Ethiopian government price ceiling to be readjusted?

Ethiopia has been hit by an acute shortage of basic commodities following a recently imposed price ceiling. To study the cause of this shortage, the government, last week, met with local entrepreneurs.

In a move to halt runaway prices of basic commodities and also curb a double digit inflation in Ethiopia, the Horn of Africa country’s government moved to set a price ceiling for 18 types of basic commodities in the first week of January, 2011.

The government had accused some of the country’s major businesses for exploiting the market illegally by raising commodity prices at over 100 per cent without any respect for market principles.

But a few weeks after the introduction of the government controlled prices the desired market stabilization has been questioned as many of the targeted commodities, including flour, palm oil, sugar, beer, powder milk, soap, continue to disappear from the market, thus, creating a more difficult situation for consumers.

According to local entrepreneurs who met with officials of the Trade Ministry for extensive discussions last week, the government had failed to make a detailed assessment regarding production and importation costs before imposing price limits.

The local Reporter Newspaper argues that the 600 birr maximum price per 100 kg of flour, for example, is not compatible with the real market price, given that 100 kg of wheat, the raw material, is sold at about 545 birr. Continuing production with the extra production cost, therefore, means that both producers and traders would be running at a loss. The same arguments have been forwarded by palm oil importers, among others.

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