Notes on municipality sales to regulate food prices

I’d like to take a colder approach to an escalating discussion over the last few days. Why does the government seek for a solution? Will it possible to bring a permanent impact? Let’s take a look at it together.

I’ve tried to explain to media members, who have been calling me for the past few days, about the fact that the government has two different methods to intervene in markets:

  • Supply-side policies
  • Demand-side policies

As this incident interestingly coincides with the content of PhD classes I teach, I had the chance to explain to my students how current developments find their own levels in theory.

Supply-side policies are designed to increase labour and capital volume and ultimately to achieve economic growth while simultaneously trying to keep inflation under control. “Any achievements?” you might ask. Although everything seems to be fine in the short run, things get complicate sooner rather than later, in the long run. I think I would not be wrong in saying that Turkey is a great example of this occurrence.

Demand-side policies, on the other hand, are designed to control fluctuations through intervention in supply. In the event of recession, demand is encouraged; if markets are hot, then the government tries to decrease demand. The success rate of this policy, however, is disputable, because there is no “impeccable solution” to prevent economy-heating outcomes of anti-recession measures or recession arising from actions to cool down the overheated economy.

The policies I’ve mentioned above are sustained by monetary and financial policies. Monetary and financial policies, on the other hand, are sustained in an orthodox manner, i.e. only through money supply, taxes and public expenditures, or in a heterodox manner, i.e. with a complex set of multiple instrument polices. However, as I’ve mentioned earlier, the likelihood of success of policies implemented in an unbalanced economy is always open to question or debate.

Accordingly, enough period of time is required to fulfil the real meaning of “balance”. Apparently, economy administration has been implementing demand-side policies using heterodox methods so far, and they’ve been trying to solve resulting side effects again with heterodox methods and demand-oriented approaches.

“Intervene in supply not in demand…”

Direct interventions in end-product prices would definitely bring partially positive effects on inflation and cost of living. However, there are other measures to bring the food inflation under control, in particular. Here are some examples:

  • Economies of scale in agriculture can be achieved, costs would fall down and efficiency would be increased if the law on the consolidation of inherited agricultural lands that are divided among family members passes the parliament
  • Government should take firm actions to fight back against cartels, monopolies and oligopolies that are disruptive to agricultural markets and prices. Municipality’s food sales to regulate food prices seem incapable of creating a permanent solution. Direct measures should be taken to fight this issue.
  • It’s hard to say that TurkStat has accurate statistics on agriculture. I can easily say that scientific research and studies conducted in relation to Supply/Demand balance are not based on reliable data. TurkStat must absolutely release official and reliable statistics on all Turkish sectors.
  • Agricultural land owners in Turkey mostly make money through land renting, they are not really interested in agricultural activities. Standing out as a frequent occurrence especially for Olive, Hazelnut and other products brings a lot of problems, including informal economy, in particular. As agricultural lands are not owned by people who really want to carry out farming activities, a type of market dominated by intermediaries where organised agriculture is getting weaker arises a negative outcome.

In my opinion, it won’t be really possible to find effective ways to solve these problems until March 31. Therefore, I guess that the government will continue to directly intervene in demand and prices.

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