Wholesale cartel makes 216% profit on imported vegetables

A study by Department of Agriculture and Marketing Co-operatives shows that Bhutanese kitchens pay exorbitantly high rates and recommends that FCB take over wholesale of vegetables to bring down prices

 

Next time you visit the Centenary Farmer’s Market in Thimphu make sure that you drive a hard bargain.

A study by the Department of Agriculture and Marketing Cooperatives (DAMC) under the Ministry of Agriculture and Forests (MoAF) conducted in 2010 and now made public has found that a major chunk of the profit as high as 216% on the import of vegetables is taken by a handful of Bhutanese wholesale dealers in the absence of a price regulating system.

Vegetables in Bhutan have earned notoriety for being unusually expensive and also being one of the causes fueling the rupee crisis. Bhutan spends Nu 286 million on vegetable imports annually.

The problem had reached such proportions that it prompted the Prime Minister, Lyonchen Jigmi Y Thinley to state that the government will stop importing vegetables from 5 May this year. He urged the farmers to fulfill the consumer needs in the country.

The study by the Department was on the price comparison of major vegetables in Falakatta, West Bengal and Centenary Farmers Market (CFM).The highest profit margin was made by a cartel of 39 Bhutanese wholesalers who are also engaged in retailing. The profit margin varied from 84% to 216% depending on the vegetable. The average profit margin of the wholesaler was 148%.

The highest profit margin of 216% was earned from cabbage, while the lowest profit margin of 84% was from selling potatoes. Till date, there are 39 wholesalers in CFM who retail as well. Twenty-five of these wholesalers buy their vegetables directly from Falakatta.

On the other hand profit margins of the 181 retailers in Thimphu CFM varied from 27% to 76% depending on the vegetable. The highest profit-margin earned from cabbage was 76% while the lowest was from potato with 27%.

The average profit margin of the retailers was 52% compared to the much higher margins of wholesalers.

This is curious as normally in business wholesalers have a smaller profit margin but make up for it by sheer volume while retailers have a higher profit margin as they do not have the volume.

The DAMC team collected information on the supply source of the vegetables and the cost of transportation from Falakatta to Thimphu.

Few common vegetables including tomato, cauliflower, cabbage, egg plant/brinjal, beans, green chili (small) and potato were selected based on representativeness of the information collected at CFM.

The study also factored in transportation costs. Wholesalers pay on average Nu 9,500.00 for a DCM truck for carrying vegetables from Falakatta to Thimphu as per information collected from the wholesalers at CFM. Therefore it is assumed that a DCM will carry five metric tons of vegetables and therefore transportation cost for one kilogram of vegetable from Falakatta to Thimphu is only Nu. 1.90.

Another five percent of the total cost (buying price and transportation cost) for the wholesalers and retailers (10% in the case of wholesaler retailers) was added as cost element. Five percent and the 10% represent post harvest losses and other incidental cost and opportunity cost.

While the wholesalers and middlemen have it good, the fate of farmers is a more uncertain one. Director of DAMC, Dorji Dhradhul, said “there is no mechanism to regulate vegetable prices as there is no price subsidy like having a minimum price support during the times when farmers face losses.” For example, last year the farmers had to sell at a very low price.

It is theorized that if the government at least establishes a minimum and reasonable support price for vegetables then farmers would be confident to produce more which in turn would bring down the cost of vegetables.

“It the prices are to be left to market forces, things might go out of control,” he said. Meanwhile, in the absence of price regulation, price tagging is put up as a measure. Further, Agriculture Specialist with Department of Agriculture, Ganesh Chettri said that local products should be regulated as it would benefit the consumer, supplier and producer. “This will happen as consumers would buy more if the vegetables are cheaper and so the producers will be protected with guaranteed prices,” said Ganesh.

A solution to the high prices

To control such high prices dictated by a cartel of whole sellers, DAMC is planning to engage the Food Corporation of Bhutan (FCB) in vegetable wholesaling and retailing. This is expected to bring down the prices of vegetables at the CFM in Thimphu.

However, given the Prime Minister’s announcement to stop import of vegetables, the question is that if this plan is feasible or even relevant. It will be, say agriculture officials as a complete ban, may not be practically achievable. “We cannot officially ban vegetables as we have the free trade rules between India and Bhutan,” said a source.

However, on the other hand the government could launch an indirect embargo by stifling the rupee supply to the whole sellers. Agricultural officials say that another reason a complete ban is not practical is that demand for essential vegetables like onion and others cannot be fulfilled from production inside the country. In light of this, the plan by the Department to hire FCB to control prices of vegetables that are produced in limited quantities is still on the table If the plan goes ahead, the agriculture ministry and can appoint FCB as the focal dealer. After this a certain amount of money for the import of vegetables at more rational prices can be asked by the ministry and concerned departments from Royal Monetary Authority.

 FCB says it can be done

A few years ago, FCB was engaged as the wholesaler for vegetables. After a few imports, other whole-sellers strongly opposed it stating that FCB is a government-owned company. “One of the organizational roles of FCB is price stabilization and we are ready to take up any agrihorti marketing benefitting the social cause with some agreement,” said the Chief Executive Officer of FCB, Karma Nidup.

He said that FCB can also deal in import substitution and sourcing but for this DAMC’s assistance would be needed to form farmers groups.

He said that this make it easier for FCB to enter into this business.

“We can facilitate the supply at a more competitive price,” he added.

A wholesaler at the CFM, Tshering Norbu said that if there was absolutely no rupee than the dealership could be given to FCB as briefed by the ministry. He however said that in normal circumstances they should be allowed to do the business. “I doubt how the vegetables would be since I won’t be able to see it with my own eyes till it comes to me.”

Another wholesaler who did not want to be named said, “Even if it is taken over from us, the government will also have to use rupee to make the transaction.”

About Kuenzang Choden

8 comments

  1. Engaging FCB as the wholesaler to reduce price in the market is a good idea but I doubt how practice it can be on the ground. Going by my past experiences, I don’t see any price differences in grocery products that are available in shops labelled FCB and other private shops. so I am afraid that when it reaches to the end consumers there wont be any changes in the prices whether it is run by FCB or distributed by so called vegetarian mafias.

  2. it is in the nature of people to create cartels. with the creation of ‘associations’ in every sector, the number of cartels is actually growing. It is easy to fix prices, control them and make bigger profits. the ONLY way to fight cartels is to have a law against price fixing. We don’t have that yet. So it is not illegal for the cartels to form. Having a govt corporation like the FCB do the things of the private sector is inherently flawed, as they are themselves not at all competitive carrying the government mentality of doing things. 

    The other thing the government can do to attack the cartels is to make sure that the licensing regime is not overly burdensome that new players find it hard to enter the market. these things only support the players already there.

  3. I would just like to give a simple example here.
    Just two days back I cam from Gomtu and on my way i decided to but some vegetables from Birpara, Indian town.
    Find the difference…
    The cost of potato big size was Rs 8. Onion- Rs. 8-10, tomato  Rs 8-10, bitter gourd Rs 25 etc
    Now if you compare the price in Thimphu CFM, potato big size was Rs 18-20. Onion- Rs. 20-25, tomato  Rs 30, bitter gourd Rs 60 etc

    The vegetable vendor in Birpara is not a wholesale dealer. Imagine if you are buying from falakata… and the difference that would make…
    like I said, Bhutanese people has mentality problem. We want to become rich in short time… 

  4. DAMC knows that there is no price regulation..so put in place a mechanism to regulate prices rather than involving FCB. FCB is a government organisation whereas vegetable vendors earn their living through importing and selling vegetables. Vendors are also entrepreneurs and the future of Bhutan’s economy depends on entrepreneur, no matter small or big. 

  5. Yet we say inflation is imported from India!!!!!

    • still then the prices of vegetables imported from India are cheaper then our local ones, its the local vegetables which makes the imported expensive..

      • yes if you don’t count the 10% interest we are paying to the state bank of india for the rupees borrowed to sustain this import.

  6. FCB’s involvement in vegetable trading will regulate prices as people can always compare prices between those cartels who are making 100 to 216 % profit and FCB. No matter how inefficient FCB is, costs will never be that high. The media, esp The Bhutanese and DAMC can monitor strictly to make sure that inefficiency is kept to a minimum. Given the spotlight this issue is under, only the most brazen and stupid would dare to make side profits from this trading or be careless in the performance of duties as EVERYONE WILL BE WATCHING.
    The rupee crunch has opened our eyes.

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