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28 July 2014

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During the bootlegging era in the states when the government was trying to clamp down on boozing, characters like Capone reign supreme by taking advantage of the black market price which they were able to set exorbitant price by controlling the supply chain.

It seems there are already signs of such characters on the rise in Port Moresby.

There are fundamentally two important things that we need to draw from that bootlegging experience when we are talking about the ban on the betelnut in the city.

Firstly, betel nut like alcohol is an addictive substance where people easily get obsessed with its tastes but find it difficult to break the habit when trying to quit.

In economics, the demand elasticity of an addictive is thought to be perfectly inelastic or highly inelastic. This simply means that an incremental change in price (measured in %) whether big or small does little or nothing to the demand (measured in quantity).

Subsequently, this gives rise to the possibility of a monopoly developing. In the case of the betelnut ban its a combination of monopoly and a monopolistic market especially now that Askopina is going to control the supply aspect of the betel nut trade. In this situation you will have so many producers producing and selling a homogeneous product (buai) that they will quickly lose their natural "bargaining ability" subsequently, they end up becoming mere "price takers".

It will then be interesting what kind of price regime/mechanism Askopina comes up with. So on the supply side of Buai it is a clear monopolistic market with no real "price bargaining" from the producers.

On the demand side of things there is "real monopoly" as those proposed cottages numbering up to 5000 will be buying the de-husked and packaged buai from Askopina.

Askopina effectively becomes the "price maker" setting price for the producers and the sellers. if Askopina increase its price sellers will react accordingly.

Now it gets interesting when it comes to the licensing and permitting side of the cottages. Given buai is inelastic and therefore, a "gold mine", there is likely possibility of bribes or kick backs taking place as corrupt officials if poorly monitored start to issue licenses to bidders based on the "the highest bidders takes it all" principle.

It's a race to "wonkerland" as everyone bids for that license. In terms of those cottages who made it into NCDC's database it should interesting to find how diverse the vendors are.

I will not be surprise if its dominated by a particular ethnic group or a particular individual. Manning the Laloki Bridge is already found to be problematic and the similar story could be told with NCDC when it comes to the licensing aspects of the cottages.

There is no guarantee when huge sum of money is involved. This is truly a test of character for the commission. We all know in this situation how its going to turn out.

Secondly, the bootlegging experience has taught us that ban as a policy has never worked in dealing with an addictive substance. When old habit die hard there is money to be made.

There is a real danger that "blackmarkets" will prop up. Black Markets will become Askopina's biggest threat. This is especially real given Askopina will sell de-husked and packaged betelnut, something that not a lot of chewers are quite familiar with except those who frequent or have lived in places such as Cairns for a while.

They are minority in PNG and their experiences could provide us an insight into how this venture is going to work.

If there is a leak (meaning that people are still able to smuggle betelnut) demand will shift to these "black markets" given they will surely be selling husked and unpackaged betelnut.

This will affect Askopina's revenue generated through the de-husking and packaging of betelnut. When that happens the cottage industry will most likely trigger a collapse in the cottage industry.

Askopina will also need to be careful that the price it sets for the producers is enough to discourage them from supplying to buai to black markets.

To prevent this from happening NCDC will have to make sure that it is on its toes to prevent any major leakages from happening. This means of course that the commission will need to step up in its fight, i.e. increase budget as well. A costly exercise indeed. Over to you.

Jimmy Awagl, the PNG buai trade was about equity, participation and supply chains across the length and breadth of PNG. All of it was perfectly legal, until buai was banned.

Do you think the producers really benefit from the ban? Is there any evidence of producer gains, or are the illegal supply chains and retailers gaining the most?

The buai ban creates an influx of money for one end of the market.

The producers can draw more cash from the few eligible consumers.

Don't you realise that you are doubling the cost. A ban on any item means the selling price increases.

The poor street sellers even if they are not selling buai have been chased, trampled on and sometimes also fired upon.

You would think in a country with elites stealing millions and getting away with it that this represents a great irony and one of the paradoxes of the times.

Like some of you have said, the poor and powerless get smashed all the time.

Kops, you have highlighted a culture that is fast eroding and weakening values in our bureaucratic and institutional systems.

The people who are supposed to assist Parkop in policing the betel nut ban are throwing out the window their self worth and bureaucratic and institutional codes of ethics and conduct they swear to uphold to pursue own gain using their position and privileges such as official vehicles. A sad reality.

The elite win again.

That was all part of the plan, wasn't it?

Well done Parkop, keep going.

What do people think of this new deal Parkop has signed with Askopina Ltd to sell betelnut de-husked and in plastic packaging?

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