Action against hoarding or action against food security?

Another short sighted and intrusive decision by the government -

New Delhi, Aug 8 (PTI)Observing that the country was facing a "difficult situation" following delayed and deficient rainfall, Prime Minister Manmohan Singh today said the Centre has adequate foodgrains and would not hesitate to take strong measures and intervene in the market if the need arose."Agricultural operations have been adversely affected in several parts of the country causing distress to farmers. A deficit of more than 6 million hectares has been reported in paddy, which is the worst affected crop," he said addressing the Conference of Chief Secretaries on the monsoon situation here.The government has enough cushion on account of bumper production in the previous two years, Singh said."We are in a position to ensure adequate availability of foodgrains in drought affected areas.

http://www.ptinews.com/news/218820_Take-action-against-hoarders-and-blackmarketers--says-PM


MY ANALYSIS -

Contrary to what we have been taught since our child hood days - hoarding and blackmarketing are not the same things and are 2 different situation resulting from different conditions.Blackmarketing - It is the phenomena that involves large scale commercial exchange without paying taxes to the government. Or it may be exchange of illegal goods such as imported products or banned products. Blackmarketing has a very nebulous definition and can be stretched to suit the need of the present day government. Importantly, blackmarketing is largest in the economies that are most restricted and least in the most liberal economies. Blackmarket exists because there is a need for those goods that the government has banned.

Now if there is a need for cereals and rice that the government cannot fulfill a blackmarket is created where people are willing to pay more to acquire those goods that are not available in the open market controlled by the government. Blackmarketing was rampant in the times of ration shops, but has reduced since then due to more liberal economy and market driven distribution system. But the present government is trying to kill the blackmarket which is supplying a legitimate need. This action will make it harder to find those productss (food in this case) not easier as the government is stating. The food will simply flow to the area where it commands a better price which may be another state in india or another country altogether.

Conclusion -
1. Blackmarket cannot be termeed bad just because the tyrranical government says it is bad.
2. Blackmarket is a government creation due to repressive policies and undersupply of goods in demand.
3. Banning the blackmarket will not make it go away.
4. Banning will make prices go up, the exacct opposite of what government claims will happen.


Hoarding -
I remember that in my 7th standard economics propaganda class (also known as Economics class) , i was taught that hoarding is bad and the people who do it a vile criminals who have no scruples. That these are people who feed off the soiety without giving anything in return and are basically leaches and parasites. I accepted this version happily since i afterall needed good marks in the tests and my horizon was only till my annual exams.

But upon further thinking, here is what "hoarders" really function. They purchase goods from a supplier by paying cash in full or part. The supplier who might be a farmer or usually a tier one supplier who has purchased from a farmer and processed the grains to a sellable condition, then takes the money and continues his commercial business, feeding his family etc. Anyhow, the "hoarder" now studies the current economic, social, weather conditions and predicts demand for this year and next year. He studies the available stock with him and tries to understand how much food grain he might be able to sell this year for a price so that he can make his payments and make a return on the enormous investmeents he has made in the product, infrastructure for storing it and administrative costs of running the setup.

To understand this better take an example of this year. With poor monsoons he knows that this years product is going to be lower in quantity. But he has some goods left from last year to cover for part of the shortage. But he also knows that a large percentage of the impact of poor monsoons will be felt not this year but next year. So the real shortages will be next year and keeping this in mind he keeps away some of the goods for selling next year wwhere they will not only fetch a better return on investment but also fulfill a need in the market. With this in mind he has now "hoarded" the goods. Keep in mind that the goods arent going to go waste, it is in his best interest to sell it as it costs him money to buy, store and sell the goods.

His actions have actually acted to smoothen out the vagaries in demand and supply. By keeping away good for the future he has done what every one of us do everyday, save for the unknown circumstances of future. The ""hoarder" is doing us a favor! Without his presense, we will eat our fill today and even throw away food but we will have severe shortages next year. so the Toor daal that costs 75 per Kg might go down to 65 a Kg this year but will be 120 per kg next year. and from whom will the government steal the next year??

There are lakhs of such "hoarder" taking risks, making profits, sometimes losses but are an essential part of the system of the economy that supplies is products. He workss not for the greater good of humanity or some vague things like that but for profit, just like me and many others in our respective jobs. By killing this system the government believes that it is smarter than the combined intelligence and local knowledge of these "hoarders". Who decides where the grain goes? Some fat beuracrat sitting in delhi who does know a thing about local needs in Kunigal town in Karnataka or a similar village in the North east.This short sighted action by the government will seriously jeapordise the food security next year but of course government is going to reap benefits in the short term in terms of vote.