During a break session at the Meet the People Session, MP
Faishal talked about the undergoing efforts by the government to address the
rising cost of food. He thought that one of the reasons for the rising food
prices is vendors raising their food prices to increase their profits. I
pointed out that at NUS, food prices at canteen are regulated to ensure that
vendors do not raise the price of the food they sell beyond a certain cost. MP
Faishal concurred that that is one of the measure that a committee addressing
this issue is considering, and it seemed like a good idea to him. Another
resident volunteer at the session on the other hand felt that the price of food
ultimately boiled down to rental cost, and that regulation has limited ability
to curtail food prices from rising. MP Faishal mentioned though how certain
food vendors who owned their outlet had taken advantage of a renovation of the
food centre where their stalls are to make an excuse to increase the price of
their food, even though the entire renovation had been funded by the town
council. I could imagine that a food vendor would readily defend his pricing
policy by saying that this is to recoup losses and opportunity costs while
their stall was unable to operate during the renovation phase, but it seems
that the increase in food prices is more likely going to be permanent than
especially if it increases profits for them.
I had learnt while studying theory of firms for economics
in my junior college days about how a firm’s ability to set prices depends on
the type of market in which the firm is in. The theoretically ideal perfect
market conditions where there are so many firms in the market competing selling
the same good and barring for market imperfections like transaction costs would
give a firm no ability to set its price. I think that a food vendor have market
power and some ability to set prices of its food once it becomes an owner of an
outlet at a food centre. By contracting for price regulation at the leasing
stage, the pricing would be factored in the bidding process where there are
more competitors, thus providing a more market competitive environment.
A friend whom I was discussing this issue with pointed
out however how it would be difficult to regulate food prices. For one, vendors
could start using poorer quality ingredients rather than increase prices in
order to cut cost and increase profits. Moreover, regulation probably comes
with its own costs as well, especially if regular audits have to be made.
The price of rental for food vendor is also another
factor in the food pricing issue. I have heard about how middlemen subleasing
the food vendor outlets drive up rental costs. For quite some time now, the
Singapore government has adhered to a free market philosophy in addressing food
prices. I heard that in the past, there were regulations for owners to tend the
outlets that they own, but that this has been done away with by the government.
Perhaps the difficulty in regulating middlemen is to distinguish between
middlemen owners who add value to the industry by managing the food centre
outlets. Moreover, perhaps the government think that free market conditions
would be self-regulating if there are enough food centres around as middlemen
owners can’t raise the prices of sub-leases without food vendors choosing other
areas to operate where the rental is lower. But could it have been a mistake on
their part to allow middlemen from coming into the food business in the first
place?
What I have written so far pertains to competitive market
pricing rather than the cost of food itself. I was wondering whether there are
supply issues of food in Singapore that causes cost of food to go up, and
whether this is the case worldwide or in surrounding neighbouring countries. My
personal observation is that prices of food in Singapore is higher than those
in comparatively similar developed country such as Hong Kong or Taiwan.
It’s been a long time since I read up on economics, and I
suspect that the issue is much more complex than what I have written in my blog
post here and requires extensive economic analysis, and there is unlikely to be
an easy solution that will cure the high food price problem.
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