The previous government caused inflation, but blamed the poultry industry

For the past few years, Bangladeshi consumers have suffered terribly due to price inflation. Ministers and various MPs of the previous government blamed “syndicates” for increasing food prices, especially of chicken and eggs. The Bangladesh Competition Commission subsequently ordered several large poultry companies to pay fines (including my company, Kazi Farms), although these Competition Commission orders were stayed by the High Court. This sequence of events ultimately led to the Department of Agricultural Marketing dictating ceiling prices for eggs and chicken. In any industry, ceiling prices tend to discourage further investment and may become counter-productive: without plentiful investment and expansion of production and supply, prices tend to remain high.

Absent from the above events was a real economic analysis of why the inflation occurred. Yet inflation is an economic phenomenon with economic causes, and it’s worth looking at these.

The first possible cause of price rises is a shortage. Whenever there’s a shortage of any good, consumers who want it bid up the market price. Economists call such inflationary shortages ‘supply shocks’. The outbreak of the Ukraine war at the start of 2022 caused a massive international shortage of both grain and fuel, as export of these from Russia and Ukraine were disrupted. In Bangladesh, this translated to higher maize and soybean prices, which are the main imported ingredients for fish, poultry and cattle feed; so the price of fish, chicken, eggs, beef and milk all went up within the year. Thus there was an element of ‘supply shock’ inflation in 2022 which was obviously not the result of syndicates, but of the Ukraine war.

The second possible cause of inflation is more technical; all prices rise when too much money is printed by the government. Money is exchanged for goods; so when there’s excess money, the value of money goes down, and the prices of goods increase. For example, if the money circulation in Bangladesh suddenly increases by 50 per cent, the price of an egg worth Tk 8 could also be expected to rise by 50 per cent (or Tk 4) to Tk 12. This is monetary inflation, and it’s also not caused by syndicates, but by economic mismanagement. Monetary inflation happens when a government spends more than what it receives in taxes, and unwisely fills the gap (technically called the budget deficit) by irresponsibly printing money.

Official data provides evidence that the previous government indeed printed money irresponsibly. The Statistics Department of Bangladesh Bank regularly publishes “Monthly Economic Trends.” The October 2024 issue of the publication showed that “Currency in circulation” was Tk 208,094.1 crore as of June 2020, which increased to Tk 311,947.8 crore in June 2023, recording an increase of 50 per cent in three years only. So, as per our earlier example, we may indeed expect that the price of an egg which was Tk 8 may rise closer to Tk 12. In fact, this is more or less what happened. Prices of many other commodities including rice and vegetables also went up over the last few years. This widespread price rise across many sectors is further evidence that the cause was monetary inflation. Effectively, price rise caused by printing excess money made Bangladesh poorer.

Why would the previous government cause inflation and make everyone poorer by printing too much money? Thanks to media reports of the massive bank frauds which occurred during the last several years, the answer is obvious: this money was needed to prop up banks which would have otherwise failed under the weight of bad loans taken out by party henchmen.

Once a government has made disastrous decisions like allowing banks to be looted, and then decides to print money to bail out those weakened banks, politicians are not likely to tell the truth about how they have made a mess of the economy. It’s more likely that they will try to find a scapegoat to blame for rising prices. Unfortunately for the poultry industry, government ministers found it to be an easy target, as eggs and chickens are the cheapest animal proteins and thus most frequently consumed by working and middle classes. The Competition Commission was happy to follow their lead and file baseless cases against the poultry industry. The result is that an anti-business environment has been created in the poultry sector.

The question is how this mess will be fixed. Economic theory dictates that inflation has to be fixed by raising bank interest rates, which fortunately the interim government has already done. Printing money to prop up sick banks also has to stop. To restore a pro-business environment in the poultry sector, the unjustified Competition Commission cases should be dropped. The ceiling prices imposed by the Agricultural Marketing Department should also be increased, or preferably removed, to accelerate further investment in poultry. Increased investment in, and production of, chicken and eggs will also enhance the supply of these items. This will ultimately lower prices through the economic rules of supply and demand, which always work more effectively and efficiently than government intervention.

Kazi Zeeshan Hasan is Director, Kazi Farms. [email protected]