3 Reasons Not to Control Food Prices in China

What happens when you prevent prices from rising to what they would fetch on the free market?

If you guessed shortages and/or reductions of quality of goods, you’re right on the money. For some goods, I wouldn’t give a damn. But food? In China? Not a good idea. Nonetheless, this is the route the Chinese government has decided to go. From today’s Wall Street Journal:

Under temporary measures announced yesterday, large producers of some food products — including dairy, pork, mutton and eggs — now must seek government approval before increasing prices. Wholesalers and retailers don’t have to seek permission to raise prices, but must notify the government when the gains cross certain thresholds.

Separately, the central bank announced a measure intended to reduce bank lending as part of its continuing monetary tightening, which also is aimed partly at combating inflation.

Funny how central banks and government sometimes try to have it both ways: Even though government (through a central bank) ultimately has full control over inflation of the money supply, they still want to be able to say which prices go up and which don’t.

Why It’s a Bad Idea To Control Food Prices in China

1. Any price ceiling below the natural market price will cause shortages and other distortions in the market (for example, there’s a possibility of hoarding by producers of non-perishable food items that expect the government to allow the price to return to its natural level)
2. China already has its fair share of food quality problems without encouraging wholesale producers to cut corners by limiting the maximum price they can charge. It scares me to think that price ceilings are being added to corrupt / lax regulation.
3. Food producers will also suffer unnecessarily, along with consumers for the other two reasons above.

Okay, okay – China is far from the only country to attempt such price controls. And I’m not really that worried about these regulations – after all, living in China forces you to be careful about anything that you eat.

How about you, though?  Does this worry you?

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1. 1|zach kang says:
   

   Vegetarian…

2. 2|Jeremy says:
   

   Heh… good short term solution =)