Micromanaging the Cucumber

Fighting prices through manual controls is like picking fleas off a dog one at a time, or squashing cockroaches with a slipper.

Manual price regulation will lead to nothing good. Let me give two examples from my own life and business experience that show clearly how much more effective a price regulated by market instruments is.

1. Cucumbers. People were outraged about cucumber prices. KZT 1,000–1,500, they said, is not a market price. Not many people, perhaps, noticed that in two Magnum stores before the New Year cucumbers sold for KZT 575 per kg. That price clearly did not come about at the producer's wish, but under the influence of other factors. Like any scarce good sold below its market price, the cucumbers stayed on the shelf for no more than two hours.

Here is what happened as a result. First, anyone with information about cheap cucumbers in the store automatically profited from it. You find out a delivery has arrived, you go in, buy up the entire stock and sell it across the street for KZT 1,000. And who wins in this situation? That's right: the store manager, a relative, or some other middleman, but certainly not the cucumber producer. Meanwhile, prices in the city stayed exactly where they were, at KZT 1,000.

After the New Year holidays, once demand fell, the price of cucumbers returned to normal.

The upshot is that manual regulation did not lower prices, it squeezed the productive class and let non-producing middlemen get rich. This is the systematic killing off of producers under the banner of fighting high prices.

In effect, if production becomes unprofitable because of such actions, the producer cannot develop or expand the business, pay taxes, take out loans, and so on down the chain.

A far more effective measure would be to speed up lending procedures at KazAgro, build infrastructure for greenhouse farms, and work out electricity and gas tariffs. For example, a special electricity tariff schedule for greenhouses would help. In short, we should create conditions for building greenhouses on a large scale, so that cucumber and tomato prices do not rise.

2. Onions. For the second year running, the price of onions has held at KZT 20–30 per kg. The cost of production, including storage, is the same KZT 20–30. Nothing needs to be regulated. The price of onions stays this low because we produce them in surplus and output barely depends on the weather. In this sense, onions are a purely market product.

When there is oversupply, prices do not rise. The best tool for fighting inflation is strong competition and a wide supply of goods on the market. Then prices will always rise only in line with natural inflation and other market factors, with minimal markup.

But there is another trigger. If the government does not pay attention now to the fact that most onion producers are on the brink of survival and will simply close because their own projects are unprofitable, then within a year the price of onions will soar to unprecedented heights. And the authorities will again have to regulate onion prices manually.

To prevent this, we need to put systemic support measures in place now. In particular, we should provide cheap financing for spring field work; purchase onions at a fair price for storage and sell them in the spring; subsidize the transportation of onions to markets; help producers enter foreign markets; and so on.

But here, manual regulation is preferred to systemic measures.