mohammed, Minister of Information and Culture. “So, the government has set up task force on food security to ensure that an end is put to the wastage that occurs and with tonnes of produce sitting down in the farms rotting or in the markets rotting”.

While Nigerians are yet to be availed the report of this omnibus committee, establishing an inter-ministerial committee made up of the Ministers of Agriculture, Finance, Water Resources and Transportation, to report back to FEC after which “concrete actions would be taken” is not a serious way to address such a challenge. It exposes the lack of clear ideas on how to reposition the economy by an administration that wants to be seen as doing something while doing practically nothing.

Against the background that the Consumer Price Index (CPI) which measures inflation increased to 18.72 per cent (year-on-year) last month (January 2017) compared to 18.55 per cent in the previous month, according to the National Bureau of Statistics (NBS), it stands to reason that we are dealing with a serious economic challenge. According to the CPI report for the month in review, the rise in inflation during the period under review was in bread and cereals, meat, fish, oils
and fats, potatoes, yams and other tubers. There were also increases in the prices of clothing materials, cooking gas, etc. In specific terms, food prices rose by 1.29 per cent between December and January.

What the inflation figures, which keep rising every month, revealed very clearly was that the economy is facing fundamental challenges and that can also be seen in the value of the naira which depreciates on a daily basis. The federal government should therefore reason accurately: fixing of prices by government fiat does not work. What times like this demand are policies that will help bring down the prices. For instance, this is the right time for the federal government through the Ministry of Agriculture to identify the food items that are in high demand and help the farmers by way of price mechanism that has been tried in the past. The government does not need to reinvent the wheel on such measures.

In line with sound economic reasoning, if local production is looking good, the federal government also has the huge responsibility to protect the producers with the requisite incentives. With that, the production of local equivalents will boost the economy with the attendant multiplier effects, including on inflation. The point being made is that unlike what is being proposed by the federal government, basic economic ideas suggest that prices are determined by the interplay between demand and supply, and any effort to fix prices by fiat will only create mock scarcity or hoarding, which in turn could drive prices even higher.

It is very clear that lacking in clear economy policies, the Buhari administration has resorted to dealing with the symptoms rather than the disease. Setting up a task force on food prices is no solution to what currently plagued the nation. The only solution is to come up with a holistic plan to revitalise the economy and put the people to work.