The Tribune

• Targeted only at ‘most vulnerable’ food stamp users

• Slimmed down price control list another alternative

• Industry ‘shares’ PM belief on price controls’ end

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Bahamian food retailers have proposed a joint venture with the Ministry of Social Services where they will provide a 10 per cent ‘free’ food top-up targeted at “the most vulnerable among our Bahamian brothers and sisters”.

The Retail Grocers Association, which represents 130 food merchants across The Bahamas, proposed the “temporary public-private partnership” focused solely on consumers using government food stamps as their alternative to the major expansion of the price control regime that is set to take effect on November 1.

The Association, in a letter sent to the Prime Minister on Wednesday, October 26, argued that this was “the most equitable way of ensuring relief literally gets into the hands of those who need it most” as extending the price control regime to 38 product categories will also benefit rich consumers who do not need the break.

The social services joint venture would last for between four to six months, the group told Philip Davis KC, which is the same duration as the Government has initially proposed for its price control expansion. The way the scheme would work is, if a consumer spends $100 worth of government food stamps, then the merchant will provide them with a 10 percent top-up on this amount - the equivalent of $10 worth of food. If the spend is $50, the top-up would be $5.

While that is its preferred option, the Association sought to give the Davis administration further alternatives. These include a drastically slimmed-down price control expansion to just 20 items, as opposed to the Government’s 38 categories, with higher mark-ups for Family Island retailers and perishable products which have a shorter shelf-life and go bad much quicker.

Philip Beneby, the Association’s president, urged the Government to also eliminate VAT on “breadbasket” food products regardless of which option it selected. His letter also indicated that Mr Davis informed both retailers and wholesalers, who attended the meeting at his office a week ago Monday, that it was “never the intent” to expand price controls to product categories as opposed to line items.

The sector fears the Government’s initial proposal could expand price controls to more than 5,000 items if implemented as is. However, Mr Beneby told Mr Davis that the Association and its members “share your belief” that it is now time to eliminate all price controls and “urgently” replace them with enhanced consumer protection laws.

“As you directed and advised, we have conducted an exhaustive and extensive canvassing of our more than 130 national members throughout New Providence and the Family Islands,” Mr Beneby told the Prime Minister, “and with the help of professional advice we have concluded that our proposal herein would grant relief to the most vulnerable and not result in the demise of the retail grocery business.

“In this regard, we would like to recommend the following for your review and further consideration. It is our primary position that we enter a temporary public-private partnership (PPP) with the Government through the implementation of a food assistance programme for the most vulnerable among our Bahamian brothers and sisters in partnership with the Ministry of Social Services.

“It is our offer that the Retail Grocers Association will partner with the Ministry of Social Services towards the addition of a 10 percent value on all food stamps/vouchers issued by the Ministry of Social Services. It is agreed among our members that this partnership will last four to six months and it will be honoured nationwide.”

Mr Beneby added that “it is clear that this method is the most equitable way of ensuring that relief literally gets into the hands of those who need it most”, and would not benefit high income earners who do not need relief. Should the Government not go for this, he and the Association proposed other options for reaching a compromise where the Government’s desire to tackle the cost of living crisis does not cause food store closures and job losses.

“We suggest the following as an alternative,” the Association president wrote. “We have attached a list of 20 items which have been largely taken from the categories which you initially advanced. This list has been compiled with not only the most vulnerable consumers in mind but also with the most vulnerable among our members in mind...

“Items have been considered to balance the needs of providing relief to the most vulnerable with the viability of the merchants, while ensuring there is no unintended consequences of lowering the costs of business for restaurants and hotels.”

The merchants’ expanded price control list includes chicken, turkey, bread, eggs, baby cereal, baby food, baby formula, broths, canned fish, condensed milk, powdered detergent, mustard, soup, soap, fresh milk, peanut butter, ketchup, cream of wheat, potatoes and yellow onions.

As for the price-controlled mark-ups, Mr Beneby said the Association supported 25 percent on all dry grocery items but requested that this be increased to 30 percent for Family Island businesses due to the extra shipping, logistics and overall business costs they endure compared to New Providence.

And, due to “the rising costs of electricity and shrinkage (spoilage), the food retailers called for a 35 percent mark-up in Nassau, and 40 percent in the Family Islands, for perishable goods as opposed to the Government’s originally proposed 25 percent limit.

“The differentiation between the rates suggested for New Providence and the Family Islands takes into consideration the cost of doing business in the Family Islands, which has become more expensive over the years,” Mr Beneby wrote. “Finally, whether option one or two, we wish for you to consider further alleviating the burden on the most vulnerable by placing a zero VAT rate on breadbasket items during the food assistance partnership period.”

The Government is likely to be reluctant to VAT ‘zero rate’ breadbasket foods and medicines, even if temporarily, for several reasons. Besides needing every cent available for the Public Treasury, it likely fears that doing so will be tantamount to an admission it was wrong to impose VAT on these items when it returned to the low-rate, broad-based model earlier this year with the cut to 10 percent - thereby giving the FNM some political ammunition.

Mr Beneby, meanwhile, wrote: “During this process it has come to our attention that successive administrations have been unaware that the items listed in the price control basket are in many instances listed in a manner so as to include entire categories of products rather than single items.

“We therefore wish to take this opportunity to suggest that the entire price control basket is immediately and urgently reviewed so as in all cases to identify ‘items’ rather than ‘categories’, as during our last meeting it became clear that this was never your intent.”

Besides indicating that the Prime Minister had not intended such a major price control expansion, the Association’s letter indicated he also concurred about the need to eliminate price controls. “We wish to confirm that the Retail Grocers Association shares your belief, as expressed at the last meeting, that the time has come to replace all price control regulations with revised consumer protection legislation on an urgent basis,” Mr Beneby wrote

Michael Halkitis, minister of economic affairs, did not return Tribune Business messages before last night seeking to confirm if the Government had received the retailers’ proposal, was reviewing it and what the likely response will be. The Association is set to meet with him and the Prime Minister today in a bid to strike a compromise solution as the Tuesday deadline for the expanded price control regime to take effect looms.

Price controls have always been a controversial instrument among the private sector, especially those companies and businesses impacted by them. They were imposed by the Government decades ago to prevent what it viewed as an unscrupulous merchant class from exploiting lower income Bahamians by unreasonably hiking the price of food staples and other essential products, thus placing them out of reach while undermining living standards.

However, opponents argue they are an anachronism that have no place in a modern 21st century economy. The private sector views price controls as an inefficient, distortionary mechanism that creates more unintended consequences than the supposed problems they solve. They can result in product shortages, while retailers and wholesalers have to increase prices and margins on non-price controlled items to compensate for selling these goods as effective “loss leaders”.

There have been warnings that the latter two effects could be among the consequences if the Government implements its price control regime changes as proposed. Tribune Business was told that food wholesalers, manufacturers and distributors submitted their alternative solutions to the Prime Minister and the Government on Tuesday, voicing much the same sentiments as their retail counterparts.

One source, speaking on condition of anonymity, said of the wholesalers: “They have even less wiggle room. They say they are probably selling 40 percent of their products at a loss due to price controls when all costs are factored in. They are more in a position of resistance. I think they are encouraged that the grocers have found some ways, some means to compromise.”

One wholesale source, speaking on condition of anonymity because they were not authorised to speak publicly, added of the Government’s current position: “What this would mean is that 25 percent of our business is price-controlled if if takes in sandwich meats, all those disposable diapers, sanitary napkins, cornflakes and canned tuna.

“The thing is that you then have to get price control’s permission to change a price. A lot of this stuff has a strict sell-by date and, while you wait for price control to approve a price, it expires. It could have a real knock-on effect on the profits of retailers and wholesalers. 

“It creates possible staff cuts. It’s certainly going to cause some changes here if it goes through because accounts says 27 percent of our business is price controlled. Do you increase your prices on other items to make up for losses on price control, or do you continue carrying them?”

Tribune Business understands that the Retail Grocers Association was still waiting to get feedback from the Government on its offer yesterday afternoon. “I think the position presented to them was quite fair and gives them a lot of outs,” said one member. “The grocers are trying to work with the most vulnerable among us and the grocers are sensitive to those of us in most need. They are committed to a social partnership.”