If businesses are not allowed to set their own prices in a free market, they will stop supplying or supply less needed products like food and supplies.
Read here to learn what happens as a result of price controls, in the long run.
If you are a supplier of tomatoes, for example, and the government says you must sell them for 99 cents per pound, but your cost to produce them is MORE THAN 99 cents per pound, as a rational person, you have no incentive to supply tomatoes, since for every tomato you sell, you would lose money. As such, you won’t bother supplying tomatoes. However, if the government gets out of the way, and doesn’t interfere with the free market, entrepreneurs will work to supply tomatoes. While the initial price might be high for tomatoes, this will attract other growers and suppliers to meet the demand, gradually bringing the price of tomatoes back down over time. What is better for society – tomatoes at an initially high price, that gradually comes down over time, or no tomatoes at all, at any price?
Puerto Rico businesses call for elimination of price controls
SAN JUAN – Controls imposed by the government to protect consumers amid the emergency caused by Hurricane María are beginning to affect several sectors of the supply chain, prompting industry insiders to call for an end to these controls.
The president of the Chamber of Food Marketing, Industry & Distribution (MIDA by its Spanish acronym), Manuel Reyes, said the supply chain is affected by different factors, among them, because they are “competing with other priorities” and the price control imposed by the Department of Consumer Affairs (DACO by its Spanish acronym) on basic supplies affects the revenue of some businesses.
“It’s difficult to generalize [the loss businesses] because there are some costs that insurance can cover but even that has a limit. That’s why maintained price controls in the medium term is a concern, and we are talking about it with DACO,” Reyes said.
Price controls for essential products include canned and fresh food; medicines; storm shutters and wood panels; screws, nuts and nails; rope; certain tools; gasoline, diesel and propane generators; water cisterns and their repair, installation and retrofit; certain parts; fuel storage tanks and containers; portable stoves; tarps and tents; and batteries and lanterns of all types.
It also includes candles, matches, lighters, first aid kits, power chargers, water, ice, milk, baby milk formula, coffee, flour and grains, and any other article or service that a consumer may need to prepare for or recover from an emergency situation.
Furthermore, the lists includes mosquito repellents and solar panels, back-up batteries and their installation and repair, as well as antibacterial soap, masks, disposable tissues and diapers, toilet paper, wet wipes and trash bags.
Reyes said the increased operating costs for the businesses that have been able to open after the hurricane have been triggered mainly due to the expense incurred by having to provide power to the establishments using generators, in addition to the losses sustained from damages to their infrastructure and goods.
Although after María struck, island ports were opened partially to receive merchandise, 26 days after the hurricane’s onslaught, resulting logistics problems have kept supermarket shelves empty. For those first weeks after the storm, operation hours where limited to 6 p.m. and an executive order prohibiting the sale of alcoholic beverages resulted in losses, businesses said.
Likewise, according to information published by news agency NCM Noticias, hydrocarbon importers have also been asking the government for greater flexibility with their profit margins. According to NCM, a businessman of that industry said the government intends to “socialize” fuel at the expense of the stability of that economic sector.
DACO Secretary Michael Pierluisi confirmed the information but said the island is still in the middle of an emergency so it is not time to lift the price order.
“I told them we could evaluate specific cases, but it is not yet time to allow a general increase in prices. I understand that operating costs are increasing, but consumers are also seeing a reduction in wages. We are still in an emergency,” he reiterated.
Pierluisi said his agency is being flexible about compliance with the DACO regulations but when it comes to the price freeze orders, compliance is critical.
Inventories yet to recover
In the case of food supplies, Reyes explained that supermarket inventories had dropped since Hurricane Irma and did not have time to recover before they took another hit when María struck two weeks later.
“Consumers bought [supplies] in anticipation to Irma and this decreased supplies. Then part of these inventories were used to help the Caribbean islands that were affected [by Irma]. And they had not recovered when María passed, “he added.
Reyes added that Federal Emergency Management Agency (FEMA) operations are putting the shipment of available cargo containers in Florida’s Port of Jacksonville on hold.
“We are having trouble shipping because FEMA is using the containers and the ships that are normally used to bring supplies to the island, to bring their own supplies. We are competing with those priorities,” he said.
However, he ruled out that FEMA is seizing shipments of supplies arriving in the island to distribute them among the storm’s victims.
FEMA spokeswoman in Puerto Rico, Deliris Ocasio, explained that in the first days of the emergency, the agency bought supplies from local distributors, “but we don’t have the power to seize merchandise.”
“Our interest is that supermarkets and businesses return to normal and not affect the supply chain,” she added.